Thank you for standing by, and welcome to the AB Fourth Quarter 2015 Earnings Review. At this time, all participants are in a listen-only mode. After the remarks, there will be a question-and-answer session, and I will give you instructions on how to ask questions at that time. As a reminder, this conference is being recorded and will be available for replay for one week. I would now like to turn the conference over to the host for today's call, the Director of Investor Relations for AB, Ms. Andrea Prochniak. Please go ahead.

Thank you, Chris. Hello, and welcome to our fourth quarter 2015 earnings review. This conference call is being webcast and accompanied by a slide presentation that's posted in the Investor Relations section of our website, www.abglobal.com. Peter Kraus, our Chairman and CEO; John Weisenseel, our CFO; and Jim Gingrich, our COO, will present our financial results and take questions after our prepared remarks. Some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. So I'd like to point out the Safe Harbor language on slide one of our presentation. You can also find our Safe Harbor language in the MD&A of our 2015 Form 10-K, which we filed this morning. Under Regulation FD, management may only address questions of a material nature from the investment community in a public forum. So please ask all such questions during this call. We're also live tweeting today's earnings call. You can follow us on Twitter using our handle @AB_insights. Now, I'll turn it over to Peter.

Thanks, Andrea. Good morning, everybody, and thanks for joining the call. By now, you've all heard about the challenges the asset managers faced in 2015, and in particular, the second half. And we were no different. Looking at the firm-wide overview on slide three, you can see the impact of weak client activity, volatile markets, and heightened economic and geopolitical uncertainty had on our results for both the quarter and for the year. Gross sales declined 10% year-on-year for the quarter and 2% for the full year. Net flows were negative for the second consecutive quarter, though we ended the year $3.2 billion net positive. AUM for the full year declined about 1% due to negative market performance of $10 billion, average AUM was up 3% for the year, thanks to a stronger first half. This morning, we released our January AUM numbers, market depreciation drove most of our 2.4% monthly decline. So firm-wide net outflows were negative. By channel, Institutional and Private Client were both net flow positive, Retail was negative. Clearly, a steep decline in industry-wide global high yield retail fund flows here and in Asia, ex-Japan, that dampened our client activity level in last year's second half continues in 2016. Slide four shows our quarterly flow trends as a firm and by channel. Total fourth quarter net outflows were $2.5 billion. Three areas sustained significant net outflows; those were passive and retail high yield, which were each $1.7 billion negative, and the other category where we experienced nearly $500 million in outflows as a result of discontinuing our Retail Strategy Fund Series. Institutional net outflows of $900 million were flat with the prior quarter. Looking at this chart, you can really see the drop-off in client activity in the second half. We sustained $1.8 billion in second…

Thank you, Peter. As always, our remarks today will focus primarily on our adjusted results. You can find our standard GAAP reporting and a reconciliation of GAAP to adjusted results at our presentation's appendix, press release and 10-K. Let's start with the highlights on slide 14. Fourth quarter revenues of $607 million decreased from the same prior-year period. Operating income of $162 million and our margin of 26.7% declined as well. We earned and will distribute to our unit holders $0.50 per unit compared to last year's fourth quarter adjusted EPU of $0.57. Lower base and performance fees were the primary drivers of the decline in our financial results. For the year, revenues increased to $2.524 billion, operating income increased to $619 million and operating margin increased by 30 basis points to 24.5%. Higher base fees and a decline in non-compensation expenses contributed to our improved results. We delve in to these items in more detail on our adjusted income statement on slide 15. Beginning with revenues, fourth quarter net revenues of $607 million were down 7% versus the same period of the prior year. Full year net revenues of $2.524 billion were up 1% from 2014. Fourth quarter base fees decreased 3% as a result of lower average Retail AUM. For the year, base fees increased 2% due primarily to higher average Institutional and Private Wealth AUM. Fourth quarter performance fees were $4 million as compared to $28 million in the same prior-year period. For the year, performance fees declined by 55% to $24 million. While we have several key services with performance fee calculation periods ending in the fourth quarter, many are dependent upon the U.S. equity market, which only returned about 1% in 2015. Bernstein Research services fourth quarter revenues declined 8% from the same prior-year period,…

Please limit your initial questions to two in order to provide all callers an opportunity to ask questions. You are welcome to return to the queue to ask follow-up questions. The first question is from Michael Carrier with Bank of America. Your line is open. Michael Carrier your line is open, please go ahead. We'll move on to the next question from William Katz, Citigroup. Your line is open.

Hi, good morning. This is actually [ph] Justin Tarantin on the line for Bill this morning. Just a couple of questions for you. The first question, just touching on the expense line. Obviously had some comp leverage in 4Q, but just thinking about the environment going forward, are there any other areas of flex that you guys think you can put into place, given the revenue pressure, and just anything that will kind of help support the margin a bit?

This is John. If you look at the non-comp expenses in terms of both G&A, promotion and servicing, we were flat fourth quarter to fourth quarter, year-over-year. And we're actually down for the full year 2015 versus 2014. So, obviously, there's a number of factors in there that can fluctuate based on seasonal patterns from quarter-to-quarter as far as T&E marketing spend. The trade execution expense is directly related to the Bernstein Research revenues. But I think, over the long haul, we're going to continue to remain focused on it. And I want to expect them to be relatively stable going forward.

Okay. Thanks. And then just - same question, just on the Institutional pipeline, just kind of figure out what you guys are kind of seeing there in terms of incremental demand, and then just kind of breaking that demand down, in what areas are you kind of seeing interest from a client base?

Well, it's - I think we feel a little bit more confident than we have in the past that the diversified interest across the product line that we've been reporting for the last 18 months and two years continues to take hold. We talked a little bit about the consultant recommendations. I may not get the number exactly right, but mid-teens number of consultant recommendations and low teens for new services represents a - not just a tick up, but a step-up in the attractiveness of the franchise to the global consultant community. That will play through the institutional marketplace all over the world. I also think that some of the services that we provide today in the credit markets that are not liquid, so the middle market lending services, the mortgage services, both residential and commercial in a very low-yield environment or negative-yield environment for insurance companies and other institutions again are proved to be, and already are proving to be, extremely attractive. So, I think that we will see slow, steady growth in the diversification of mandates coming from the Institutional space. And it will include a greater participation of financial balance sheets than perhaps five years or 10 years ago.

Okay. That's great. Thanks for taking my questions.

The next question is from Robert Lee with KBW. Your line is open. Robert Lee with KBW. Your line is open. Please go ahead. The next question is from Michael Kim with Sandler O'Neill. Your line is open.

Hey, guys. Good morning. First, just wanted to touch on the Rhode Island 529 plan loss. Any insight or color into maybe the drivers behind the change, and how fees may have played into that decision? I guess, the replacement manager indicated the fee rate was sort of in the 35 basis point range. So, any incremental color there would be helpful.

Well, I think the main issue, Michael, is, is that the model that we had worked with Rhode Island on for some 15-plus years was a single provider model, where we were both the manager, as well as the broad servicer. Rhode Island wanted to pursue a different model that split those activities in two, and that was obviously not the model that we had prosecuted with them over time. As I've mentioned, I think when we first talked about this that, of course, we were not happy to not continue in that capacity with them. The go-forward value of that contract in a competitive world was not going to be a significant number for the firm. So, if that gives a sense that it was highly competitive then than that would be an accurate description.

Okay. Fair enough. And then I think, you sort of alluded to this earlier, but any color or data points, as it relates to maybe recapturing some of the Retail fixed income outflows on the equities or alternatives side, both here in the U.S as well as overseas? And then also, somewhat related to that, can you just talk a bit about sort of the recent workforce reductions on the fixed income side as well?

Michael, let me take the first question. I think if you look at the progress of our flows in the active equities, you've seen an improvement sequentially in the second half. That reflects some of the success that we've had, in particular, in the Retail channel with some of our equity strategies. We are hopeful that we will continue to see that progress going forward. And I think, as Peter indicated, the challenge that we have on the fixed income side and Retail is pretty much been confined to our high-yield offerings, both in the U.S. as well as in Asia. Those are at a level that it's very difficult to fathom, continued reduction in growth flows, particularly in Asia, and - again, as Peter indicated, historically, when you have spreads at this level, it's a pretty good opportunity to step into the market. So, our fixed income team is actually very jazzed up about the opportunities that they have in front of them, both in high yield as well as everything else they do. I was in Asia a couple of weeks ago, and the one anecdote that I thought was really interesting was some meetings I had with the Chairmans of some of our distributors, and the omnipresence of our brand in those marketplaces with their clients is actually quite heartening. And when those investors see the attractiveness of the market, we have every reason to believe that they will be returning and provide positive flow. Size and scale of that may not reach 2012 because that seemed a little heady, but we obviously don't need it to be there. On the issue of the fixed income business, so our team has been looking at what they believe the next 10 years looks like in the fixed income markets, and what clients are demanding of us today and what they will demand us in the future. And in doing that, they've spent a fair bit of time thinking through how they should reorganize their resources, which come down to head count and people, the kinds of people they need, what they want people to do and how they want to organize research, how they want to organize the alpha producing part of the business, how they want to organize their thinking around the services that they expect to grow, and how they're trying to organize their services around new products that they want to launch. And as a result of that process, there were some changes in head count, which you noted - I think they were publicly reported by new services, they were actually quite small relative to the total. And the precipitating event for that was the changes in the marketplace, the current changes in the business, but importantly, where we thought the business was going to go in the future.

I would just add that just our fixed income team is continually - and hats off to them, continually looking ahead as to what they think the market environment needs - is going to be, and therefore, what they need to do. If you go back a number of years ago, they were quite, I think, right in recognizing that liquidity was going to be a major challenge in the fixed income markets and took steps a number of years ago in their trading organizations, as well as how they integrated trading into the investment process. And this is, again, I think a positive step in terms of what they're doing and is part of the reason that they perform the way they do.

Okay. That's helpful. Thanks for taking my questions. [Operator Instructions]

The next question is from Michael Carrier with Bank of America. Your line is open.

Hi. Good morning. This is Adam Beatty in for Mike. Thanks for letting us back in the queue. Just wanted to ask about kind of the environment for high yield and credit in particular. It's a bit of an unusual situation to have at least a slightly rising rate environment with some credit concerns kind of in the background. So just wanted to get your thoughts on that, Peter, and how it's maybe affecting flows and investor interest. Thanks.

Sure. Well, I think that what's affecting flows and investor interest are a number of things. Number one, leading up to 2014 or the middle of 2014, the unprecedented amount of liquidity that was created in the fixed income markets by Fed QE activity and other Central Bank activity, and that stopped, as you know, in the middle of 2014. And our fixed income team, most notably the senior portfolio managers, have been quite public about the impact of that on liquidity. And the removal of that liquidity in the marketplace started a process, which we've continued to see, of investors being concerned about liquidity and being concerned about price action, and has led to significant unwinds in that business in the mutual fund space. Secondly, the energy complex with the decline of oil has given rise to concerns - appropriate concerns about either the faults on those securities or challenges in refinancing. And as you know, the portion of the High Yield Index in the United States that's made up of energy has gotten to be significant. I think it's somewhere between 15% or 17%. That also carries with it, concern. As the liquidity issues that we raised over a year and a half ago continued to tighten and become more problematic, other bond issuers who face refinancing challenges become more questionable. How easy is that to do, given that money is coming out of that end market, not going into that market? As you point out that rates are rising, although slowly, that doesn't - it's not unprecedented to have a time in which rates are rising and market conditions or monetary conditions are tightening, and credit is becoming more challenged. In fact, we see that every time you enter into a softer economic time period, whether it's a recession or just a slowdown. So that doesn't surprise us. I think what we find interesting here, which is what we said, is the size and scale of the spread increases, the historical precedent of how those spread increases ultimately reversed, and the opportunity to invest now. Obviously, that's a contrarian point of view. Obviously, the market is nervous. We've seen in the last few days, interesting, if not very volatile, markets in Europe around financial institutions, principally banks, have had an impact even on the U.S markets. There is the Chinese currency question. There are the Chinese markets, the volatility of those markets. All of these things have conspired to turn sentiment to be pretty negative. That's continued to accelerate outflows, continued to move spreads out, and it's continued to make us say, this is a pretty interesting opportunity. So, that's pretty much how we see it. We're not telling you that volatility is going to end tomorrow, but we are saying that given where the markets are today, investing in the near future in the next few months looks like a pretty interesting opportunity.

That makes sense. Thank you for all the color. And then I just want to dig into some of the smaller products. They're doing quite well and I know you are working hard to get those on platforms. Kind of what inning do you think we're in, in terms of getting those products out there and having platform share, if you will, that could drive flows later down the road? Thank you.

Yeah. That's a good question. Look, I think probably the most interesting set of services in the firm right now is the equity services that we relayed to or we call strategic core. There are four of them that we have, four main products, US, Global, International and Emerging. They have absolutely stellar track records. They are new services, they have four and a half - four year kinds of track records. The increase in the consultant interest in the platform that we have that I mentioned and the extraordinarily strong downside capture of those services, and frankly, upside participation of those services in these kinds of markets make them be very attractive. And of course, we don't expect those services to outperform in every market condition. But in the market conditions we've had over the last four years that have included both high beta markets, volatile markets, low beta markets and tough alpha markets, these services have performed. They have produced alpha. They've had low downs - or significant downside capture, meaning positive, i.e. not 100%, significantly less; and pretty close to 100% in some cases, better than 100% upside capture. So, that's an example of something that we're very excited about.

And if I was just to add to that, I mean, that's a great example. That is a suite that is maybe still in the dugout, using your analogy, in terms of being on platforms, let alone having recommendations behind - let alone having consultant recommendations behind it. So, across our entire suite, I think we would characterize it as still very much in the early innings. We're - it's just - we continue to make progress step-by-step. And the performance, as Peter indicated, is a leading indicator of the progress we expect to continue to make.

Yeah. With that performance, I'm sure it'll be at least on deck soon. Thanks very much for taking our question.

The next question is from Surinder Thind with Jefferies. Your line is open. And it looks like he has removed himself from the queue, and I am showing no further questions at this time.

Thanks, Chris. We'll finish the conference call now then. Feel free to contact Investor Relations with any follow-up you may have today. Thanks and have a great day.