Good day, everybody, and welcome to the TD Ameritrade third quarter fiscal 2006 earnings results conference call. Today's call is being recorded. At this time I'd like to turn the call over to Katrina Becker. Please go ahead.

Thank you and good morning, everyone. By now you've probably seen our press release that was made public this morning. You can also review a copy of our release, listen to the call, and submit any questions to us via our corporate web site at AMTD.com. We will be discussing a number of financial measures in this call, so in order to more easily follow along with us, we strongly encourage participants to download and print the presentation for this call, located also on the home page of AMTD.com. If you want to contact us directly after the conference call, please call investor relations at 800-237-8692. Before we begin, I would like to note that this call contains forward-looking statements that are made pursuant to the Safe Harbor provisions. These statements involve risks, uncertainties and assumptions that may cause actual results to differ materially from those anticipated. Listeners to the call are advised to review the risk factors contained in our most recent annual report on Form 10-K and quarterly report on Form 10-Q for a description of these risks, uncertainties and assumptions related to the forward-looking statements. In this call, TD Ameritrade management will discuss some non-GAAP financial measures, specifically: operating margins, EBITDA, and non-GAAP EPS and liquid assets. Listeners to the call can find a reconciliation of these financial measures to the most comparable GAAP financial measures and other required disclosures in the slide presentation, which can also be found, again, on our website at AMTD.com. Please note that this call is intended for investors and analysts and may not be reproduced in the media in whole or in part without prior consent of TD Ameritrade. This call will cover June quarter earnings results for TD Ameritrade Holding Corporation. This call also marks the first complete quarter of combined results since the close of the TD Ameritrade transaction. At this time, I'll turn the call over to TD Ameritrade's CEO, Joe Moglia, who will be followed by TD Ameritrade’s CFO and CAO, Randy MacDonald.

Thank you very much, Katrina. Good morning, everybody. This morning we are going to go over our highlights for June. We’ll talk a little bit about our growth strategy; specifically, where we also stand with regard to the launch of our value propositions and our brand and ad effectiveness so far; and then we'll talk about guidance for the September quarter, the rest of '06, and for '07. We have a slide for you that talks about June quarter 2006. All of these numbers for us, every one of them is a record. Our EPS for the quarter, despite a soft June, came in at $0.23. That was a tie, actually, for the September quarter 2005. Non-GAAP EPS -- which is basically our EPS that excludes the amortization of the intangible, as well as the interest on our loans -- came in at $0.27. Our net income came in at $140 million, and a comment about that. With our numbers, our net income comes close to approximating our free cash. If you annualize that $140 million number, you're well over $500 million of something that resembles our free cash flow. Clearly, there are a number of things we can do with that. Net revenues came in at $540 million, but our revenues generated from our assets have come in at 59%. Now, as we become more recognized for becoming an asset gatherer in the marketplace, I believe that ultimately, over time, that will also have a positive impact on our multiple. Our pre-tax income came in at $233 million, or 43%. That's still ahead of schedule as far as the integration goes, and we are still committed to being back over 50% free cash margins during 2007. EBITDA, $287 million or 53%. ROE for the quarter, if you annualize it,…

Thanks, Joe. Let's go to the financial highlight slide and just review again the quarter. We had record EPS, $0.23; that compares to $0.18 for the same quarter last year. So that was a 28% growth in earnings. We also had record revenues, as Joe mentioned, over $500 million of revenues. The mix was a record. The asset base revenues were 59%. So we believe we're delivering on our strategy for diversifying our revenue stream and, as Joe mentioned, we think that may lead to a higher PE. Let's now go to the guidance and take a look at what we're doing. We're increasing our guidance; we are going from $1.06 to $1.10. I want to remind everyone that next quarter is the end of our fiscal year, so that would be our normal cycle for putting out next year's guidance, so we wouldn't normally do that until the next earnings call. At that time we'll be reviewing the outlook for updates and color. In the meantime, we are only updating the guidance for the known events and there were three. We had the two Fed increases in May and June which had not yet been built in to our guidance, that's resulting in a $0.04 lift in earnings per share coming from the higher spreads. We've also extended $8 billion of client cash in the FDAC or MMDA accounts to an average duration of two years. This translates to an average of $6.4 billion versus the guidance we gave of $5.7 billion. We still have another $6 billion to extend, but first we need to get that swept from the broker to the bank, and I expect that will take place in the next few months. Lastly, we're enhancing the value proposition for clients with higher balances. Let me…

(Operator Instructions) Our first question comes from Patrick Pinschmidt - Merrill Lynch.

Thanks guys, good morning. A quick question on account growth. Total accounts were up, qualified accounts were down. I understand the function of the market decline on the average balance for the typical account, but can you maybe help us understand any mix shift you're seeing as a result of your value proposition? Are your accounts becoming weighted towards the lower end because you're retaining more of those? How has the growth been at the higher end in the retention of the TD Waterhouse accounts?

So far, Pat, the type of growth we've seen has been fairly broad-based, it has been across the board. The retention so far, as far as the Waterhouse accounts, has been fine. As I said, it's still 66 days, it’s still relatively early, and we'll continue to track that. But I don't find any significant mix of shift there between what we see with regard to what we are opening and what we are, in effect, retaining. I don’t see anything specific there.

Okay. That's helpful. And then on ad spending, obviously the last two months have been kind of tough, and you've actually taken up your ad spending guidance for '07. How sensitive are your spending forecasts there to the market backdrop? If we were to see a continuation here in some of the weakness, would you take that down? Or if conditions got better, would you actually even take it up?

Pat, we would look at serious ad spend every couple of weeks. Both of what you said would be true. If our ads are being particularly effective, we are opening a lot of accounts, it's a reasonable CPA, we would grow that ad spend. If the reverse were true, i.e. a debacle over the summer months, stuff going on in the Middle East, problems with North Korea, energy prices, et cetera, et cetera, if indeed the typical individual investor moved to the sideline and we saw our ad spend wasn't being effective, we'd dial it back.

Thank you very much.

Thanks, Pat.

Our next question comes from Richard Herr - KBW.

Good morning.

Good morning, Rich.

To start off, any kind of color you can give us on how July's been trending?

Well, activity for July is similar to what we saw as far as June goes, and its about 204,000 trades a day so far. I think it's fair to assume that as the markets come under more significant pressure, the retail investor might become a little bit more nervous, and might tend to move more towards cash. In fact, that's pretty much what we've seen; a movement over the span of the last several weeks on the part of our clients to greater investment products in the front end of the curve. They have a significant weighting, actually, in the energy sector as far as the stock holdings go. Pretty much what you see going on in the market, is what you should assume is taking place with the retail investor.

That is helpful. On the qualified accounts, just to follow-up on that again, is this in any way related to, or lack thereof of, growth in the qualified accounts? Is this in any way related to your decision to give more of the yield to your clients rather than letting that drop to your net interest margin?

No, I wouldn't think so. I would think in fact maybe the opposite would happen as far as that goes. I think the downward movement that we had in our qualified accounts is almost totally correlated with the downward movement that we've seen in the actual indices. The S&P down 2%, the NASDAQ down 7%, I think is the dominant reason for that.

Thanks for being so clear on the integration and on the data centers. Can you just walk us through, are you still committed to, I know you said March end quarter clearing integration, I think you had said in the past January. Is that still a reasonable target to keep in mind in terms of modeling, or should we dial that back a bit?

No, it is a reasonable target to keep in mind as far as your models go. You should not necessarily dial it back, but I want everybody to understand -- and this gets back to this philosophy in '06/'07 to benefit us, so we're stronger in '08. The number one priority for us is going to be the client experience. If anybody -- this call is not going to be made by me, there are probably 30, 40, 50 people in our organization that could turn around the week before the clearing conversion takes place and say, you know what? I think because we have quotes A, B, C over here, it may not be a smooth as transition as we'd like it to be for our clients; we should hold off. I will then say, let’s hold off. So the number one priority is still what we are going to look like coming out of '07 and going into '08. If that meant moving the current conversion back a little bit, we will not hesitate to do that. Having said all that, Rich, we are still on track to have the clearing conversion done by the March quarter.

Thanks. Congrats on a good quarter.

Thanks a lot, Rich.

Our next question comes from Rich Repetto - Sandler O’Neill & Partners.

Hi, guys, can you hear me?

Good morning, Rich. I can hear you. We can hear you. Everybody can hear you.

Well, let me ask a question then. The average commission, I didn't get the explanation that Randy said on moving legacy over to Ameritrade. I would just follow up on the average commission explanation.

Nobody heard that, Rich. Would you repeat that? Just kidding.

Rich, if the numerator of the equation is revenues, denominator being trades per day, included in the numerator is the capital markets business. So as we've moved those revenues down, we’ve shifted the order flow over to the Ameritrade legacy order flow. We get payment for overflow, we're no longer acting on a principal basis and being an intermediary there, so that revenue goes down. The expenses -- the capital markets business, as a net business, is not as profitable to us as being an agent only and getting payment for order flow. So you have the revenues for the capital market businesses up top and the expenses are down in expenses, so you're not seeing the net economics there. Does that make sense?

Roughly.

Well, so let's try it again. So if the capital markets revenues were included before and now they're going down, they're shrinking, then your commission per trade is going to go down.

Okay. The expenses go down, are being reduced in the expense categories?

That's correct.

Okay. On the comp going down in this quarter, because you're accruing less, but I see in the next quarter it goes right back up. I guess this is just a year-to-date accrual. The comp goes back up; the guidance roughly $13 million to $14 million, I think, in the summer quarter here.

That's correct, Rich. So what you're doing is reversing the first two quarters that you accrued that were higher than they should have been. Our comp targets are higher, we are not meeting them, so we're reversing the first two quarters of bonus accruals. You're absolutely right.

When I look at '07 comp, it's not up materially, but up slightly as far as the overall numbers. Was that just refining the numbers?

No, what happens, we have cost of living adjustments and as the two firms have come together, we have to harmonize benefit plans and things. So there's constant refinement, yes. But there's also just increases to salaries and benefits.

My last question, when I dug through this guidance, the next year you can see how you're bringing up the rates on margin lending, on the segregated, the cash because you have factored in, it roughly looks like 50-basis point increases. You are following through on the 50-basis point increase, the two Fed rate hikes we saw in this past quarter. But I also see that on the client cash, what you are paying on clients, you are bringing up about 47 basis points as well. That hadn't been the case in the past on a Fed hike, you might share only 10 basis points with actual cash sitting in the client account. I am just trying to understand that a little bit more.

Rich, as we get more involved with the long-term investor segment, there are going to be more people that have greater interest in having a specific yield or a greater yield on their overall cash balances. So consequently, as we move forward, we are making an assumption that we are going to share much more of a Fed increase with our clients that perhaps we had in the past. As has always been our standard operating procedure, we would rather err on the side of factoring that in and then adjusting if it doesn't happen rather than doing that the other way around.

Tutto grazie. Ciao.

Prego, prego. Ciao.

Our next question comes from Howard Chen – CSFB,

Good morning, Joe. Good morning, Randy.

Good morning.

Joe, you began the call talking about the free cash flow generation of the Company and your options with flowing that. Can you update us a bit on your current thoughts and prioritizing delevering the balance sheet, stock buyback, acquisitions, or internal investment?

Right. I think, certainly with the level that the stocks are at now, we would feel that the stock is certainly an attractive purchase here. There are some qualifications that are associated with that with regard to the loan agreements, or the covenant agreements that we have on our loans. These are all of the different things, Howard, that we will be looking at. These are things, frankly, that we're going to be discussing at our next board meeting in August.

But just mechanically on the stock buyback, with the TD ownership and the cap that they are under, is there a way that you could buy back stock on the market outside of that $5 million to $6 million that the Company is committed to buying back?

The answer is absolutely yes. Keep in mind while there's a cap on TD's ownership, TD's as part of the board is also very much behind us doing the right thing to TD Ameritrade. So if at the end of the day it's the right thing for TD Ameritrade to be buying back stock, we would buy back stock; and if TD needed to sell stock to offset that, they would do that.

Okay, that's helpful.

So you should always assume that the number one priority for our management team and for our board is to do what we believe is in the best long-term interest of our TD Ameritrade shareholders.

Randy, switching gears a bit, on the professional services fees you touched on it briefly in your comments, but I thought I heard you say last quarter you’d be hiring some consultants and we would see somewhat of a one-time pop-up in the professional service fees. Did you find a cheaper way to do that, or was some of that investment pushed off due to the market environment or canceled altogether?

It wasn't really canceled altogether, it was a combination of more full-time people in technology rather than the contractors. The second thing is, there are only so many people you can get around the hood of a car to work on the engine, so we cut back on the number of contractors. Doesn't really impact us in terms of the efficiency of the work getting done, though.

Okay. On that EPS sensitivity to Fed actions, does that work both ways? Meaning, since you've extended some of the duration and locked in the rates, does that mean you're protected if the Fed begins lowering rates?

That's correct, that's what we're trying to do by matching the durations of the assets and the liabilities. So regardless of whether rates are going up or down – now shifts in yield curve may be a different answer. We've talked about that in the past, but I agree with your statement.

Okay. Final one, any changes in the equity options activity mix this quarter? Did that have anything to do with the lower commission per trade, or is it purely due to this cap markets business contribution coming out?

There was. It was so minor that I didn't bother to include it in my comments.

So, to Joe's point, de minimus impact on the average commission per trade?

Yes.

Great, thanks, guys.

Thanks, Howard.

Our next question comes from Matt Snowling - Friedman, Billings, Ramsey.

Good morning.

Hi, Matt.

Hi, Joe. One question. I know it's fairly early into the value proposition, but I'm wondering if you can give us a sense of how the branches are performing now verses pre-merger. Has Amerivest had enough time to really take hold, is really the question?

I think Amerivest still has not had enough time to take hold. Keep in mind, there are a couple of things going on as far as the branches go, Matt. First we went from 140 to 100, so that incremental overflow from the branches that we closed down went to those branches. Then we are also at the point where legacy Ameritrade clients will now also have access to those branches. So those are the types of things that are going on, and we still haven't gotten anywhere near where I'd like to be at with regard to the sales force distributing Amerivest for us.

So the thing that we've not done so far is assign the Ameritrade customers to a branch. That's not yet happened, so it couldn't have traction; that's about to happen.

That's about to happen?

Yes.

2006?

Yes.

Great, thanks.

Our next question comes from Prashant Bhatia - Citigroup.

Hi. On the MMDA rate earned that you show in the guidance, I think it's about 350 to 360 basis points. We come up with about 80 to 100 basis points higher making the assumption that you earn about 560 basis points on the cash that you invest. You pay the client about 1%, which is your free credit rate, and then you pay TD 20 basis points or so on management fee. You can come up with roughly 80 basis points higher, maybe 100 basis points higher. Is that the right way to look at it?

Yes, I think that’s probably the math. We've gone through that with you before. I think that hasn't changed, Prashant.

So that's probably just a little consecutive, the 350 to 360 basis points?

I wouldn't characterize it as conservative, I think what we're showing you is what's really going on. We're not taking high risk. The investments are not high risk.

No, I understand that, I'm just saying taking no risk. If you look at a two-year swap curve, you're earning probably 560 basis points today and you're paying the customer about a percentage point.

We're paying actually a little bit higher than that to the client.

Okay a little bit higher, a few basis points higher. I'm just using free credit as a base case, and I guess you pay TD about 20 basis points. I come up with about a 440 basis point net spread verses the 350 to 360 basis points that you're showing.

The difference between what we are earning and the 20 basis point fee that we pay to TD Bank are going to decline.

Okay.

We can go through that in more detail if you want, that's the math.

Prashant, I'm going to ask if Bill gives you a buzz on that, you know, subsequent to the call later on today. I think your numbers versus our numbers, we're just paying more to the clients than you think we are.

Okay. Fair enough. I know you've set a target for keeping account attrition below 10%. What are you seeing in terms of revenue attrition on the TD side? How is that tracking?

We've seen an improvement across the board on our overall revenue attrition. We're well below the 10% target that we originally established through the integration for the TD Waterhouse clients.

And that 10% target is on accounts?

The 10% cut target is for the Waterhouse accounts. The revenue attrition we don't disclose, but that has also improved.

Okay. Great. Then in the RIA business, have you seen any Ameritrade customers starting to opt over to the RIA platform? Do you have any kind of process in place to help that along?

We have an Advisor Direct Program where Ameritrade clients that are interested or need specific help can get referred to our advisor program. Yes, that's moving along.

Okay, great. Thanks.

Our next question comes from Mike Vinciquerra - Raymond James & Associates.

Thank you, good morning. If I look at the guidance on interest on borrowings, Randy, am I correct in that you're looking to pay down roughly 25% or so of the outstanding debt over the course of fiscal '07? Just looking at the decline from the first quarter of the year to the fourth quarter, it looks like about a 25% decline in interest. I'm just doing a quick, back of the envelope.

You actually have a line in there, average debt outstanding, which is the third to last line of the entire outlook statement. The average goes from $1.6 billion in the December quarter to $1.1 billion in the September ’07 quarter.

Sorry I missed that, I apologize. I have a question on the Canada operation. I just want to make sure I understand. The original guidance was $378 million in cost saves. Can you help us understand how you get to the same number even keeping open an additional facility? Maybe a little more detail on how you get to the same synergy number and what really drove keeping that fourth facility open versus moving it to Fort Worth and Omaha.

What drove keeping that facility open: first of all, it's the extension of a two-year lease, so it is not necessarily forever. Secondly, the number one priority again is the client experience. So we thought it would be more efficient, rather than bringing everyone to Omaha or Fort Worth, get them trained, get staffed up -- we already had people that were solid, legitimate employees that were good client service people, already in place. When we said that we expect to get to -- remember that $378 million number was $328 million in operating costs and $50 million in marketing. In order to get to the $328 million, there may be areas where we increase our expenses. There'll be also other areas where we decrease our expenses. What we are saying is, as of right now we are still absolutely committed to that $328 million number, which when you factor in variable costs et cetera, it's easier to track the $333 million fixed cost number that we're talking about. So we're still committed to that.

Great, thank you. One other thing, just on the branch infrastructure, just curious what kind of flow you guys have seen from legacy Ameritrade clients using the branch office. Are you starting to see a little bit more account openings and greater assets coming in through the branches?

What we've seen is approximately the same type on a percentage basis, the number of accounts that are being open in the branches are comparable to what we're doing away from the branches, in effect on the Internet or the web. The quality of the account opening in those branches is greater. So the amount of assets that they bring in to open their account will or fund it later on is significantly greater than what will take place on the web.

Have you seen much greater flows, though, into the branches just with the combination of the two customer bases at all?

I don't know if I would say we have seen that yet, but remember the Ameritrade legacy clients are just getting access to the branches now.

Thanks very much.

Is that your question, Mike?

Yes, that's essentially it.

That wouldn't have happened yet. Frankly, in an effort to go from 140 to 100 branches and then take on the 3 million clients that legacy Ameritrade had, that would be overwhelming for the branches. So we're staggering that.

Thank you.

Our next question comes from Michael Hecht - Banc of America.

Good morning, guys.

Good morning, Michael.

I wanted to touch a little bit on market share. I know we don't have a lot of your competitors' numbers out yet, but we saw Schwab’s number, it was out during this call and their June numbers, the DART numbers were down about 17% versus you are down 24%. I'm just wondering if there's anything you can say about how you are feeling about your market share, your value proposition. Is it more a function of differences in the kind of customer base or just something else we should attribute that shortfall to?

Well, I think, when we look at the numbers for April and May, we were pleased. The value proposition came out at the end of April. The numbers that we saw in May, I believe we outperformed the rest of the market. The numbers you're talking about now for June, which we haven't seen yet, you're saying versus the Schwab numbers we would have underperformed. So if we outperformed in May and underperformed in June, that's probably more of a neutral there. The bottom line is we want to be able to maintain or grow our market share. So if we don't do that, that's not going to be something we're going to be pleased about. But I think that's still a little too early to say, and I definitely wouldn't take just one month and look at it, I would look at it in aggregate.

No, that's fair. Like I said, we don't have a lot of the data points out yet. I was trying to get at, for June for you guys, your customer base versus Schwab’s may be being more active trader-oriented; or, the fact that you did have some service issues with some of the TD accounts during June where there might have been a day or two and some folks who maybe were trying to trade couldn't trade, could that have had some impact on the numbers?

I think the fact that our client base is more active certainly had an impact on the numbers. I'd say that would be the bulk of it. I’d say what took place with the glitch that we had would also only add to that, but those numbers were not that significant.

I just had one follow-up on the revised outlook statement. Looking at the mutual fund revenue line where you guys did $17.8 million in the June quarter. Then in the September quarter you're sticking to the $13 million, which I think was consistent with what you had previously and flowing that through for the rest of next year. Is that just conservatism? It seems like the balances there continue to grow, it seems like you have the fee rate that you are earning coming down a little bit. I am just trying to get a little more color on how you are thinking about that.

Again, it's tied into the value proposition. I think between Joe and I we've emphasized that we've changed a lot about not just the commission rate, but about interest rate structure. We're now telling you that for Fed increases or decreases, that a lot more of that interest is being shared with customers.

I'm sorry, but isn't this just the mutual funds? I am not talking about the money markets. I am just talking about the funds. Aren't these just the 12 B1 trailers that you're getting on mutual funds?

Yes, but my point is that I think customers are now looking to move their cash into either higher rate instruments, either money market funds or even mutual funds, and so we saw that trend. If you look at the June quarter, those balances went up. That was the big difference towards investable assets this quarter. So I don't know if that's a continuing trend, so we've not really had enough insight to update our outlook. That was one of the other comments I made. Next quarter we're going to come back and look, having more historical results, have that color reflected more in the outlook statement. So we've not made overhauls to our outlook statement for things like that.

Okay. All right.

Michael, I think Randy's point there is really the key for you, that we didn't specifically update that line item.

Okay. Fair enough. All right, thanks guys.

Thanks, Michael.

Our next question comes from Scott Appleby – Deutsche Bank.

Hi guys. Most of my questions have been asked, but I wanted to touch base on your options, percentage of your trades on options. I think, Randy, you had mentioned that it didn't move much?

As a percentage, right.

As a percentage. Can you tell me where it is?

Well, it has historically been about 6% of our trades and about 10% of our revenues.

Is the majority of the activity coming from your individual retail accounts? Or do you get much from the institutional business?

I don't know about that. Larry? It's mostly retail, is the answer.

Okay. That's all I have, thanks.

Thanks, Scott.

(Operator Instructions) Our next question comes from Joan Lappin – Gramercy Capital.

Good morning, gentlemen. Are you fellows more or less firm with your stock sales? Because I think they were not up for the quarter.

Joan, do you mean management sales?

Yes.

We had our earnings call on April 24th. April 26th, 100% of those sales had taken place.

I see, okay. You said earlier you're seeing that the smaller investor is pretty much running for the hills right now, into either energy or cash. How good do you find your base to be as a very reliable reverse indicator? Could you make money selling that information?

You know, I think that that's a pretty good question, except I think the typical retail investor -- and I would not go as far as saying they're running for the hills, they are still buying stocks -- but a number of them have made a move from equities to the front end of the curve, number one. Number two, I think the typical retail investor is a lagging indicator in terms of what's goes on. So as the markets improve, do better, we tend to open up more accounts, do more trades, margin balances go up, et cetera. The reverse would also be true of that. So while we have, I think, pretty good information flow and we should think about different ways where we might be able to sell that. Whether or not you can make money on retail flow is a question mark because they tend to lag the markets, not lead the markets.

I was being a smart aleck, but the question is, could you set up some sort of an index that you could get some channels to carry that would be useful to people?

Well, I think that's a great point. In fact, last month, the TD Ameritrade Independent Investor Survey Index was released on CNBC. We go to our clients on a regular basis and we ask them these sorts of questions; they give us feedback and we are going to actually release the current numbers, I think sometime next week. In fact, I think it's the 27th of the month.

It is good free advertising, that was where I was going with that.

We agree with that.

Thank you.

At this time there are no further questions in the queue. I'll turn the conference back to management for any additional remarks.

Folks, I very much appreciate you taking the time to join us today. We're pleased with what we had with regards to our quarter. We're pleased with what we've seen so far with regard to the response in terms of our value proposition and our brand awareness. We will give you more color as far as '07 goes on the next quarter. Thanks, everybody, and have a great summer.

Thank you for your participation. You may disconnect at this time.