Thank you for standing by and welcome to the AllianceBernstein third quarter 2012 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 replayed for one week. I would now like to turn the conference over to the host for this call, the Director of Investor Relations for AllianceBernstein, Ms. Andrea Prochniak. Please go ahead.

Thank you, (Jay). Hello and welcome to our third quarter 2012 earnings review. As a reminder, this conference call is being webcast and accompanied by a slide presentation that can be found in the investor relations section of our website. Our Chairman and CEO, Peter Kraus, and our CFO, John Weisenseel, will present our financial results today. Our Chief Operating Officer, Jim Gingrich, is with us as well and will participate in the question-and-answer portion of this call. Now I'd like to point out the cautions regarding forward-looking statements on Slide 2 of our presentation. Some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. You can also sign our CRFLS in the MD&A of our 2011 Form 10-K and 2012 Form 10-Q filings. We filed our third quarter 2012 10-Q this afternoon. I'd also like to remind you 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 the call. Now I'll turn it over to Peter.

Thanks, Andrea, and thank you all for joining us for our third quarter earnings call. John, Jim and I are pleased to be here today to review the results with you and to address any questions you have about them. So let's get started with an overview of our results on Slide 3. Our strong sales momentum continued to the third quarter with gross sales of $21 billion, nearly double our sales for the third quarter of 2011 and our highest since the second quarter of 2008. The outflows were about $4 billion, higher than the second quarter but less than one-third of our net outflows from the last year's third quarter. Global equity markets were stronger during the quarter, which translated into stronger investment performance for us. We finished with AUM $419 billion. The $12 billion sequential increase breaks out as $16 billion in investment performance gains, partly offset by $4 billion in net outflows that I just mentioned. Average AUM was flat versus the prior quarter but down about 6% from last year. Moving to Slide 4, you can see our break out of flows by channel. Our already strong year-to-date momentum in retail accelerated in the third quarter. The quarter's gross sales of $15.2 billion were our highest since 2000. Inflows of $5 billion were not only positive for a third straight quarter, they were also our highest since 2000. In institutions, gross sales were down slightly in the quarter. Our increase in gross redemptions and net outflows was largely driven by the $5 billion value equity terminations that we talked with you all about in August. Our PPIP liquidation in the third quarter also represented another $1.8 billion. In private client, we saw higher gross sales and lower redemptions, so net outflows improved to $1.7 billion…

Thank you, Peter. As a reminder, I'll focus my remarks today primarily on our adjusted earnings. As always, you can find our standard GAAP recording in the appendix of this presentation, our press release and our 10-Q. Let's start with our adjusted financials on Slide 14. Adjusted revenues were up sequentially but down versus last year's third quarter. Adjusted expenses were flat versus the second quarter and down from the prior year. Our adjusted operating margin was 20.2%, an improvement from 16.1% in the second quarter and 17.7% in last year's third quarter. Adjusted earnings per unit were $0.36 versus $0.24 in the second quarter and $0.30 in the third quarter of last year. Now I'll review our current GAAP to adjusted operating metrics reconciliation on Slide 15. Here you can see the adjustments we made to our GAAP revenue expenses and the net impact on operating income. Slide 37 in the appendix offers more detail. To review our adjustments, both distribution related payment, payments and amortization of deferred sales commissions are netted against GAAP distribution revenues. Pass through expenses related to our transfer agency are reimbursed and recorded as fees and GAAP revenues. We also exclude sub-advisory payments to third parties against advisory fees. This quarter, that included payments related to the public-private investment fund, or PPIP, we manage that we finished liquidating during the quarter. There is no net impact on operating income. The net impact of our deferred compensation mark-to-market is excluded from net revenues and compensation expense. Ever since we took an acceleration charge in the fourth quarter of last year, the impact of this expense has been down significantly. We also exclude all gains and losses related to the 90% non-controlling interest in the venture capital fund from net revenues. Finally, we adjust for real…

(Operator Instruction) Your first question comes from the line of Michael Kim – Sandler O'Neill.

So first obviously (inaudible) the cost of retail business has really picked up over the last few quarter. But it does seem like much of that growth has come from the fixed income side, so just wondering where you see opportunities on the equity side assuming retail investors start to move up the risk curve at some point down the road and then what are your expectations for fixed income flows and that type of environment understanding that it seems like a lot of the growth is being sourced from overseas investors or a more specialized strategies which maybe are more insulated to a broader re-risking dynamic?

So let me tackle the fixed income piece first and then go to the equity piece. So we've said a few times about our fixed income flows and our fixed income business it – meaning those flows tend to be focused on the Asian investor who is interested in yield and in a risk-on environment where economies are growing and where companies are doing well. Yes, rates will go up but those yield investors will still probably seek yield in that environment as traditionally Asian investors have been largely focused on the fixed income part of the markets. So I think that while it may be that there is an industry shift in that environment from fixed income flows to equity flows, which by the way we would certainly like to see. That may not be that big a negative for us, the mix of our business, the structure of our business and the focus of it. We also increased our activities in fixed income in emerging markets, emerging market debt, local currency and dollar denominated currencies and also in our structured products and credit products, which, again, will likely be well bid for in those kinds of markets. Now in a risk-off environment where (technical difficulty) are declining everywhere and where investors are shedding risk, that's a – the most challenging environment for us because it challenges us in equities but it also challenges in a fixed income environment even in yield. And you saw that in the second quarter when flows in the fixed income business abated a bit, reflective of that risk-off environment. Now let's get to equities. In a risk-on environment that is a healing and/or growing global economy, one of the things we were trying to point out between quality, dividend-paying securities (technical difficulty). We think that spread will be recognized by investors as being true opportunities for investing in outsized returns in that kind of environment. We also believe that many of the new equity services that we have that we mentioned on the call are already gathering assets and we see that asset gathering accelerate in that environment where there was a return by the investors to equity investing. We think that actually that's a pretty good environment for us and the firm and one of the ways we think about our performance is that with a tougher environment we're producing these results. With a better environment that your question underlies, we actually think we'll do substantially better.

Then second, how are you thinking about maybe balancing, staying disciplined on expenses so that more of the revenues fall to the bottom line and ultimately to unit holders versus continuing to reinvest in the business, to further build out your footprint and seed new strategies amongst others?

Look, this is always a balance, as you point out. But I think as we've indicated in prior calls, we are very focused on continuing to make progress on the expense lines, particularly in our non-compensation expenses and I think this quarter is a reflection of that. That scenario that we will continue to pay lots of attention to and as we've mentioned on previous calls, we think that there is a ton of (technical difficulty) business and, again, I think you see that in this quarter's results. So we are going to continue to try and strike the right balance between driving the top line and managing expenses and I would continue to look for that progress going forward.

Your next question comes from the line of Cynthia Mayer – Bank of America Merrill Lynch.

Just a question on the high net worth on the private client, it seems that the outflows improved a bit but are still pretty nagging. And I'm wondering since half of those assets are fixed income and the low volatility would seem to appeal to them, what you think is driving that now. Is that still (FA)s leaving or is it some issues of a product that they want and aren't getting (technical difficulty) and how do you see that trend ahead?

So I think we have talked about changes we are making in the private client business for the better part of a year, maybe a year plus. And the reason why we were making those changes is to try to respond to what I think our clients found as a challenging product lineup given the performance that we had and the volatility in the markets that was pervasive for an extended period of time. And I think it's that experience, Cynthia, that has basically driven the more challenging outflow picture that we have in the business and a more challenging inflow picture because, obviously, we have to explain the performance that we've had historically. These new services and new structures and risk management techniques have helped because we have been responsive in what are volatile markets. And so the client asks what are you doing when the market falls 20% odd? We're doing things in their portfolio that they feel good about and that they feel comfortable about and that's helping us sell new business and retain existing business. But it's a process. It'll take time and a change. These things don't change overnight.

(technical difficulty) it looks like it's bigger than either value or growth and you know that I think it includes index structure and asset allocation. Can you break that down at all and let us know what the fees are for different pieces of it and what you see growing, what is shrinking just a little more color on that?

A persistency of your question – we're not going to disclose the detail fee makeup of the products; don't for any of the other specific lines, so that's probably not something we're ever going to do. As these different items in that bucket get more material we'll probably talk about them but as it is right now, it really hasn't changed in terms of the individual components. They are growing. We've talked about CRS and SRS and the index businesses as being businesses that we've been able to increase and we've been talking about the alternative business as well. I think it's gone about $12 billion – more than that, I apologize. I'm just doing the math. What is that, $16 billion from 2011. And that's basically spread throughout the categories that are mentioned there.

Your next question comes from the line of Bill Katz – Citigroup.

Just coming back to margins for a second, just a very (well) surprise in the quarter and just doing the fast math here. On the adjusted results it looks like you had 100% income (inaudible) margin which is probably not sustainable given the market backdrop in Q3. That being said, and given your comments about control over in non-comp expenses, how do you think about incremental margins on a go-forward basis?

In the quarter, as I mentioned, the margin, excluding PPIP, was 19.1%. I also mentioned that our T&E was lower than typical, marketing and advertising as well, lack of a campaign, professional fees as well were lower than what they typically would be. So we had a lot of things on the expense side really falling into place this particular quarter. But as Jim mentioned, we're going to continue to be vigilant on managing expenses going forward and weighing that against investing into the business. And we're going to continue to focus on the margins.

I'll ask the same question a different way without using my second question then. If you strip out all the noise in the quarter, is this the (better) run rate or would you look to relieve some of these savings in terms of marketing spend? I'm just trying to get a sort of sensitivity on modeling here.

Sure, well, I think you have to think about promotion servicing expenses. They came in the quarter at about $40.5 million. I think you should look at a couple million higher going forward, probably around the $44 million, $45 million number per quarter. And then on G&A, G&A came in at about $116.7 million of savings working their way through there. There will be more of that coming through as well in the fourth quarter next year. But then again, as I mentioned, professional fees were lower than typical in this quarter. So I think going forward on the G&A side, I would be looking at per quarter somewhere in the neighborhood of $112 million, $114 million.

And then just stepping back, as you mentioned, the acceleration in the pipeline, (inaudible) giving statistics on it. But the one that caught my ear was the 300 I guess RFP this year. Is there any way to take that two steps? One is how did that compare to stuff a year ago and then what kind of win rate might you be seeing if you're tracking that at all on the base of this year versus last?

RFP is up about 30%. I think coincidentally so is our year-to-date gross sales in that channel.

I think you can safely say that we've got substantially more RFPs and our win rate is improving. And yes, we do track it.

Your next question comes from the line of Robert Lee – KBW.

I'd like to go back to one quick question on the private client business. Peter, now understanding that you've reenergized the product suite to make it more attractive to existing and perspective clients but my sense or understand is that maybe some of the sales issues relate to also having gone through some attrition of financial – or RMs, relationship managers. To the extent that's been the case, do you see a need to kind of go back and still growing or trying to grow that part of the business again or at least replace maybe some of the more experienced advisors who may have – or managers – who may have left?

So we have (technical difficulty) challenges in the business come from many different places. And so those places are the market conditions in general, the lack of the interest on the part of individual investors to move money from place to place in a tough market environment, the lack of new money being created through mergers and acquisitions, which all of these are industry conditions. You can add to that our own performance, which has been, as you know, challenged on the value side, which was a big part of our business. We've adjusted that risk profile and private clients to effectively keep clients exposed to value but not have an overabundance of that risk. And we've lost some (FA)s, so it's all of the above. But the largest issue though has been the structure of the product and its historical performance relative to what we are doing today and the active risk management that we are engaged in today versus what we did in the past. All those other elements do impact the efficacy of our ability to raise assets and to be successful to channel. When you get down to the advisor side, we've never stopped investing in the advisors. In other words, we've never stopped bringing in new people. We've never stopped investing in that business and we won't. I believe that that's a critical element for the long term success of the business. Having said that, you always think about the pool of advisors that you have that effectively feed your future leaders. How large should that be? How fast do you move that pool? And that's something we're always looking at. But there is no interest on our part in not bringing in new people in (technical difficulty) the ultimate growth in the advisor. So…

Maybe not to get too lost in the weeds but I think since we probably haven't seen the numbers in a while, I don't think, just maybe just update us on the – curious about the existing size of that sales force at this time and maybe how that compares to a year ago and just trying to get a sense of where it stands right now.

I would say directionally it's down a little.

Your next question comes from the line of Matt Kelly – Morgan Stanley.

So just coming back to institutional equity for a second, I was hoping – obviously it's gotten a good amount smaller and fixed income has taken off but just hoping you can help us reconcile the $35 billion left there who the clients are, if there's anything chunky, how should we be thinking about the trajectory fourth quarter and then going into early next year, what consultants are saying.

So I'd say a few things. We have had over the last four years very active discussions with consultants and clients. That continues to be the case. Even with clients who have terminated our services, we are constantly meeting with them and they're constantly seeking our points of view. We represent a pretty consistent disciplined approach to investing in the marketplace. We may not always have had the performance that they wanted but we were exposing their capital to a set of factors and had a philosophy that was attractive and is attractive to them and is quite provocative. Just look at the chart that I showed you. So actually our dialogue with our clients and consultants remains as elevated and as animated as it has been, if not more so given the 300 RFPs that we talked about in the third quarter call. In terms of large clients, we have large clients. We'll continue to have large clients. I don't think that's going to change. And so I suspect that that will be the nature of our business going forward as we're servicing large pools of capital in the institutional space and they tend to allocate large pools of money to their managers. So I think that's just an endemic part of the business.

Then I guess more of an academic question type follow up – how do you think about across your different client bases the current demand for fixed income and what gets that to change back to equities? I'm just wondering what – obviously with rates lower for longer there are certain strategies that you can get more yield and less yield and so what gets the paradigm to shift back towards equities? And I ask because you guys have a pretty sizeable presence and you have had a sizeable presence in both so I think you're in a good spot to answer that question.

Well, as I said in my comments, I'm not going to try to call the market turn. So let me stipulate for the record that I'm not doing that. But having said that, I think it's pretty clear that investors (made a) decision over the last four years to allocate capital to areas of financial assets that are – have high safety-like characteristics, so either they're bonds with stated yield dividends and high levels are very uncertain (technical difficulties). It has slowed down in terms of the new cash moving into fixed instruments but it hasn't slowed down in terms of new cash going into higher yielding stocks. That's part of the reason why that valuation spread is as wide as it is. So you ask yourself the question, well, why does that persist? Is that the new paradigm? Will this go on forever? And I think the answer to that question is no, it will not go on forever because the returns are far greater, far higher in the riskier part of the equity market but investors have to be willing to hold those equities for a long enough period of time for those earnings actually to come on stream. And then they have to pay for those. And for the last four years that really has not been consistent. It happened for periods of time, '09, most of the year, first quarter of '10, a little of the first quarter of '11, but not consistent. And that lack of consistency has driven valuations on those kinds of equities to much lower levels and you hear people talk about equity premiums being very high. So what's it going to take? Well, I think it's going to take some stability in the markets, which we've seen. It's going to take some resolution of the tail of events or possible tail events that we talk about in Europe, the US and China and other parts of the world. And as those tail events recede, investors are going to be more comfortable and confident taking those risks. And if they do, they will get paid for those returns.

It's just on the private client business, I'd love to get your industry thoughts on where you're seeing the most competition, whether it's long-time peers or any new entrance in that business.

I think the private client business has always been characterized by a highly fragmented market. Very few companies, if any, have a very sizeable market share. You can define markets differently but, broadly speaking, your private client business is a highly fragmented business. So the traditional players in that business continue to be strong in that space. We've decided to focus on a slice of the business, that high net worth business and in that business, within the cities we operate we have meaningful market shares and we don't think that any of those market share prohibit us from increasing our market share substantially. In fact, all of the markets we operate in we could probably double our market share over time. So there is no – when you talk about competition in the private client market, the question you have to ask yourself is is this something we worry about? We have every market that we operate in. So market share and client competition is not the issue. Our issue is reaching out to our clients, meeting with new prospects and bringing in new opportunities.

Your next question comes from the line of Marc Irizarry – Goldman Sachs.

Peter, you've got some pretty impressive growth outside the US in terms of sales and retail. Can you talk a little bit about the way you think about growing your commitment to that region in terms of maybe headcount or sales or your sales force? Are you sort of at a consistent pace of investment in that area? Do you think just given the success you've had there that you'll start to ramp that up or is there inherently some leverage that we should expect to see as – from non-US business, retail business builds even further.

I don't think I would have any expectation for a substantial increase in headcount over where we are today. I do think at the margin you'll see incremental investments, not surprisingly, in the parts of the world that are growing. But in terms of the impact on the overall company's headcount and financials, as I said earlier, I think that there's a lot of leverage in what we put in place and we don't foresee any real significant increase in headcount as we improve the size of our business going forward.

Peter, can you just talk a little bit about the pricing dynamics on the institutional side of the business? Are you seeing any renewed pressure on fees, either on the institutional side in equities in particular or anywhere else across the organization?

In a word, Marc, no. I think that there continues to be dialogues with clients that in some cases prefer lower base fees and performance fees. And generally if we (ferment) expectations that results in a higher fee than we would have as a base fee or a normal base fee with no performance. But I don't see incidents of that discussion. The frequency of that discussion has actually materially changed in any way. I think it's just there are different clients that have different sensitivities to that issue. It's hard for me to report that there's any discernable trend towards fee pricing. I don't think there's any discernable trend in volumes, so larger mandates drive in some instances more attractive fee arrangements with those clients. But in some cases where there's capacity constraint services, they don't no matter how big the client is or how much money they contribute because capacity is constraint. So I – it's hard for me to identify any serious issues that we are taking into consideration as we plan our business that relate to fee compression and I'm not trying to say that from an arrogant point of view as if we have some leverage over the marketplace. I just think the marketplace has reached a point of being recently consistent.

Your next question comes from the line of Gregory Warren – Morningstar.

I guess my question revolves around where you are in the outflow picture. I'm not convinced that equities are going to bounce back as quickly as some people think they may in the changing landscape. But when you look at the outflows for the quarter, you back out Vanguard business that you lost and you back out the PPIP. You were actually above $2 billion in net (loss) and I'm wondering as you move forward do you think that with the fixed income business and with the structural product business and other new products that you have out there that you'll eventually be able to offset what you're seeing on the equity side because it's – at this point it doesn't look like it's going to stay on the line. Bernstein problem, as much as it is and industry problem for accurately managed equities.

Look, I think that part of what you're seeing is meaning that equity flows have been negative for some period of time. Active management as opposed to passive has underperformed for some period of time this year more dramatically than in some of the more recent years. That obviously provides a headwind for the industry and for the distribution of active management services to a broad set of contribution or private clients. So those headwinds, you are right, are there. And as I said, I don't want to make a call on the equity market. What I would say, which underlies your observation is you're right. The math is accurate. We have net positive inflows into this business in this quarter excluding those two items. That does say something about the trend of the business. It says something about our ability to continue to penetrate our client base both institutionally and retail and I think that if we were dealing with the status quo it would be reasonable to argue that we've had some success and you can't tell other success breeds success or whether it will continue or not. But if you wanted to extend that analogy you could say that we've reached positive net flows. I think the question was asked earlier in the discussion about, well, what would happen if you had a better economic environment and fixed income was more challenged because rates were going up? I think we responded that that would be a good thing for us. So if equities continue to challenge, if active managers continue to be challenged, we would develop a set of equity services that have done well in that environment and we believe that we will be able to continue to grow those (technical difficulty) this quarter. We believe that our fixed income business at 89% performance better than benchmarks in all of the relevant periods will also continue to grow and flows will be in that direction.

I guess the other thing – because I've talked with Andrea about this a little bit more recently and she was noting that on the fixed income side you're seeing a lot more growth now on the retail side especially in Asia. And culturally there's a difference. They're more interested in fixed income whereas we tend to be a bit more interested in the equity side of the business overall historically. But I guess in follow up on the other question and perhaps this too is you guys spent a lot of time talking about new products last year and you got 50 plus new products, $15 billion in AUM coming through since the financial crisis or since the reorg. But you've not talked a lot recently about where you are with that. Do you feel like it's because you're well positioned with what you have out there and you just want to grow that and you don't want to flood the sales team with additional products or is it just that there's really not anything that is on trim that you're missing?

So let me make three points. Number one is I'll point you back to the retail highlights on Slide 9, so new products year-to-date '12 versus year-to-date '11 is up 94% in sales for new products which are essentially the same products, so it's growth in those products. Number two is we will continue to develop new products but at a much slower pace and we have said that, that we basically had to change the step or change the direction of the ship, which we did and that resulted in a large investment in seed capital, which we have and it resulted in a significant increase in the (technical difficulty) of new products, which we did. But we think that we are on a much more stable platform in terms of the future growth of that new product effort and, therefore, the frequency of new product initiatives will be much less. And we don't need more because, as you can see, we're having good success. So I think that we feel that we want to be responsive to the market and the market will continue to change and will continue to be responsive. But the level of frequency with which we need to invest and create new product is just going to be dramatically lower.

Your next question comes from the line of Cynthia Mayer – Bank of America Merrill Lynch.

You guys highlighted the stability equity performance. I'm just wondering if you can tell us how large those assets are at this point. And also, if the equity market continues to move up, would you expect less demand for those products?

If the equity market were to begin to perform in line with we'll call it the longer time horizon assets, my guess is the stability equities will not do as well because they are not designed to outperform in that environment. And so we would probably not raise as much in assets in those services as we would in those services that would be performing. That I think you'd have to take as a manner of fact. In terms of disclosure, we sort of disclosed what we're going to disclose in that. And as those products grow and we feel the need to actually make it more specific, we will. But suffice it to say, we've got good performance there and nice growth and we've gave you some anecdotes as to the size and growth of some of those services.

Have had such strong demand for high yield – at what point we need capacity constraints on those strategies.

We're not a level today where we feel capacity constraint in those products. I would say that we are vigilant about that, however, and that at some point it may come to a capacity constraint but that’s not something we need to address at the present time.

We are running over, so we will take just one more question.

Your next question comes from the line of Bill Katz – Citigroup.

Just coming back to the institutional pipeline, maybe two questions, I'm sorry about that Andrea. Can you give us a sense of maybe consultant community, if you will. Are you on more or less platforms today maybe than a year ago to box against the number of RFPs if you will? And then secondly, and you may not get this granular but I’m curious, as you went through the quarter I know you highlighted the Vanguard Tradition Bank in August but any sense of redemption pressures one way or the other within equities. Did it abate? Did it intensify? I’m curious (inaudible) there as well.

We don't want to go into what our specific win rate is. So we'll just leave it at what we talked about earlier. Our RFP activity year-to-date – I actually have a note here. I misstated earlier. It's actually at 21% year-to-date versus our sales level being at 30%, so draw your own conclusions. The second question, could you repeat that?

Just thinking about the – on a monthly basis where even just as you've gone through the year the redemption notifications, are there any sort of – is that getting better, worse, no change?

I think we lay out all the numbers.

I'm just wondering just from the dialogue perspective that anyone that's left is going to leave at this point and the other ones that are left are looking at the relative performance and think about the slide you're putting up as well.

Bill, we comment that our discussions with our, for example, value clients where we've had performance challenges has focused more about our commitment, consistency and the discipline of our process and less about the specific performance because those clients feel that having an allocation to those types of factors is valuable and they want to make sure that we're going to continue to invest with that discipline because they ultimately do believe the charts that we had in the slide that, in fact, those spreads will change. And when they do change, there'll be significant outperformance there. So I think that's the key issue. That's why we put that in there. That's why we wanted you to take a look.

Thank you, Bill, and thanks to everyone for joining the call today. I will be around for any follow up you may have. Thanks and have a great evening.

This concludes today's conference call. You may now disconnect.