Good day, everyone, and welcome to the TD Ameritrade second quarter fiscal 2007 earnings results conference call. This call is being recorded. With us today are Chief Executive Officer, Mr. Joe Moglia; Chief Financial Officer, Mr. Bill Gerber; and Managing Director of Investor Relations, Communications, and Public Affairs, Mr. Bill Murray. At this time, I would like to turn the call over to Mr. Murray. Please go ahead, sir.

Thank you. Good morning, everyone. Again, welcome to the TD Ameritrade March earnings call. By now, you have probably seen our press release that was made public this morning. You can also view a copy of the release as well as submit any questions to us via our corporate website at amtd.com. We will be discussing a number of financial metrics on this call, so in order to more easily follow along with us we strongly encourage you to download and print the presentation now from the homepage at amtd.com. Also, 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 of the federal securities laws. These statements involve risks, uncertainties and assumptions that may cause actual results to differ materially from those anticipated. Listeners are advised to review the risk factors contained in our most recent annual report on Form 10-K and quarterly report on 10-Q for a description of risks, uncertainties and assumptions related to the forward-looking statements. On this call, TD Ameritrade management will discuss non-GAAP financial measures, such as operating margins, EBITDA 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 and on our website at amtd.com. Please note 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 the March ’07 earnings results for TD Ameritrade Holding Corp. At this time, I would like to turn the call over to TD Ameritrade CEO Joe Moglia, followed by our CFO, Bill Gerber. Joe.

Thanks very much, Bill. Good morning, everybody. This call is going to be the first earnings call that we have had where the two firms have actually been together for four quarters. One of the things that I will point out as we go through some of our numbers is the numbers that we have actually achieved over the span of the last 12 months. First, for the quarter, we earned $0.23. Now, we had along with the $0.23, we had record client assets and the $0.23 was the second best quarter in our company’s history. It was a little better than the $0.22 that we had a year ago. However, the $0.23 was at the lower end of our guidance and I believe that the industry is in general now seeing lower activity rates than ideally we would have liked. Certainly that happens to be the case at TD Ameritrade, and I remind you that when you think of the individual investor, recognize that they are lagging indicators in terms of what goes on as far as the market goes. The more the markets demonstrate significant volatility and the more the markets come under pressure, the less enthusiastic they get about getting involved and they tend to back off a little bit and move to the sideline. In effect, I think that that is what we are starting to see. For the last 12 months though we have earned $0.90. For the quarter, with regard to net revenues, $525 million; 61% of those are based on assets. Over the span of the last 12 months, the number is $2.1 billion. Pretax income of $230 million -- that is a 44% margin and I remind you that we are still not through the integration or the clearing conversion. For the…

Thanks, Joe. Our March 2007 quarter was solid, with 44% pretax margins and $0.23 per share. That represents a 5% or a $0.01 increase in EPS over the same quarter last year. Please remember that we discuss all quarterly activity excluding investment gains. Our revenue stream continues to shift and become more stable as our asset-based revenues are 61% of total revenues and are much higher than last year. Now, let me give you a little more color on the quarter and on our updated outlook statement. First, let’s look at the actual March quarter results versus our outlook midpoint on slide 12. In general, our net revenue of $525 million was lower than anticipated, almost entirely due to trading volumes. Transaction revenue of $193 million was $41 million lower then expected. Lower trades per day accounted for 75% of the variance as trading activity for the quarter was 254,000 trades per day, or a 4.0% activity rate, versus forecasted activity rate of 4.6%, or 292,000 trades per day. We do not believe we lost any market share but rather that the retail investor was less engaged this quarter than what we had anticipated based on historical averages. I would like to note that these trading volumes are an improvement of 7% from the December quarter levels. Commission per trade was also lower at $12.49 and was below the outlook range. There were two primary causes of this decline; our WIC related results, which I will discuss in more detail, and significantly higher promotional trades due to higher new accounts. As you recall, the WICs were closed in December and were legacy TD Waterhouse entities that housed commission-based sales people. They sold high-end products, including load mutual funds, structured products, fixed income, et cetera, which had a very high per…

(Operator Instructions) We will go to Michael Vinciquerra of BMO Capital Markets.

Just wanted to ask on the qualified accounts, Joe, you mentioned that the qualify of your qualified accounts is rising. At what point do we start to see the aggregate statistics rising as well in terms of assets and revenue per account? You mentioned within that group it is rising, but obviously there must be an offset somewhere else because the assets look to be relatively stable overall.

I think the assets that we have seen in general -- remember, the qualified accounts is what generates 90% of our overall profitability, so if indeed the assets per qualified account and revenue per qualified account are doing well, that translates into 90% of our overall numbers. So as long as the quality of those accounts continue to be good, I think we are okay an we are looking at aggregate growth anyway.

I guess I am just looking at overall assets for the -- I know you are at a record this quarter but when you kind of strip out market gains over the last couple of quarters, there really has not been much what looks like organic growth. Am I looking at the statistics wrong or do you expect that to hopefully accelerate the next couple of quarters?

I think you are looking at those accurately. The issue is I would go back to what our issue has been over the span of the last couple of years. We have never really had a legitimate solution for our long-term investors, so again as the demographics of our population improves and we have more people in the retirement and the pre-retirement phases, their interest in more full comprehensive solutions to what their needs might be with regard to retirement suggests that they wind up taking some of those assets elsewhere. They do not necessarily close their account but they wind up shifting those assets somewhere else. I believe with the conversion coming to an end and the legitimate rollout of the client segmentation strategy, clients that have done that will look at bringing some of those back in and then new prospects, that our long-term investors would look at that as well. So every one of those answers literally the last couple of years that address the issue of market share, I think our answer has been the client segmentation strategy. Now we are actually ready to execute on it.

Thank you. Just one question for Bill, just on the commission rates. I am not that familiar with the Fort Worth operation you have there, but I guess the question is was it not clear that you would see a commission degradation when this whole process started, or was is simply a change in the types of products that those clients were actually trading in that drove the change versus your projections?

Well, I think it is both. We did not expect to see a degradation and the guidance solution team was up and running at the time that we did close the WICs. Secondly, we certainly are seeing a shift due to we think the yield curve, where clients are opting for more short-term products right now as opposed to moving on in the curve.

We will go to Patrick Pinschmidt of Merrill Lynch.

Thanks. Good morning, guys. Joe, a question for you on the incremental expense investment for 2008. Can you talk about your philosophy there in terms of the market backdrop? For example, if the market fails to rebound and you do not see the customer engagement levels, are there other levers you can pull to maybe dial back the incremental expense levels you might be talking about for ’08?

Why don’t we talk about a couple of different categories then, Patrick? First, if for example the markets are not doing well and we are not seeing reasonable activity rate, that also suggests that we may not be seeing as many account openings, so therefore in our marketing department, we would reevaluate whether or not marketing spend would be something we want to be more aggressive or less aggressive on. So we could dial that back depending on what we see going on. There may also be other variable type like expenses that we could also dial back. On the incremental expenses though that I am talking about, they are literally meant to be more truly client-facing, a real emphasis on sales and a real emphasis for people’s longer term money. Now, I believe long-term, that is something that we need to do so I think we would be moving ahead even in the face of poor activity rates with trying to make this reinvestment in the long-term investor space, in the RIA space, because we think that is part of our future and we need it. Having said that, if while we are making those initiatives and it is not working, there is an initiative not working, we will kill it. But even if activity rates start to fall off and then we will watch costs someplace else, the last thing that I would want to do is start to pull back on the incremental expense because that is so much a part of our future, I think it is necessary.

How quickly would you expect to see a return on these investments?

I think a good rule of thumb, and you hopefully do better than this, is 12 months. So you start to make investment in your sales efforts today. By the time you get them in place, train them, et cetera, et cetera, they become comfortable with what is going on, that takes a few months. So certainly by the end of 12 months I think would be fair.

Any incremental advertising spend versus ’07, is that included in that $100 million or not?

No, advertising spend would be separate from that.

Okay, and then in terms of the RIA business, I know this is an area for growth. Are there specific investments for this business? I know Schwab made a point of announcing in December that they are targeting new investment spending for this business. What are you guys doing here?

Well, we have already made a couple of investments there. We bought iRebal and we bought the ICTC, which allows us to do a better job of custodying 401K type of assets for the RIA, and the iRebal allows them to rebalance multiple large portfolios at a simultaneous time. I think the ICTC is something that we needed to do. I think the iRebal will be a differentiating product for us, but those things have already been done. Now, in terms of the $100 million spend, Tom Bradley and his team will be coming to me with some of the things that they think that they need to do that will do a better job of bringing in more assets, more RIAs, and more sales. They are in the process of putting that list together now.

We will go to William Tanona of Goldman Sachs.

Good morning, guys. I am sitting here looking at old outlook statements and I see when the merger first was announced back first quarter of last year. I am looking at the midpoint of the guidance at about a 4% activity rate being somewhere around $1.13. Now at a 4% activity rate, you are talking about $1.00. As you are moving your business more and more towards these asset- and fee-based businesses, help me understand why we are so far off 12 months after the merger has occurred?

Well, I think the one big thing that happened is that we rolled out the new value proposition. I remember right there we took a $100 million hit, so the value proposition was $100 million. The clearing conversion, it was originally thought we would get that done -- in the very, very beginning we felt we might get that done in December. Shortly after that, we pushed that to February. February was the date for a while. Last time we said February was not going to work, we are going to move that out to May. We feel good about where it is in May, but you are looking at five months there of incremental costs. The bottom line is I think we have done a pretty good job with trying to be as transparent as we possibly could be with showing you our numbers on a monthly basis as well as a quarterly basis. So numbers that we talked about a year ago versus numbers where we are today, this is obviously a more accurate indication in terms of what we are trying to do and we are looking at $100 million incremental spend that we were not talking about before.

I guess I just look at some of these expenses, even for this quarter, and something like comp being so high relative to where you were on the guidance side and looking at you guys raising the comp numbers there in terms of your projection and then talking about investments for growth and largely that coming from the comp side. I guess I am just wondering; was there something inherent that you guys did not see 12 months ago that today you have a clearer picture as to why these expenses are higher?

I think when you talk about the comp bill, remember a lot of what we are talking about with regard to the incremental investment is meant to be people, so comp by definition then will significantly start to go up. It is not that individuals are getting paid more. It is that we are going to have more people, mostly sales-oriented or product-oriented or service-oriented people that indeed would be part of that. When we looked at this a while ago, it would not have made sense for us to ramp up our sales effort when we did not have the conversion done and we had people on separate platforms and we did not have the products ready to go to roll out. So while certainly that was part of our business plan and it was something that we knew we would eventually get to, we weren’t just ready to do it then. So now that we see the clearing conversion coming to an end, we are ready to literally end the numbers or put a stake in the ground with regard to the numbers on the expenses, and now we recognize we think is about as perfect a time as you can have to start to reinvest the incremental money to be able to have greater functionality, greater service, more products, but a real emphasis on the sales efforts. I think it is more a matter of timing. At one point, we knew we would be doing this. We did not know when.

Okay, that’s helpful. Then, Bill, in terms of you mentioned that you do not expect to have this much free cash flow at the June quarter end. Could you give us a sense as to what your preference would be for using that, whether it is going to be some of these investments or the share repurchases?

It is probably going to be all of the above, Bill. We look at this all the time, as you know. We have a 32 million share buy-back program that we are executing on. We have $1.7 billion in debt that we continue to look at and the organics. So I think we fortunately have great enough cash flow that we can service all these things at one time.

We will go to Richard Herr of KBW.

Good morning, guys. Just maybe start off briefly on those dormant accounts. Was Ameritrade aware of these when you acquired TD Waterhouse?

I am not aware that we were aware of them when we acquired TD Waterhouse, but we announced the deal in June 2005 and now it is almost May -- it will be May of 2007 where we are getting ready to make the conversion, so as we get -- that is two years -- so as we get near conversion time, we look at every one of those accounts and make a decision as to whether it is smart for us to move them over. In the last few weeks, we have looked at those and came up with that 152,000 that we thought did not make sense.

Okay, that’s fair. That’s helpful. Just on the commission rate and maybe going forward here, I think one of the industry trends that we have been looking at and maybe it impacts yourself a little bit less, but the move to pennies in the options market, how much of the average rate per trade going lower this quarter was a result of the SEC penny pilot? What are your thoughts going forward here? How much has lower payment for order flow been incorporated into this lower guidance?

I think for the pilot program that they currently have, spreads have come in. They have not come in considerably but they have certainly come in, but we have also seen the actual volume, the number of contracts with each transaction go up. They have virtually offset each other. Now, as we look at our business and they expand the penny concept across the option base: A, it will take a while; B, there’s still going to be plenty of options or plenty of stocks where there is not going to be great liquidity and they will still have reasonable spreads, therefore the payment for order flow will still be reasonable. But based on what we have seen so far, if it is offset by increased volume, it could be a net net neutral. I would not assume it is net net neutral down the road, but I would not assume anything devastating here. I probably would build in a small minus as you think about 2008, 2009, but we have not had to do that yet.

That’s very helpful. Just one last question; I think really what could be a significant positive for the industry is portfolio margin and what is Ameritrade’s thoughts on what they are going to offer customers on the portfolio margin front? Thanks.

Right now, Rich, from our end, we are literally pulling together everything that we are trying to do with regard to disciplined portfolio strategies, portfolio products, the cycle funds, the term funds, et cetera, et cetera. What we want to do is get those out, structure them properly, price them appropriately, and then sit down and literally we will have an all day offsite and talk about how can we maximize what are potential revenues with regard to value to the client and revenues for our shareholders as far as those things go. We do not have that ready to go yet but we do have it on the drawing board to think about how we want to play it.

We will go to Prashant Bhatia of Citigroup.

Just real quick on the $100 million, what was the process in setting that number? What got you comfortable it should not be $150 million or $200 million?

Because I thought before we -- I think if we spend $100 million effectively and we are bringing in greater assets and greater revenues, and then the team comes back and says “You know what? We should be doing more of this” I would be very supportive of that and I would bring that to the Board, and I have to believe that the Board would be very supportive of that. Frankly, Prashant, before we get to $100 million, we are going to get to $50 million and we are going to make the same decision as we look at those things. If indeed we are coming in with initiatives that are not delivering what we want, we would kill those initiatives as well. I think at least if you look at the margins going forward, we were still able to keep our margins significantly high and readjust the $100 million as far as the reinvestment goes. But it will not be easy for any of our teammates within TD Ameritrade to get this money unless they really truly believe they have a good solid plan, one that will be more than made up for what we expected it to be, the protection of the current client base, or the acquisition of greater assets from the client base with new prospects.

Okay, so we should think of this as more of a willingness on the management team’s part to give up margin above the 50% range and trade it off for revenue or asset growth?

Yes.

Okay, and then, out of the $100 million, it sounds like none of it has been allocated yet and now people will come to you to request investment spend. Is that the way it is going to work?

We have started to allocate but we are in the process. The people that are really ready to go have already been talking to me and in my office and the phone does not stop ringing. Those that are not quite ready to go have not gotten in yet, but you should assume that the process has already started.

Okay, and then in the past, you have also talked about increasing the sales effort at the branch and call center level. Are you seeing any early signs that the legacy Ameritrade customers are bringing more assets to the firm as a result of some of that, some of the sales initiatives that you have in place?

Yes, Prashant. All the interaction that we have seen by the current client base, especially those clients that did not have access to the branches prior, that now have access to the branches, their next trade almost always brings in greater assets, so that is one of the areas where we will be filling out the footprint that we already have in the branches. We will be adding sales people to the branches and where we think new branches make sense, we will look at that as well.

Okay, great, so Ameritrade customers are definitely using the branches and bringing in I guess more money in a meaningful way?

So far, that is still a small amount. Remember, we have not had everything on one platform yet and I would expect more of that to take place post clearing conversion.

Post conversion, what do you think are the two or three most meaningful things an Ameritrade customer will see or experience that might encourage them to do more business with the firm?

I think if you look back on the slide that we talked about, the typical TD Waterhouse client has never really had access to Amerivest. I truly believe that Amerivest is a differentiating service for anyone that wants or would like to have or needs, which I think is everybody, a customized asset allocation portfolio. That would be one. Many of them also like to buy and sell stocks. The trading tools in effect that we have and the risk management tools that we have on the Ameritrade platform will be something I think that they will be positively pleased with. The Ameritrade client, or the legacy Ameritrade client, has never legitimately had access to true cash management. They are going to have that now. While they have been able to buy a bond in the past, they have had to do it through a telephone and it has been cumbersome. Now they are going to be able to do that themselves online and they could even very simply ladder their own fixed income portfolios. Those are things they have never had before. Remember, we are only going to focus on these three client segments; the trader, the investor, and the RIA, and if we devote all of our energy to being effective in that particular space, I cannot see how we are not going to be effective.

We will go to Matt Snowling of FBR.

Good morning, Joe. My question is the jury is probably still out in terms of the value proposition in incentive gathering assets. I am wondering, with the $100 million investment now that you are making, have you ever thought about maybe moving away from a flat pricing structure to more of a segmented pricing?

We have thought about every different kind of pricing structure imaginable. I assume you are just talking about our advertised $9.99?

Right.

We have thought about every one imaginable. Last April, when we rolled out the new pricing, if you recall we said we worked so hard on this to, at the end of the day listen to the clients and keep it simple, and this simplicity was something they really all asked for. Now, based on the results that we have seen so far with regard to the active trader and the shift of the extension of the brand into the long-term investor, and the original objective, which was to balance your market share with profitability, right now we feel really, really good about our $9.99 value proposition. Having said all that, Matt, we are not wed to that. We will always be happy to look at it, but for the time being I think we feel pretty good where that is. Now, the area that I think we might have some room in is how, as we become proficient in the rollout of the longer term products over the span of the next month, three months, six months, nine months, 12 months, how do we price those? We will be constantly reevaluating that, but the $9.99 price for now is a good solid price but it is never going to be sacrosanct.

A quick question for Bill; in terms of the liquid asset of $543 million, can you give us a sense of how comfortable or what level you are comfortable taking that down too?

I think 250 is probably a decent level to have. At that level, could I go to 200? Sure. Could I go to 175? Sure, but I think for opportunities that we see coming along, we should probably have a little more cash sitting around.

We will go to Howard Chen of Credit Suisse.

Good morning, Bill. Good morning, Joe. A couple of questions; the last data point we had on the RIA business is that you had about $60 billion of assets under in-house. Can you update us there? Are there any meaningful changes?

I am looking around the room and I have a number, Howard, and I am just looking around the room -- I am actually asking the question internally. I am going to get people to nod heads. Normally we have not disclosed that number until the end -- every year we give an update. Are we supposed to give a number now or is that going to create -- do I go to jail if I do this, or what happens?

We said it.

We said it? Okay, so the number is a little over 70.

Okay, and really, what is driving that growth? Is there already incremental investment spending that has been in that business that has been driving that recently? What has been the primary -- is it from existing RIAs? Is it signing on the incremental RIA?

I think it is a combination of all of those things, Howard. First of all, I mentioned earlier that there are more and more RIAs that are leaving the full commission firms than we have ever seen before. In fact, I do not have the statistic in front of me but a statistic you may want to look up, look at total assets for full commission firms versus total assets for the RIAs over the span of the last four or five years. You will see significant growth in the RIA assets on a percentage basis and you might even see a negative number on the full commission shops. Real growth there, a lot of SCs moving away from the full commission firms. I think that trend is not over with. That trend is just getting start, as far as I am concerned. So that is an area that continues to grow. As you know, there are three significant players in it, ourselves and two of our competitors. For us, it is an absolute priority and focus. We are only focused on three client groups; the trader, the investor, and the RIA. So we are working hard to make sure that something that we can provide our clients is something that an RIA might be able to lever and something the RIA might be able to lever might be something good for our clients. Earlier I also pointed out that we have been making investments in the RIA business. I mentioned ICTC and I mentioned iRebal and I am sure a part of this $100 million that we are talking about will be used for the RIAs as well.

That’s helpful. Again, not to beat this investment spending to death, but on that point within that $100 million, are you budgeting for fill-in acquisitions, for maybe a technology that is more of a buy versus build? Or is this really just like organic deployment of capital?

We look at this as organic deployment of capital. If we saw an M&A opportunity, we would treat that separately.

Okay, and then finally, and you sort of touched on this in some of your comments, Joe, but how are we going to gauge the success of all the investment spending? Are we going to look at client asset growth, assets per qualified account, revenue growth in the franchise? How are you going to gauge your success, whether something is worth it or a kill, et cetera?

Asset growth, asset per qualified account, revenues across the board -- I mean, I think as we move to an asset gathering platform, I think the key is going to be to keep an eye on the movement of our revenues and the movement of our assets. Then I think you may want to look at that also since the bulk of our profitability comes from our qualified account, look at that on an average per qualified account as well. When you look at our numbers, Howard, there are only four or five metrics. As transparent as we are, there is really only four or five metrics that we can really look at. We are looking at DARTs, but that does not necessarily reinforce the fact that we are doing a good job becoming an asset gatherer, but revenues, assets, new accounts, new qualified accounts, averages per accounts -- those are things that will be the types of things we will look at.

We will go to Richard Repetto of Sandler O'Neill.

I am going to fire a fastball here -- it seems like what everybody is saying on this investment --

Hold it, hold it, hold it.

What?

I’m getting my cleats firm in the ground. Go ahead.

Since I’m so far back in the queue, I have to fire some fastballs. In regards to all the questions about the investment spending, it seems like a very big focus here. I have to ask, is this a realization that the model when you merge with TD Waterhouse, TD Ameritrade, that as you transition to an asset gatherer, that you do not have all the components, all the infrastructure to transition to an asset gathering model?

I think all along we said -- let’s go back to the fall of 2001. We said we are going to be a leader in the active trader space. We are going to do a great job of helping clients buy and sell stocks. We are going to try to be number one in that space and if we are effective, we are going to try and lead the effort in terms of consolidation. Period. Phase two, if we are successful at that, we will then start to move into the long-term investor space and the RIA space, so we will be always working and tinkering with that in effect on the side. Now, for the last several years, as you know, we have been working on things like Amerivest and a couple of other things as well, but one of the absolute reasons why we did the TD Waterhouse deal was not just because the numbers were compelling, not because of frankly the strategic relationship with the bank that we were able to have with Ameritrade and TD as well, but because they were already in the asset gathering business. Remember, we had about $80 billion in assets. They had about $160 billion or so in assets. For us, for me at least, it took our long term investor strategy and advanced it by probably four or five years. So it has been our business plan and our vision all along. We were going to get there but we were not going to be able to get there as quickly had we not done the deal. So absolutely there are plenty of things from a long-term investors perspective that we were able to get by doing the Waterhouse deal that we did not have prior. I thought we did a great job as an active trader moving into the long-term investor space. Now, we will continue to do a great job with the active traders but we are going to be in the long-term investor space and there is no reason why we cannot do as good a job in that space as we did in the active trader space.

We are still going to have 50%-plus pretax margins.

I guess that is the exact point, is that the promise of TD Ameritrade in my view was an asset gathering model not with old TD Waterhouse margins and not with Schwab margins, but with margins at 50% to 60%. I guess that is the difference here incrementally is as you make the transition, do you have all the necessary infrastructure to do that at 50%, 60% margins to go to the asset gathering model? I guess that is the question and that is what is different today versus the last quarter.

The answer is we believe we do. We have recommitted a couple of times today to the fact that we will be a 50%-plus pretax margins in 2008. But Rich, I don’t want to play with this. If we are effective at this and we have 54% pretax margins, we will be very thoughtful about taking 54% pretax margins to 50% pretax margins if we feel we could have greater overall sustainable growth in our earnings. So it is a balance. I have always in the absence of really believing you can grow sustainable quality earnings long-term, I will always err on the side of higher margins because it is a better discipline for your management team to in effect function through and to go through respective processes. But we really believe we have something special in terms of quality growth, good asset generation, et cetera, I do not mind giving up some margin to be able to do that. Right now, I am very comfortable for 2008 you are going to have 50%-plus pretax margins, but that is not inviolate. When we hit 40% pretax margins, I said it wasn’t inviolate.

Understood. The very last point is now we are definitely in sight of the conversion. We are definitely in sight of a much more focused model on asset gathering with the investment, et cetera. How does your outlook on consolidation space, because all of the things you have been talking about -- sustainable profitability, sustainable model that provides you value in that particular segment of the market going forward -- might possibly be better done with partners. Are we at a point now where we are taking a more serious look, given that you are almost through the consolidation?

No, we are not taking a more serious look. We are taking the same type of look I think that we have always taken. If Rich, you mean because the consolidation is coming to an end and you do not need to worry about that as much, can you be more open to doing something else, I think that that comment is fair. But if we thought that something made sense up until now, we certainly would have looked at it. As we become an “asset gatherer”, we might be looking at certain things a little longer than we might not have looked at so long in the past. But we still believe that consolidation or in general, M&A type of activity across the board, if that is going to enhance our platform and our ability to generate longer term sustainable profits and it is good for our clients, it is good for our shareholders, again as always, we will be looking at those things hard.

We will go to Roger Freeman of Lehman Brothers.

Good morning. Just a couple of questions -- I guess one more on the investment initiatives. How much of this is that some of the cost savings related to the integration are that you can’t achieve some of those stretch goals? You have brought -- you did bring that down by $20 million. Is that part of the $100 million?

No, the stretch goals, our first goal was 333. I thought there was more room in the 333, otherwise we would have gotten to 333, probably gotten a little past it and we would have called ourselves heroes. Because I thought there was more room in 333, we established the 302. As we started to approach frankly 310, 312, it started to become evident to us and our leadership that maybe we were starting to bite into the client experience. That was a no-no. What we agreed on internally was that 321 was a good solid number. We are stopping. 321 is the number. Period. Away from 321, we are looking at the $100 million at investments the way we have been speaking to that currently over the span of the last half hour or so. As I said, what Bill will do is he will provide you with a separate line item where you can see what the 321 has become, and separate from that, what the actual reinvestment numbers are.

Okay, so the 302 was not in your outlook statement, is that correct?

No, 302 was in our outlook statement. 333 was first in our outlook statement. I improved that to 302 because I thought we could get more than 333, and then I stopped it at 321 because I thought going past that could potentially hurt our client experience. I said from the very beginning we were not going to do that.

Got it. I guess the second question is you had talked about better revenue metrics coming out of the qualified account base. Could you just talk a little bit more about where you have seen penetration of products or services? Is it things like Amerivest and the trading tool and cash management? Are those generically the things, or is there anything in particular that has dominated the improvements?

We would choose not to break that out now but again, if you assume a year or so ago we really had nothing along the lines of cash management, Amerivest we were still just trying to roll out, still a little bit -- great idea but still a little clunky, all those things are just starting to appear now. Post conversion we start to become more aggressive with it. I would not say that we have seen good growth in the RIA business but I would not say that there is any one thing that has helped us gather more assets. I think it is everything across the board. The key is getting this clearing conversion behind us and moving everything to one platform.

On Amerivest, because that has been something you have talked about a lot, how has that initial re-rollout been going?

The re-rollout that has taken place since our sales force has started to sell it has been very good, but they have been hampered by the lack of not being able to work on one simple platform. So it would be much easier -- in June, it is going to be a lot easier for our sales people to in effect talk and sell Amerivest than it is today, and it is easier today than it was six months ago.

We will go to Michael Goldberg of Desjardins Securities.

Good morning. One thing I am confused about, when you characterized the $100 million of spending as investment spending, it sounds temporary. But when you include it in your run-rate, or add it to the $800 million run-rate, it sounds permanent. Which is it?

Permanent.

Thanks.

We will go to Matthew Fischer of Deutsche Bank.

Most of my questions have been answered, so I guess just a little clarification; you are going to have all of the -- you are going to be up on one platform when the conversion is done. Are all the products you mentioned ready to be marketed just as soon as this is finished?

The products we had on the sheets, on the slide, are ready to be marketed and the rest of the products would be getting rolled out over the span of the rest of 2007 and the first quarter, maybe second quarter of fiscal ’08. They are ready to go.

So I guess your marketing strategy, at least in the near-term, is it more geared toward the existing customers of legacy TD Waterhouse and Ameritrade to introduce them to these products? Or is it a combination of both new customers and existing?

Frankly, it is a combination of both but I think one of the things that Chris Armstrong and Laurine Garrity and the team is looking at is we do need, if indeed we already have relationships with 6 million clients. We know they have their assets away. If we just did nothing but focus on those clients, we should be able to make a difference. So we are thinking about that pretty hard internally as well. Do we do that by just normal spend with our advertising dollars or is there something different that we have to get after there? There are a lot of things I think that we can play with or have an opportunity. I think right now we have a lot of things on the drawing board. My guess is there is going to be a small handful of things that might really work that I really would love to see us get our total support behind.

Okay, so I guess the impact is more a 2008 event?

The impact on the expenses begins now but certainly continues through 2008. The impact on the results I think pragmatically starts in 2008.

And that is the 12 month lag you mentioned?

Yes.

The last thing, the guidance that the retail investor is less active, is it -- we have seen the markets rebound and we have seen them come back considerably. At what point do you get a bit more comfortable with the investor activity?

I think right now there is still a lot of -- every time I watch, I pick up the news or I watch one of our business shows, literally I almost never get through a half-an-hour or a page where they do not talk about something to do with the real estate market and what is going on with sub-prime and the impact that is going to have elsewhere, number one. Now, I think that the retail client was nicely getting back -- not as aggressively as you like, but slowly but surely they were getting back into the market. The week where we had the international blow-up, that was the first time in three years where we had multiple days where they were in the hundreds of down days. I think that was a joke. So while we saw a lot of activity then during that week, the natural fallout from that was well “Hold it, I’m a little nervous now and I just got burned and give me a chance to see if the markets indeed stabilize here and settle down for a while.” If you see stabilization and less downside big volatility days, the client starts to come back. That was just a month ago where they felt this, and their numbers will demonstrate they are not as active as they were. One week after this debacle in the market, they became less active.

We will go next to Michael Carrier of UBS.

Just a question on the cash level. The cash build in the quarter, stock price is a bit lower and then fewer buy-backs -- just trying to get a sense of you guys mentioned you need a sum for capital planning fees for the conversion. Can you explain that? Out of the 543, what percentage of that do you view as kind of you need for working capital or you use versus what you use for buy-back?

The cash needs that we have, or the capital needs that we have for the clearing conversion is probably well into the $100 million plus range. What happens is that you move your assets over from one broker dealer to another but you cannot move the staff along until after that is completed, so in essence you need capital in both places. So that is essentially the reason for the build-up in the quarter. We would expect that to come down, as I mentioned earlier, post clearing conversion. Your second question is regarding how much cash do you think we need to have laying around?

Right.

That one is -- some elements of the business, our stock borrow/stock loan business, et cetera, the amount of net capital you keep in the broker dealer, there are some business lines that we look at that require more capital. As I mentioned earlier, if I took it down to $250 million, I am still going to be pretty comfortable there but it is kind of a judgment call. We go through this discussion very frequently, weekly within the finance group to see how much capital we should have in the PDs.

Okay, and just a follow-up; I may have missed this when you guys were talking, but it looks like the mutual fund balances were restated. I just wondered what drove that or what was the reasoning behind that, but the revenues did not really change.

We had two things in the mutual fund balances; one was those that had 12B-1 fees and those that did not. So what happened, you will notice the rate between last quarter and this quarter was much higher this quarter than it was last quarter because we took out those that had no 12B-1 fees and no load funds and moved that out.

We will go next to Scott Appleby of Deutsche Bank.

One of the things that seems to be working for Schwab is a targeted in-house advisor network. I am just curious if that is what you are talking about here or if those are thoughts, and then if the belief is that it may be in conflict with your RIA, which network, which although Schwab does not believe it is in conflict either.

Within our RIA business, we have an advisor direct initiative, which I think is comparable to what they have. We do not look at that as a conflict at all. The bottom line, there are clients that are very comfortable doing this themselves. They have the ability to do that. There is also the shade-of-gray type of client that might need their hand held and someone to just walk them through this. It is kind of that old parable, if you give somebody a fish, they can eat but if you teach them how to fish -- well, we are going to try to do that with that part of our client base. Help them to understand how to create their own ladder online and fixed income -- help them, walk them through how they can actually handle their own portfolios with regard to Amerivest. But for those clients that legitimately need real customized advice along the lines of what is suitable, unsuitable, et cetera, we have advisors for them to be able to direct them. I don’t look at that as a conflict at all. That would be the way we handle that.

Have they made any outgoing calls yet, or is it all inbound?

The RIAs?

Or your in-house group.

Our in-house group would make outgoing calls, yes.

That concludes today’s question-and-answer session. I will turn the conference back to Mr. Murray for any additional remarks.

Okay, folks, I think we had a good session. You had a lot of good questions. Hopefully everybody understands what we are trying to do. Again, the exciting thing for us is not so much what is happening right now but it is getting the clearing conversion behind us and truly being able to not only take care of the active trader but to finally go after the long-term investor and really go after the RIA business is something that we have been dreaming about and has been part of our strategy for a long time. Now that we can actually start to execute that, I think will take us to a whole different level as far as the markets. I realize we have not done that yet and I realize we have to earn that, but that is going to be our absolute, absolute focus. Over time, if indeed we earn our stripes and the marketplace starts to consider us more of an add together, I think that will also be great for our stock and enhance our multiple as well. Thanks for much -- hope you get a little bit better weather in the Northeast and the Midwest, and everybody have a good spring.

That concludes today’s conference. We thank you for your participation. You may disconnect at this time.