富蘭克林資源 (BEN) 2002 Q2 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the Franklin Resources second quarter conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session, instructions will be given at that time. If you should require assistance during the call please press zero then star. As a reminder this conference is being recorded. I would now like to turn the conference over to our host Marty Flanagan, please go ahead.

This is Marty Flanagan along with Greg Johnson. We appreciate everybody joining us this afternoon, and as always I'd to, before we get started remind everybody on our policy of forward-looking statements and risk factors which are detailed in our 10K. This call today will do what we do typically as we have in the past, focus on the quarter end results,

trends

performance, new business highlights, and then Greg and I will take any questions that anybody might have. Bottom line, this is a very good quarter we're really pleased with the results. Although we continue to

cost control and our operating results performed in line with our expectations.

The most encouraging are

indicators continue to look strong and they're actually now being reflected in our results. With that let's take a quick look at the numbers

income for the quarter was $120 million or 46 cents per share versus $118 million or 45 cents per share last quarter. Another thing I would like to do is focus the people on our results

operating income during the quarter which is $148 million. That is the highest level in over a year. (Inaudible) center of management which is our principal driver of earnings for

during the quarter was $274 billion compared to the $266 billion last quarter. Once again the highest level of assets that we've seen. Average assets under management were 268 billion as compared to 256 last quarter.

With regards to the asset mix, equity assets now represent 64 percent of our total assets as

last quarter. The increase in the equity component is a result of both net flows and market depreciation. Fixed income represents 30 percent of our total assets under management, no change quarter over quarter and a final element, balance or hybrid assets represent 15 percent of our total assets under management, up one percent from last quarter which is 14 percent. One of the drivers

increased our assets under management was that strong net in flows during the quarter of $5 billion and

of cents as compared to $6 billion last quarter and $1.8 billion a year ago, and if you look at the net flows and exclude the reinvested dividends, this was the strongest quarter that we've had in a number of years.

Market appreciation was another driver for increase in assets under management which accounted for $

billion in our increase, and that as compared to market depreciation of almost $14 billion since the last quarter. Moving on to the operating results, operating income for the quarter was up just over one percent to $626 million but the number of factors in that move, we saw almost a three percent increase in investment management fees on the back of the increase in average assets under management. Underwriting and distribution was up

of decreased sales. (Inaudible) servicing fees were up to $48 million and there is a continued good trend, we had 600 thousand new share-holder accounts. We have 95 million share-holder accounts throughout the world right now.

One thing I would like to point everybody to is, we're getting into a season where, starting this next quarter and the Canadian business closed accounts for the year will be perched and that will be - in the next quarter that will be 365,000 share-holder accounts which will have, and by next quarter - other income is down to $14 million and as we discussed last quarter we had a

game during that quarter.

Moving on to the operating expenses in total more or less flat quarter over quarter at $278 million, but once again the components are varying levels. Looking at controllable costs, we think we did a very good job during the quarter again

benefited

slightly to just under $160 million and a couple of points there. The number of employees we have now are 60, 400 as compared to 6600 last quarter and to put this into context after the Fiduciary acquisition which was first - which was closed during the second quarter of last year, during the June quarter, excuse me, the third quarter, we had a number of

hundred. So, we've seen quite a decrease in the number of employees while increasing our asset base IT and

was down slightly during the quarter

continued focus on cost controls and

.

Another point, we had mentioned previously that we had a two tier solid rollback when ourselves are facing a decreased asset level. We made the decision for the next quarter to

those individuals that were cut at the five percent level. The remaining group of individuals that took a ten percent cut will be

next quarter depending on the level of assets in our management within the company. Within that the total annual rollback was approximately $15 million with those cuts. The five percent group represents about two thirds of that. So you'll start to see that reflected in our

next quarter and the other

that are going on

is that as we continue to see increase in volumes and flows, although we're going to stay very focused on gaining efficiencies, we think that there will be some better

in the employment of

within the organization. Moving on to other incomes,

was down this quarter to $15 million it's an area that is definitely very hard for

community to forecast - one of the primary reasons for the decrease this quarter is that much of our portfolio is in fact in our own mutual funds and last quarter we saw a number of realized, excuse me, some

income within that quarter and the regular scheduled dividend payments. Still, just in summary before I pass on to Greg, although net income was slightly

during the quarter we did see sequential improvement throughout the

game, the operating income was

earnings

very good results and if you focus on operating income and net flows, we're very pleased with the quarter.

With that, I am going to pass it on to Greg.

Thank you Marty and good afternoon everybody. As Marty mentioned, I'll take a few minutes to go over some of the performance numbers and then some of the

over the last quarter. (Inaudible) numbers they still look very good. Over 75 percent of Franklin Templeton' US retail mutual finances that we ranked in the top two quartiles of their respective

categories. Over 90 percent of Templeton equity assets were in funds right from the top two

strong relative performance for Templeton, but we're now starting to see some good positive absolute performance and I think this just began

the strong and relative performance and makes it much more attractive from a marketing standpoint of view.

If you look at the year and date

for some of our big funds, the Templeton

and Templeton growth fund. They were actually up 7.5 to three percent of

, excuse me, the average fund was down 7.5 to three percent and

fund and growth were up five and nine percent respectively. Looking at the mutual series, again the strong performance continues in that area as well and we've positive numbers of five and eight percent and mutual financial of about 19 percent for the last 12 months, which all of them are

with their respective index bench marks.

The big funds

the small

again all in positive territory for the 12 months ended in March 31st and

the S5500 and the NASDAQ for the one year as well as three, five and ten-year periods. On the tax

side Franklin funds continued to have four and five-star ratings for 95 percent of our assets. In canada over 90 percent of our retail mutual funds assets are rated at four or five stars by Morning Star and as you expect from these continued performance numbers, we're really starting to see the momentum and the actual inflows continue to accelerate.

As Marty mentioned, in this quarter we've had some of the best flows we've seen in a long time. I think one of the most encouraging areas is the international side where we are starting to see a pick up in the interest. I think a lot of

positive numbers and really be the kind of decoupling from the US market that we're seeing in places like the emerging markets in some of the international equity funds. We had positive inflows of 1.8 billion compared to the 300 million last year. A lot of that was due to the significant decline in redemptions from quarter to quarter. The domestic equity gross sales increased to eleven percent and redemption

remain fairly stable and in this quarter, we had a total of 1.6 billion new sales in this category. One of our fastest growing categories is in the hybrid area, specifically in the US Franklin

is our number one in selling. Net funds in that category is 1.2 billion in

. (Inaudible) improved as well bringing in about 500 million in net new sales. Really the only - only

that didn't show improvement in this quarter from a year - or a year-to-year basis was our taxable fixed income where the

continues to be under pressure and we're seeing some redemptions there. On the products and distribution front, we're continuing to introduce some new institutional products as well as expanding our

fund line. We've launched two

of our US

fund

on the - with the

we plan to launch the first joint institutional strategy that combines

international value equity strategy

capability to offer a core strategy that can be back tested. On the retirement side, we extended our gift program and enhanced it by adding new class of shares as well as increasing our maximum contribution

and instituting an automatic investment plan.

Looking at the institutional business as a whole, we continue to see momentum

from every area. (Inaudible) RPs continue to accelerate. The pipeline looks good and also, I think we're now effectively starting to cross sell our existing

.

between Fiduciary and Franklin Templeton. On the

we only have

clients

in a month among all of our different relationships. It's real opportunity for us to go just go in and really work with existing clients on both sides and if we can

relationships. (Inaudible) capabilities continue to see strong demand in the European pension funds and we recently launched a global

and we'll likely offer other products in this category. And as you expect with the strong performance numbers in Canada, we've had one of our best net flows

and saw strong - strong inflows in the institutional business as well

domestic Canadian funds.

Advertising and promotion, we talked on the last call about TV campaign that would - that would pick up in this quarter and we did increase our spending

TV and did more

TV. Well, it doesn't show up in the overall advertising and promotion number because there are some other - that's - that's just a part of that number. It did increase and I think going forward

to be similar with the numbers talked about on past calls. And finally I just wanted to talk a little bit about re-organization we announced internally last week where we shifted some of the responsibilities in the office of the President, if you recall, few years ago when we established the office of the President many of us took on different responsibilities, and with that in mind

expanding each of the President's responsibilities and roles, we have now shifted few more of those and I will highlight this

.

And as we planned for this reorganizational

was our chief technology officer and president of the Franklin Templeton technologies was faced with some personal challenges that required his direct and complete attention and

taking a leave of absence. So, as a result we'll be making the following changes in the office of the President

. Marty will continue in his role of President Franklin Templeton Companies. He will assume additional responsibilities

portfolio management function except for

which continues to report to

. (Inaudible) Johnson will assume additional responsibilities for technologies as well as legal.

Additionally, he will continue as the President of

which now includes Canada and he'll have responsibility for alternative investment. I will continue as President of Franklin Templeton- USA with responsibilities

retail of private clients, strategic alliance, institutional business and now have responsibilities for the domestic

services and human resources groups. So overall, we're confident that these changes will strengthen the organization giving everyone in Franklin Templeton a new perspective and

. I'd now like to open up for the Q&A.

Thank you. Ladies and gentleman if you wish to ask a question please depress the one on your touch-tone phone. You will hear tone indicating that you have been placed in queue. You may remove yourself from the queue at any time by depressing the pound key. If you're using a

phone please pick up your handset before pressing the numbers. And for our first question, we go to the line of Mark Constant. Please state your company name before your question.

Just a couple of things. One, your last discussion

re-organization, I went through some of those responsibilities pretty quickly, but it sounds like that is really a re-allocation that

existing responsibilities

level. Just want to pick up for

leave of absence. Is that a fair characterization that - and what was for is

Charlie's responsibilities haven't changed?

I think that's right, but it clearly goes beyond the - just the re-allocation of the technology group one

talking about the shift in the portfolio management, functions and

. It's a lot more extensive than just technology or ...

I don't - I'm sorry I didn't mean simply a technology reallocation of a number of responsibilities

Right.

And my

was actually, does that reflect

everybody's expertise in the organization?

Right, that's really the goal.

OK. One just one - actually a numbers question because you guys obviously have

used to in releases which is much appreciated, would you, was there any

one-off contribution from -

this quarter or would you not

any thing that is being extraordinary and this set results are

.

If there is - really nothing extraordinary in results for

this quarter. I can

.

OK. Thank you very much.

Yeah.

For our next question, we go to the line of William R. Katz. Please state your company before your question.

OK. Thank you. Merrill Lynch. A couple of questions, Greg maybe I'll start with you. Can you reconcile your bullish commentary on what's going on globally with maybe the

you have, that sort of breaks of US retail assets versus other assets and

looking at is

sort of sequential decline in sales and your other assets, I mean, it sounds like things around the world are actually picking up and just how is it accounted for here, and you can

help me out

it better.

We really, it is - it is confusing, I think, because we do

international institutional in the numbers. So, I would, I think you're correct that it - that it happening to climb overall and the bullish comment on the global

doesn't really reconcile and I think the earlier comments apart of the

accounts that came in this quarter probably did or prior quarter compared to this quarter was where you, you know, you saw the sequential decline but overall I think when you look at the retail business globally, on a gross and net basis, it's- it's - that would be consistent of what we're seeing in the US, the increase.

Can you just quantify what the non US flows were this quarter versus last quarter and

what the non US assets are. So, help me understand the

organic growth rate, US versus non US.

(Inaudible) that's a great question I think we're

well, we haven't disclosed that and I know that's becoming increasingly interesting to people who - but for the moment I think we just need to stick with what we are disclosing.

And just

follow on the last question

2:1 ratio non US versus US in terms of rate of growth, is that fair?

(Inaudible) sorry I feel uncomfortable responding to that. katz: Let me ask you a question

on the margins, you had a little

leverage this quarter. Sounds like that might be tempered a little bit, just

world bank of

your later on comments that you would actually look to maybe build up franchise a little bit or maybe accelerate some

. How do you see the operating margin go from here, is it sort of a gradual rise, is it a step function assuming we'll normalize the equity markets.

(Inaudible) that's clearly the right question and I think the difficulty is

you know, our view would be a worsening of

things, you know, as we keep going

performances, net flows, those are all very good things, but clearly we're in a

very volatile uncertain market at a time that

all markets going to do which will hopefully have an impact on our level, assets center management. The speed of our

margin expansion will correlate very directly with the overall markets and so I - its hard for us to give the time frame without knowing what the markets are going to do, but we are still, as you said in the past, we made a determination based on the results of the company and I'm confirming once again that our people are the most important things to the organization that we are taking a step to put those salaries back in place for, you know, a large portion of employee base but we're still just being very careful on the market outlook. So, the

is really

just directly can be correlated to the overall market results, but we would accept if that happens, we

that we talked about.

You can get that beyond your incremental expense growth here that you are so

talking about.

Yes, the - once again the issue likely to be, we have a determination right now that during - for this quarter that we are in that we are putting

salaries which is an increase - absolute increase in our

right now. If we don't get, you know, market depreciation during this quarter we

see that. But we would expect that, based on the net flows from those and - that we will definitely see margin expansion beyond costs

.

And my last question, if you - if you can't allow the

of net inflow in the international business apart from the dividends, I think if my math is right, it's about an eight percent annualized increase. I was just curious how good can it get and in the peak years of, you know, the mid '90s when Templeton was really shooting lights out, can you give us a sense of, you know, how stretched can you get in terms of organic growth

.

flanagan(?): Well, you know, I think

of the question is really, you know, can we get back to the levels of - on the retail side of US, 25 to 30 percent of flows what today were probably 110 percent. So you can see, you know, when you look

to the market and gross numbers, you may get half way there and really having just a few people at this stage that have positive numbers, you know, that you can mark it, I think it's a huge a leverage. And for that part of business

wake up phase, I think, in retail market where all of a sudden

wow I didn't know emerging market was up this year, I didn't know, you know that the global

international funds are up. So, you know, they are getting attention and they are coming from a pretty low base right now. So, I

I think, you know, there is a big opportunity what that means as far as percentages, I'm not sure, but if we get back to the level that pre-existed five years ago, you could see some real acceleration

.

I just have one technical question. I thought that you may have said it earlier on in the morning, I apologize for the

up a bit. The investor mentioned revenues that

average assets on the management, it looks like a tick down just a little bit in the quarter from the last quarter, yet the skew for

picked up a little bit, was it just a

issue or some other kind of

mix, if you are think

.

It should get real tedious and do the math. It was largely the calendar issue as you pointing out, so

a fewer number of days in the quarter.

All right, thanks very much.

And our next question comes from Henry McVey. Would you please state your company name.

Couple of questions, first Marty when you talk about

15 million, that's like 2.5 million absolute increase per quarter right?

Right.

If you - if you put the five percent. Right?

Right.

And then anything on top of that would be just if you

?

Right.

OK, go ahead.

Reality is

like yours. Now you're seeing, head count - head counts and

there is also underlying incentive types who actually perform and

same time would seem

flow so another challenge we have is the

at the same time. So, but that's

fact, I mean, if people are earning incentives

.

And then, just on the IT, the ITP, I think the last September some

I mean, can you just provide

down a little bit this quarter,

should we be wrapping that back up or

outsourcing

as well.

Yes, we talked about when we started this, it really focused like everybody else just on, you know, the

, you know, we have slowed down a number of projects that we deal when we think we need to do. We have not pushed that

down too much since the time I'll be here still moving ahead with a number of projects, with regards to the idea I'm outsourcing, I think you are now seeing at current levels the full impact of moving to IBM within our numbers. So

somewhat as a steady state with profitability as business volumes increase, you know, some upper pressure but we are not

.

Just two other questions one, for Greg and then one back for you Marty. Greg, are there any funds given the performance which you look across the sectors, Franklin

performance are you capacity constrained in terms of any of your products right now,

having to close things down and

a lot

one this quarter, and the two Marty, if you can just, your ROE is less than 12 percent and this thing

huge cash, how do you think about that just given where we are.

OK. I'll start, I mean like everybody

in this small half of the universe

on the growth side where we have now have a small

no longer a problem but this smaller would be a capacity constraint if that is grown and then within our small cap value group there, we announced when closing

but it seems like the, our balance sheet has picked up and rise in dividend, you know we're getting strong flows of those. So, there really isn't anything that could happen here in the next quarter that could have any material impact on flows because

constraints

have those issues and so I, you know, I don't see any problems there.

And then, just on the question on are we

the impact as it gets through, driven down by the increase in cash flows, those we've discussed in the past. It's - we have been, we do like to buy our stock, we are much more opportunistic than, say the market place might want us to be, but you know we saw it as, once again unclear what environment that we are in right now, we are in the first quarter, we just ran out

.

all right,

thank you.

And for our next question we go to the line of Richard

, would you please state your company name also?

(Inaudible) you said, like

business I guess yes, you know, you have to pay

to make a lot of

and, I guess, I want to know but even

does badly, they usually pay about 15 percent of revenue. You actually gotten your pay out pretty substantially from, for instance like in fourth quarter you're paying up 38 percent revenue and they are done about 35.5, given that you are not managing your business to overall operating margin, is there a certain level that you are targeting with regard to that?

With regard to compensation benefit

.

Exactly, what you

revenues.

Yes, with - whether you saw us really at the December quarter or probably, you know, something in this environment, we're, yes a reasonable level.

That's 37 and 38.

You know, just very careful, you know, on that it is we are pretty focussed on balance of, we reward people for the results and, you know, once again trying to stay focussed on the very difficult environment they were operating in.

(Inaudible) you're certainly bringing in money

on the marketing side

to that question, Greg, you mentioned about the advertising

little bit more than what the number actually showed but, you know, I would think that, given that, you know, the business is doing pretty well

relatively speaking that the number is still looking a bit

for instance in the quarter - in the fourth quarter when you were not bringing in nearly as much money that you're bringing in now in products which perhaps

the third, you know, you spend $32 million, so I know that you, you know, I'm kind of wrapping it up, but may be you can just give it a

because - as to where these numbers go or probably we should try

.

Now, as I said before a lot of moving parts in that number other than just advertising, you know, there is really all the deposits would be containing

and the sales promotion line is

support, you know in that line that it can vary quarter to quarter. So at this time, it really doesn't give you an accurate picture as to whether we going to increase or decrease advertising in percentage, you know that's the overall number and it did increase in the last quarter like we said it would, but the overall number, it got kind of lost

with the other parts and

the sense from our standpoint, I mean you're correct and actually we have done a lot of full-page ads and demo on TV and we'll continue to do that in the next quarter, but we don't expect to see that reflected in the - any big increase in the overall

. I think the message was that we're - that we expect that the number would be consistent with some of the numbers we talked about in past calls.

And just finally, Greg, you know

given that, you know, that you do have four or five

funds and a lot of them and the way that it looks like

it would not be wrong assuming that you might be losing

funds than gaining as a result of

.

Well, I think the point I would make, remember I read off all those

categories and if you look at funds performance in the family and

that's 687 families and really those rankings are all done based on relative performance and

is obviously on relative performance and that's truly what Morning Star was reacting to. (Inaudible), any group that has more value has more probability of having some lower or less star funds, you know, I think

value number and the very wealth in the category, so

know the risks co-ordinator's

or

you got some of the Franklin, the live-in funds, they all stand up very well on a relative basis. So, I, you know, we don't think there is lot of risks there when we look at the

categories, and how they

especially Templeton as well. I just

everything.

Greg, thank you.

I am going to come back to the advertised commercial

Richard because I think when you talked about the September quarter last year which was a big number, numbers did a lot of work on the

at that time. I remember people were saying what you guys doing and when you make those

and we'd made those commitments prior to some unforeseen events, and so I think that's really what we're trying to get across and, you know, so the levels that, you know, were expected in advertising and

in this quarter on the

probably more likely

seen in this last quarter.

Okay, great thank you.

And for our next question, we go to the line of Jeff Hopson of AG Edwards, please go ahead.

Thank you, three questions here, one on the Templeton side, I guess I'm intrigued with the possibility and Greg you, can you repeat what you said in terms of momentum is - momentum building would you say and what were the historical

that

, and I got a question in terms of how

accounts are becoming freed? And then finally, on the separate accounts side are you starting to see, Franklin Templeton products show up again more in terms of

what seems like the value international products with

and one if that's picking up?

(Inaudible) interrelated and the - probably the pick-up that we have seen in the sales and retail numbers are - have been more driven by 401(k) plans and we are well-positioned in a lot of plans, but we really

like everybody in the international, part of those plans we saw a decrease in flow and

biggest pick-up there in the last quarter, most through our alliance group and some of those big plans and maybe re-allocations in people because they are looking at the performance of those and looking for alternatives right now as in 401(k) did see a real pick-up there. I think the other part, the piece that is targeted to figure out is when does - you know, when that new dollar coming through the retail advisor,

did that change and I think my senses had a very low percentage in terms of history of international investments on the

out there that you no longer needed to invest internationally and I think as we've seen some of these numbers and some of the difficulties the US market is facing for a variety of reasons and the under valued stocks that really exist in Asia and now the relative and absolute numbers that are positive versus very negative numbers here in the US. I think that's what gets the retail side going and that's why we're starting

why do we get it back to the 25 - 30 percent, you know, the sales that we had five years ago that's anybody's guess, but I would imagine would certainly be back in the 20 percent range which is, you know, two times where we are today.

Okay just to set my

would you say that you are well established in most 401(k)s or are you still trying to

?

We are - yes very well established. I mean our strategy was to go after the larger plans through - a licensed person selling our own

today in the smaller end of the market, but we were very aggressive in getting into larger plans and we're actually in more plans than I think any other investment management firm. We don't have the most assets, but we're in the most plans

because of the strength of Templeton and everybody, you know vying that international well-known brand name in their - in their

plan. We are extremely well-positioned from that side. Your question on separate accounts. We were fortunate enough that we'd been in that business

for a long time and where many of our competitors were just getting into it this year. And we have about $4 billion in that area and it continues to be if not our fastest growing, one of our fastest growing groups we've combined what we sued to be Templeton portfolio advisory with Franklin Management Group to form a Franklin Templeton Private Client Group and now with fiduciary, it really has a whole another level of products and the strengths for multi

accounts that we just had improved, you know, rather the

screening with

the fiduciary product that we think, you know, that is another big opportunity today for us going forward.

OK. Then if I could ask some more. We have not heard much about the private client business on the fiduciary side. Can you just give us some update as far as what's going on there?

All right. Again with fiduciary and 09/11, then you have to put things in a right perspective as far as

really edging the business, again the business is back on its feet which is something that we - I think the organization has been very successful. So, we're not opposing, you know, change growth

business that had to be stabilized and may be short of clients and everything, you know, the right kind of retention and the right kind of systems were in place to service them. That's really been the focal point, you know, of the organization. We're continuing to have a lot of questions on what is a right model as far as ramping that up and extending it slowly, you know, doing that and we're having success. We're having success right here on the west coast and, you know, that's a priority for us. We still think that's going to be a very important business and clearly from a strategic standpoint, you know, conversations and things. There's a lot of time being spend on that model and really evaluating it but from the standpoint of what it means for us incrementally quarter to quarter growth, it's just not, you know,

expect some kind of big increase in that post 09/11

.

OK. Thanks a lot.

And our next question comes from

and please state the name of your company.

. Just a question, little

of advertising. Is that going to focus on Templeton or on Franklin

or the company as a whole?

It really focuses on all of the above. Our ad now falls similar looking field in a Franklin Templeton image branding campaign, but each ad also talks about a specific product line. So, right now, we have three new TV ads between Templeton

series and Franklin, but they are all kind of looking to give the same and we really went back and we used to run separate ads in separate looking fields. We thought it would make a lot sense for branding and leverage to have similar ads as far as it

and that's what we're running now.

OK. And just a little clarification on the Canadian accounts. They are going to be purchased? How many did you say there was and that would be sort of a one time stepdown

?

Yeah, it happens

I mean particularly what happens

in Canada but also the United States as you get close accounts during the year and then say on the systems of court administrator

for shareholders. 365,000 and at about $25 in account and we'll see the U.S. will have

in the fourth fiscal quarter of this year and we don't have those

.

So, this will

.

Right.

OK. Great. I think

all my questions were answered.

Thank you. Our next question comes from James

of Dresdner Kleinwort Wasserstei. Please go ahead.

I have a question for really or Greg or Marty. Are you - I just want to clarify on the advertising, I mean, I'm assuming that, you know, the next couple of quarters would be somewhat maybe slightly higher than what you've just done

you know, matching the large number they had a year ago in the fourth quarter, in your fourth fiscal quarter. Is that - is that roughly correct.

Yeah, that's a good thought process.

OK. Good. Thanks.

And for our next question, we go to Robert Lee. Would you please state your company name?

(Inaudible). Good afternoon. I'd like to go back, I asked questions that's related to capital strategy and the use of cash. I know, Marty you have talked in the past of

balance sheet in the event you

deal that you'd like to do? I'm trying to get a handle on this. Given the

of operating trends, even the

and capital you keep building, you know, what kind of acquisition do you think you'd be looking for that that would really accelerate what is happening already, and secondly, given the dilution that was created by the last acquisition, we've changed the - you know, what are you looking for in terms of pricing, you know, what kind of a trend you look for in the future deal.?

That's a - that's a great question, glad you've asked it in that way. I mean there's many, many, factors that are different now than from a year ago and I remember when we merged with Fiduciary Trust. It was a very different environment that what we ended up in

a very powerful market, you know,

downward trend, you know, we were clearly being sensitive to that environment and also, you know,

opportunistically around

. So, that was unclear to us where stock levels might go. With regard to acquisitions, you know, we think we have a very full, strong

lined up

well. There, in our opinion would be, no glaring hole. That said, you know, we do pay attention to when things become available, but

different pricing I think is one that everybody's learnt it's, you know, very, very important and will continue to be that way going forward. And

so we do continue to look at our capital structure we focused on the same things

the question

where the

, you know, how can we - you know, cash acquisitions would be helpful for the organization, but they have, you know, but they

nothing has materialized along those lines.

In fact as one follow-up, do you - given that, you know, seems like you generate something on that quarter of $400-$500 million cash flow or something around there. I mean even if there is no deal in the horizon, I mean, where do you reach a point where

we've got more than enough

and you know, at some point, earning 1.5 percent, you know, may be you just

you know, find that stock. Do you ever think of this targeting, you know, proportion of cash flow or something like that?

Yeah. You know,

we don't want to

I think we were true ourselves

and we put in the context of where our business will operate and we will continue to do that

the environment that we've been in

certain

being conservative we can take

horrible thing to do. The environment appears to be changing and, you know, we will continue to search

you know, that's to be effective and we are not sure what it means.

OK. Thanks.

Our final question comes from the line of Micheal Freudentstein and would you please state your company name?

Yeah, hi. J.P. Morgan. Good afternoon. Just wanted to ask you

on a just a first of all, Greg, I thought you said

the question

changes I thought effectively you're

expecting no impact. Is that correct?

No, I think we're expecting impact

you know, which funds - I think like anybody with value orientation, there'll be a decrease in the number of

funds and how, my point was that we're still doing very well in the

rankings which do look at the effective category. So, I, you know, I don't think it'll be a big impact. I think it clearly will not be a positive because you know, we do

on the value side between Franklin and Templeton, but I'll also argue that a five-star rate growth

is not going to matter a whole lot, you know, based on how

stand. So, it's not like because they do the space shift, 90 percent of the floats go back into the foreign

funds. That was

because that good absolute performance and that's

. So I think you will see a shift you know, within the traditional - what you know, you say 90 percent

floats for

I think that will change because we have a favorite category

all of a sudden

ranking

and that's an aggressive growth and today its' really not going to turn around its retail popularity. That's really the point, I think it will be probably ,

probably, we will loose at a few targets here and there, but overall, I - I don't think it is going to have a

.

OK. Thanks for clarification. Second question is just certainly back on expense for a second. I guess, you know, there is a lot of obviously moving parts, there is the 5 percent that is going to be going back in, there's some proportion that is variable depending on performance. I just, you know, trying to sort of better feel for it, may be one of things will be helpful, that you could tell us, you know, what portion of your comp and benefits is fixed or perhaps sort another way, of the 6400 employees you have,

what - what percentage of those are working, you know, under bonuses, one would say based on performance or flows versus which one, sort of more fixed?

Right now, because there is some excess of 20 percent of our comp and benefit line, so the whole line would be

based around the performance, you know, some type of a bonus. That's all.

OK, and my last question is just sort of more - sort of an industry related question, and I am just wondering, you know, I guess

what percentage of your third party retail distribution is through retail brokerage firms, and then may be tell us what kind of consideration you are giving to any potential impact from, you have attained from this conflicts and interest, if you could just currently circling around brokerage firms and whether you are - you are contemplating anything as a result.

No, I don't think the impact of what's flowing around, it will be severe, I think at the end of the day, we focus on, you know, the bigger trend and that's it, that's the investor need help and whether there is a traditional

or potential planner, you know, trends will effect what market traffic, what

model is to deliver that advice, but

you know, our business is built on being at every touch point with that advice modal and whether these currents issues affect the traditional, you know, New York Ware House, it's, I don't know, but I think at the end of the day, people need help as much as ever and think we are on the right side of equation and that is not going to go away. So.

Can you - can you remind us what - what percentage of your - of your flows comes through, let's say warehouses and the retail side.

Yeah, on the retail side, it really nears the industry numbers, probably more than any other firms that is probably in the 25 to 30 percent range, overall which - which is similar to, I think, the overall entry flows.

Great. Thank you very much.

And that is our last question for the question and answer question session, you may continue Mr. Flanagan?

Again, I would just like to thank everybody very much for participating and we will

in next quarter, have a good evening.

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