富蘭克林資源 (BEN) 2002 Q4 法說會逐字稿

Ladies and Gentlemen thank you for standing by, and welcome to the Franklin Resources fourth fiscal quarter, 2002 conference call.

At this time, all participants are in a listen-only mode, and later we will conduct a question and answer session and instructions will be given at that time.

If you should require assistance during the call, please press zero and then star and as a reminder this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Marty Flanagan, please go ahead.

Thank you very much and we'd like to thank everybody for taking the time to join us for our fourth quarter conference call.

This is Marty Flanagan along with Greg Johnson, we're both members of the office of the President, and today as we have done in the past, what we are going to focus on is to review the financial highlights, discuss that with management, fund flows role, our investment performance, a little more color on the operating result and business highlights and finally open it up for Q and A, and before we get started, I'd like to reference our forward-looking statements, they are in the 10K and 10Q, and as you know, the forward-looking statements address the risks and uncertainties which can circle around some comments which might be in this forward-looking statement today.

With that I would like to get started and highlight the quarter, a few key elements as how we would summarize it.

Clearly the fourth quarter was very challenging for us, the fiscal fourth quarter that was driven by the very very difficult capital market environment plan, we think our results are quite strong within that context, we continue to do a good job controlling costs, but more importantly looking further out, we still think we are very well positioned, our relative investment performance is still quite strong, the benefits of our adverse product line are showing to support us very very well, our continued strength in our global distribution and we continue to have improved service levels and continue to gain operating efficiencies.

Moving on to some of the highlights for the fourth quarter, operating revenues were $608 million versus $666 million last quarter and up from $606 million fourth quarter a year ago.

Net income for the quarter was $68 million and that includes a provision of $60 million, which we released last quarter.

Taking that out of net income would have been $113 million this quarter as compared to $125 million last quarter and $83 million fourth quarter a year ago.

Earnings per share this quarter were 0.26 per share, excluding the write-down, they would have been 0.43 per share in line with analyst's expectations and that compares to 0.48 last quarter and 0.32 one year ago.

During the quarter, we continue to see net inflows almost across the board throughout the complex, we did have depreciation in the assets that we manage of almost $27 billion or 10 percent of the beginning assets under management for the quarter.

Operating expenses decreased nine percent this quarter, as we saw operating revenues also decrease by nine percent.

Since this is also the end of our fiscal year, I'd like to highlight some of the results year over year.

Operating revenues for the fiscal year end 2002 were $2.5 billion as compared to $2.3 billion a year ago, so we can see some nice growth and revenue during a volatile market.

Net income was $432 million and that includes the $60 million provision, excluding that provision, that income was $477 million as compared to $484 million a year ago.

Earnings per share were 165 including the provision $1.82 excluding the provision during the year, as compared to $1.91 a year ago.

For the year we had net inflows of $19 billion, once again, like Broadway to the cross asset classes, this past 12 months was the best 12 months of net flows that we have seen since the 12 months ending July of 1998.

We had gross sales of $72 billion for the year or 29 percent of beginning assets under management.

During the year, we did have market depreciation of $19 billion offsetting the net inflows that we have had during the year.

Expenses increased 5 percent, year over year, while operating revenues increase seven percent.

EBITDA assets under management, we began the year, fiscal year with assets under management of $246 billion.

We reached a peak at the end of the March quarter of $274 billion.

We ended the year almost where we began with assets under management at $247 billion.

So, we are entering our new fiscal year with asset levels below where we started a year ago and I think this is an important note that for the analysts community that is focussing on their models going forward, and the decrease in asset levels, I think is quite clearly explained by in the fourth quarter with the very difficult markets largely being down 18 percent and during that past quarter.

The asset mix clearly was also impacted by the change in the markets at September 30th, equity assets represent 47 percent of our assets and our management and is compared to 52 percent of last quarter, within the equity categories, taking a look at styles, value equity represents 35 percent of the assets growth 6.7 percent and lended products are balanced by 5.4 percent.

Fixed income now represents 35 percent of our assets under management as compared to 30 percent last quarter.

Balance assets are highlighted as flat, quarter over quarter at just under 15 percent and money funds also not much of a change representing two percent of our assets under management, so no question, our diverse set up investment objective and styles and relative good performance has put us in relatively good operating position as compared to a number of our competitors.

And Greg is going to discuss asset flows.

Thank you Marty.

I think it is safe to say it was a difficult quarter regarding sales and redemptions but I think we are very pleased with the results that we see.

It seems the quarter and sales declining this 13 percent from 18.6 to 16 Billion.

Redemptions actually declining in a volatile environment, resulting in 3.1 billion in net flows.

Looking at the year numbers as Marty mentioned that 19.7 billion in net flows for the year versus 8.9 last year and minus 2.4 during 2000.

The new sales for the year were up 21 percent over the prior year compared to down one percent for the industry, so again, pretty good performance in a difficult environment.

Looking at the flows by asset categories as you would expect for the quarter, equity sales did decline, net flows did decline down to one billion from 3.7 but fixed income increased tax freeze with one billion in netted in flows in the quarter compared to 0.7 I think that's important to note the comment that we had on the last call about the change.

Some of the morning star rankings that did affect our tax-free funds you can see that despite the downgrades with the different metrology we had one of our best net in flows quarters.

And also in flows in all four major categories which again goes to the stability of the overall offerings so now I'll turn it back to Marty for the operating results.

Just to give a little more color and detail on the operating results that during this quarter as compared to last quarter.

Investment management fees were down seven percent, quarter over quarter, and that's clearly driven by the level of assets under management, at the end of the third quarter, average assets under management $275 billion average assets for the fourth fiscal quarter were $259 billion and once again to focus again on a point, going into our first fiscal quarter we began with assets under management of $248 billion, we would seem hard crust to get to average assets under management of $259 billion which we saw in the past quarters, so that's an important element in peoples revenue models, if they are looking forward here, also, we saw effective rates drop to 54.9 basis points as compared to 56 basis points last quarter once again that is reflected above the asset more towards fixed income away from some of the equity products that we have.

Underwriting distribution was down 11 percent during the quarter, that is on the back of the lower sales

just described.

Another point to highlight was our margins revenue, underwriting revenue minus underwriting expense decreased to about eight percent as compared to 10 percent last quarter, also a result of a changing mix in sales by share class and lower asset levels at the impact of us receiving fewer lower levels

.

Shareholder servicing fees were down 3.5 percent quarter over quarter, a lot of movement within that number, we have now a 9.6 million shareholder accounts as opposed to 9.7 million last quarter.

We have did have the purge of 1.2 million shareholder accounts during this quarter which we discussed the last conference call.

That was offset by an additional 900,000 shareholder accounts that were added with the purchase of the Pioneer business in India, by us during this quarter and the good news is we added another 250,000 shareholder accounts so during this volatile period we continued to add new investors which is good news for us going forward.

Looking at the operating expense line, compensation benefits was down six percent quarter over quarter this was largely driven by adjustments in the bonus pool based on performance.

We did end the quarter with 6,700 people, there was a net increase of employees with the purchase in India of about 180 people, so looking at accounts and benefit going forward they'll be some impact by the additional employees through that acquisition in India but we are going to continue to be very focused on their balancing compensation levels with the market place that we're operating in.

and occupancy dropped six percent during the quarter as we told you we've been trying to balance again our investments in technology for the future benefits against a difficult environment.

We have slowed quite dramatically a number of projects that we would like to work on going forward, but we also have had in this quarter some one time savings that would lead us to believe that next quarter the

would be more in line with last quarters level.

Advertising and promotion during the quarter was down 12 percent that was more a seasonal adjustment than us cutting back on advertising to save costs.

And then finally the other line was down G&A principally was down 31 percent reflective of two things, we described a very busy period last quarter and also at the same time we're very aggressive like most of the firms I'm trying to fair back discussion and extent.

We'll try to stay very focused on this line I would suggest in longer terms probably not sustainable levels.

Another couple of items I would highlight are operating margins at the end of the quarter was 23 percent, that's consistent with the prior three-quarters.

We think that's a good operating margin in this environment that we're in.

The other element I'd like to highlight is that we did purchase 3.7 million shares back of Franklin Resources during the quarter and with those highlights on the operating results I'll pass you back to Greg.

Thanks Marty on the investment performance front things were very stable as far as the numbers when you talk about long term consistence performance all of our major groups and funds really support the long term consistence numbers and if you look at our total assets 70 percent the Franklin Templeton long term U.S. mutual fund assets which still rank in the top two court files of their expected

groups and 93 percent of Franklin Templeton international global equity assets were in funds with four five star ranking by Morning Star.

Templeton again in the top two court files for one three five and 10.

Templeton growth foreign rank in the top 20 percent of the

peer groups for the one three five and 10 and top 10 percent for the one and three.

Mutual Series all of Mutual Series funds rank in the top court file of their respective

groups for the one three five and 10 year period and all the Mutual Series funds were ranked four five stars by Morning Star.

So continued good news there I think as we all know for the quarter growth got a little bit better than value and as you would expect with the Templeton sides are for the short term numbers they would have under performed for the first time in a quarter but still if you look at the more important numbers the one three five and 10 continued to look very strong and especially the three year now which the latest numbers will look even better.

Looking at the various retail units and some of the developments over the last quarter we conducted a survey for our advertising awareness and saw that that increased significantly based on a brand campaign that we did for Franklin Templeton.

On television we are pleased to see all the metrics and how we really measure or success in the retail broker dealer channel.

We continue to move up with all broker dealers and currently running with out number two over all in the industry and in terms of new products for the quarter we launched a donor advice Franklin Templeton charitable giving fund which we are seeing a lot of interest in and we also won we are in the final of two states for the 529 and are in the process to selecting which state to go with for our own

529 plan.

Looking at some of the other business units our private client or managed money group have failed increasing over 60 percent at the stop over 20 percent.

We talked recently in last call about the formation of our retirement division which combined many different groups with in Franklin Templeton that is dedicated to the retirement business to increase our visibility and better coordinate our efforts there and that seems to be running very well.

On the service front we are very pleased that

which franks how we are doing over all in the industry.

In service the main office operations are our results that just came out and we increased our ranking up from fifth in the prior year up to fourth and the financial advisor survey for over all opinion of the company we moved up from seventh in 2001 up to fourth place.

So those are that's good progress in those areas as well.

Internationally a great year for the global sales many of the countries had record years including Germany which was there best year since conception of that office were finally getting traction in Japan where a difficult market there but here in the last six months we have seen our assets there increase considerably.

On the institutional area we've funded some large accounts here in the last quarter and that resulted in over 1.3 billion in new assets through FTI institutional.

The pipe line continues to look very strong and we think that that will continue as many of defined benefit plans are under funded and we seem to think that the International as well as you have fixed income will be the real beneficiaries of some of the other funding in a defined benefit area.

So it looks pretty good as far as the pipeline and what to expect going forward there.

And now I'll turn it back to Marty.

As most of you know during this past quarter Charles Johnson has taken a leave of absence and during this period Greg is handling international development in Canada.

I'm handling alternative investments, the folding rate group and legal and both Greg and I am handling technology while Chuck is on leave.

And we believe this company is made up of a number of strong leaders than on the focus of Charlie Chaplins over the years he said a strong tone of bringing in talent and keeping talent and we think we have a very deep

undoubtedly during this period of transition of Chucks responsibilities.

We'll have some challenges but we think things will go quite smoothly because of the talent that we have in place and with that we'd like to open it up to any questions people might have.

Thank you.

Ladies and Gentlemen if you wish to ask a question please press the one on your touch tone phone.

You'll hear a tone indicating that you have been place in queue and you may remove yourself from queue at any time by pressing the pound key.

And if you're using a speakerphone please pick up your handset before pressing the number one.

One moment please for the first question.

Our first question comes from

with the Salomon Smith Barney.

Please go ahead.

Good afternoon.

I was wondering if you could give us a sense for in the non retail segment for what portion of the flows came from institutional separate accounts versus the private client portion of the new

and the funds in Canada, Europe and the other nine US regions at least the flavor for how that broke down.

Hi

this is Marty.

: Hi Marty.

I think what we'll do is we'll other than what we have in the press release I think we'll they'll be more detail in the flows which I know it's not exactly the answer you want at the moment.

But just picking up on a couple of points that Greg had made is that you know institutionally we did see some good flows coming from more along Franklin mandate and Templeton mandate which is one of the things we set out to do when we combine forces with the

trust so that has gone pretty well during the quarter.

And on the private client side you know we'll very

throw all the systems right now and that also continues to be a good part of our business.

But I know that's not the detail that you're ....

But the majority of that number would be your typical institutional number.

It wouldn't be the private client which still represent a very small number of overall sales.

: Fair enough and can you give us a sense to whether among

clients there's been a significant asset mixed ship to sixth income and you kind of were hinting at that in terms of where the new flow where you think the new flows are going to come from as people try to leave towards you know more complete funding on the pension side.

But the just overall in this additionally clientele are you seeing much more of a float or fixed income?

Well clearly that's when you said a clientele I'm speaking to the Institutional Group which producers represented through FTI and clearly the opportunities fixed income mandate we're seeing a lot of Institutional interests from that trend of under funded define benefits plans as well as international.

The producer also has the individual or high net work business and you probably seen a small ship with her clients there that maybe want a little less exposure to the equity markets but nothing in any significant way that you know would effect us.

The asset mix for the individual group.

: Now just the last question I'd like to ask you about the compensation if the market were to stay roughly at current levels, how would you think about compensation for the fiscal year that's just started.

What would it take you to make you say that you were going to roll back salaries again say five or 10 percent like you did in '01 or at least postpone merit increases like you did in that time.

What we have done is you know we have postponed merit increases at this time and we still stick you know with regards to you know rolling back salaries it is something our current intentions is not to do and you know we will continue to react to this market environment but as you know it's been just so vital that's its you know we thing it's unhealthy thing to be making changes like that you know often.

So we're very focused on you know trying to you know manage our expense levels at the same time of unless they can see people in their

of the firm.

So I do want to point out you know something else that you know clearly the bonus pulls do get a just buyer our operating performance if we continue to be negatively impacted that is something that will be impacted you know during this year going forward and there'll be - they said that we could close a pioneer acquisition this quarter so just if you're looking at the compete benefit line there will be a little bit above

pressure just with that you know combination.

Not a huge amount cause it's relatively small but there will be some.

: Fair enough thank you very much.

OK.

And we have a question from William

with Merrill Lynch, please go ahead.

OK.

Thank you good afternoon everybody.

Couple of questions I want to come back to the comp discussion before I ask a couple of questions.

Mike is it I explain a little

sorry the quaver you're in you know the absolute performance is rough but relative is terrific.

How long can you sustain you know not giving some kind of merit increase and even in keeping some what depressed bonus pool without having some type of potential electrician.

Sort of wondering that and then on top of that could you just sort of walk me through a incremental timing here on any residual producer incentives of

this year?

With regard to compensation no question I mean it's you know challenging environment.

I think you know lets compare and contrast where we are today and where we were fencing that

and we started to do some restructuring we were more or less by ourselves and what many people was of sort of a tangible market.

So I think a couple of things, it is a relative world now, our relative performance as a business is better then that of I think many other financials services organization because of the company been very, very well balanced.

We have communicated you know often and deeply with all the individuals within the firm and we are very committed to them and I think you know we have delivered on each of the commitments that we've had over time, but it's something that we think get you closer to a turn around instead of competition will be reflective of that, so it's a very hard thing to answer on timing.

Yeah I think you have to really separate the economic environment with the companies financial situation as well and when we look at the turn over rates very closely by every department has those numbers and our management reports and if we do see any time that may tell you that rather than wait for a problem you deal with the merit increases sooner and we do have the flexibility on certain cases to adjust compensation levels if that individuals compensation is not up to mark and we know you have to pay market rates, you have to have a competitive compensation package, we think we have that today and the turn over numbers for the organization are at the lowest we have seen in a long time.

Do you address any committal or announcement associated with the

and then within that, I know they have a small DBB plan using some of the nine percent as a market depreciation assumption, are you thinking of changing that?

The bulk of the earn outs in April '03 and then with the DBB plan as you point out the nine percent feels like a big number these days but it is a small plan so the impact will not be dramatic to us as an institution.

OK on the shareholder accounts that you brought over from the pioneer transaction in India, are the revenue capture rates on that which I guess is now about 10 percent of your book of business, are they about the same as what you were doing in your legacy business?

They will be largely the same, as you'll start to see that this next quarter.

Last question, you did step up a little bit in terms of your share repurchases this last quarter, are you signaling a new found commitment to being a little more consistent in terms of your buy back or were issues a little bit tedious given the volatility of the markets?

I'd say it's consistent with what we have been saying in the past and if we think we can find the stock that's available out there, we will consider buying it, that's just really what happens this quarter.

OK thanks very much.

And we have a question from Henry McVale from Morgan Stanley, please go ahead.

Good afternoon, just a couple of quick ones, Marty in your comments you were highlighting a couple of things, one is on the information technology that we go back up towards the prior quarter run rate, and then two, if you look at the average assets as well as just as a feed generation, I would assume that the feed generation declined during the quarter, is that fair, just as the make shift took place and you add substantial weakness in Europe later in the quarter.

Let me just ...

I think what you are trying to highlight is the pressure from the mix shift.

Yes and also that we do just try to be helpful with people, we do publish assets under management each quarter and that's a principle driver to investment management fees and hopefully earnings and we entered the quarter with assets under management for lower the average was, so that is something for people to pay attention to and then on the absentee line, more specifically, what we have been able to do this quarter as many

we've gotten some concessions from some vendors, now that's just not a thing that is built into the run rate and so that's why we'll try to be aggressive every where we can but it's not something you can deliver every quarter and not to get point backs highlighted.

Right.

One thing you told us last quarter it's just I think Greg had said that 40 percent of flows came from non-US sources including Europe and Canada.

Do you have a hard number for this quarter to compare.

About 30 percent right now.

OK and then Greg just one other, you talked about just specifically on the DB market that there was a move more towards fixed income than international can you just give us some more color on why you said that.

Well I think people are just looking at the overall mix of the plan and the risks that they may have been overweighed and the consultants are now looking at what was the large class domestic growth like everyone - probably got a little bit too high and moving back to asset allocation and just that those categories have been underweight over the last - over this kind of run we've had in the market and they're moving back to probably more normalized allocations, so I think you know that's where you're going to see big benefits from a net new money standpoint going into international and going into the fixed income which is the two categories that people didn't want exposure to three or four years ago.

But is that in the pipeline now or is that just what they discussed.

Yes I mean RP everything is the pipeline looks good, proposals you know that we're seeing continue to be at very high levels and also we think high levels relative to what's happening you know in the rest of the institutional market place.

Right and then just Marty on the one can you just give us some more color on how we should think about it given a three billion portfolio yet a $60 million write down, you know should we expect further and then next quarter will you go back towards will there be securitization in the income statements next quarter.

Yeah just on the portfolio the provision that we made just repeating some of the conversations that we had it represented two percent of our overall portfolio and about 75/80 percent of the portfolio is in cash - cash equivalent fixed income and all of this you know unrealized losses during this past year have been disclosed in comprehensive income within our income status so it's not really you know new news, and prior to that when we had unrealized gains they were also in that, and you know the challenge was and we think from our view being conservative of determining what others in temporary unrealized depreciation was and if there was ever a time to come to that conclusion it would seem that these would be those markets where what will be three years of consecutive down equity market so we view this as a very extraordinary time and this provision that we sort of free class out of our balance sheet back through our income statements is to be we would imagine you know very unique also.

And just in terms of securitizations is that ...

Yes we would we continue to stand

when we go about that portfolio to put the securitize them off our balance sheet.

OK thanks again.

And we have a question from

with Goldman Sachs, please go ahead.

Thank you lets see Greg I'm just you know kind of a little bit curious, your fixed income flows this year - I mean your equity flows have been fantastic but in fact they've outpaced your fixed income by over two times and it's curious given that you know we're hearing the opposite story from others and your brand is associated I mean way back with when with fixed income to some degree.

And I'm just wondering how much of this is just like a reallocation of marketing dollars?

And how much of it might be related to performance?

If you could just give us some ...

Well I think it - you know, we generalize equity versus fixed income and there's so much underlying, you know, what's happened to the average person.

Yeah there are some big net outflows in equity and fixed income's picked up a lot for us.

We have outflows in equities when they had big net inflows.

So we're a little bit - with all the value in international, our equity numbers are a little bit different than the rest of the business.

So you know, what's happened for us is that internationals picked up, values picked up, and they're both having net inflows.

And you know, that's a big part of our asset base relative to fixed income.

On the fixed income side, we're a different company than Franklin was, you know, when we were 90 percent fixed income.

side, we continue to be very dominant in our market share, and that is a huge part of - you know, 20, 25 percent of our sales today.

But on the taxable fixed side we don't have this year, you know, what used to be our U.S. government fund, still now one of our top selling funds again.

But you know, you've seen people like

come in and - in the taxable fixed side, and been very successful, and very dominant in terms of the industry flow.

So for us, when you talk about fixed income, you're really looking at the

side and then some other, you know, high yield and U.S. government, but nothing really that's going after that core kind of

taxable fixed area.

So is the taxable area becoming more of a

then?

I mean it looks like your redemptions have been pretty high, you know, throughout the year.

Well yeah.

I mean some of that - the floating rate, you know, was a big part of our taxable numbers, and that's been an area that's been under pressure, you know, for the industry in terms of outflows.

You know, we are getting a very renewed interest in the U.S. government, which had been in outflows for years.

And now, you know, it's having strong net inflows as well as interest in things like the

mortgages in this environment which, you know, start to look interesting.

And this could be a nice opportunity for us as well.

And are you allocating your marketing dollars now to reflect your asset mix?

I mean is it, you know, three quarters of those they're marketing dollars going to Templeton in mutual shares, one quarter going to the fixed income franchise, or how are you allocating those dollars?

Yes.

And I think that's a fair statement, and we don't - we try not to try to time.

And it's maybe somewhat

for marketing people, but we try to stay pretty consistent.

And we were out there marketing municipals a couple of years ago, and our big focus - we think the big opportunity for us right now is we have not been the base kind of funds that a lot of planners build their portfolios around.

So we have a big campaign right now called

where we're trying to take three of older client funds and show that these should be funds that you start your portfolio around.

Because the opportunity today that's really what large cap growth was doing and it was 50 percent, you know, of the industry sales.

And now we think we can build this kind of core mentality with the planners.

And if we can get into that shelf space, that's going to be the best place for us long-term, whether it's a Mutual Series fund, or a Franklin fund, we're trying to market those three new ideas.

And we have put a lot of effort into that and seen the results of that.

But I think that is a longer-term type strategy than just going out and trying to get some taxable fixed sales right now.

OK.

And one more question.

I think Marty may have said that,

, advertising was down this quarter, and that was seasonal.

But last year this was your biggest advertising quarter.

And you know, it was down - even if you look year over year, it was down like 21 percent year over year, and your revenues were actually flat.

So you know, it seems like there's something - there's some dynamic going on here.

There is.

And if you remember a year ago last quarter the advertising promotion was a big number - I think it's, it's $35 million and that was the highest we ever hit and if you remember at that time that was - we were pushing very hard on the back of really good performance and you know we thought that was a very smart thing to do and we ran right in to that market down turn so if you take that quarter out I think you'll - and look at the prior years and quarters it looks like a much more normal number.

And we're running a full page during the last - on the front families performance is kind of strategic spend on that quarter.

So it was unusual.

All right.

OK.

Well thank you.

I'm sorry.

Some good news

is if we are wrong last year in spending that money maybe we're wrong in not spending it this year in the speaking of a full market right now.

OK.

Thanks.

I didn't think you'd buy that.

All right.

And we have a question from

with A.G. Edwards.

Please go ahead

OK.

Thanks.

A question on acquisitions.

You've got a lot of cash on the balance sheet I guess earning low rates and it seems that certain acquires in years past maybe you're rethinking that strategy.

I guess you don't have any obvious holes but can you comment on how active your looking at you know ad ins on the

geographic or capability stand point?

Yeah

I think in this industry it's not a very acquisition environment.

There are a few things around but I think most people are just trying to be very reflective of where they are and how they should be operating and where they think they should be going quite forward so it's a pretty slow period that way and just picking up on your comment we don't feel that we have any obvious holes and our line up you know throughout the organization but you know we would continue to save something as interesting we will

.

: OK.

And maybe if I could just add on that on the international side of that any thoughts on properties there?

Any change in country by country efforts to really turn up the marketing?

Realizing that you know you're making good progress already?

Yeah I - just on the I mean acquisition side is that my comments with continue outside of the United States also I think you saw a couple -

there was a fairly well known company that was in a process of trying to sell itself and it you'll feel a part with just because of massive disconnect on what the seller was thinking the company was worth and what the buyers thought the company was worth and I think that's really slowed down those activities and I think

used the face of proxy for the rest of some of the US markets.

Yeah I mean clearly in the national side it's not an initiative or a priority but it's something we're looking into.

Anything that's out there that may make sense is certainly a domestic established market if we needed a domestic manager you know that's something we could do that would help our over all retail efforts and be able to get distribution for some of the capabilities that we couldn't unless we had that domestic manager.

So those are the kind of situations we would look at and then if - when prices get to a point where we can make strategic or make acquisitions that hopefully are accreted.

Those are the things that we'd want to look for as well.

: OK.

And then if I could follow up in terms of - you may have references but the institutional mandates on the fixed income side coming through the

sales force is that Franklin managed business though and you know what categories with sixth income are you seeing for the flows.

It's really when we talk about sixth income or the organization it still through

institutional which is a combined group between subsidizing and Franklin Templeton and it's institutional were two distinct groups prior that have been merged in to one global institutional platform.

Our institutional fixed income group is managed by subsidiary and generally more of an opportunistic global fixed income manager with some support research through the Franklin Templeton groups.

So really your looking for a core

for more of a search for active with sixth income we are benefiting from that trend and we have a very strong record and global theme

in that market place.

: OK very good thanks.

And we have a question from

from

please go ahead.

Thanks just a couple of quick Marty questions.

One in terms of the decline in the amortization of deferred sales commissions one question on that is that just a run off of the amortization of

shares if I remember correctly you secured types most of your

stuff and does that just continue as and maybe a follow on that when you mentioned in the under

distribution margin part of it is brought on by lower asset levels and lower

fees but part of it you mentioned is the mix of share prices maybe you could dig deeper and say what makes it because I don't know what it's affects are the deferred sales commission line as well.

Yes let see picking up on your company

your right on it's really a run off of the deferred commission assets on our balance sheet and as it gets to sort of the margin for the quarter I know people would like more guidance on this but it is really trying to project industrial behavior so were class up shares if they want and we don't know how to do that.

How about if we just asked from the 10 to eight percent drop how much of that is depreciation related versus how much is product related.

Yes honestly I don't have that number in front of me and I would just be guessing so.

OK fair enough how about this is a little obscure but on the balance sheet the other liabilities one drifted up about 43 million for the first time in a while I am just not sure what that what would be attributing to that.

That was the purchase of India really is one thing that as been a change on the balance sheet is that where you are talking about.

Yes.

Yes during the quarter.

OK one little memo item the 3.7 million shares did you mention average share price or total dollars spent or would you.

I did not we'll do it in the

if that is OK.

Not a

and then the last little thing is, is

really funded I remember last quarter part of that money was due to come in this quarters as part of the flows this quarter

is it totally funded.

It is fully funded and part of the flows were from

this quarter.

Great thanks Martin.

And we have a question from

with

please go ahead.

Good afternoon just two I guess a quick questions.

First of all you mentioned some of your successes and penetration internationally but you haven't mentioned anything about China and I think some of the using of restrictions in terms of operating in China.

Any thoughts they're for potential penetration.

Well we have spent a lot of time in China with senior management and have we are still in the like everybody early stages of how we're going to approach it and through what type of joint venture you know as you know you do need a local partner and they are in the process of considering I think four to six of these type of ventures that are going to get licenses.

So have, we're in, you know it's too early for us to report.

We have gone through a couple of litterations with this and you have somebody fully dedicated to looking at what we think will be the best opportunity right now but that's clearly a long, long term type project.

OK and then second of all in terms of retirement.

I think you mentioned last quarter you had approximately 81 billion in retirement assets 50 percent I think which were 41K related.

Do you have an up dated number on that and then also relate to that if you could just give us the two states you mentioned that you were looking at for the 529 plans would be helpful?

Yeah I don't have the number other than it hasn't shifted much with the probably around 75 billion with depreciation in the market place so somewhere the asset base declined the two states are New Jersey and Oregon and you know we're trying to figure out which one makes the most sense for us.

Thank you.

And we have a question from Robert Lee with Keefe Bruyette & Woods please go ahead.

Thank you most of them have been asked but I just have two quick ones.

First one that I guess it's for Marty I'm just curious and I'm going through the last quarters Q you I know I notice a, it looked like you sold a

to a I guess an investor.

I'm just trying get a sense of how that plays into your capital strategy and what your thoughts are of that since you obviously don't need the cash.

Right.

And secondly then I just have a follow up for Greg.

Just regard with the

that we did last quarter in just looking at the reason why we did it we just thought it was good value I think people would follow sort of a in a volatility in the options market was very, very high and we make

determinations one with that being the case we thought it would be a good time to do that.

And secondly it's consistent with this notion of buying back stock because the conclusion is are you willing to buy the stock at this price and the answer was yes.

So those are the two reasons why we did it.

OK and Greg I'm just curious I mean a lot of your competitors you know have been able to take advantage of pretty hot market for a

.

And yet and given the you know the solids of you

business I'm just curious is that a business that you know you just haven't been able to get on peoples calendar or is there a reason you haven't maybe gone after taking part of that window more aggressively?

Well it's obviously something that we've spent a lot of time debating internally and we think we have a unique

especially with regard to

and you know reputation that any time you leverage a fixed income investment you are subject to disappointment at some stage of you know when rates go up and that's been the history and our history with pre-closed

funds that we've got.

So you know it's not a question of getting on the calendar we're in regular discussion.

It's a question of us getting you know more comfortable with the notion and we never say never because it is obviously placed to our strength but we just haven't felt to date you know with the kind of momentum that we've had on the open inside that it's worth the risk with franchise and the brand name that we have in.

All right.

That's it thank you.

And we have a question from Mark

of Lehman Brothers, please go ahead.

m ?: Good afternoon guys.

First of all sorry I was giving you grief about the share repurchases, give you a little

first up and that they'll well appreciated.

On the related topic of the putt my understanding on that is that is a sort of a when it matures physical delivery if it's in the money balance sheet only impact is that accurate?

Yeah that's right.

: OK.

Just to be clear it was more then one and I handful of them that we did in different prices at different times.

: OK.

The Q didn't have if I recall detail on what exercise price level or when the expiration would be.

Could you give us a general sense of those or no?

Yeah, actually we did do the exercise period but not the price so it's a combination of protective January June and July by 2003.

We didn't do the foot prices and we consider doing that in the 10K-house line.

: Perfect thank you.

What of the things Greg that jumped out of me from looking at the flows and I certainty understand the dear and the headlights phenomenon and you know seemed to see that again in August and September, but with the big jump in sales into a much greater extent redemption's in July.

I'm a little surprise the magnitude of the decline in sales of redemption's on the international Global side.

Is that indicative of you know funding patterns on something in the institutional side with you know chunky mandates or something or is it just the way the numbers fall this quarter.

Yeah I think it's just the way the numbers I think we're back to more normalize numbers on the international side even to date you know this month and I was a little surprise by that as well.

But you know it could be the time of year and the volatility you know I didn't have a good answer either on that.

: OK.

And just to clarify you talked about I think you said very in three of international - institutional fundings in the last quarter.

Were you speaking of this quarter or the prior quarter.

9:30.

: The 9:30 quarter.

Right.

: Cause that would include the carpliers then?

Correct:

: And I might have missed I'll apologize if I did but you guys have talked a lot about the budget and the seasonal impact.

Did you talk at all about your expectations for the budget looking over the next couple of quarters?

Yeah we do look at advertising as an important thing and I guess we'll continue to do that, the balance that we will over lay it's effectiveness in the market place and so I think you could consider being you know in line with what was done in the past and seasonally the first quarter fiscal quarter is our lowest quarter.

: OK.

And oh I'm sorry I'm sure this was in a press release but I couldn't find it when I was just looking for it.

When did Pioneer actually close?

July so it was the first month.

: July?

Of this quarter.

: OK.

Thank you very much.

And Mr. Flanagan there are no further questions at this time.

Great well we've Greg and I would like thank everybody for participating and look forward to speaking to everybody next quarter.

Thank you.

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