富蘭克林資源 (BEN) 2006 Q2 法說會逐字稿

Good afternoon.

My name is Marvin and I will be your conference operator today.

At this time, I would like to welcome everyone to the Franklin Resources second fiscal quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

Before we begin, please note that the financial results for the quarter ended March 31, 2006 are preliminary.

Statements made in this conference call regarding Franklin Resources, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements and all known and unknown risks and uncertainties and other important factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.

These and other risks are described in more detail in Franklin's most recent press releases and filings with the SEC, including the risk factors and MD&A section of the Company's most recent Form 10-K and 10-Q filings.

I would now like to turn the conference over to Mr. Greg Johnson, CEO.

Please proceed with your conference.

Thank you.

Good afternoon, everyone.

This is Greg Johnson, Chief Executive Officer of Franklin Resources and joining me today is our CFO, Jim Baio.

I characterize the quarter as another solid, but a bit noisy, for the quarter and on the call today, Jim will address some of these adjustments in more detail.

And in addition to my usual discussion around some of the business highlights and trends and flows, I am going to spend a little bit more time around some of the short-term performance numbers and a little bit more detail around some of the trends on the flow side.

First of all, with the assets under management, obviously a strong growth in assets of about 6% from quarter-to-quarter and with the [EPA] up over 9%, clearly our mix benefited quite a bit from that and we closed the quarter at $491.6 billion.

Looking at the assets under management by the various groups and by category, we hit a high on the equity side of just over 60% from 58.8% as you would expect with the strong global market.

Fixed income declined from 22.8% to 21.7% of assets and hybrid declined slightly from 17.1% to 17%.

Moving on to the fund close.

Clearly the trend in the quarter was down from the prior quarter to 2.6 from 5.9.

Looking at the gross sales -- actually the gross sale number increased overall from the complex from $30.4 billion to $32.6 billion, but redemptions increased 22% from $24.5 billion to $30 billion.

Looking at the net sales in the U.S. and outside of the U.S., U.S. net sales were 1.2, which was down significantly from 4.1 in the prior quarter and non-U.S. sales net were 1.4 versus 1.8.

Looking at overall sales by channel and clearly, here, I think this tells somewhat the story for the quarter.

Retail actually increased by just over 40% from $3.6 billion to $5.1 billion.

And this was on a global basis.

Gross sales increased from $21.1 billion to $23.9 billion and redemptions were up slightly from 17.5 to 18.8.

I think the trend as far as the mix for us has been very similar.

The Franklin Income Fund, Mutual Series funds continued to gain momentum and had an extremely strong quarter on the back of their strong relative performance.

Another area where we're seeing a lot of momentum is in the global bond area with Templeton and also a (indiscernible) product that we have just brought out in the prior quarters, BRIC fund, which had over $500 million in sales.

As you would expect on the outflow side on the retail fund, the Templeton funds continue to be under pressure, especially the Templeton Foreign fund, which has a lot of retirement assets and investment-only, as well as the Franklin small and mid cap growth fund.

On the institutional side, sales were just down slightly from 8.7 on a global basis down to 8.2, but redemptions picked up from 6.6 to 10.8.

And again a little color around those numbers.

We did see some rebalancing with many accounts at the beginning of the year.

Global markets have been strong, so you will have some reductions and redemptions from that.

We also had a large partial redemption of a Middle Eastern account that was one of our large accounts on the books and half of that came off, which was $800 million and then in Canada, we have a very long-standing relationship there with a subadvisory relationship and that was just due to again a rebalancing and a change of direction there and that resulted in a $550 million liquidation.

We had a CLO that matured during the period of $521 million and we expect to see that to come back in in the current quarter.

As a result, I think it is safe to say that the short-term issues are there in the global equity mandate, but we continue to have good absolute returns and I think a lot of the redemptions there have been due to some of the rebalancing to get back within planned guidelines.

On the institutional side, we are still seeing a strong demand for a lot of our various products and some of them that are relatively new to the institutional side with private equity, more absolute return type vehicles and we are talking about strategies like our emerging market debt, our high yield, our fixed-income absolute return, Darby and Fiduciary's private real estate, as well as the Templeton emerging market and portfolios specializing in markets like India and Japan that we have seen an interest on the institutional side.

So we're still very optimistic on the potential there for fixed-income growth, especially in Asia.

Looking at the sales by asset class.

Equity sales were down by $2.2 billion from $3.2 billion to $1 billion net and again, most of that was on the global international side, which declined from 3.3 to 1.5.

Again, the significant change there were those larger accounts that I had mentioned previously.

On the fixed-income side, total fixed-income sales for net basis were down slightly from $900 million to $600 million, but again a CLO represented $521 million of that number and we are seeing strong demand for our global bond product on the back of a very strong performance there.

Looking at investment performance, again, I think there are no real significant changes there.

The overall consistent solid long-term performance with 77% of our long-term assets in the top two quartiles for the three-year period, 90% for the five-year and 95% for the ten-year.

Templeton Global Bond Fund that was ranked in the top quartile for the 1, 3, 5 and 10-year periods and also received a Lipper Leader Award for total return and has a five-star Morningstar rating.

Mutual Series had a tremendous quarter and continues to have excellent short-term, as well as long-term performance and Beacon was ranked in the top third for the 1, 3, 5 and 10-year period and qualified top quintile for 1, 3, 5 and 10-year periods.

The Franklin Income Fund, which again is a very important part of our overall sales, especially in the U.S., and on the prior call, we did have a short-term somewhat slip in performance, but that has come back quickly and is now, even on the one-year number, in the top third of its class and still maintains the five-star rating by Morningstar.

I wanted to spend just a minute on the Templeton performance because I think as you look across the complex and that is really where the short-term issues are with regard to performance and I can tell you that it's a question that we get quite a bit and we feel very confident in the team and the process and it is very similar to other periods where Templeton has underperformed market.

They have a very disciplined approach.

They buy sectors that are out of favor and those sectors in the last year had concentrations in holdings in places like media, telecom and pharmaceuticals, which obviously have not done very well and Templeton has a very disciplined approach to how they sell securities.

And in these kind of markets where stocks can get ahead of themselves and things continue to move beyond what we think are some reasonable values.

In the Templeton organization, that can hurt short-term performance.

So it is not unusual for Templeton to be underperforming in this type of marketplace and I think we're very confident when we look at the team and the experience there that it will be very similar to other periods where hopefully we have a strong turnaround in those performance numbers.

But again looking at the 5 and 10-year numbers, that to us is the most important part of performance and those continue to look very.

So with that, I will turn it over to Jim for a discussion of the operating results.

Jim.

Thanks, Greg and welcome, everyone.

We will start with a couple of highlights and looking at the top line, our revenues for the quarter were $1.255 billion, up 6% quarter-over-quarter and 19% year-over-year.

In terms of net income for the quarter, we had $197 million of net income, a decline of 38% quarter-over-quarter and 11% year-over-year and as Greg mentioned, there are a few items in there that we will call out to you and give you a little bit of color on.

Looking closer then at the revenues for the Company, total revenues, as I said, $1.255 million and the increase of 6% caused mostly in the investment management fee line of $39 million and underwriting and distribution in the investment management fee up 6% almost very tied to the average assets under management and underwriting and distribution driven both by the assets under management, as well as gross sales.

Our underwriting margins this quarter were about 7.2%, a little bit lower than recent quarters.

That is just based on the sales mix during the period.

We would estimate margins going forward to normalize out more in the 7.5% to 8.5% range.

Looking then to operating expenses.

Underwriting and distribution expense was up in line with the increase in the revenues and as I mentioned the impact of the margin.

Compensation and benefits were up about 6% this quarter.

That is a few things going on there.

We had an increase in head count of about 250 people.

We had the first -- this is the first full quarter of the merit increases that went into effect on December 1, 2005, so there is an increase from that.

And then also you have seasonal payroll taxes as you know in the first quarter.

So we would look for this line to level out in the 230, 240 range going forward.

Advertising and promotion was up 19%.

We did have some increased TV and print adds this quarter, as I am sure you have all seen and then as you see in the body of the income statement and in the text of the press release, we took an impairment charge on an intangible asset and this is around our Fiduciary Trust business and the amount was $68,400,000 and following the accounting rules, we went through a reorganization in this business and caused a triggering event and looked at the value of the asset and have taken that adjustment.

We continue to complete our analysis on that as does our auditors and could be wrapping that up -- will be wrapping that up as we file our 10-Q.

On the other expense line, 21% higher than last quarter.

Last quarter was a little on the light side, but we are probably at that 45 range is what you might anticipate given the revenue base that we are working on.

Looking below the line then, other income was up dramatically, 92% to $65 million, caused by several things.

In part, by our sponsored investment products being up $6 million and again that is a hard line to predict.

It is based largely on what is going on in the market and it is our investments in our products.

We also had a big investment income gain included in the $55 million as we took some gains just from our corporate portfolio.

We had one item in particular that makes up most of the increase or the substantial portion of the increase I should say.

And interest expense, you see that coming down as a result of the (indiscernible) option notes being redeemed during the period.

Pretax income then, $415 million, down 5% over last quarter and then taxes on income, $218 million and as we said in the press release, that's because -- the high rate is due because we recognize the $111 million, $112 million charge on the repatriated earnings that we have talked about in the last couple of conference calls.

So no surprise there.

So all-in then, diluted earnings per share $0.74 compared to $1.21 last quarter and during the quarter, we bought back 415,000 shares and had a total payout, including the dividend payout and the repurchase payout, of close to 36% for the quarter.

And with that, I will turn it back to Greg for business highlights.

Greg.

Thanks, Jim.

Business highlights on the U.S. -- on the retail front, we've talked about the importance and focus of Edward Jones and our new partnership there and we're pleased to see that we are number two within there system and think we still have a lot of momentum left and a long-term relationship with Jones.

Some trends on the product side with various funds and we have spoken before about the founding fund strategy, which is really the trend in packaging various funds together and that today is around our number two seller in the Company, but more importantly recently the success of that strategy has led to the inclusion on some various variable annuity platforms here beginning in May.

On the international retail front, the trend towards open architecture continues to benefit the distribution of our [CCAT] products and very many today with assets going to a record level at $19 billion.

Italy, the second largest European market, has crossed $4 billion for us during the quarter.

I mentioned one of our product launches, which has gotten a lot of attention and sales with the BRIC fund and to date, $600 million in assets.

The local asset management companies that we -- between India and Japan, again, we are seeing success there.

India, during the quarter, had a Templeton India smaller companies fund, which generated close to $300 million during the prior quarter and we're pleased to see that CCAT has crossed $42 billion in assets since the prior quarter.

Canada, again along the lines of packaging various funds together.

The success of our [Potential], which is one of the top-selling products in Canada, $5.2 billion in Canadian dollars or $4.5 billion in U.S. in less than four years of existence and we're still seeing a strong interest in Canada and the (indiscernible) Canadian equity and balanced mandate.

In the institutional side, as I mentioned, the focus has been on the fixed-income capabilities and we are seeing high interest in Asia, seeing a number of opportunities and we were recently awarded our first fixed-income separate account in China.

The other areas of interest along the emerging markets (indiscernible) U.S. high yields, (indiscernible) [plus] and in new category, Franklin's absolute return strategy.

During the quarter we formed the Fiduciary Global Advisor, which is part of the reorganization at Fiduciary Trust that creates an investment platform that combines the institutional equity and real estate research and portfolio management team at Fiduciary Trust.

So with that, we will now open it up for Q&A.

(OPERATOR INSTRUCTIONS).

Daniel Goldberg, Bear Stearns.

Can you talk at all if you have seen -- you gave us I think some good highlights in terms of where some of the concern was in the short term during the quarter.

Have you seen any change in those trends so far through the first three weeks of April?

No.

The only -- and the other part I didn't talk about with Templeton would be how the dollar moves in the short term because they don't hedge will have a fairly dramatic effect on short-term performance and in '05, that didn't help Templeton and I guess you could say that more recently, the dollar's weakness could only benefit those numbers, but that would be it as far as any short-term trends that I have seen.

Okay.

And then just overall, how should we think about -- when you look at each of the products and really distribution channels, you see a part of a quarter decrease in net flows I think except for maybe the tax-free assets and you did give us some detail there.

But how should we think about that as we look to forecast going forward?

What are the trends we should think about that that might turn around?

Well, I think the -- very difficult to forecast where flows are going to go and I've just tried to put as much color between some of the channels to give you a better sense on where the trends are and I think it is always hard for us to sit here as it is for you to project what can happen in the institutional market place.

You can get the benefit in the quarter of large accounts coming in or you can, obviously like we had the last quarter, keep -- the other direction.

So it is very difficult to forecast and that is why I think it is important to look at the retail flows because that is more maybe indicative of what is really happening from the performance numbers.

And clearly Templeton -- that is an issue short term and it is hard for us to say how quickly that will turn around, but I think the good news for us is that we are getting attention in some asset classes we haven't been or that don't really have a strong presence in like the global bond area and the fixed-income side institutionally.

And hopefully those can more than make up the loss and also Mutual Series, which has global products that have done extremely well and we're starting to get a lot of attention on the mutual Discovery fund and it's doing very well in Europe and picking up some of the slack just for the short term with Templeton.

Okay.

And then on the cash, you have a decent amount of cash on the balance sheet, continue to buy back stock this quarter as well.

How should we think about your cash usage going forward in terms of repurchases, dividends and then also of course acquisition?

No real change in our philosophy overall on that topic.

We continue to be -- look to the stock at opportunistic times and have our dividends as set by the Board.

On the M&A front, we do that pretty much the same way on a very opportunistic point of view.

So really no change in our views on any of those topics.

Is there a certain level that the stock reaches you would be much more aggressive in buying back?

Well, we basically wait and see what happens and react as the market is moving.

Chris Meyer, Morgan Stanley.

Greg, just to draw down a bit onto these flows and particularly outside the U.S., I appreciate if you add back the Middle East and if you add back Canada, the situation looks a lot better, but maybe just give us a sense.

We have seen from Merrill Lynch, we have seen from InvestCap that the European and the Asian investor really is reengaging into the equity markets.

I would have thought that you guys would see much better inflows in a quarter like this from your non-U.S. client base.

Can you just give us a sense of what is happening there?

I think you are correct.

We are benefiting from the trend in Asia and our Asia growth fund on the Templeton side had an extremely strong quarter in flows.

But again a couple of other -- we have a lot of assets and fixed income in Asia and maybe they haven't done as well in the past quarter.

And in Europe, we unfortunately had a turnover for medical reasons of our lead manager in that fund and a lot of that is platform-driven, so that immediately puts you on hold where we had a lot of momentum in that area.

So that hopefully league is more of a short-term aberration, but one that did affect the flows there, but we believe and are still as just optimistic as we have been in prior quarters on the overall flows and Asia is still very strong for us on the equity side.

Sorry.

Which country was the portfolio manager turnover issue?

It's not a turnover issue; it's a medical leave.

We had to obviously change the management on that fund and that is run out of Edinburgh for Templeton, the European fund.

And then just on the dollar impact, Greg.

I appreciate that if the dollar is stronger it hurts your Templeton funds.

But can you give us any sense of, if you look at the attribution of those funds, how much of it may have come from the dollar impact?

It is certainly a portion of it, but the bigger portion is the stocks and the concentration in some of those names that unfortunately have gotten cheaper in the short run and that is around media and telecom and pharmaceuticals and that is just typical of the cycles with Templeton and the discipline that they have in investing and how far the dollar as far as attribution I wouldn't want to speculate on that number, but it does have a significant effect on the relative number.

And then lastly just on performance for the institutional product.

The moderation in flows into the institutional business, is that a performance issue at all or is it really, as you said, mostly a rebalancing around too much exposure to international markets?

I think it's both.

I think it was a performance issue with the one large account that we had that gained half of that amount, which was $800 million and then some of the other ones were rebalancing and I don't have the exact numbers, but clearly a combination of the two.

But again, the gross sales number was fairly flat with the prior quarter.

And then just on the cash, I appreciate you guys can't give much away, but I'm sure everyone on the call is very anxious to hear just how you have built up a lot of cash and it is kind of a new issue.

A lot of the cash has come in probably the last five or six quarters.

You have repatriated this capital from overseas.

Just try and give us a sense of how urgent, if there is a sense of urgency, you feel like the cash on the balance sheet is creating an opportunity cost for Franklin?

I think we view it first in terms of looking out for the shareholders.

So our first thing we want to do is make sure we preserve the cash and don't do anything foolish with it.

So we're always focused on that because we think that is the best answer for the shareholder.

We don't feel pressured to do anything.

We want to be thoughtful about it and really again there is really no change in our views on all that.

Was there anything around the timing of the special dividend that happened this time last year that meant you didn't do one this time this year?

No, there was no connection with what did happen versus what didn't happen this year and again that is a Board decision.

So then finally, on that though, why was the thinking different then this year?

If you have got more cash, the Company is in better shape, why was there no special dividends this year when you paid one last year?

Well, again, last year was just what you called it.

It was a special dividend that the Board looked at that situation at that time and came to that conclusion.

It is a topic at the Board and they haven't come to that conclusion, but they are well aware of the cash levels and where that is going and keep us mindful of the safety of all those investments.

Christopher Spahr, Prudential.

A little bit more clinical question on the non-U.S. clients.

What percent of total AUM was that?

Non-U.S., including -- when you say non-U.S., you are talking about clients based outside of the United States?

That's correct, yes.

Okay.

Because sometimes people talk about asset class as non-U.S.

No.

About 30% overall.

So that has increased a bit?

Right.

Then when you talk about prior periods of Templeton underperformance and I guess you are implying that given its valuation standpoint that that happens, can you give us an example of when that was and how long it took for it, the inflows, to turn around?

Well, the most dramatic was the value growth of about five years ago now that Templeton was significantly underperforming the market.

We were under a lot of pressure and that quickly turned around very quickly because the relative performance change was so dramatic.

I don't think you're looking at that kind of disparity in the market that you have, but people, especially a lot of our long-term clients, have been through these cycles with Templeton so we have that benefit that they do understand how Templeton manages money and it is not managed against risk versus the index.

It's a bottom up stock picking and with that, you leave yourself vulnerable to short-term periods of under performance.

So that is how the product is sold.

That is how it's serviced.

I think a lot of people do understand that and we still have very strong sales.

We're really talking about a few funds that are in net redemption.

Templeton Growth Fund continues to have extremely strong sales and are up quite a bit from the prior year.

Cynthia Mayer, Merrill Lynch.

You mentioned that the foreign series is holding a lot of retirement accounts and you seem to be connecting that to the redemption somehow.

And I'm just wondering if you could clarify that a little bit?

Really the investment-only on platforms where could be consultant-driven, especially at the beginning of the year when they look at the plan and they rebalance or change managers in some cases.

The two funds where we have the heaviest concentration of those type of retirement, which one could argue almost more institutional type assets, but they are placed with individuals, are extremely vulnerable in periods of short-term performance in the larger redemption rates and that is where for us the small mid cap fund, which has a lot of those retirement assets, as well as Templeton has experienced redemptions from that.

Okay.

Is it possible to quantify a little bit how much of the redemptions were from rebalancing and retirement accounts?

No, I don't have that number available.

Okay.

And in the Edward Jones channel, what is it that you are primarily selling there?

Really across the line.

Mutual Series is doing extremely well.

Mutual Discovery and nothing in particular.

They do narrow, the amount of funds that are sold through their channel.

So it is not everything, but clearly it is the well-balanced group of our fund.

Okay.

And on the repatriation, I am wondering if you could bring us up to date at all on the timing of when you might have a plan to discuss.

I'm sorry, Cynthia, do you mean --?

The use of repatriated funds?

Do you have to present a plan at a certain point?

We do and we had to have a plan approved, which Greg and the Board did do and we have started to execute on that plan.

We brought back some of the money and we will bring back more later this year, but if you go through the permitted uses by the statute, pretty much everything we-- things that are on there that you might expect would be on the plan.

Things like hiring and compensation and R&D and investments in current kinds of fixed assets and things like that.

So we are in the period now where we are spending against that plan.

I guess does the plan specify what you will do or does it specify a number of things of which you may do some?

It sounds like it's a pretty wide open -- it sounds like it's a plan that allows for a lot of things and then as you go along, you will handle it more opportunistically.

Is that fair?

Well, yes, not to get into the technical parts of the rules involved, but, yes, you lay out what you're going to -- what you plan to spend it on and then you monitor against that and then there is some flexibility to spend higher on some things, lower on other things and so it's a question then of monitoring and reporting as you go along and just being careful that you meet all those objectives over the period.

And so from our point of view, we will learn about what is in the plan basically as you execute it, right?

Well, yes, I don't know that we have any thoughts about detailing what specifics are in the plan, but we will certainly keep you up to speed on how we are doing against the plan in general and the time horizon, which as you know generally speaking three to five years.

Bill Katz, Buckingham Research.

Staying with the industry consolidation theme for a moment.

I look across your platform, you seem reasonably well-diversified with the exception of maybe growth overall.

Greg, I'm just curious how do you balance acquisition versus organic development, particularly what seems to be an accelerating style shift here, which you don't seem to have a good exposure to?

Are there any advantages that you look at from a BlackRock or a Legg Mason perspective now saying, gee, we need to be $1 trillion entity or would the incremental acquisition be more (indiscernible)?

A lot of questions in there, Bill.

Well, time is short.

I think first of all we don't feel any compelling reason why we have to be a $1 trillion in size.

I think we have the scale where the organization can support distribution in just about any viable channel that exists and we feel like we get pretty strong leverage out of that globally.

So we don't feel any need to or any relevance in how we're ranked globally as an organization.

What was the other -- the first part was --?

Just in terms of your organic growth versus (indiscernible).

Still the same point.

Could we expect that you'd be looking to be a bit more active on acquisitions and use up some of the liquidity here due to repatriation?

First of all, I can't separate in most cases the need for organic growth versus -- that is part of our acquisition strategy.

It's not too generally -- can't make an acquisition at today's prices without any growth expectations.

So we want to acquire if we need to acquire a firm that we can immediately -- that firm can benefit from our distribution network globally and we can realize value from that.

So in answering your question around the growth side, we do have a strong capability here with the growth group.

We have made that investment and that is the strategy to build that organically and if we can enhance the lineup or enhance that group through an acquisition and offer a stronger product platform, then we are certainly open to that.

The goal for today is organic growth.

Okay.

And then the other thing that was intriguing by your comments is the rebalancing issue.

I was just curious where are we in terms of a lead lag with that?

Is that something that was a one quarter phenomenon or would that issue bump up against your organic growth for a couple of quarters here given the strong absolute performance over the last couple of years and overall in that asset class?

Well generally you'd see more of the movement within the plan at the start of the year and in many cases you know that that movement could take place.

It could be a rebalancing.

It could be a liquidation and a lot of times it is concentrated in that quarter.

So I wouldn't expect that to continue, but you never know what the future holds for any future redemptions that could happen.

Hopefully that has flowed up, but I think that's the question mark.

Any way to quantify what the magnitude of the impact was this quarter?

No, I don't have a breakdown between that allocation versus any [lost] account.

Michael Carrier, UBS.

Just another question on the flows.

When I look at the institutional I understand some of the kind of one-off items that you mentioned.

And I understand the international given some of the performance issues.

But I guess what I am trying to figure out is on the retail side, when you're looking at 4% organic growth, if I look at the other products besides international with the strong performance, it's just surprising that, you know, with the strong performance, the flows in those products aren't offsetting the international.

I'm just wondering is there anything, like in the distribution channels, sort of like a mixed message that Franklin is known for their international fund and not the other funds that are actually performing fairly strongly?

And I'd also like to know if you're seeing that or if so, how does that change?

Well, I think the momentum has been in the global equity side so unfortunately the time of underperformance is a time when the market continues to expand.

You haven't seen any real big retail flows into the [viewing] area or taxable bond area to speak of and the domestic equity has been relatively flat as far as overall flows.

So I think our numbers are fairly consistent with that and we think we can grow certainly Mutual Series, which has had a tremendous performance and is gaining marketshare consistently.

That is a real opportunity for us on the domestic side.

So I don't see anything that tells us we can't be successful in a given category because we are known for global.

I think each of these brands have very strong awareness and market acceptance out there today and I think their size reflects that.

Jeff Hopson, AG Edwards.

Sorry to beat a dead horse.

I'm surprised that as it appears in the table, domestic equity net outflows I guess considering the mutual shares and I know performance on mid cap products generally is okay.

I'm missing something there and then on the muni side, it seems like industry flows have improved in the first quarter.

Any thoughts on whether that is an area of opportunity for you guys or are you getting your share there?

I'll take the first part with the domestic flows.

I think you are correct.

The performance has improved on the small mid, but part of that is the lag effect and some of the changes in these investment-only plans and again, we had a huge portion of those assets in those retirement plans.

So for the quarter, $750 million roughly was net redemptions relating to that fund, that one particular fund.

So that would have a fairly dramatic impact on the overall domestic numbers.

So we hope to see those numbers improve just like munis and munis is something we are seeing more acceptance now.

I think the feeling that maybe the Fed is done raising rates to get people a bit more interesting in munis and the relative valuation in spreads are still very attractive for munis.

So I think that is an opportunity to kind of wake up an area that has been relatively flat for a few years.

[Brian Buchesney], RiverSource Investments.

As owners and stewards of the business look out over the next year and if the cash balances or cash and investments are about the same as they are today, would you be disappointed?

Would we be disappointed?

Well, again, what we're going to focus on is how we are protecting that money while we are not making a big investment or a special dividend.

So we are focused on keeping it safe, investing it in a relatively short-term basis for the most part, helping us seed our products and we don't look at it in that context I guess is the short answer to your question.

Can you just then remind me how you think (technical difficulty)?

Well, I can -- we think about it -- obviously the first goal is to enhance shareholder value and we have been doing this for a long time and feel that while it is easy to speculate on the drag on earnings short term of having cash, but there is also benefits in an organization that we have talked about the opportunity for significant enhancement of shareholder value through acquisitions and possibly in a marketplace where that cash could separate you from many other entities.

That is still important.

The question what is the right level.

I think that is a good question and one that we wrestle with quite a bit, as well as the buyback strategy and the dividends.

I think you can look at a company that has -- you could argue has been somewhat conservative there, but has been very effective in doing that over the years and will continue to be strategic about it.

What that means as far as the potential for dividend increases or buybacks, I think is all possible as well as acquisition.

It is just hard for us to give you anything that would satisfy the desire to know what the plans are because at the end of the day it really changes every day, but I can tell you it is something that we spend a lot of time talking about and at some level, it is (indiscernible) and that is a level that we have to figure out and if there is a number there, that is the number you would want to be more aggressive about buybacks and more aggressive about dividend increase.

Robert Lee, KBW.

I just have a quick question on actually the write-down at Fiduciary.

I guess my impression is that the asset levels there are around what they were when you originally acquired the company early in '01.

Can you talk a little bit about what there was about the reorganization that would have caused you to take a write-down?

I am assuming there's something about the earnings power of the organization that would drive that.

The accounting rules around it are complex and vague at the same time, but what they do is they focus you on the assets that you acquired.

So your thought about the asset levels being about the same is generally a good assumption, but the accounting rules are around the assets that you acquired and what their levels are.

In the reorganization, part of the rules are -- that causes you to stop and look at the value of those assets and their cash flows and so on.

So you are on the right track, but you just have to think of just a piece of the assets.

And I have a follow-up.

Maybe just trying to clarify in my own mind the structure of your institutional distribution platform.

You talked about restructuring I guess Fiduciary and combining I guess the real estate into their institutional platform and then you have the Templeton platform, which I assume is something separate.

I guess I had been somewhat under the impression that you had tried to centralize more of the institutional distribution platform.

Is that correct or can you maybe just update us on what the structure is there?

There was probably some confusion in how that was presented, but we already -- the distribution platform is completely centralized and that was done a while ago and everything from service and sales is rolled up underneath the Franklin Templeton Institutional group.

This was really a realignment from the old Fiduciary structure reorganization splitting out the high network business as a separate legal entity that can be entirely focused on their customer segment and then having the portfolio management on the institutional side as a separate entity as well similar to how we are structured overall as a company and that Fiduciary Global Advisors is supported by Franklin Templeton Institutional.

So that hasn't changed with that new creation of that entity.

Which leads me to a question on the high net worth business since you are legally separating that.

Is there any thought to -- given that you have all this cash from the repatriation -- to accelerating a buildout of that platform as some competitors have in recent years?

Yes.

We are open to that.

We want to build that business.

We want to invest in it and Fiduciary has a strong presence obviously on the East Coast and we would like to continue to build it out around the rest of the United States and we are very open to doing that.

There are no specific plans to say open five offices next year or three or ten over ten years or something?

No.

I think it is similar where we try to be strategic about it and it's something -- we try to look at everything that is out there and if something makes sense versus trying to put an arbitrary number, that is kind of how we operate.

Michael Hecht, Banc of America.

Just a quick follow-up on the Fiduciary Trust question.

I just wanted to clarify.

The last data point I had there was about $42 billion in assets at the end of last year.

Is that where they are now and I just wanted to get a sense of flow trends in terms of the restructuring and reorganization that you've done there.

What kind of time frame should we be thinking about in terms of better trends there?

The assets are more along the lines in the 44 range at this point and I don't have off the top of my head, maybe Greg does, specifics in my head about the flows there.

I can just add some color around the -- I'm sure as everybody is aware, 9/11 had a major impact on the firm, as well as obviously the people and employees and research analysts and portfolio managers and we are at a point where we think that group over time has been rebuilt and they had some performance issues after that, but more recently in the last few years we have seen very solid performance on the global growth side.

So we think there is an opportunity there to see a turnaround hopefully quickly, but I am not sure exactly when that can happen, but we are very pleased about the trend in performance (indiscernible) on the institutional side.

One quick housekeeping question.

Is it possible -- can you guys tell us the amount of cash and cash equivalents in investment securities at the end of the quarter?

You know what, it will be in the Q.

There are no further questions at this time.

Well, thank you, everyone for participating on the call and we look forward to speaking with you next quarter.

Thanks.

This concludes today's conference call.

You may now disconnect.