富蘭克林資源 (BEN) 2006 Q3 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the Franklin Templeton quarterly analyst 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 0made 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 program 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.

Thank you.

I will now turn the call over to Mr. Greg Johnson, Chief Executive Officer.

Sir, you may begin.

Good afternoon and hello.

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

I think overall, we're very pleased with the results for the quarter.

I think it was an interesting quarter with a lot of volatility in the global markets, but we're also pleased to see that we that had positive flows during that volatility.

Looking at the assets under management, the quarter was relatively flat, down 0.3%, ending at 490 billion, but the quarterly average assets were up close to 3% to 494.6 billion.

The assets between the various groups really didn't change a whole lot.

I think as you would expect with some of the volatility in the global markets, especially in the developing markets, our overall percentage of equity assets decreased from 60.1% in the prior quarter to 59.5%.

Fixed income increased to 22% from 21.7, and hybrid increased as well from 17 to 17.3.

Looking at the flows, we were just in positive territory at 1.4 billion, but it's important to note that approximately 700 million of those -- would have been incremental to that flow number was due to redemptions for purchasing stock that came out of our money funds at 700 million.

So an apples-to-apples, it would be more equivalent to about 2.1 versus 2.6 for the quarter.

We had the first-quarter depreciation in a while at $2.5 billion versus close to 25 billion in appreciation for the prior quarter.

And I think despite a lot of the volatility that we had seen certainly in May, the redemption rates I think overall, especially with retail investors, we really did not see much of a pickup in redemption rates in the global marketplace or global category.

Sales overall were up to 35.4 billion from 32.6, or an 8.6% increase, and redemptions were up 13% to 34 billion overall.

Looking at some of the flows by region and by channel, in the U.S., the net sales were negative at $800 million versus $1.2 billion in the prior quarter and sales outside of the U.S. increased from 1.4 in the prior quarter to 2.2.

Sales by channel, retail gross sales increased 7.5% to 25.7 billion from 24 billion in the prior quarter and redemptions were up 18.5% to 22 billion.

On the institutional side, gross sales were up 12% to 9.2 billion and institutional redemptions were up 4.6%.

Looking at some of the trends within retail and institutional, the Franklin Income Fund continues to be the main driver of sales and net flows and increased its net flows for the quarter to over 900 million from 800 million in the prior quarter.

We're continuing to see strong demand for the Mutual Series Funds, especially mutual shares and Mutual Discovery, which contributed over $1 billion in net flows.

Outflows, which we have seen in the Templeton Foreign Fund, did improve in the quarter, yet -- but still in outflows at 465 million versus 711 million in the prior quarter.

Retail outside of the U.S., we're continuing to see very strong demand for the Templeton Global Bond Fund with over 400 million in flows and the Templeton BRIC Fund with 280 million in net flows.

Some of the chunkier movements in the institutional side -- we had some significant inflows to an existing client in the Middle East that added another 800 million in the Global Equity side, as well as [Callister's] mandate in the emerging markets area for over 600 million, which funded.

And as you mentioned last quarter, we saw the liquidation of the CLO and in this quarter, we saw a new CLO with 485 million coming in.

On the outflow side, there were a couple of significant moves within the funds, one actually a subadvisory relationship that was terminated for about 500 million in small cap.

I mentioned the money fund outflow of about 700 million due to the repurchase.

We are continuing to see an increased appetite for dedicated alpha sources, alternative products, private equity, hedge funds, absolute return; continue to see interest in emerging market debt, high yield and fixed income absolute returns.

We were pleased that we closed and recently announced a Darby Private Equity Korean infrastructure fund of about 600 million.

That's in this as quarter, but obviously with a partnership, that will fund over time.

Looking at some of the flows between the asset classes and -- the hybrid was flat 1.2 versus 1.2, and equity with 900 million in outflows versus 1 billion in inflows for the prior quarter.

Fixed income increased from 600 million to 1.1, but again, if you add back the 700, it would be 1.8 billion in net flows in fixed income.

On the equity side between the international, global versus domestic, the global sales -- global international had outflows if 400 million versus 1.5 going into the prior quarter and domestic equity were flat with 500 million in outflows quarter-for-quarter.

Tax-free decreased slightly from 300 million of net inflows to 100 million and the significant part of the increase as I mentioned was in the taxable fixed income, which increased from 300 to 1 billion, or again, 1.7 billion if you add back the money market.

Some of the significant accounts again that -- I have mentioned a few of these with on the outflow side a couple of investment-only in the small MidCap area.

Mutual shares had over 500 million in net flows for the quarter.

On the investment performance side, again, I think very steady performance, not a whole lot of changes.

Templeton numbers I think continued to improve as the market has rotated somewhat, and some of the areas that has caused underperformance are starting to pick up relative to their peer groups.

And today, 79% to Franklin Templeton's long-term mutual fund assets were ranked in the top two quartiles for the respective Lipper peer groups for the three-year and 94% for the five-year and 96% for the 10-year.

And all of our tax-free fixed income funds were ranked in the top two quartiles for three, five and 10-year period.

I'd now like to turn it over to Jim Baio for the operating results.

Thanks, Greg.

Just starting out the top of the house and looking at revenues for the quarter, we exceeded $1.3 billion in revenues this quarter, up 5% compared to last quarter.

And that translated to a bottom line of $371 million compared to 196 in the prior quarter.

So as you recall, there were some onetime events in the prior quarter that we'll talk about.

Looking a little closer at the revenues, we had record revenues, as I said, and we believe there was in the investment management fees at $786 million, up 8% over last quarter.

A lot of that is due to the higher average [AUM], but there's also about $34 million of performance fees in that number.

So all-in, our effective fee rate was 63.6 basis points compared to last quarter's 60.4.

Other revenues were essentially flat and on the shareholder servicing side the accounts were up about 1%.

And we did have a purge in our Canadian business during the quarter of about 400,000 accounts, and next quarter or in July actually, we will have a purge in the U.S. accounts of about 1.6 million.

Looking to the operating expenses, overall operating expenses were down 4% to $865 million.

Underwriting and distribution was up about $17 million to $430, or about 4%.

Some of that is a shift in where sales are taking place more heavily towards outside of the U.S.

Others -- more of that number or the differences is due to a fund launch in India in which we pay all of the commissions up front and record those at that time, and then we also have some adjustments as we adjust to some monthly pay commissions.

The comp and benefit line is up about $11 million, and within there, there is the effect of additional headcount.

We added about 277 people during the quarter, of which about 200 of those were added in India.

Also in the comp and benefits line is about $7 million of performance fees, compensation related to the performance fee revenue that I mentioned earlier.

In terms of advertising and promotion, you saw a 14% increase there.

That was largely driven by an increased TV and print ads and additional marketing support.

We would expect to look towards our normal seasonal fourth-quarter increase going forward.

And as you recall last quarter, we also had a charge for an intangible asset write-down which we don't have this quarter.

So, all-in, the operating margin for the quarter was 452 million compared to 350 last quarter.

Below the line, again, it continues to be a lot of movement in there.

Nonoperating income for the quarter was down $28 million.

Most of that was a result of the market changes in the investments we have in our own sponsored investment products.

And taxes for the income were down -- taxes on income for the quarter were down significantly.

You will recall that last quarter, we had a charge for $112 million related to the repatriation of foreign earnings back into the U.S. at a very low 5.25% rate.

This quarter's tax rate is more normalized, although we do have an adjustment in there that corrects -- that changes the estimate from our repatriation down a few million.

So our tax rate is low this quarter and we would expect it to be in the 26 to 26.5 range next quarter.

And, again, that's reflective of where the business is, is coming from, or weighted more towards outside of the U.S.

So overall, earnings per share was $1.41.

During the quarter, we paid a $0.12 dividend and we purchased 9.8 million shares during the quarter.

And so all-in, the payout then compared to net income was about 237%.

And then, finally, operating margin for the quarter as stated is 34.3%, up considerably from the 27.9 last quarter.

But, again, last quarter had the intangible charge in it.

So I then turn it over to Greg for some business highlights.

Just quickly some highlights on the U.S. retail side.

And as I mentioned earlier, Mutual Series continues to have excellent performance and flows and we plan on doing a campaign in the next quarter focusing on Mutual Series funds.

The Templeton Global Bond Fund received the best fund manager's award for global funds category given by Standard & Poor's and Business Week.

We also launched a Franklin Global Real Estate Fund and Templeton BRIC Fund, which is a first for U.S. investors, and our 529 planned passed $1 billion in assets.

On the international retail side, we continue to be very successful again with the BRIC Fund, the Templeton Agent Bond Fund and the Franklin Global Real Estate Funds.

We also had a very successful offering in India during the quarter, which was the first emerging markets fund sold in India and garnered over 400 million in assets for Indian investors, which put our total Indian investors over 1.5 million today.

Open architecture trends we're continuing to see in Europe, and in Spain we saw one of the large banks open up to third-party funds and Franklin Templeton was one of the first on that platform.

We were also pleased to see during the quarter we closed a fund with our joint venture partner in China.

It's not included in our flows or assets because we own 49% of that venture, and that raised approximately $340 million during the quarter.

On the institutional side, again, as I mentioned earlier, continuing to see a lot of interest in the fixed income areas, specifically around global bonds and emerging markets bonds, an area that have we had very strong performance, and we continue to see a lot of interest as well as the Templeton side.

So with that, we would like to open it up for your questions.

Thank you.

(Operator Instructions).

Mike Carrier, UBS.

Just a quick question.

On the underwriting distribution margin, kind of looking forward, are any of those items -- I know the non-U.S. sales obviously quarter-to-quarter, that's going to shift.

But in terms of the India Fund, anything that was more just this quarter, and what would be a more normalized rate?

I think last quarter, you mentioned something [between 7 to 8%].

Yes, and as you point out, there a couple of things that are just unique to this quarter [it feels], but we also see that shift as Greg was going through the sales numbers and so on and net sales and where we see the assets more proportionately growing.

It feels as I stand here today, and you never know what's going to happen tomorrow, but as I stand here today, it feels like the margin for next quarter is going to be in the 6% range.

And then going forward, just more of a, depending on how much of the non-U.S. compared to the U.S.?

Yes, right.

It's where the assets are and where the sales are taking place, you're exactly right.

On the comp side, I think the headcount has been increasing and you mention some of the increase has been in India.

I'm just trying to get a sense on sort of the compensation expense kind of year-over-year.

Just on the performance side, for the investment teams, is it more geared towards like three to five-year performance, is it at all geared towards one-year performance?

Just kind of getting a sense of there's some near-term performance pressure and just trying to get a sense if there is an impact on the compensation expense with that.

That's a good question.

In terms of the investment people, it is looked at in terms of the longer-term having a heavier weight, so the three, five and -- periods having a heavier weight, and that's very consistent with how we run the Company and how we urge our investors to invest.

So in terms of, you did have a little bit of stuff in there this quarter I said around the performance fee, but I think you can be looking in the 230 to 240 range or so next quarter.

Okay.

I think that's it, thanks a lot.

Daniel Goldberg, Bear Stearns.

Good afternoon.

Can you just to talk a little bit about obviously the share count was down and we're I think all aware of how aggressively you've been buying back the stock.

But can you talk about going forward, I know you've added to that repurchase program, how aggressively you've been doing that in July and maybe kind of your thoughts on where you might get more aggressive in terms of the stock price?

You're right, we did get additional authorization from the Board during the quarter, which we announced an additional 10 million shares in the pool that we can go after.

And I will play my broken record for your again, Dan, but nothing has changed.

We still expect to be very opportunistic about when we buy the stock.

And we still believe that the best time to tell you what we are thinking is, in very specific terms, is after we have done it at the end of each quarter.

Okay.

And just on the flows, obviously, you've had record sales as well as record redemptions I think this quarter.

But, can you just give us a little bit more detail tell in terms of I think the retail breakout and the hybrid breakout, I think both saw redemptions at or near record levels -- anything there. lumpiness that you can maybe talk about?

I think the lumpiness that I did break out on the retail side and specifically around the Templeton Foreign Fund and the small MidCap area that has been under pressure and some of that investment-only business that we had on the insurance aside where we lost 500 to 600 million during the quarter.

Hopefully that is somewhat of a onetime event, but those have been the two areas that have been under pressure here for awhile now.

The hybrid continues to be very strong as far as the income fund and it did tick up on a net basis for the prior quarter and I think was flat at around 1.2 billion quarter to quarter.

But the income fund did tick up within that.

Okay, thank you.

Jeff Hopson, A.G. Edwards.

First a numbers question.

The other income, investment income, typically is a little volatile.

Just curious if you can comment on whether you think this is a sustainable rate at this point.

And then more on the flow side.

Greg, I'm just kind of curious, the small MidCap really hasn't underperformed dramatically.

Just any thoughts in that particular area.

And then in general on balance, I think your performance is fine with a few weak spots, but yet on a net basis, the flows are fine, but maybe not as much as they could be.

Any general thoughts in that regard?

I will start just with the other income.

It's hard for us to predict in a lot of cases, as it is for you.

If you're looking at the net line, it's driven, or it has been driven in the last few quarters anyway, by what's going on in the market and our significant investment in the products that we manage.

So it's as easy to do as predicting what the market is going to do next quarter.

Interest expense we'll see tack down a little bit.

As you know, the liquid yield option notes were converted, so we'll see that go down some maybe to the $6 million range or so.

But it's going to continue to be a tough line in terms of being able to accurately forecast it for you.

I think with flows and performance, you are right -- the small cap, it's not, as far as relative performance goes, it's okay, especially in the longer periods and even in the one-year period, it's about average.

Some of that could be, we had a lot of money in those funds in the investment-only bucket, some of them sub-advisory.

A lot of consultants now have taken over that role and we have seen that pressure in the Foreign Fund as well where there has just been a changeover.

And sometimes it could be bringing another manager, it could be doing it in-house, it could be indexing in some cases.

It's just, that's where we have seen the kind of chunky, big numbers move out.

And it's not really reflective of the typical retail investor that's sold through an advisor.

So there, we still see -- we don't see the kind of redemption patterns that we've just seen in the retirement area.

And those, the Foreign Fund and the Small Cap are the two areas where a significant portion of those funds were retirement-related.

And I think the flows do reflect somewhat the overall industry in the sense that fixed income, you have been under pressure, rates have been going up.

There was a moment there when people thought, well, it's settled down, so we started to see a little bit of a pickup in munis, but then there was the fear of rates going back up and that put a little bit more pressure.

Hopefully, we're at the stage where we can start to see some incremental move on the fixed-income side.

And I think for that quarter or for this quarter, we did see a fairly significant pick-up on the fixed-income side.

And I think just with Templeton, they had relative -- on a short-term basis because of their value bias and media and pharmaceuticals and all of the things we talked about on the last call.

Many of those do better today.

The dollar, again, that's another contributor in the short-term.

So those factors are turning a little bit and I would hope to see the flow.

That's really where we're lagging I think the most, relative -- on the retail channel, the Templeton side in an area that's still doing very well, global equity sales, that is where on a retail basis, we have seen the biggest impact.

If I could just follow up, one of your competitors talked about this yesterday, that in the 401(k) space and the change to consultant-driven, does that necessitate any change in how you approach that market?

I think so.

It's something that we've talked a lot about and it's really not just within the 401(k) market.

I think even the traditional broker-dealer advice channel is having -- the gatekeepers are having bigger roles and they tend to be closely aligned with how consultants approach their work.

So we have to half a different level of service to that person that can speak on an institutional level around an investment process.

And that's an investment that we continue to make and are going to make more of a strategic investment to address that change.

But I think it is due to a lot of the turnover where you haven't had the legacy relationships, a new consultant comes in and you will get turnover pretty quickly when you have a new person taking a look at the portfolio.

Okay, great.

Thanks.

Cynthia Mayer, Merrill Lynch.

Just a couple of questions.

One very specific one.

Jim, I think you gave tax guidance for next quarter.

Should I assume that it's the same for next year?

Well, based on what we know now, it's the same -- it would be the same.

We pay a lot of attention to it and it is very much affected by, again, where the business is.

So that's what it looks like now and we'll see where the business goes and make changes to the estimates accordingly.

Okay, fine.

And I'm just wondering also, are there any capacity issues at mutual since it's so popular right now?

I think that's a good question and one that we are very sensitive to.

I don't think at 54 billion for the total complex that they're at a stage where there's capacity issues.

But I think it is something that, there's always the possibility out there.

And, again, if those portfolio managers felt that it was constraining their ability to invest, we would take that step to close that.

But we're not hearing that right now.

And it's not -- I think the growth if you look at it has been fairly steady and incremental and it's not all of a sudden growing at some rate that makes it hard for them to get the money [to work].

Okay.

And in terms of the Foreign Fund, you mentioned a lot of the pressure has been retirement-related.

And I assume that means it was taken off some platforms.

And I'm just wondering, is there a seasonality to that?

Do feel that that process has kind of played out at this point?

I'm not -- one could argue maybe a little bit at the beginning of the year, but overall I think that could happen at any time.

And some of it as we mentioned on the last call has just been the global markets have done so well, and even the Foreign Fund, while it may have lagged, it still had a 19% return for the last year.

So that tends to mean, you get topped off in plans where they will take some out and put them into areas that are underperforming.

And that has been a factor on the institutional side, especially our [TIFFI] -- Institutional Foreign Fund -- where you do have the rebalancing, and that occurs ongoing as well.

Okay.

And finally, you have done a bunch of product introductions recently, I'm just wondering if we should read anything into that.

Is this the beginning of a big cycle of a lot of product introductions, or this is just sort of the usual pace?

I think it's the usual pace, maybe a little bit more than the normal pace.

But I don't think it would indicate that there is any kind of stepping up of our introductions at all.

Okay, thanks.

Bill Katz, Buckingham Research.

Thank you, good afternoon.

Greg, I just wanted to come back to the organic growth discussion for a second, sorry to beat a dead horse a little bit here.

I read press release, it's an impressive array of performance, I listened to sort of the one-offs a little bit.

But what I struggle with is the fact that your volumes have slowed so dramatically when some of your peers are seeing a reacceleration of growth.

And sort of I'm wondering from a big picture perspective, are you losing share more broadly?

I was wondering if you could comment on that.

Or, is it just a matter of mix and just sort of market malaise that's particularly affecting you this time?

I think it's driven by mix and relative performance.

And in our areas where you have the heaviest movement where we had the benefit of those big assets coming in quickly, the investment-only side in the small MidCap area and the Foreign Fund, you're having the other side of that right now.

I think we are in great shape.

I think the opportunity on the fixed-income side that we think is a tremendous one for the Company and the solid performance and just getting that message out there will build on that incremental growth.

But really, it's just I believe a similar pattern to Templeton style of how they manage money.

And you will have periods of underperformance and we're still firm believers in the process and the long-term member speak for themselves.

And even, I think you're getting that short-term validation, it's just a question of how quickly that can turn around some of the momentum on the sales side.

But that's really where, the area that's had the greatest impact on the net numbers.

So you're not being displaced by anyone on any particular platform, U.S. or non-U.S.?

No, I don't see that at all.

Okay second question.

I'm just curious maybe Jim maybe you can chime in a little bit, I guess I still struggle on the investment and other income line.

If you look at just that line within the nonoperating line, that is a very high number despite increasingly hostile market backdrop in the calendar second quarter.

I'm just sort of curious, is there a particular one-off item that may have affected that line item?

And then just to qualify -- you said you had on the performance fee compensation about 8 million or so I think I heard.

Were there any other impacts to the P&L as an offset, because that seems like a relatively low payout ratio?

Good point.

We have a subsidiary that is consolidated, and part of the arrangements there are that the portfolio guys own a piece of the Company.

So the compensation arrangements on those performance fees are maybe not as straightforward as you might [have] expect.

So what they don't get in actual bonus, they get sort of as minority interest holders.

And then just going forward with that, they have restricted stock that will vest, and as it vests, will own less than 50%.

So beginning the first of next fiscal year, that will be an unconsolidated entity that we have an ownership in.

So all of it then would just flow -- our piece of the net would just flow to other income.

So, yes, you are right, that that payout did seem a little low, but there's more of a story to it.

I just saw the observation that your investment and other income is just particularly sizable, given the market backdrop (indiscernible).

Wanted to see [cedings] that potentially had a big mark-to-market gain this quarter, or is this really now just a run rate on this line item itself?

And then there is the -- we did have a joint venture that Greg I think referred to earlier in Brazil that we acquired all of at the end of the quarter.

But before we acquired it, we were less than 50%.

And so we were using the equity method, and it had a big gain as well.

So that's the other thing that maybe is -- not maybe -- that's the other thing that drove that number up more than you might have expected.

Okay, thank you.

Good points.

Marc Irizarry, Goldman Sachs.

Great, thanks.

My first question is on the fixed-income side of the business, particularly on the institutional side.

I guess there are a number of business combinations out there that have changed the landscape, if you will, on the fixed-income side of things.

Can you maybe talk about, is that helping at all your ability to kind of break into that the business right now?

Thanks.

I think that's part of it.

And when you have the kind of M&A activity and the concentration of assets with a few players, I think it does presents an opportunity.

And we're not a company that's new to fixed income.

Franklin built its reputation early on fixed income and we have over $100 billion.

And I think the combination recently with Fiduciary, it's just a much more robust global fixed income platform.

And really almost every category that we look at just has very strong performance with a very strong team.

So I think regardless of the landscape, the opportunity is a good one when you have those kind of numbers.

Are you seeing yourselves, Greg, maybe more of the finals these days into maybe winning some more business as a result of kind of not being involved in the combination, if you will?

It's hard to say.

I think we're seeing ourselves in there because we, again, it's more performance than anything else and we are successful and have been winning significant accounts in the emerging markets and global bond areas.

But I think we have an opportunity in the more traditional core plus areas as well.

And that's an area of focus that we still think there's a good opportunity.

But I don't -- it's hard for me to say how much of that is due to any movement by competitors as far as their own businesses.

Great.

And then just in terms of capital priorities, there's still a decent amount of deals happening out there.

And you mentioned M&A and I'm curious on a couple of fronts.

Number one, where do acquisitions kind of stand in your capital priority list?

And number two, maybe you could comment a little bit on the environment out there for potentially doing deals now versus maybe the way it was three months ago?

Thanks.

I think the appetite there, if we think it will strengthen our offerings or build a more competitive platform in a specific country or region, that hasn't changed for us.

I think the landscape's always changing.

I think the private equity players and the amount of capital and this is a business that is very attractive to because of the cash flow to private equity; that is an unusual dynamic that could be bidding up some of the prices of these companies and maybe the opportunities that you would be seeing are being done with management with private equity.

So that to me is the only significant change.

I think there will be more of the recent deals like Washington Mutual with the banks getting out of the business and continuing the more open architecture side or less conflicts within their own business.

So I still think that's out there, those kind of deals.

And if we think it can be accretive or strategic, we're going to consider it.

And that really hasn't changed all and we want to maintain a balance sheet that gives us that flexibility.

Gotcha.

And I know you don't run your business based on the operating margin per se, but where do you see the operating margin heading over time?

And what are maybe a few things that would prevent you from getting the type of leverage that you ought to see over the next couple of years?

I think what we're focused on is just continually to be very deliberate about what we do, think about the long-term, be thrifty.

As you know, we are moving a lot of headcount to lower costs places and we're starting to see the benefit of that.

And we're just, it may change quarter by quarter, but we are just thinking of it on a longer-term view.

And we think as we stand here today can sustain what we have and we're just not going to stop working hard to make it even better.

And I think a lot of it is not only from the efficiencies, but from the asset mix and we're still firm believers that global equities will only increase as a percentage of the overall landscape there.

And that generally means better margins for the Company in those kind of products.

So I think that's the key driver as far as where think margins are going.

And we are not a company that feels you have to grow any certain percentage.

We do focus on profitability and earnings and we talk about -- Bill brought up the organic growth number.

We are not going to go out and put business on the books that doesn't make sense to make that number look better.

Okay, thanks.

Chris Spahr, Prudential.

Good afternoon.

I was just wondering if I could have a little bit more clarity on the amount of assets that are non-U.S. clients, if you could give a little bit more color on the flows.

I know you have gotten a little bit more granular on specifics like BRIC Funds and so forth, but the flows in general.

And then the second question is related to the open architecture that you are seeing overseas, what do you think the likelihood of the culture changing to kind of accept the Franklin products overseas?

The first question on the U.S. versus non-U.S., this quarter was heavy non-U.S., and some of that was due to those onetime fund offerings like in India that contributed to our gross sale number, which I did mention earlier, was 54% versus 46% in the U.S.

But that is a real reversal of more of the historic trends which are the other way or even more so.

Even in the prior quarter, it was 70% in the U.S. and 30% non-U.S.

But probably a 60/40 U.S./non-U.S. would be a fair number overall of sales trends.

What was your second question?

Just some of the cultural issues that you face.

Regardless of a German bank, for example, has an open architecture, what's the likelihood, or what do you think are the obstacles to get the German banks to actually sell the product to pull it off the shelf?

That's a good question, and one that -- I am not going to be very successful going over there to make that happen.

I think our approach has always been to build local offices with -- we have a very significant presence in Frankfurt.

We have been there for about 15, 17 years.

That's really how you build.

You create an awareness in the market where they almost have to put you on their platform.

It's not going to be here as a new fund.

We started with the grassroots effort before there was any distribution and advertised and built a presence and build relationships.

And there's no substitute for housing local people in those markets.

And that really comes back to our M&A thinking that, if we can build or acquire somebody in a local market that improves our position in that market as being a local money manager, that can only help your ability then to go out, leverage the growth funds and the other types of products that we have in the organization.

And that's a similar model to what we have done in India, and that's opening up now and we're starting to sell non-Indian funds.

That was the same in Korea, same in Taiwan, and that's really -- start local, start with a local presence, and then try to sell your other funds.

Thank you.

Michael Hecht, Banc of America.

I just wanted to follow up again on the net sales kind of question, because when I added that some of the one-timers that you went through, Greg, you had about (technical difficulty)

Apparently we've lost Mr. Hecht. (Operator Instructions).

I think we've lost Mr. Hecht.

If you would go ahead with any closing remarks you may have.

Again, we're very pleased with good results in a fairly difficult period and I want to thank everybody for participating today and we look forward to chatting next quarter.

Thank you.

This concludes today's quarterly analyst conference call.

You may now disconnect.