Gregory Johnson - Chief Executive Officer, President, and Director Kenneth Lewis - Chief Financial Officer and Executive Vice President

Welcome to the Franklin Resources Inc. Third Quarter Earnings Commentary. This recording will be available until September 1, 2011, 11:59 p.m. Pacific Time [Operator Instructions]. Welcome to Franklin Resources earnings commentary for the quarter ended June 30, 2011. Statements made in this commentary regarding Franklin Resources, Inc., which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risk factors and MD&A sections of Franklin's most recent Form 10-K filing. This commentary was pre-recorded.

Hello, and welcome to the third quarter earnings commentary. I'm Greg Johnson, CEO; along with Ken Lewis, our CFO. We're pleased to be reporting another very strong quarter of operating results amidst what remains a volatile macroeconomic environment. Most importantly, long-term investment performance remains strong across equity and fixed-income strategies, and areas that have been underperforming in the short term have improved. Performance, coupled with the depth and breadth of our global advisor relationships, translated into another quarter of record net flows led by the continued strength of our global fixed income franchise. We continue to execute on our long-term strategy of investing in those areas that are complementary to our existing business and strengthen our capabilities in key markets. During the quarter, we announced the acquisition of Balanced Equity Management, a well-respected institutional manager in Australia. The acquisition closed in early July and is consistent with our strategy to address home country investing buys with local asset management capabilities in key international markets. Assets under management ended the quarter at $734 billion, slightly below May's reported high due to the June pullback in equity markets. Average AUM increased almost 6% to $727 billion. The strength of fixed income flows combined with the pullback in equity markets in June caused a slight mix shift in AUM by investment objective, away from equities towards fixed income. The overall attribution of AUM by sales region was essentially unchanged from March, but Europe and Asia continue to be the fastest-growing regions for us, thanks to continued success in countries such as Italy, Switzerland and Taiwan. Turning to Slide 8. Net new flows outpaced market appreciation for the second time in the last 5 quarters. Long-term sales reached a new high as well this quarter, but the decrease in redemptions was the key driver…

Thank you, Greg. The strength of the company continues to be reflected in operating results this quarter. Operating income for the quarter was $683 million, which was an 8% increase from the second quarter and a 31% increase from the prior year. Net income for the quarter was flat from quarter 2 at $503 million, but earnings per share increased slightly to $2.26. And our share repurchase program continues to enhance our earnings growth on a per share basis by driving the share count down over time. Investment management fees increased 6% this quarter, slightly more than the increase in average assets under management due to 1 more day and $1.7 million of additional performance fees. This was partially offset by slightly lower effective fee rate that was due to 2 factors: The first was a slight mix shift to fixed income and no change in sales region mix this quarter that Greg highlighted earlier; and the second was that daily average assets under management, which most of our fees are calculated on, was a bit lower than the simple monthly average assets under management for the quarter. Looking forward, I want to remind everybody that we did close on Balance Equity Management acquisition in early July, and their assets under management do have a materially lower effective fee rate than the mix we've reported today due to the size and nature of their client accounts. And that acquisition will have a small impact on the reported effective fee rate going forward. Additionally in July, Darby's emerging market fund sold its most successful private equity investments to date, returning more than 15x its original investment. And in conjunction with this sale, we now expect to earn about $48 million in carried interest, which will be split between Franklin and the…

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