Franklin Resources Inc. (NYSE:BEN) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.
Equity Income Strategies
Michael Kim – Sandler O’Neill Partners: First, Greg I know on the prerecorded call, you kind of talked about the outlook for maybe a gradual shift in favor of equities and you spent a fair amount of time walking through the differentiating factors for your global fixed income franchise assuming rates continue to rise, but just wondering if you could walk through your thinking as it relates to maybe a potential trade-off playing out between maybe a step up in demand for some of your equity income strategies versus higher redemption risk on the fixed income side of the business?
Gregory E. Johnson – CEO and President: I think you probably summarized that correctly, I mean one the great rotation, I mean I think first of all, you have to remember that buyers prefer fixed income for specific reasons and prefer equity in some of different time horizons and demographics are shifting. So, it’s not just all of a sudden you move from fixed income to equities, but you will see a shift certainly on the margin and I think like most right now with equity stronger, we’re still seeing increased interest on the equity side and certainly with the hybrid funds that have been stronger here lately and continue to grow in interest as a way to participate in a little bit of both and that maybe a nice entry point. But I think as far as the fixed income investor that’s afraid of duration, you’re probably going to see a great rotation more into shorter term money funds and I think you’re seeing that happen. And then, maybe over time that could rotate into equities but I don’t think it’s just as simple from a fixed income jump into equities. But with that said, I mean, at the end of the day looking at the fear of rates going up and where else can you put your money with interest rates this low, I mean, I think it has to be a bullish case for equities certainly here in the short run that that should continue to grow with less alternatives. And as we mentioned, looking at our fixed-income franchise, global bonds, if anything, this rising rates highlights how duration risk is not as sensitive to this portfolio and we’ve always talked about it as more an alternative category. Currencies are going to be the main drivers of alpha, not interest rates, not the duration and having a 1.5 year maturity in those funds has served it very well. So we’ve been positioned for this with the majority of our fixed-income assets, but the other one, certainly munis, anything with longer duration will continue to be under pressure.
Michael Kim – Sandler O’Neill Partners: Then second question for Ken. You mentioned on the call an expected sort of seasonal step up in expenses looking out to the fiscal fourth quarter. So, just wondering if you could maybe give us a little bit more color in terms of the step up, maybe on a percentage basis, year-over-year or in terms of absolute dollars and anything incremental?
Kenneth A. Lewis – EVP and CFO: Well, the best estimate I guess it’s – I wouldn’t put too much confidence on the accuracy, but couple of things that I think are worth highlighting, on the comp side this quarter, will probably about – the variance about $10 million was due to a couple of things. The first one was the payroll taxes and that decreased, but then also a large part of the variance this quarter was due to the reduction in valuation of the long-term awards for our employees that are a function of either mutual fund prices or (been). So that kind of give you some color on the comp line. The other expenses I guess my best guess is about 1% or 2% up for the quarter, but as I mentioned that’s just seasonal adjustments.
Free Cash Flow
William Katz – Citi: Just for Ken or Greg. In your prepared remarks in the prerecorded call you mentioned that your payout ratio relative to sort of repurchase and dividends was a little bit low this quarter. Wondering given the split what your thoughts are in incremental repurchase versus dividends at this point in time.
Gregory E. Johnson – CEO and President: Could you repeat the last part of that sentence.
William Katz – Citi: Just what your priorities are for free cash flow given that the payout on earnings was little bit soft this quarter?
Gregory E. Johnson – CEO and President: I wouldn’t say that you are going to see a big change in our strategy I think it’s reasonable to assume given the stock valuation that in the short term we are going to see a pick-up in share repurchases. But overall no real change…
William Katz – Citi: Second question is you called out some wins and some losses on the equity side of the portfolio. Could you give me maybe a couple of sentences on the sort of the details behind those lumpy account wins and losses, then maybe more what you are seeing in terms of institutional pipeline for new business into the new quarter.
Gregory E. Johnson – CEO and President: There was one large insurance redemption that affected three retail funds that was about $1.6 billion and $720 million was in mutual shares, $500 million in Templeton Growth and $500 million in the income fund. So that was the large one that went out there and then we had some larger wins on U.S. fixed and in Taiwan and then some large additions to existing accounts in Asia as well, one into a Chinese mandate and other a Sharia mandate. Other than that, nothing, I think, just more in the 100 to 200 in and out range, those were the larger ones.
William Katz – Citi: Right. And broader question, just inside to the question here, but the broader question is in terms of the pipeline into the new quarter, what are you seeing in terms of demand?
Gregory E. Johnson – CEO and President: I don’t anything. I mean, the pipeline looks strong and we’ve had some nice fundings already to-date in the new quarter. So, I don’t think nothing has changed from the disruption of the market.