Greg Johnson - Chief Executive Officer Ken Lewis - Chief Financial Officer

Welcome to Franklin Resources Earnings Commentary for the quarter ended June 30, 2014. 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 and 10-Q filings. This commentary was pre-recorded.

Hello and thank you for listening to our third quarter earnings commentary. I am Greg Johnson, CEO and I am joined by Ken Lewis, our CFO. There are number of positive developments during the quarter, but most importantly, long-term relative investment performance of U.S. and cross-border funds remains strong across equity, hybrid and fixed income strategies. Assets under management ended the quarter at over $920 billion, a new high for the company and a 13% increase from the prior year. Long-term net new flows rebounded to $2.5 billion highlighted by strong flows into hybrid strategies and a return to positive flows into fixed income. Profitability remains strong with year-to-date operating margin near 38%. Cumulative share repurchases and dividends for the trailing 12 months period was $1 billion, roughly approximating after-tax net cash flow to the U.S. parent company. As illustrated on Slide 6, relative investment performance of our U.S. retail and cross-border funds is strong with the majority of assets in the top two Lipper or Morningstar quartiles across all standard time periods. It’s worth noting that our various hybrid funds that have been attracting strong flows continue to have exceptional long-term performance. In fact, Franklin Income Fund has top decile performance over all of these time periods and was recently awarded a five-star rating by Morningstar. The cross-border version of the fund has performed just as well. Ending and average assets under management rose again this quarter, increasing about 4% and 3% respectively. Assets under management remain well-diversified by investment objectives, sales region and client type, with the mix of assets essentially unchanged from last quarter, but we are gradually seeing a shift toward equity and hybrid products, as well as to the U.S. sales region. Not shown in this slide is the breakdown by client type, which remains…

Thanks, Greg. Operating income for the quarter was $787 million, which was a slight increase from last quarter due to a number of factors, which I will go into shortly. Net income increased to $579 million, a 3% increase from last quarter due primarily to increased other income and earnings per share was $0.92 also a 3% increase. Total revenue of $2.13 billion is an all-time high and a 2% increase from last quarter. Investment management fees and the asset-based component of sales and distribution fees benefited from higher average assets under management and the additional day in the quarter. The increase in investment management fees from last quarter was below the pace of average assets under management growth due to a slight shift in the mix towards lower fee products. The mix of assets under management has been trending towards hybrid, institutional and U.S. registered global fixed income funds and away from emerging markets, which has yielded a slightly lower effective fee rate of around 62 basis points excluding performance fees. Sales and distribution fees increased 1% as the increase in the asset-based component was partially offset by lower cross-border sales. Shareholder servicing fees increased 2%, consistent with the increase in billable shareholder accounts. As you may recall from previous years, Canada typically purged closed billable accounts in the third quarter, but the switch to a bundled fee this year means that they are no longer charging shareholder servicing fees. The purge of closed U.S. accounts occurred in July and 1.2 million accounts were removed, which will be reflected in the financial results next quarter. Operating expenses increased 3% with most of the increase coming from the asset-based component of sales, distribution and marketing expense, which included non-recurring items of about $12.2 million, which if excluded, would have resulted…