Gregory Eugene Johnson - Chairman, Chief Executive Officer, President and Member of Special Equity Awards Committee Kenneth Allan Lewis - Chief Financial Officer, Principal Accounting officer and Executive Vice President

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division William R.

Katz - Citigroup Inc, Research Division Daniel Thomas Fannon - Jefferies LLC, Research Division Michael Carrier - BofA Merrill Lynch, Research Division Craig Siegenthaler - Crédit Suisse AG, Research Division Christopher Harris - Wells Fargo Securities, LLC, Research Division Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division Brennan Hawken - UBS Investment Bank, Research Division Kenneth B.

Worthington - JP Morgan Chase & Co, Research Division Matthew Kelley - Morgan Stanley, Research Division Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division David J. Chiaverini - BMO Capital Markets U.S.

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division Greggory Warren - Morningstar Inc., Research Division J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division Roger A.

Freeman - Barclays Capital, Research Division

Hello, and good morning, everyone. Joining me is Ken Lewis, our CFO.

Hopefully, you all had a chance to listen to the commentary we made available earlier this morning. But to quickly recap, we're pleased to report another strong quarter of operating results despite the headwinds that arose during the quarter.

Long-term net new flows were $7.4 billion, and operating income was a record $772 million. Importantly, overall investment performance remains strong.

Now we'd like to open it up for your questions.

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.

Well, I think you probably summarized it 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 than prefer equity.

And some of the 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 may be 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 are seeing that happen.

And then maybe over time, that could rotate into equities. But I don't think it's just a 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 equity 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 rise in 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 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.

Okay. And 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.

Well, it's the best estimate, I guess, I wouldn't put too much compass [ph] on the accuracy. But a couple of things that I think are worth highlighting, on the comp side this quarter, we're probably about -- the variance of 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 employees that are a function of either mutual fund prices or BEN [ph].

So that kind of gives 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.

Just maybe, 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 on incremental repurchase versus dividends at this point in time.

Can you repeat the last part of the sentence?

Just what your priorities are for free cash flow given that the payout on earnings was a little bit soft this quarter.

Yes, I wouldn't say that you're 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're going to see a pickup in share repurchases.

But overall, no real change.

Okay. And second question is, you called out both 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? And then maybe more broadly, what you're seeing in terms of the institutional pipeline for new business into the new quarter?

Yes. We had -- there was one large insurance redemption that affected 3 retail funds.

It 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 in Taiwan, another -- and then some large additions to existing accounts in Asia as well, one into a Chinese mandate, another a Shariah mandate.

Other than that, nothing -- I think just more in the 100 to 200 in and out range. Those were the larger ones.

Right. And broader question just being -- sorry I'm asking 2 questions.

Yes, but the broader question is, in terms of the pipeline into the new quarter, what are you seeing in terms of demand?

Well, I don't think 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 anything's changed from the disruption in the market.

You mentioned on the call that redemptions in July broadly subsided. I guess, if you could talk about the gross sales kind of aspect of that, as well as if it was the same funds that were heavily being redeemed, if there's been any change in terms of demand, just on the more shorter-term basis.

Well, again, I'll speak in generalities because that's what we do as far as the forward quarter and what is happening now. And like the market, I mean, when things settle down, obviously, the spike in rates and how that affects the longer-duration funds, I mean, I think those continue to be under pressure.

Municipal bonds, because they've kind of been in a perfect storm as far as policy and some problems in the market, with Detroit, obviously, that continues to put pressure on the municipal bond market. But overall, I think the funds that had the highest redemptions, and for us, on the equity side, was the Asian Growth Fund.

So as things settle, that tends to be a fund that comes back faster than others and tends to -- and redemptions increase pretty quickly when you have a selloff in those markets. So that would be one.

And global bonds on a relative basis, again, you had the backup. But we've had excellent performance and very strong prior month for that strategy.

So I think that, that helps that hold assets and stem redemptions as well.

Okay, great. And then another just question on the buyback.

Is there -- was there anything that happened in the quarter? Were you restricted at all as to why, if we look kind of on a historical basis, the numbers, either this quarter or even kind of year-to-date, look lower than previous?

No, I have nothing really important to highlight. I think I mentioned, and maybe it was misunderstood last quarter, it's tough -- sometimes it's tough for us to execute our plan, but it's not a change of philosophy.

And maybe one follow-up on just the fixed income business. You mentioned just a pickup in redemptions, I think you said maybe 50%.

Not wanting to focus too much on like month-to-month, but did we see sort of that same level of moderation in July? And Greg, just when you think about the longer term, yes, it seems like when you guys give the description of the fixed income business in terms of global, focusing on currencies and credit, less rate-exposed, all that makes sense.

I'm just trying to get an understanding from a client standpoint, are you seeing a decent amount of differentiation among fixed income products? And maybe it's just too early to tell, but it seems like all those are setting up in the relative performance for Franklin to stand out well, but I think there's the issue or the risk that just fixed income gets painted as an asset class.

I just wanted to see if you're starting to see some differentiation there.

I think that the answer is yes. I mean, I think you're absolutely right that it does get painted as fixed income, and probably a lot of investors feel that they have more exposure to rising rates than they do.

But the other point is that, in that fund, when you have a selloff of risky assets and a stronger dollar that we've had, that's going to put pressure on that fund as well. So those are other factors that happened in that time period.

In a flight to quality, as much as rising rates, it'll put pressure on the global bond strategy. But we do think it is a nice way to diversify a portfolio.

And I think you're absolutely right, that it will be highlighted by the relative performance going through the cycle versus some other funds that have that longer duration. But it remains to be seen how quickly, and we've seen -- we went through this cycle before, but the difference this time is that we've had very strong performance through it, where the other one, we had short-term underperformance.

And I think that, that strong relative performance should create stickier assets pretty quickly.

Okay. And then just as a follow-up, you mentioned on your -- the prerecorded comments just on Mutual Series, some of the dip in the short-term performance given their strategy.

Anything of concern there, or is it, as you said, the typical strategy, when the markets are going up, it'll underperform, but over time, you expect that to pick back up?

Yes. I mean, to me, it's really more about how Lipper and how they're measured against the peer group and the S&P.

And historically, the Mutual Series funds, one, have always owned a fair amount of cash relative to -- and that's part of their strategy how they buy in dips. And they have exposure to Europe in many of the funds, and that exposure has not served it very well versus the U.S.

And certainly, with the stronger dollar, that's another -- it creates a little bit more headwinds. But more recently, Europe now is starting to outperform, had a very strong July.

That's helped Templeton and Mutual Series. So I think it's -- for us, it's always important to just talk about the philosophy and how they run money, and it doesn't fit neatly really into any bucket.

And sometimes, you will have underperformance. But if there's nothing there that's inconsistent with how they built their returns, over time, it's just cash in Europe, and that's what we've always had in those funds.

Just a follow-up on the $1.7 billion redemptions from the U.S. life insurance company.

Can you help us provide any of the reasons behind why they redeemed and why it was the 3 different strategies?

Yes, I think if you look at that entire business in the variable annuities, having gone through the drop in markets, '08, '09, and how they priced and have to prepay commissions and then earn those back over time, that there's a big risk to the insurance company, if they can't measure and hedge. So you have any active manager that doesn't fit neatly into a way to hedge that risk has had challenges.

And that's why the managed volatility funds have done much better and taken up some of the slack in that product, and that area hasn't been the kind of growth that it's had for that reason. So for us, it wasn't really a performance issue.

It was more about the insurance company changing how they manage their risk overall, and that active managers have been under pressure there.

Got it. And then just one follow-up.

You closed international small cap growth and the Frontier fund in kind of this quarter. I'm wondering are there any other very successful strategies that could be close to either a soft or a hard close in the coming quarters here that we should focus on?

No. I think those were the 2 that had grown quite a bit.

And we've told the market, as we raised capital in those funds, that at some point, they would be closed. But I don't see anything else right now that is nearing that decision point.

So in your prepared comments, you mentioned a little bit how fixed income markets tend to be self-healing over time. Just wondering if you can maybe expand on that topic a little bit more, and just kind of really wondering how like maybe in prior cycles how long it took for investors to actually come back to the fixed income class as interest rates were rising.

Yes, I think it's important, again, to go back to why people invest in fixed income and the difference of equities. I mean, equities tend to look backwards on performance.

Fixed income, somewhat backwards, but also, you have this dividend yield -- or you have the current yield, which is there every day and attracts new buyers. Take municipal bonds, a very inefficient market in terms of liquidity sometimes, and you get very strong relative yields when you have market disruption.

And that attracts an entire new buyer into munis, and it's the same, you have fixed income, you want to match liabilities. As rates go up, you have new buyers that will do that.

So I think that's a big difference. Now if the perception is rates are going to just continue to rise every day, then that's a little bit different.

But remember, it kind of steps, and you'll have periods where that's the best guess of where the market is at that point, and people get attracted to higher yields as they go up. And I think that's very different than equities, which has more of a psychological effect and just net negative news coming every day on economic growth and things, tend to just put a damper on that.

So I think it's a very -- it's just very different, and fixed income just has a very steady buyer that tends to always be there.

Okay. A follow-up question then on the equity side of the business.

The last couple of calls, we had talked about financial advisers being a little bit slower to come back to the Franklin product. I'm wondering if that behavior has changed at all, whether you're starting to see a little bit more uptake by financial advisers selling your products.

Well, I think we are. I mean, I think the -- certainly, some of our funds continue to do very well.

And as I mentioned, I mean, anything for a little bit of yield, or Hybrid, is doing very well. We have a Templeton Global Balance Fund, which is new, was up 50% this quarter.

It's had very good relative performance. Again, a nice way to get a little bit of the global bond side, plus some of the Templeton equity in that.

So you are seeing this Hybrid balance category continuing to grow. And that's, again, as investors want to get more equity exposure, our rising dividends fund continues to be a top seller for us on the equity side.

So I think we're still very encouraged on equity flows. And I think, again, like the industry in the past month or so, are doing better as well.

So Templeton Global Bond Fund's predominantly been a retail product. I think, historically, the international bond asset class hasn't been a mandate institutions look to fill.

I've been hearing that it's changing a bit. You mentioned you can kind of position it as an alternative strategy.

So I was wondering if you might comment on the institutional demand for the product, and whether you think that could bring in some more strategic funding to the strategy.

Well, I mean, it could. I still think emerging market bonds are an institutional category that we do fairly well in, in the marketplace, global ags, the other.

So those are categories that we're very active in searches, and I've said in many calls in the past, that's an area where we think we can still get a lot bigger. So we are getting wins.

We had some nice institutional wins here over the last quarter in that area, and I think it will be -- continue to grow.

Okay. And then, Greg, you've taken over the Chairman role.

I think some in the press and a few investors have asked why the firm didn't take the opportunity, on Charles' retirement, to consider maybe separating those roles. Perhaps just a comment to put that decision in the context of the firm or the board's philosophy on corporate governance.

Well, I think it -- again, that's something the board felt comfortable doing. I think it's certainly a factor that was considered in the decision.

But we just think this structure is really aligned with shareholders, and there's no real issue there.

So really helpful to hear about global bonds sort of direct exposure there, particularly U.S. rates being limited.

This quarter, it seemed, though, definitely currency movement hurt performance, and currency movements are clearly impacted by rates. So is it possible to give investors color around how you guys view and manage that risk and how investors should think about it?

Well, I think there's many factors in what moves currency. And I think if you listen to our portfolio managers, they would say that probably duration loss is more permanent today than currency loss.

And I mentioned that flight to quality, that a lot of money goes to the -- moves out of the emerging market currencies, for a few factors, obviously, over the last month. And that's similar to what we saw in the last selloff, but the difference with currencies is that if the long-term trends are in place, you'll get that loss back.

Where I think the interest rate losses are more permanent in nature, it's going to be very difficult to have rates swing back down. But I think you're right.

I mean, there's factors to consider, but it's relative rate moves by country, not overall pressure on rates moving up. And I think the other point with currencies is that unlike equities, you don't really rely on -- of course, you do, economic growth's important, but it's relative economic growth.

You can still get alpha on a relative basis by just picking the right currencies, where fixed income, you need rates to stay stable or go down. You're dependent on that.

In equities, you're dependent on overall economic growth and growth of earnings. So I think that that's a distinction that, certainly in this market, where there's headwinds on the other side, that is attractive to people.

Okay. And I also noticed that the proportion of U.S.

cash ticked up here versus last quarter. I think it's at 38%.

I think I saw it out of the Q. Now, is there a number that you guys want to drive that to, or do you think, not think about it in proportional terms but rather in absolute terms?

Can you help us maybe think about how you're viewing that?

No, that's right. We do think about it in absolute terms, and it's not something that, that's a target.

It's obviously something that we monitor. But in absolute terms, the pie is getting bigger and this is enough U.S.

cash to meet our needs.

First, just to call out global bond one more time. Is the franchise in redemption in July?

I think it was in redemption in June. In your comments on the prepared remarks and to other people suggested that at least the growth redemptions have slowed, but I couldn't tell if the net had turned positive or not.

Well, that means I gave you the correct answer. We don't really talk about specific flows because I think we don't want people to make that assumption, that just because you're in a shorter period one way or another, that's where we're going to end up for the quarter.

So I think I'm going to have to leave it that it's still under pressure, but better, and not get into exactly where we are to date on that.

Okay. And then maybe to follow up on Craig's question earlier.

Can you talk about the variable annuity business you have? How much AUM do you have under management?

And maybe, to what extent are those assets at risk, given the low vol strategies being employed by the life insurance companies?

Yes. I don't have that number in front of me.

Probably, our Investor Relations could get that for you. I just think it's a pressure that's there, but I think it doesn't cover all of the assets, and certainly some -- many insurance companies are comfortable with their hedging strategies on existing active managers, it's just by group.

So I, we can give you more color through Relations, but I don't have much here on that.

So I was just hoping if you could -- going back to 2 questions ago, if you could kind of simply for us what portion of your -- roughly, what portion of your cash flow from operations is coming in the U.S. versus international currently, and how you think about how much capital you're returning to shareholders of the U.S.

cash flow?

Well, we -- I'll start with the last part of that question. We look at the overall company's earnings, and that's our payout ratio.

I mean, we do point out that dividends, taxes, et cetera, share repurchases come from the U.S. cash.

Roughly, I think it's probably 60% non-U.S. generating, but that's kind of a guess, anywhere from 50% to 60%.

And obviously, the non-U.S. cash component is growing.

But we're going to continue to kind of maintain a capital policy that's been consistent with our historical. I don't really see any change to that.

Okay. And then switching topics a little bit.

I wanted to get a sense from you guys as to how the K2 acquisition has gone. If you could tell us what your end-of-period assets are on the K2 platform and how your flows are trending and what opportunities you see there.

Yes. I think the integration's going well.

One of the important points of the K2 is their process and their transparency. And I think some of our clients are finding that attractive.

There's been a lot of cross-selling activity going on, and just everything's on track. Greg, you want to add anything?

Yes, I just -- I think we've spent the last few months really educating our sales force, and we've seen the results already with increased RFPs and actually had a few wins to date from clients that are Franklin Templeton or have been existing clients. So for us, the next step is the retail side, and we're in the process of getting that ready.

It's a new product area for us. So one that has taken a lot of, I think, pre-work, but we're getting close to offering their expertise in the 40 Act Fund.

Maybe just going back to the capital question, and I guess understanding that you guys have always liked to run conservatively with a lot of excess capital in different operating subsidiaries and taking into account a lot of your cash is offshore -- is outside the U.S. and it's also being generated there.

But as that continues to grow, the non-U.S. cash, and that part of your business grows faster, how is that influencing how you're thinking about using cash in the U.S.?

And obviously, you return most of your U.S. earnings through dividends or share repurchase, but how about -- because at some level, the cash held somewhere outside the U.S.

is available in "an emergency." So as those levels build, is there any thought to maybe thinking that, gee, I can bring the U.S.-held cash down to lower levels because I still have -- and maybe that translates into some increased buyback or whatnot.

Just trying to get a feel for as the dynamics of the business kind of shift, how that's impacting your thoughts on capital management.

Sure. Well, first I'd point out we did add a little disclosure in the Q this quarter about kind of -- we've always disclosed our discretionary uses for both U.S.

and offshore cash in terms of seed capital and all that, and now we've added like what's kind of required by the regulatory and other kind of external factors, so you can get a better feel for that. I think it's something that we monitor.

We know -- I don't think it changes. Like I said, it doesn't change our approach.

We still think there's a lot of opportunities to use offshore cash, and just new product development is just one example of that. But looking forward, the business changes.

The business changed, and we've done this in the past. We've taken advantage of the way products are managed, changes.

And whenever we see an opportunity to bring back U.S. cash, we do so.

The other thing to factor in is we always bring U.S. cash back that's been previously taxed in the terms of interest earnings.

So I mean, that's a factor that helps out the equation as well. As we earn money on the offshore cash and we pay tax on it, we bring it back.

So that's something that might be overlooked.

Great. That was helpful.

And then secondly, maybe just going back to some of the expense items. I mean, I understand there's some seasonal increase that's coming.

But in general, I mean, I guess there's been some pretty steady step up and whether it's -- well, G&A and I guess maybe some other places. I understand you're investing globally, but are there any specific projects or initiatives underway that's going to maybe keep some of the pressure on?

I mean, I know you've put in place that new global shareholders servicing platform. I don't know if -- I mean, are there any legacy costs related to that, or are you starting to see that actually start having a positive impact on your expected expense growth?

I think -- I don't think there's any -- there's nothing on the horizon that I can see that would be -- that would drive up expenses materially. We haven't talked about the sales and distribution expense.

But we did add a little, a schedule on the back to give you an idea of what the net distribution expense is by both asset and sales type. And that might give you some insight as to operating margins and the various expenses we have from distributing the products.

There's nothing, as I said, no major products that I could think of going forward. But we do we expect to leverage some of the investments we've made like the Riva platform and the low -- and our centers in low-cost jurisdictions.

So I think that the work that we've done in that area kind of offsets any incremental new spending initiatives that we have, and that's what you've seen in the past. We have probably ramped up in the last couple of years.

I don't know that, that level of spending will continue in the future. We're kind of having budget talks right now and trying to slow that down a little bit.

So more to come on that.

So I just want to follow up on the payout ratio. Looking over the past, going back to 2001, the average payout ratio combined is 78%.

Do you guys -- you mentioned about getting back to historical numbers. Should we imply that you're going to get back to 75% to 80% payout from here?

Yes. So that is -- we don't focus on that as a target.

We're just trying to give you guys some general idea, but I think that number is probably a little too high. I think when we're talking about historical, we might be talking about more recent historical experience, and that's more like 60% to 65% or 66%.

Just wanted to drill down a little bit on Templeton equity. And I'm just curious, obviously, the near and intermediate term is really, really good.

I guess, the very long term is still a little bit lower. I'm just wondering, are there any platforms out there still penalizing you guys for the very, very longer term, i.e., is there an opportunity to gain some platform market share with Templeton equity given their very strong performance over the last 5 years?

I mean, I think every day, the performance improves. Obviously, the probability of improving your share and platforms improves as well.

And I think if you look today, 1-, 3- and 5-year for Templeton now is very strong. 10-year is still lagging.

But 10-year is a little less important than 3 and 5. So I think as we've said, again, in past calls, it's been a focus of ours to -- it's a flagship franchise in global equities, and we want to make sure it's right up there with everybody's first choice.

So I would expect that to increase again. It just has taken a bit longer than we'd like.

I think there's also some people specializing. We've seen places, like Asia growth, frontier markets, more specialty, China Fund.

As people look to global equities, there's more differentiation, I think, than in the past. And maybe that doesn't fit exactly neatly into the Templeton strategy, but we feel like it's a big, growing and important place for us.

It's going to continue to be a place of focus for the firm, and I think we -- our expectations are, especially after the very strong July, that it will continue to be a focus for us.

Great. And then just a follow-up on the balance, which continues to be very strong.

I know you guys touched on it in the prepared comments about the global balance product. Can you maybe put a little bit more parameters around that, the size, the opportunity, et cetera?

Yes. I think in our terminology, you might be referring to the Hybrid category...

Yes. Yes, that's correct.

Another product, called the Templeton balance that Greg mentioned...

Yes, it's just the demand for having a little bit of both, that the 2 complement each other very well. The market's now very familiar with both strategies, and the demand's been there to kind of combine the 2.

Again, a way for -- to somebody who's a little bit not comfortable moving 100% maybe into global equity is a way to get their toes in it with a percentage in that. So that's just an area that, like all Hybrid, we've seen increased retail demand.

And I think that's going to continue.

You guys touched on this briefly in your prerecorded call on the Mutual Series being down from performance level, but it's pretty dramatic from what we saw at the end of March to the end of June. And it just seems like it's got to be more than the large-cap value or value being out of favor and perhaps carrying more cash.

And then I just had a follow-up on Templeton as to -- is there anything you guys feel you can do additionally to really generate sales within that channel, because it seems like it's ripe right now, that part of the market.

Well, again, I think mutual, the -- a couple of things. One, the deep value will tend to underperform in a rising market, and that's consistent with how they operate.

I think you've had the headwind of a strong U.S. dollar for their European holdings, and then you had a very weak Europe during that period, which a lot of that, certainly Europe, is reversing and expect that to look better more in the near term for their results.

But nothing -- those are -- that's enough to knock you out of your box on a relative basis over the last 4 or 5 months. So it's very consistent with how they operate in the holdings.

There's nothing -- no bets there that look like that would have contributed to underperformance and the stock-picking continues to be strong. I think Templeton, it's a focus.

It's been a focus for us. We talk about it quite a bit, and we do think it's probably one of the best near-term opportunities we have in terms of those flagship funds and getting the attention they deserve in the retail channels.

We're going to keep pushing that, but it's been frustrating. But again, as those longer numbers get better, that's going to make it just that much easier.

Okay. Did you feel like there's some hesitation on the part, at least in the adviser channel, to put people into more active equities, and it's just a safer bet to put them into passive right now?

I don't think that's the case with global equities. I mean, I think possibly a little bit more with U.S.

But on the global side, I think active managers continue to do well. I just think there's just more demand for more satellite-type offerings with -- on the retail side of regional funds and versus your just big global equity fund.

So that's -- but our focus has been also to talk about global equity as the core holding and then build your -- and differentiate your holdings around it, instead of just having the big U.S. large-cap value or growth, but starting with Templeton, starting with the growth fund.

And I think that, that is making progress as we see global equities continue to dig into share. But certainly, U.S.

has been the strongest market here in the last few years. So that's not really helping that.

But performance eventually is the lead, and that looks good. So I think that we're optimistic.

I may have missed this, but have you, in terms of the global fixed higher redemptions, have you made any comments about the geography or distribution channel, anything that, in June in particular, as to where some of the higher redemptions came from? Anything that make, may be striking, as to potentially be an indicator of future flows?

And then in terms of the -- some of the new disclosure, one of the pages said that 11% of the sales are commissionable sales, I guess, which seemed low. Can you comment on that as far as what's driving that in terms of movement to fee-based plans in the U.S., but also geography, and where would that number have been a few years ago?

Yes. That number really hasn't changed for us.

We started to see changes like 10 years ago, perhaps, in that number coming down, but it's been relatively stable for us. It doesn't change that much.

And that's the commission part of the question.

Okay, but I think you're right. I mean, I think that number, there is a movement around the globe and with things like the RDR moving front end and even banning front-end commission.

So you'd expect to see that number lower and lower over time and more of a wrap approach. We haven't given any color, I think, on just trends around global bond redemptions because I don't think there's much to offer there.

I think it's fairly spread across. No one area is a whole lot heavier than another as far as U.S.

versus international or Europe versus Asia or anything. It just seems to be fairly spread across the board.

Just on the duration differential on global bond, do you -- has that been pretty consistent over time? I forgot what you just said on that.

And did it decrease at all this past quarter?

I mean, I know it's been the theme of that management team that they were concerned about rising rates, and we were at a historically low level. I don't have the exact numbers as far as whether that has decreased over the last year.

So I know it's been on for at least a few years, and it's been headwind in performance over that -- if you look at over the 3-, 5-year period. When rates dropped, that fund, from -- in that standpoint from attribution, was relative weakness against its peer group.

And the difference today is it's helping. But I don't know if it's been -- if they've lowered that over the year or not, but it's certainly been the positioning of the fund relative to its peer group for a long time.

Okay. And then just in U.S.

equity, I think you said in the prerecorded call that the flows would have been positive ex 3 redemptions there. I just -- can you quantify how much those 3 were?

Was it basically a little over $1.2 billion to get it back over [indiscernible]?

I mentioned those just 2 of them that come to mind. You had about $720 million with that insurance redemption from mutual shares and $512 million from Templeton growth.

So those were 2 large ones, and then the other one was the [indiscernible] fund.

Okay. Well, thank you for participating on the call, and we look forward to our call next quarter.

Thank you.