Franklin Resources Inc. executives say business was so good in the last quarter that they may reverse the pay and advertising cuts made in November.

Net income in the quarter that ended Dec. 31, the first of its fiscal year, totaled $118.5 million, the San Mateo, Calif., mutual fund company reported last week. That was 41% more than in the immediately preceding quarter, though down 21% from a year earlier.

Net flows of new money into Franklin and its subsidiaries jumped to $6 billion, from $1.8 billion in the preceding quarter and $2.6 billion in the year-earlier one.

The new figure was higher than in any quarter since January-March 1998, said Martin Flanagan, chief financial officer, during a conference call Thursday.

Financial Research Corp. of Boston said that since mid-1998 Franklin’s mutual funds have had positive flows in only two quarters — the latest and the one that ended last March.

Behind the improvement, Flanagan said, was the strong performance of Franklin’s mutual funds in the quarter ended in December. Eighty-five percent of them ranked in the top two quartiles of their Lipper Inc. peer groups, he said.

"I can’t remember a time when we’ve had such excellent, strong relative performance," Flanagan said.

Bruce Brewington, a research analyst at Putnam Lovell Securities Inc. in San Francisco, said analysts have been predicting a turnaround at Franklin for some time.

Flanagan said the salary and expense reductions instituted in November were not permanent, since the company recognizes the need to keep its best employees. "At the end of the day we need the best people here at this organization."

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