UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from        to         

Commission File Number 001-15253

Janus Capital Group Inc.

(Exact name of registrant as specified in its charter)

(303) 333-3863

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.

Yes x               No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x            Accelerated Filer o             Non-Accelerated Filer o            Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o               No x

As of July 21, 2008, there were 159,811,039, shares of the Company’s common stock, $.01 par value per share, issued and outstanding.

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

JANUS CAPITAL GROUP INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in Millions)

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JANUS CAPITAL GROUP INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in Millions, Except Per Share Data)

The accompanying notes are an integral part of these consolidated financial statements.

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JANUS CAPITAL GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

The accompanying notes are an integral part of these consolidated financial statements.

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JANUS CAPITAL GROUP INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Amounts in Millions, Except Per Share Data)

The accompanying notes are an integral part of these consolidated financial statements.

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JANUS CAPITAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

In the opinion of Janus Capital Group Inc. (collectively, “Janus” or the “Company”) management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to fairly present the financial position, results of operations and cash flows of the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  All such adjustments are of a normal recurring nature.  Such unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.  These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

The accompanying consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Note 2 to the consolidated financial statements that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Note 2 – Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”), which establishes principles and requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination.  The effective date of SFAS 141R is the Company’s fiscal year beginning January 1, 2009.  Janus will apply SFAS 141R to any future acquisitions completed on or after January 1, 2009.

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”), which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, and requires noncontrolling interests to be classified as a component of equity in the consolidated financial statements.  The effective date of SFAS 160 is the Company’s fiscal year beginning January 1, 2009.  Subsequently, the SEC announced revisions to Emerging Issues Task Force (“EITF”) Topic D-98 “Classification and Measurement of Redeemable Securities” (“EITF D-98”) which clarified that noncontrolling interests that are redeemable and whose redemption is not solely controlled by the issuer are not within the scope of SFAS 160.  Such interests are within the scope of EITF D-98 which requires that redeemable noncontrolling interests be classified outside of permanent equity at the aggregate of the redemption value and undistributed earnings attributable to the noncontrolling interest at each balance sheet date.  The effective date of EITF D-98 is the Company’s fiscal year beginning January 1, 2009.  Janus has not yet completed an assessment of the impact of SFAS 160 and EITF D-98.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”), which requires enhanced disclosures about an entity’s derivative and hedging activities.  The effective date of SFAS 161 is the Company’s fiscal year beginning January 1, 2009.  Janus has not yet completed an assessment of the impact of SFAS 161.

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Note 3 – Earnings Per Share

Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted earnings per common share adjusts the weighted average shares outstanding by the dilutive impact of shares underlying stock options and unvested restricted stock awards.  The following is a summary of the earnings per share calculation (in millions, except per share data):

The following stock options and unvested restricted stock are anti-dilutive and have not been included in the weighted average diluted shares outstanding calculation (in millions):

Note 4 – Acquisitions

INTECH

Each fiscal year through 2012, each of the two founding members of Enhanced Investment Technologies, LLC (“INTECH”) has the option to require Janus to purchase from him an ownership interest up to approximately 1.5% in INTECH at the fair market value of such interest.  On March 31, 2008, the two INTECH founding members exercised their right and Janus increased its ownership of INTECH to approximately 89.5% with the purchase of an additional 3% ownership interest for $60.7 million in cash.  The pro forma results of operations have not been presented as they would not have been materially different from reported amounts.  The preliminary purchase price allocations resulted in the recognition of $23.7 million of intangible assets and $37.0 million of goodwill.  Intangible assets represent customer relationships and are preliminarily being amortized over 12 years.

Perkins, Wolf, McDonnell and Company, LLC (“PWM”)

On July 7, 2008, Janus agreed to purchase an additional 50% interest in PWM for $90.0 million in cash.  Janus currently holds a 30% interest in PWM, which specializes in fundamental value-disciplined investing and is the named subadvisor of Janus’ small- and mid-cap value products.  The additional interest in PWM will facilitate the build-out of Janus’ value

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investment product offerings.  Pending the satisfaction of customary conditions including the approval of the change in control of PWM by regulators and Janus’ value mutual fund shareholders, the acquisition is expected to close in the fourth quarter 2008.

Upon closing the transaction, PWM will grant profit interest awards designed to retain and incentivize key employees to grow the business which vest on the fifth anniversary of grant. The awards are generally entitled to a total of 5% of PWM’s annual net income and have a formula-driven terminal value based on revenue growth and relative investment performance of products managed by PWM.  Janus can terminate any or all of the awards (i) on the fifth, seventh or each subsequent anniversary of grant by paying the relevant portion of the formula-based terminal value, or (ii) prior to the fifth anniversary of grant if the formula yields a terminal value of $40.0 million.  Participants can require Janus to terminate the awards in exchange for the then-applicable formula price on the sixth anniversary of grant.  The profit interests are also subject to termination at premiums or discounts to the formula at the option of Janus or the relevant employee, as applicable, upon certain corporate or employment-related events affecting PWM or the relevant employee.  Compensation expense for these awards will be recognized over the vesting period based on the results of the hypothetical application of the terminal value formula at the end of each relevant reporting period.

Janus also has the option to acquire any or all of the remaining 20% interest of PWM at fair value on the third, fifth, seventh or each subsequent anniversary of closing. The minority owners have the option to require Janus to purchase any or all of their remaining interests on the fourth or sixth anniversary of closing at fair value.

Note 5 – Discontinued Operations

During the second quarter 2008, Janus disposed of its Printing and Fulfillment operations.  On April 9, 2008, the digital print operations were sold to Bowne & Co., Inc. for $14.5 million.  The offset operations were also sold in the second quarter 2008 for an immaterial amount.  The liquidation of the remaining assets is not expected to have a material impact on Janus’ operating results in future periods.

Note 6 – Adoption of New Accounting Principle

Janus adopted the provisions of Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“SFAS 157”), on January 1, 2008.  SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  SFAS 157 also establishes a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability.  Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy contains three levels:

·                  Level 1 – Valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets.

·                  Level 2 – Valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets and other observable inputs directly or indirectly related to the asset or liability being measured.

·                  Level 3 – Valuation inputs are unobservable and significant to the fair value measurement.

Level 1 fair value measurements consist of exchange-traded equity and debt securities underlying separate accounts and consolidated mutual funds, and mutual fund securities.

Level 3 fair value measurements consist of securities issued by Stanfield Victoria Funding LLC (“Stanfield securities”), a structured investment vehicle that purchased high grade medium- and long-term fixed-income instruments financed by issuing low-cost, short-term senior debt instruments such as asset-backed commercial paper and asset-backed medium-term notes.  Due to illiquidity in the commercial paper and capital markets, there are currently no active markets for the Stanfield securities.  To measure fair value, Janus undertook a detailed analysis of the assets underlying the Stanfield securities and benchmarked those assets against instruments of a similar type with comparable yields, maturities and credit ratings for which quoted market prices are readily available.  Discounts have been applied to the quoted market prices of the benchmark instruments to adjust for varying yields, credit ratings or other distinguishing characteristics.  The valuation methodology for the Stanfield securities has been consistently applied.  Because of the significance of the unobservable inputs in Janus’ analysis, the fair value measurement of the Stanfield securities has been classified as level 3.

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The following table presents the marketable securities carried at fair value as of June 30, 2008 (in millions):

Janus measured the fair value of the Stanfield securities as of June 30, 2008, and determined that the valuation was consistent with the previously reported amount of $90.3 million as of March 31, 2008.  There were no other securities classified as level 3 during the three and six months ended June 30, 2008.

Janus also uses fair value measurements for business acquisitions and impairment testing of tangible and intangible assets.  On February 8, 2008, the FASB issued Staff Position 157-2, “Effective Date of FASB 157” (“FSP 157-2”) which deferred the provisions of SFAS 157 to annual periods beginning after November 15, 2008 for such fair value measurements.  The application of the provisions of SFAS 157 will result in additional disclosures but are not expected to have a material impact on Janus’ fair value measurements associated with business acquisitions and impairment testing.

Note 7 – Seed Capital Investments

Janus periodically adds new investment strategies to its mutual fund and other product (collectively referred to herein as “investment products”) offerings by seeding investment products.  Seeded investment products are initially consolidated and the individual securities within the portfolio are accounted for as trading securities.  Janus will consolidate such investment products as long as it holds a controlling interest, defined as greater than 50% ownership.  Upon deconsolidation, Janus accounts for its investments as available-for-sale securities.

Janus may redeem invested seed capital for a variety of reasons, including when third-party capital invested in the relevant product is sufficient to sustain the given investment strategy.  Janus recognized $1.5 million and $1.6 million of gains from the redemption of seed capital investments for the three and six months ended June 30, 2008, respectively.  There were no redemptions of seed capital investments for the three months ended June 30, 2007.  Gains for the six months ended June 30, 2007 totaled $0.4 million.

Investments in seed capital are classified as follows:

Trading Securities

At June 30, 2008, seed capital investments classified as trading securities totaled $99.6 million.  Trading securities are carried in Janus’ consolidated financial statements at fair market value, with changes in value recognized as gains and losses currently in earnings.

Available-for-Sale Securities

At June 30, 2008, seed capital investments classified as available-for-sale totaled $11.2 million.  Available-for-sale securities are carried in Janus’ consolidated financial statements at fair market value, with changes in value recognized as gains and losses in other comprehensive income.  Accumulated gains and losses are reclassified to earnings when the securities are sold.

Prior to the fourth quarter 2007, Janus accounted for all seed account investments as available-for-sale securities with unrealized gains and losses recorded as a component of other comprehensive income.  In the fourth quarter 2007, Janus evaluated its seed capital investments and determined that investment products in which Janus owns a majority interest should be consolidated with changes in value recognized as gains and losses in earnings.  Janus assessed the impact to 2007 and prior years under Staff Accounting Bulletin (“SAB”) Topic 1M “Materiality” and SAB 108 “Quantifying

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Misstatements” and concluded that the impact was not quantitatively material to 2007 results in the aggregate or any individual previous year.  Janus reclassified the $17.6 million of unrealized gains associated with seed capital investments into 2007 earnings.

Note 8 – Long-Term Incentive Compensation

Janus granted $82.8 million in long-term incentive awards during the first six months of 2008, which will generally be recognized ratably over a three-year period and are not subject to performance-based accelerated vesting.  The 2008 awards consisted of $28.4 million of restricted stock (1.0 million shares at a weighted average price of $27.69 per share), $20.5 million of stock options and $33.9 million of mutual fund units.

A total of 2.1 million stock options with a grant date fair value of $10.02 per option were awarded as part of the February 2008 grants.  The grant date fair value of stock options was determined using the Black-Scholes model with the following assumptions: expected volatility of 32%, dividend yield of 0.13%, risk-free interest rate of 2.81% and an expected life of five years.

In addition to the grants described above, retention grants were awarded to certain Janus investment team members and certain INTECH employees to facilitate succession planning and incentivize key personnel to remain with the Company.  The Janus investment team retention grant totaled $21.0 million (0.7 million shares of restricted stock at $28.83 per share) and will be recognized ratably over a four-year period.  The INTECH retention grant totaled $10.0 million and will be recognized ratably over a ten-year period.  The retention grants are not subject to performance-based accelerated vesting.

Note 9 – Other Income, Net

The components of other income are as follows (in millions):

Note 10 – Income Taxes

Janus’ statutory tax rate will decrease by approximately 1% from the current rate of 38.25% effective January 1, 2009 as a result of a legislative change in Colorado state income taxes enacted during the second quarter 2008.  A net benefit of $10.8 million was recognized during the second quarter 2008 as a result of applying the estimated lower rate to deferred tax assets and liabilities expected to be realized or settled on or after the effective date of the change in taxes.

Note 11 – Legal Proceedings

Janus is subject to various legal proceedings arising from normal business operations. Although there can be no assurances, based on information currently available, management believes that it is probable that the ultimate outcome of each of the actions described below will not have a material adverse effect on Janus’ consolidated financial condition. However, an adverse outcome in any of the actions could have a material adverse effect on the Company’s financial results in the period in which it is recorded. As of June 30, 2008, Janus had no litigation reserves as management believes that the remaining claims made in the civil actions described below have little or no merit and intends to defend against them.

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Market Timing Litigation

Following the market timing investigations by the New York Attorney General (“NYAG”) and the SEC in 2003, Janus and certain affiliates were named as defendants in a consolidated lawsuit in the U.S. District Court in Baltimore, Maryland (Case No. MDL No. 1586, 04-MD-15863).  Five amended complaints were filed in these coordinated proceedings, including: (i) claims by a putative class of Janus fund investors asserting claims on behalf of the investor class (Marini, et al. v. Janus Investment Fund, et al., U.S. District Court, District of Maryland, Case No. 04-CV-00497);  (ii) derivative claims by investors in the Janus funds ostensibly on behalf of the Janus funds (Steinberg et al. v. Janus Capital Management, LLC et al., U.S. District Court, District of Maryland, Case No. 04-CV-00518); (iii) claims on behalf of participants in the Janus 401(k) plan (Wangberger v. Janus Capital Group Inc., 401(k) Advisory Committee, et al., U.S. District Court, District of Maryland, Case No. JFM-05-2711); (iv) claims brought on behalf of shareholders of Janus on a derivative basis against Janus’ Board of Directors (Chasen v. Whiston, et al., U.S. District Court, District of Maryland, Case No. 04-MD-00855); and (v) claims by a putative class of Janus shareholders asserting claims on behalf of the shareholders (Wiggins, et al. v. Janus Capital Group Inc., et al., U.S. District Court, District of Maryland, Case No. 04-CV-00818).

In August 2005, the U.S. District Court entered orders dismissing most of the claims asserted against the Company and its affiliates by fund investors in the Marini and Steinberg cases described above, except certain claims under Section 10(b) of the Securities Exchange Act of 1934 and under Section 36(b) of the Investment Company Act of 1940.  Janus’ Motion for Summary Judgment requesting dismissal of the remaining claims is currently pending.  The U.S. District Court also entered an order dismissing all claims in the Wiggins lawsuit.  Plaintiffs have appealed that dismissal to the U.S. Court of Appeals for the Fourth Circuit.  That appeal is currently pending.  In August 2006, the U.S. District Court in the Wangberger 401(k) plan class action dismissed the action with prejudice, and the plaintiff appealed the dismissal to the U.S. Court of Appeals for the Fourth Circuit.  In June 2008, the Fourth Circuit reversed the U.S. District Court’s order of dismissal and remanded the case for further proceedings.  Finally, the U.S. District Court also dismissed the Chasen lawsuit against Janus’ Board of Directors without leave to amend, ruling that the plaintiff had failed to make a pre-suit demand on the Board of Directors as required by applicable state law. The time to appeal this dismissal has expired.  As a result of the above events, the Company and Janus Capital Management LLC are the remaining defendants, in some capacity, in one or more of the actions described in the preceding paragraph.

The Auditor of the State of West Virginia, in his capacity as securities commissioner, initiated administrative proceedings against many of the defendants in the market timing cases (including Janus) and seeks disgorgement and other monetary relief based on similar market timing allegations (In the Matter of Janus Capital Group Inc. et al., Before the Securities Commissioner, State of West Virginia, Summary Order No. 05-1320).  In September 2006, Janus filed its answer to the Auditor’s summary order instituting proceedings, and requested a hearing.  A hearing was held in June 2007 during which the parties were ordered to submit a scheduling order.  In addition to the currently pending Motion to Discharge Order to Show Cause, Janus continues to challenge the statutory authority of the Auditor to bring such an action.

Miscellaneous Proceedings

During 2007, two former portfolio managers filed suit against a Janus subsidiary alleging that it implemented certain changes to their compensation arrangements in violation of prior agreements (Edward Keely v. Janus Management Holdings Corporation, Denver District Court, Case No. 2007 CV 7366 and Tom Malley v. Janus Management Holdings Corporation, Denver District Court, Case No. 2007 CV 10719).  Janus answered the complaints, denying any liability and challenging the merits of Mr. Keely’s and Mr. Malley’s allegations.  Trials for the suits brought by Mr. Keely and Mr. Malley are scheduled for October 2008 and December 2008, respectively.

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Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  In addition, Janus Capital Group Inc. (collectively, “Janus” or the “Company”) may make other written and oral communications from time to time that contain such statements.  Forward-looking statements include statements as to industry trends and future expectations of the Company and other matters that do not relate strictly to historical facts and are based on certain assumptions by management.  These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate” or “continue,” and similar expressions or variations.  These statements are based on the beliefs and assumptions of the Company management based on information currently available to management.  Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in the Company’s filings with the Securities and Exchange Commission, including those in Part I, Item 1A, Risk Factors, and elsewhere in Janus’ Annual Report on Form 10-K for the year ended December 31, 2007.   Janus cautions readers to carefully consider such factors.  Furthermore, such forward-looking statements speak only as of the date on which such statements are made.  Except as required by applicable law, Janus undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

AVAILABLE INFORMATION

Copies of Janus Capital Group Inc.’s (collectively, “Janus” or the “Company”) filings with the Securities and Exchange Commission (“SEC”) can be obtained from the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  Information can be obtained about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

Janus makes available free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments thereto as soon as reasonably practical after such filing has been made with the SEC.  Reports may be obtained through the Investor Relations section of Janus’ website (http://ir.janus.com) or by contacting Janus at (888) 834-2536.  The contents of Janus’ website are not incorporated herein for any purpose.

Janus’ Officer Code of Ethics for Principal Executive Officer and Senior Financial Officers (including its chief executive officer, chief financial officer and controller) (the “Officer Code”); Corporate Code of Business Conduct and Ethics for all employees; corporate governance guidelines; and the charters of key committees of the Board of Directors (including the Audit, Compensation, Nominating and Corporate Governance, and Planning and Strategy committees) are available on its website (http://ir.janus.com/governance.cfm), and printed copies are available to any shareholder upon request by calling Janus at (888) 834-2536.  Any future amendments to or waivers of the Officer Code will be posted to the Investor Relations section of Janus’ website.

RESULTS OF OPERATIONS

Overview

Janus provides investment management and administrative services to mutual funds, separate accounts and institutional clients in both domestic and international markets through its primary subsidiaries, Janus Capital Management LLC (“Janus ex-INTECH”) and Enhanced Investment Technologies, LLC (“INTECH”).

Revenues are generally based upon a percentage of the market value of assets under management and are calculated as a percentage of the daily average asset balance in accordance with contractual agreements with the Company’s mutual funds, separate accounts and subadvised relationships (collectively referred to herein as “investment products”).  Certain investment products are also subject to performance fees that vary based on their relative performance as compared to a benchmark index and the level of assets subject to such fees.  Assets under management primarily consist of domestic and international equity and debt securities.  Accordingly, fluctuations in the financial markets, relative investment performance, sales and redemptions of investment products, and changes in the composition of assets under management are all factors that have a direct effect on Janus’ operating results.

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INVESTMENT MANAGEMENT OPERATIONS (CONTINUING OPERATIONS)

Highlights for the current quarter include:

·                  Long-term net inflows of $5.0 billion were the highest quarterly amount since the third quarter 2000.

·                  Relative investment performance remained strong despite challenging market conditions, with approximately 78%, 81% and 83% of Janus’ mutual funds in the top half of their Lipper categories on a one-, three- and five-year total return basis, respectively, as of June 30, 2008.

·                  Net income from continuing operations was $65.6 million, or $0.40 per diluted share.

·                  Operating margin totaled 34.5%.

·                  Announced plans to acquire an additional 50% interest in Perkins, Wolf, McDonnell and Company, LLC (“PWM”).

·                  Repurchased 2.6 million shares of Janus common stock at a total price of $75.0 million.

Assets Under Management and Flows

Total average assets under management increased 6.3% and 8.1%, for the three- and six-month periods ended June 30, 2008, respectively, as compared to the same periods in 2007.  The increase in average assets under management is a result of market appreciation during 2007 and continued positive long-term net flows, partially offset by challenging market conditions during 2008.

Janus ex-INTECH long-term net flows improved by $3.3 billion and $2.9 billion for the three- and six month periods ended June 30, 2008, respectively, from higher gross sales through the retail intermediary and international channels as a result of expansion efforts over the last several years and strong relative investment performance.

INTECH’s sales and redemptions continue to be negatively impacted by clients reallocating assets from INTECH to other investment strategies and the relative underperformance of certain key investment strategies in early 2008 and most of 2007.

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Results of Investment Management Operations

Three Months Ended June 30, 2008, Compared with Three Months Ended June 30, 2007

Revenues

Investment management fees increased $19.2 million, or 8.7%, primarily as a result of the 6.3% increase in average assets under management.  Revenue increased at a slightly higher rate than average assets under management as a result of increased average assets in higher yielding Janus ex-INTECH products.

Performance fee revenue is derived from certain mutual funds and separate accounts.  The $7.8 million increase in revenue was primarily due to a separate account reaching its one-year anniversary during the second quarter 2008 on which the first contractual performance fee was recognized for the previous twelve months.  Future performance fees earned on this account will be recognized quarterly, consistent with a majority of Janus’ separate account performance fee structures.

Shareowner servicing fees and other revenue improved $4.2 million over the comparable prior year period primarily as a result of an increase in transfer agent fees.  Transfer agent fees are based on average assets under management in Janus’ retail fund series (Janus Investment Fund), excluding money market assets, which increased 5.5% over the comparable prior period.

Expenses

Employee compensation and benefits increased due to an 11% growth in the average number of employees and higher investment team compensation from strong investment performance and higher revenue.  The investment team compensation plan is linked to individual performance, but also ties the aggregate level of compensation to revenue.

Long-term incentive compensation decreased quarter-to-quarter primarily as a result of a decline in the performance-based acceleration of previous awards based on expected 2008 financial performance, partially offset by an increase related to the 2008 annual grant awarded in February.  The second quarter 2007 includes a $2.5 million charge for departure-related accelerated vesting of long-term incentive awards.

Marketing and advertising expenses increased $3.7 million due to higher marketing expenses from expansion efforts in the retail intermediary and international sales channels.

Distribution expense increased $3.7 million, or 10.7%, from a similar increase in assets under management subject to third-party concessions.  Distribution fees are calculated based on a contractual percentage of the market value of assets under management distributed through third-party intermediaries and are primarily related to Janus ex-INTECH investment products.

Depreciation and amortization expenses increased $2.0 million primarily as a result of the amortization of deferred commissions from higher sales of Janus Adviser Series C shares and the amortization of intangibles related to the March 2008 acquisition of an additional 3% interest in INTECH.

General, administrative and occupancy expense increased $10.8 million primarily from higher legal costs associated with ongoing litigation and rent related to international expansion.  Second quarter 2007 included the release of $6.3 million of legal reserves.

Interest expense increased $7.3 million as a result of the issuance of additional debt in June 2007.

Net investment gains of $3.0 million for the three months ended June 30, 2008, were driven by mark-to-market adjustments on consolidated investment products and realized gains from the redemption of certain seed capital investments.  Mutual funds and separate accounts in which Janus owns a majority interest are consolidated, with changes in market value reported in current period earnings.  Future earnings will be impacted by fluctuations in the fair value measurements and amount of consolidated investments.

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Minority interest in consolidated earnings consists primarily of INTECH earnings which declined as a result of lower performance fees earned on separate accounts and lower average assets under management in the relevant investment products.

The income tax provision for the second quarter 2008 includes a $10.8 million tax benefit as a result of applying a lower tax rate to deferred tax assets and liabilities expected to be realized or settled on or after January 1, 2009.  Janus’ tax rate will decrease by approximately 1% from the current rate effective January 1, 2009 as a result of a legislative change in Colorado state taxes enacted during the second quarter 2008.