10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

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

For the quarterly period ended March 31, 2007

OR

¨ 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: 001-09318

FRANKLIN RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-2670991
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One Franklin Parkway, San Mateo, CA	94403
(Address of principal executive offices)	(Zip Code)

(650) 312-3000

(Registrant’s telephone number, including area code)

N/A

(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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  YES    ¨  NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  YES    x  NO

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Outstanding: 249,630,888 shares of common stock, par value $0.10 per share, of Franklin Resources, Inc. as of April 30, 2007.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

FRANKLIN RESOURCES, INC.

Condensed Consolidated Statements of Income

Unaudited

	Three Months Ended March 31,						Six Months Ended March 31,
(in thousands, except per share data)	2007			2006			2007			2006
Operating Revenues
Investment management fees	$	850,796		$	726,015		$	1,682,686		$	1,413,454
Underwriting and distribution fees		570,848			445,501			1,080,621			860,380
Shareholder servicing fees		68,333			65,065			135,898			129,337
Consolidated sponsored investment products income, net		1,327			2,558			2,164			2,836
Other, net		17,702			15,631			35,452			30,215
Total operating revenues		1,509,006			1,254,770			2,936,821			2,436,222
Operating Expenses
Underwriting and distribution		533,946			413,236			1,011,997			793,313
Compensation and benefits		268,471			231,182			519,487			449,662
Information systems, technology and occupancy		73,953			73,900			149,016			147,795
Advertising and promotion		46,035			36,130			80,896			66,467
Amortization of deferred sales commissions		37,615			32,115			71,362			64,117
Amortization of intangible assets		2,666			4,356			5,334			8,709
Intangible assets impairment		—			68,400			—			68,400
Other		47,237			45,694			91,576			83,416
Total operating expenses		1,009,923			905,013			1,929,668			1,681,879
Operating income		499,083			349,757			1,007,153			754,343
Other Income (Expenses)
Consolidated sponsored investment products gains, net		13,755			16,992			44,041			27,806
Investment and other income, net		100,857			55,388			171,966			87,754
Interest expense		(5,990	)		(7,125	)		(12,112	)		(16,313	)
Other income, net		108,622			65,255			203,895			99,247
Income before taxes on income		607,705			415,012			1,211,048			853,590
Taxes on income		166,839			218,496			343,382			339,105
Net Income	$	440,866		$	196,516		$	867,666		$	514,485
Earnings per Share
Basic	$	1.75		$	0.76		$	3.44		$	2.01
Diluted		1.73			0.74			3.40			1.95
Dividends per Share	$	0.15		$	0.12		$	0.30		$	0.24

See Notes to Condensed Consolidated Financial Statements.

Page 2

FRANKLIN RESOURCES, INC.

Condensed Consolidated Balance Sheets

Unaudited

(in thousands)	March 31, 2007		September 30, 2006
Assets
Current Assets
Cash and cash equivalents	$	3,701,859	$	3,310,545
Receivables		708,498		628,812
Investment securities, trading		394,767		382,053
Investment securities, available-for-sale		420,235		552,211
Deferred taxes and other		109,775		95,980
Total current assets		5,335,134		4,969,601
Banking/Finance Assets
Cash and cash equivalents		277,309		302,590
Loans held for sale, net		337,387		391,734
Loans receivable, net		206,797		253,370
Investment securities, available-for-sale		127,711		171,632
Other		34,187		29,567
Total banking/finance assets		983,391		1,148,893
Non-Current Assets
Investments, other		508,255		471,553
Deferred sales commissions		270,230		274,869
Property and equipment, net		525,103		506,291
Goodwill		1,406,461		1,406,825
Other intangible assets, net		569,363		574,633
Receivable from banking/finance group		—		82,329
Other		18,973		64,865
Total non-current assets		3,298,385		3,381,365
Total Assets	$	9,616,910	$	9,499,859

[Table continued on next page]

See Notes to Condensed Consolidated Financial Statements.

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FRANKLIN RESOURCES, INC.

Condensed Consolidated Balance Sheets

Unaudited

[Table continued from previous page]

(dollars in thousands, except share data)	March 31, 2007		September 30, 2006
Liabilities and Stockholders’ Equity
Current Liabilities
Compensation and benefits	$	211,978	$	276,998
Commercial paper		168,070		168,063
Accounts payable and accrued expenses		182,950		180,690
Commissions		253,612		210,996
Income taxes		81,520		97,936
Other		35,519		27,513
Total current liabilities		933,649		962,196
Banking/Finance Liabilities
Deposits		442,655		548,907
Payable to parent		—		82,329
Variable Funding Notes		241,574		232,330
Other		58,706		44,821
Total banking/finance liabilities		742,935		908,387
Non-Current Liabilities
Long-term debt		602,645		627,919
Deferred taxes		194,273		211,588
Other		—		9,245
Total non-current liabilities		796,918		848,752
Total liabilities		2,473,502		2,719,335
Minority Interest		112,427		95,796
Commitments and Contingencies (Note 10)
Stockholders’ Equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none issued		—		—
Common stock, $0.10 par value, 1,000,000,000 shares authorized; 249,583,450 and 253,249,420 shares issued and outstanding, for March 31, 2007 and September 30, 2006		24,958		25,325
Capital in excess of par value		—		185,583
Retained earnings		6,824,363		6,333,843
Accumulated other comprehensive income		181,660		139,977
Total stockholders’ equity		7,030,981		6,684,728
Total Liabilities and Stockholders’ Equity	$	9,616,910	$	9,499,859

See Notes to Condensed Consolidated Financial Statements.

Page 4

FRANKLIN RESOURCES, INC.

Condensed Consolidated Statements of Cash Flows

Unaudited

	Six Months Ended March 31,
(in thousands)	2007			2006
Net Income	$	867,666		$	514,485
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		108,799			107,941
Equity in net income of affiliated companies		(30,066	)		(8,793	)
Net gains on disposal of assets		(46,739	)		(8,867	)
Stock-based compensation		28,815			21,149
Excess tax benefit from stock-based compensation arrangements		(34,304	)		(19,280	)
Intangible assets impairment		—			68,400
Changes in operating assets and liabilities:
Increase in receivables, prepaid expenses and other		(47,511	)		(67,482	)
Originations of loans held for sale, net		(302,017	)		(193,818	)
Proceeds from securitization of loans held for sale		355,564			351,843
Increase in trading securities, net		(12,714	)		(61,874	)
Advances of deferred sales commissions, net		(73,775	)		(59,771	)
Decrease in provision for governmental investigations, proceedings and actions, net		(800	)		(53,195	)
Increase in deferred income taxes and taxes payable		39,686			141,243
Increase in commissions payable		42,616			15,916
Increase in other liabilities		11,919			74,868
Decrease in accrued compensation and benefits		(44,002	)		(62,219	)
Net cash provided by operating activities		863,137			760,546
Purchase of investments		(275,761	)		(208,319	)
Liquidation of investments		413,150			248,543
Purchase of banking/finance investments		(266	)		(62,268	)
Liquidation of banking/finance investments		43,792			88,863
Net origination of loans receivable		47,128			21,467
Net additions of property and equipment		(43,694	)		(25,726	)
Disposition of subsidiaries, net of cash		(2,414	)		—
Net cash provided by investing activities		181,935			62,560
Decrease in bank deposits		(106,252	)		(105,388	)
Exercise of common stock options		30,334			70,748
Dividends paid on common stock		(68,424	)		(56,247	)
Purchase of common stock		(603,583	)		(84,411	)
Excess tax benefits from stock-based compensation arrangements		34,304			19,280
Increase in debt		260,196			111,849
Payments on debt		(276,005	)		(282,784	)
Minority interest		50,391			102,125
Net cash used in financing activities		(679,039	)		(224,828	)
Increase in cash and cash equivalents		366,033			598,278
Cash and cash equivalents, beginning of period		3,613,135			3,152,159
Cash and Cash Equivalents, End of Period	$	3,979,168		$	3,750,437

[Table continued on next page]

See Notes to Condensed Consolidated Financial Statements.

Page 5

FRANKLIN RESOURCES, INC.

Condensed Consolidated Statements of Cash Flows

Unaudited

[Table continued from previous page]

	Six Months Ended March 31,
(in thousands)	2007			2006
Components of Cash and Cash Equivalents
Cash and cash equivalents, beginning of period:
Current assets	$	3,310,545		$	3,076,318
Banking/finance assets		302,590			75,841
Total	$	3,613,135		$	3,152,159
Cash and cash equivalents, end of period:
Current assets	$	3,701,859		$	3,588,851
Banking/finance assets		277,309			161,586
Total	$	3,979,168		$	3,750,437
Supplemental Disclosure of Non-Cash Information
Value of common stock issued on conversion of zero coupon convertible senior notes	$	—		$	326,651
Total assets related to the net deconsolidation of certain sponsored investment products		(45,313	)		(162,254	)
Total liabilities related to the net deconsolidation of certain sponsored investment products		(1,803	)		(60,495	)
Assets held for sale reclassified from investing to operating activities		9,535			—

See Notes to Condensed Consolidated Financial Statements.

Page 6

FRANKLIN RESOURCES, INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2007

(Unaudited)

Note 1- Basis of Presentation

We have prepared these unaudited interim financial statements of Franklin Resources, Inc. (the “Company” or “we”) and its consolidated subsidiaries (collectively “Franklin Templeton Investments”) in accordance with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Under these rules and regulations, we have shortened or omitted some information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles. We believe that we have made all adjustments necessary for a fair statement of the financial position and the results of operations for the periods shown. All adjustments are normal and recurring. You should read these financial statements together with our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006. Certain amounts for the comparative prior fiscal year periods have been reclassified to conform to the financial presentation for and at the period ended March 31, 2007. In addition, as more fully described in our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006, we have made certain revisions to the Consolidated Statement of Cash Flow for the six months ended March 31, 2006.

Note 2 - New Accounting Standards

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to irrevocably elect fair value as the measurement method for certain financial assets and liabilities, with changes in fair value recognized in earnings as they occur. SFAS 159 provides the fair value option election on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The difference between carrying value and fair value at the election date is recorded as a cumulative effective adjustment to opening retained earnings. SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. We are currently evaluating the impact that the fair value election of SFAS 159 would have on our Consolidated Financial Statements.

In November 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) in EITF Abstracts Issue No. 06-9, “Reporting a Change in (or the Elimination of) a Previously Existing Difference between the Fiscal Year-End of a Parent Company and That of a Consolidated Entity or between the Reporting Period of an Investor and That of an Equity Method Investee” (“EITF 06-9”). EITF 06-9 requires certain disclosures whenever a change is made to modify or eliminate the time lag used for recording results of consolidated entities or equity method investees that have a different fiscal year end than a parent. EITF 06-9 is effective for changes in the time lag occurring in the interim or annual reporting periods beginning after November 29, 2006. The adoption of EITF 06-9 in the three months ended March 31, 2007 did not have a material impact on our Consolidated Financial Statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132-R” (“SFAS 158”). SFAS 158 requires employers to recognize the funded status of defined benefit pension and other postretirement benefit plans as an asset or liability. SFAS 158 is effective as of the end of fiscal years ending after December 15, 2006. The adoption of SFAS 158 is not expected to materially impact our Consolidated Financial Statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require new fair value measurements, but provides guidance on how to measure fair value by establishing a fair value hierarchy used to classify the source of the information. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact that the adoption of SFAS 157 will have on our Consolidated Financial Statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires an analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and provides for a one-time cumulative effect transition adjustment. SAB 108 is effective for the annual financial statements covering the first fiscal year ending after November 15, 2006. We are currently evaluating the impact that the adoption of SAB 108 will have on our Consolidated Financial Statements.

Page 7

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes–an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for related interest and penalties. FIN 48 is effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to retained earnings. We are currently evaluating the impact that the adoption of FIN 48 will have on our Consolidated Financial Statements.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets–an amendment of FASB Statement No. 140” (“SFAS 156”), which provides some relief for servicers that use derivatives to economically hedge fluctuations in the fair value of their servicing rights and changes how gains and losses are computed in certain transfers or securitizations. SFAS 156 revised the accounting for servicing assets and obligations associated with financial assets that are acquired or disposed. SFAS 156 is effective for fiscal years beginning after September 15, 2006. The adoption of SFAS 156 in the three months ended December 31, 2006 did not have a material impact on our Consolidated Financial Statements.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments–an amendment of FASB Statements No. 133 and 140” (“SFAS 155”), which resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, and establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year beginning after September 15, 2006. The adoption of SFAS 155 in the three months ended December 31, 2006 did not have a material impact on our Consolidated Financial Statements.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections–a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”), which changes the requirement for the accounting and reporting of a change in accounting principle. SFAS 154 eliminates the requirement in Accounting Principles Board Opinion No. 20, “Accounting Changes,” to include the cumulative effect of changes in accounting principle in the income statement in the period of change. Instead, to enhance the comparability of prior period financial statements, SFAS 154 requires that changes in accounting principles are retrospectively applied, unless directed otherwise by a new pronouncement. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS 154 in the three months ended December 31, 2006 did not have a material impact on our Consolidated Financial Statements.

Note 3 - Comprehensive Income

The following table computes comprehensive income.

	Three Months Ended March 31,					Six Months Ended March 31,
(in thousands)	2007			2006		2007		2006
Net income	$	440,866		$	196,516	$	867,666	$	514,485
Net unrealized (losses) gains on investments, net of tax		(18,638	)		9,589		13,711		13,476
Currency translation adjustments		6,738			6,393		26,141		146
Other		—			—		1,831		(571	)
Comprehensive Income	$	428,966		$	212,498	$	909,349	$	527,536

Page 8

Note 4 - Earnings per Share

We computed earnings per share as follows:

	Three Months Ended March 31,					Six Months Ended March 31,
(in thousands, except per share data)	2007			2006		2007			2006
Net income as reported	$	440,866		$	196,516	$	867,666		$	514,485
Adjustments, net of taxes		(55	)		976		(55	)		3,471
Adjusted net income	$	440,811		$	197,492	$	867,611		$	517,956
Weighted-average shares outstanding–basic		251,763			258,110		252,085			255,618
Incremental shares from assumed conversions:
Common stock options and nonvested stock awards and stock unit awards		3,397			3,930		3,066			3,924
Zero coupon convertible senior notes		—			3,397		—			5,575
Weighted-average shares outstanding–diluted		255,160			265,437		255,151			265,117
Earnings per Share
Basic	$	1.75		$	0.76	$	3.44		$	2.01
Diluted		1.73			0.74		3.40			1.95

In computing diluted earnings per share for the three and six months ended March 31, 2007, we adjusted net income for the effect of an accelerated stock repurchase agreement entered into in March 2007 (see Note 12 – Common Stock Repurchases). In computing diluted earnings per share for the three and six months ended March 31, 2006, we adjusted net income for the effect of zero coupon convertible senior notes.

For the three and six months ended March 31, 2007, approximately 0.6 thousand and 21.5 thousand nonvested shares related to grants of stock awards and stock unit awards were excluded from the computation of diluted earnings per share because their effect would have been antidilutive. There were no nonvested shares excluded from the computation of diluted earnings per share for the three months ended March 31, 2006 and there were 68.5 thousand nonvested shares excluded from the computation of diluted earnings for the six months ended March 31, 2006.

Note 5 - Cash and Cash Equivalents

We disclose cash and cash equivalents as separate components of current assets and in banking/finance assets in our Condensed Consolidated Balance Sheets. Cash and cash equivalents consisted of the following:

(in thousands)	March 31, 2007		September 30, 2006
Cash and due from banks	$	625,003	$	418,142
Federal funds sold and securities purchased under agreements to resell		106,739		187,071
Securities of U.S. federal agencies, money market mutual funds, time deposits and other		3,247,426		3,007,922
Total	$	3,979,168	$	3,613,135

Federal Reserve Board regulations require reserve balances on deposits to be maintained with the Federal Reserve Banks by banking subsidiaries. The required reserve balances were $0.8 million at March 31, 2007 and $4.0 million at September 30, 2006.

Note 6 - Consolidated Sponsored Investment Products

The following tables present the effect on our consolidated results of operations and financial position of the consolidation and deconsolidation activity related to sponsored investment products accounted for under FASB Statement of Financial Accounting Standards No. 94, “Consolidation of All Majority-Owned Subsidiaries–an amendment of ARB No. 51, with related amendments of APB Opinion No. 18 and ARB No. 43, Chapter 12”, and FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities–an interpretation of ARB No. 51” (“FIN 46-R”).

Page 9

	Three Months Ended March 31, 2007
(in thousands)	Before Consolidation			Sponsored Investment Products			Consolidated
Operating Revenues
Investment management fees	$	851,346		$	(550	)	$	850,796
Underwriting and distribution fees		571,096			(248	)		570,848
Shareholder servicing fees		68,342			(9	)		68,333
Consolidated sponsored investment products income, net		—			1,327			1,327
Other, net		17,702			—			17,702
Total operating revenues		1,508,486			520			1,509,006
Operating Expenses		1,009,923			—			1,009,923
Operating income		498,563			520			499,083
Other Income (Expenses)
Consolidated sponsored investment products gains, net		—			13,755			13,755
Investment and other income (expenses), net		118,440			(17,583	)		100,857
Interest expense		(5,990	)		—			(5,990	)
Other income, net		112,450			(3,828	)		108,622
Income before taxes on income		611,013			(3,308	)		607,705
Taxes on income		166,885			(46	)		166,839
Net Income	$	444,128		$	(3,262	)	$	440,866

	Six Months Ended March 31, 2007
(in thousands)	Before Consolidation			Sponsored Investment Products			Consolidated
Operating Revenues
Investment management fees	$	1,686,727		$	(4,041	)	$	1,682,686
Underwriting and distribution fees		1,081,168			(547	)		1,080,621
Shareholder servicing fees		135,914			(16	)		135,898
Consolidated sponsored investment products income, net		—			2,164			2,164
Other, net		35,452			—			35,452
Total operating revenues		2,939,261			(2,440	)		2,936,821
Operating Expenses		1,929,668			—			1,929,668
Operating income		1,009,593			(2,440	)		1,007,153
Other Income (Expenses)
Consolidated sponsored investment products gains, net		—			44,041			44,041
Investment and other income (expenses), net		195,012			(23,046	)		171,966
Interest expense		(12,112	)		—			(12,112	)
Other income, net		182,900			20,995			203,895
Income before taxes on income		1,192,493			18,555			1,211,048
Taxes on income		337,339			6,043			343,382
Net Income	$	855,154		$	12,512		$	867,666

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	March 31, 2007
(in thousands)	Before Consolidation		Sponsored Investment Products			Consolidated
Assets
Current assets	$	5,181,121	$	154,013		$	5,335,134
Banking/finance assets		983,391		—			983,391
Non-current assets		3,319,369		(20,984	)		3,298,385
Total Assets	$	9,483,881	$	133,029		$	9,616,910
Liabilities and Stockholders’ Equity
Current liabilities	$	878,242	$	55,407		$	933,649
Banking/finance liabilities		742,935		—			742,935
Non-current liabilities		815,815		(18,897	)		796,918
Total Liabilities		2,436,992		36,510			2,473,502
Minority interest		26,343		86,084			112,427
Total stockholders’ equity		7,020,546		10,435			7,030,981
Total Liabilities and Stockholders’ Equity	$	9,483,881	$	133,029		$	9,616,910

Sales and redemptions of shares of our consolidated sponsored investment products are a component of the change in minority interest included in financing activities in our Condensed Consolidated Statements of Cash Flows.

Note 7 - Securitization of Loans Receivable

From time to time, we enter into automobile loan securitization transactions with qualified special purpose entities and record these transactions as sales. The following table shows details of automobile loan securitization transactions.

	Three Months Ended March 31,				Six Months Ended March 31,
(in thousands)	2007		2006		2007		2006
Net sale proceeds	$	—	$	—	$	353,508	$	348,332
Less: net carrying amount of loans held for sale		—		—		351,013		348,169
Pre-Tax Gain	$	—	$	—	$	2,495	$	163

When we sell automobile loans in a securitization transaction, we record an interest-only strip receivable. The interest-only strip receivable represents our contractual right to receive interest from the pool of securitized loans after the payment of required amounts to holders of the securities and certain other costs associated with the securitization. Automobile loans sold in a securitization transaction in the six months ended March 31, 2007, included loans held by a special purpose statutory Delaware trust (the “Trust”) that was organized in fiscal year 2005 to hold our loans held for sale and issue notes under a variable funding note warehouse credit facility (see Note 9 - Debt). Directly and through the Trust, which is consolidated in our results of operations, we also enter into interest-rate swap agreements, accounted for as freestanding derivatives, intended to mitigate the interest risk between the fixed interest rate on the pool of automobile loans and the floating interest rate being paid under the variable funding note warehouse credit facility until the securitization and sale of the related loans. The fair value of interest-rate swaps outstanding at March 31, 2007 of approximately $675.4 thousand was reflected as an asset on the Condensed Consolidated Balance Sheet. These interest rate swaps, with a notional value of $254.0 million, mitigate the interest risk between the fixed interest rate on the pool of automobile loans that were funded subsequent to the securitization transaction that occurred in the three months ended December 31, 2006 and the floating interest rate being paid under the variable funding note warehouse credit facility.

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We generally estimate fair value based on the present value of future expected cash flows. The key assumptions used in the present value calculations of our securitization transactions at the date of securitization were as follows:

	Three Months Ended March 31,				Six Months Ended March 31,
	2007		2006		2007		2006
Excess cash flow discount rate (annual rate)	—	%	—	%	12.0	%	12.0	%
Cumulative life loss rate	—	%	—	%	4.0	%	3.2	%
Pre-payment speed assumption (average monthly rate)	—	%	—	%	1.6	%	1.6	%

We determined these assumptions using data from comparable transactions, historical information and management’s estimate. Interest-only strips receivable are generally restricted assets and subject to limited recourse provisions.

We generally estimate the fair value of the interest-only strips at each period-end based on the present value of future expected cash flows, consistent with the methodology used at the date of securitization. The following shows the carrying value and the sensitivity of the interest-only strips receivable to hypothetical adverse changes in the key economic assumptions used to measure fair value:

(dollar amounts in thousands)	March 31, 2007			September 30, 2006
Carrying amount/fair value of interest-only strips receivable	$	19,148		$	10,559
Excess cash flow discount rate (annual rate)		12.0	%		12.0	%
Impact on fair value of 10% adverse change	$	(254	)	$	(148	)
Impact on fair value of 20% adverse change		(499	)		(293	)
Cumulative life loss rate		3.9	%		3.3	%
Impact on fair value of 10% adverse change	$	(1,138	)	$	(2,093	)
Impact on fair value of 20% adverse change		(2,103	)		(4,185	)
Pre-payment speed assumption (average monthly rate)		1.6	%		1.6	%
Impact on fair value of 10% adverse change	$	(1,215	)	$	(1,483	)
Impact on fair value of 20% adverse change		(1,963	)		(3,082	)

Actual future market conditions may differ materially. Accordingly, this sensitivity analysis should not be considered our projection of future events or losses.

We retain servicing responsibilities for automobile loan securitizations and receive annual servicing fees ranging from 1% to 2% of the loans securitized for services that we provide to the securitization trusts. We have not recognized a servicing asset or liability under the provisions of FASB Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities–a replacement of FASB Statement No. 125”, as amended by SFAS 156 because the benefits of servicing are just adequate to compensate us for our servicing responsibilities.

The following table is a summary of cash flows received from and paid to securitization trusts.

	Three Months Ended March 31,						Six Months Ended March 31,
(in thousands)	2007			2006			2007			2006
Servicing fees received	$	3,293		$	3,645		$	7,374		$	6,272
Interest-only strips cash flows received		3,648			1,900			6,837			6,967
Purchase of loans from trusts		(366	)		(122	)		(10,943	)		(23,719	)

Amounts payable to the trustee related to loan principal and interest collected on behalf of the trusts of $38.2 million at March 31, 2007 and $40.2 million at September 30, 2006 are included in other banking/finance liabilities.

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The following table shows details of the loans we manage that are held by securitization trusts.

(in thousands)	March 31, 2007		September 30, 2006
Principal amount of loans	$	660,197	$	514,837
Principal amount of loans 30 days or more past due		12,375		11,438

Net charge-offs on the securitized loan portfolio were $3.4 million and $6.3 million for the three and six months ended March 31, 2007 and $2.7 million and $6.0 million for the three and six months ended March 31, 2006.

Note 8 - Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets, including those acquired before initial application of FASB Statement of Financial Accounting Standards No. 141, “Business Combinations”, and FASB Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), are not amortized but are tested for impairment at least annually.

All of our goodwill and intangible assets relate to our investment management and other services operating segment. Non-amortized intangible assets represent the value of management contracts related to certain of our sponsored investments products that are indefinite-lived.

During the quarter ended December 31, 2006, we completed our most recent annual impairment testing of goodwill and indefinite-lived intangible assets under the guidance set out in SFAS 142 and we determined that there was no impairment to these assets as of October 1, 2006.

During the three months ended March 31, 2006, Fiduciary Trust Company International (“Fiduciary Trust”), a subsidiary of the Company, implemented a plan of reorganization designed to emphasize its distinct high net-worth brand and to pursue further integration opportunities with Franklin Templeton Investments for its institutional business line. These changes to Fiduciary Trust’s business required us to review the carrying value of acquired customer base intangible assets of Fiduciary Trust. As a result of these changes, we recorded a $68.4 million non-cash impairment charge to the customer base definite-lived intangible assets of Fiduciary Trust in the three months ended March 31, 2006.

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Intangible assets, other than goodwill were as follows:

	March 31, 2007
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized intangible assets
Customer base	$	165,380	$	(86,903	)	$	78,477
Other		35,023		(26,437	)		8,586
		200,403		(113,340	)		87,063
Non-amortized intangible assets
Investment management contracts		482,300		—			482,300
Total	$	682,703	$	(113,340	)	$	569,363
	September 30, 2006
(in thousands	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized intangible assets
Customer base	$	165,606	$	(82,616	)	$	82,990
Other		35,018		(25,473	)		9,545
		200,624		(108,089	)		92,535
Non-amortized intangible assets
Investment management contracts		482,098		—			482,098
Total	$	682,722	$	(108,089	)	$	574,633

The gross and net carrying amounts of certain of our intangible assets are subject to foreign currency movements because they are denominated in currencies other than the U.S. dollar.

The change in the carrying value of goodwill was as follows:

(in thousands)
Balance at September 30, 2006	$	1,406,825
Foreign currency movements		(364	)
Balance at March 31, 2007	$	1,406,461

Estimated amortization expense related to definite-lived intangible assets for each of the next 5 fiscal years is as follows:

(in thousands)

for the Fiscal Years Ending September 30,
2007	$	10,666
2008		10,594
2009		10,595
2010		10,595
2011		10,459

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Note 9 - Debt

Outstanding debt consisted of the following:

(in thousands)	March 31, 2007		September 30, 2006
Current
Variable Funding Notes	$	241,574	$	232,330
Commercial paper		168,070		168,063
		409,644		400,393
Non-Current
Medium Term Notes		420,000		420,000
Other		182,645		207,919
		602,645		627,919
Total Debt	$	1,012,289	$	1,028,312

Federal funds purchased, when outstanding, are included in other liabilities of the banking/finance operating segment.

Our banking/finance segment finances its automotive lending business primarily by issuing variable funding notes (the “Variable Funding Notes”) under a one-year revolving $250.0 million variable funding note warehouse credit facility, originally entered into in March 2005, and subsequently extended for additional one-year terms in March 2006 and March 2007. The Variable Funding Notes are payable to certain administered conduits and are secured by cash and a pool of automobile loans that meet or are expected to meet certain eligibility requirements. Credit enhancements for the Variable Funding Notes require us to provide, as collateral, loans held for sale with a fair value in excess of the principal amount of the Variable Funding Notes, as well as to hold in trust additional cash balances to cover certain shortfalls. In addition, we provide a payment provider commitment in an amount not to exceed 4.66% of the pool balance. We also enter into interest-rate swap agreements, accounted for as freestanding derivatives, intended to mitigate the interest-rate risk between the fixed interest rate on the pool of automobile loans and the floating interest rate being paid on the Variable Funding Notes. We expect to extend or replace the variable funding warehouse credit facility upon the expiration of the current facility.

In April 2003, we completed the sale of five-year senior notes due April 15, 2008 totaling $420.0 million (the “Medium Term Notes”). The Medium Term Notes, which were offered to qualified institutional buyers only, carry an interest rate of 3.7% and are not redeemable prior to maturity by either the note holders or us. Interest payments are due semi-annually.

Other long-term debt primarily relates to deferred commission liabilities recognized in relation to deferred commission assets (“DCA”) originated in the United States that were originally financed through a sale to Lightning Finance Company Limited (“LFL”), a company in which we hold a 49% ownership interest. In December 2005, LFL transferred substantially all of its DCA to Lightning Asset Finance Limited (“LAFL”), an Irish special purpose vehicle formed in December 2005, in which we also hold a 49% ownership interest. The holder of the 51% ownership interests in both LFL and LAFL is a subsidiary of an international banking institution which is not affiliated with Franklin Templeton Investments. Due to our significant interest in both LFL and LAFL, we continue to carry on our balance sheet the DCA generated in the United States and originally sold to LFL by Franklin/Templeton

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Distributors, Inc. (“FTDI”) until these assets are amortized or sold by LAFL. Neither we nor our distribution subsidiaries retain any direct ownership interest in the DCA sold, and, therefore, the sold DCA are not available to satisfy claims of our creditors or those of our distribution subsidiaries.

At March 31, 2007, we had $420.0 million available under a Five Year Facility Credit Agreement with certain banks and financial institutions expiring in the fiscal year ending September 30, 2010, $300.0 million of debt and equity securities available to be issued under a shelf registration statement filed with the SEC and $330.0 million of commercial paper available for issuance under a $500.0 million private placement. In addition, at March 31, 2007, our banking/finance operating segment had $451.0 million in available uncommitted short-term bank lines under the Federal Reserve Funds system, the Federal Reserve Bank discount window, and Federal Home Loan Bank short-term borrowing capacity.

Note 10 - Commitments and Contingencies

Guarantees

Under FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, we are required to recognize, in our financial statements, a liability for the fair value of any guarantees issued or modified after December 31, 2002 as well as make additional disclosures about existing guarantees.

In relation to the automobile loan securitization transactions that we have entered into with a number of qualified special purpose entities, we are obligated to cover shortfalls in amounts due to the holders of the notes up to certain levels as specified under the related agreements. As of March 31, 2007, the maximum potential amount of future payments related to these obligations was $39.0 million and the fair value of obligations arising from automobile securitization transactions entered into subsequent to December 31, 2002 reflected on our Condensed Consolidated Balance Sheet at March 31, 2007 was $0.2 million.

At March 31, 2007, our banking/finance operating segment had issued financial standby letters of credit totaling $1.3 million which beneficiaries would be able to draw upon in the event of non-performance by our customers, primarily in relation to lease and lien obligations of these banking customers. These standby letters of credit were secured by marketable securities with a fair value of $2.9 million as of March 31, 2007.

Legal Proceedings

As previously reported, the Company and certain of its subsidiaries, and in some instances, certain of the Franklin Templeton mutual funds (the “Funds”), current and former officers, employees, and Company and/or Fund directors, have been named in multiple lawsuits in different federal courts, alleging violations of federal securities and state laws. Specifically, the lawsuits claim breach of duty with respect to alleged arrangements to permit market timing and/or late trading activity, or breach of duty with respect to the valuation of the portfolio securities of certain Templeton Funds managed by certain of the Company’s subsidiaries, allegedly resulting in market timing activity. The majority of these lawsuits duplicate, in whole or in part, the allegations asserted in the February 4, 2004 Massachusetts Administrative Complaint concerning one instance of market timing (the “Administrative Complaint”) and the SEC’s findings regarding market timing in its August 2, 2004 Order (the “SEC Order”), both of which matters were previously reported. The lawsuits are styled as class actions, or derivative actions on behalf of either the named Funds or the Company, and seek, among other relief, monetary damages, restitution, removal of Fund trustees, directors, advisers, administrators, and distributors, rescission of management contracts and distribution plans under Rule 12b-1 promulgated under the Investment Company Act of 1940 (“Rule 12b-1”), and/or attorneys’ fees and costs.

More than 400 similar lawsuits against at least 19 different mutual fund companies have been filed in federal district courts throughout the country. Because these cases involve common questions of fact, the Judicial Panel on Multidistrict Litigation (the “Judicial Panel”) ordered the creation of a multidistrict litigation in the United States District Court for the District of Maryland, entitled “In re Mutual Funds Investment Litigation” (the “MDL”). The Judicial Panel then transferred similar cases from different districts to the MDL for coordinated or consolidated pretrial proceedings.

The following market timing lawsuits are pending against the Company and certain of its subsidiaries (and in some instances, name certain current and former officers, employees, Company and/or Fund directors, and/or Funds) and have been transferred to the MDL:

Kenerley v. Templeton Funds, Inc., et al., Case No. 03-770 GPM, filed on November 19, 2003 in the United States District Court for the Southern District of Illinois; Cullen v. Templeton Growth Fund, Inc., et al., Case No. 03-859 MJR, filed on December 16, 2003 in the United States District Court for the Southern District of Illinois and transferred to the United States

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District Court for the Southern District of Florida on March 29, 2004; Jaffe v. Franklin AGE High Income Fund, et al., Case No. CV-S-04-0146-PMP-RJJ, filed on February 6, 2004 in the United States District Court for the District of Nevada; Lum v. Franklin Resources, Inc., et al., Case No. C 04 0583 JSW, filed on February 11, 2004 in the United States District Court for the Northern District of California; Fischbein v. Franklin AGE High Income Fund, et al., Case No. C 04 0584 JSW, filed on February 11, 2004 in the United States District Court for the Northern District of California; Beer v. Franklin AGE High Income Fund, et al., Case No. 8:04-CV-249-T-26 MAP, filed on February 11, 2004 in the United States District Court for the Middle District of Florida; Bennett v. Franklin Resources, Inc., et al., Case No. CV-S-04-0154-HDM-RJJ, filed on February 12, 2004 in the United States District Court for the District of Nevada; Dukes v. Franklin AGE High Income Fund, et al., Case No. C 04 0598 MJJ, filed on February 12, 2004 in the United States District Court for the Northern District of California; McAlvey v. Franklin Resources, Inc., et al., Case No. C 04 0628 PJH, filed on February 13, 2004 in the United States District Court for the Northern District of California; Alexander v. Franklin AGE High Income Fund, et al., Case No. C 04 0639 SC, filed on February 17, 2004 in the United States District Court for the Northern District of California; Hugh Sharkey IRA/RO v. Franklin Resources, Inc., et al., Case No. 04 CV 1330, filed on February 18, 2004 in the United States District Court for the Southern District of New York; D’Alliessi v. Franklin AGE High Income Fund, et al., Case No. C 04 0865 SC, filed on March 3, 2004 in the United States District Court for the Northern District of California; Marcus v. Franklin Resources, Inc., et al., Case No. C 04 0901 JL, filed on March 5, 2004 in the United States District Court for the Northern District of California; Banner v. Franklin Resources, Inc., et al., Case No. C 04 0902 JL, filed on March 5, 2004 in the United States District Court for the Northern District of California; Denenberg v. Franklin Resources, Inc., et al., Case No. C 04 0984 EMC, filed on March 10, 2004 in the United States District Court for the Northern District of California; and Hertz v. Burns, et al., Case No. 04 CV 02489, filed on March 30, 2004 in the United States District Court for the Southern District of New York.

Plaintiffs in the MDL filed consolidated amended complaints on September 29, 2004. On February 25, 2005, defendants filed motions to dismiss. The Company’s and its subsidiaries’ motions are currently under submission with the court.

As also previously reported, various subsidiaries of the Company, as well as certain Templeton Fund registrants, were named in several class action lawsuits originally filed in state courts in Illinois, alleging breach of duty with respect to the valuation of the portfolio securities of certain Templeton Funds managed by such subsidiaries, and seeking, among other relief, monetary damages and attorneys’ fees and costs, as follows:

Bradfisch v. Templeton Funds, Inc., et al., Case No. 2003 L 001361, filed on October 3, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois; Woodbury v. Templeton Global Smaller Companies Fund, Inc., et al., Case No. 2003 L 001362, filed on October 3, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois; Kwiatkowski v. Templeton Growth Fund, Inc., et al., Case No. 03 L 785, filed on December 17, 2003 in the Circuit Court of the Twentieth Judicial Circuit, St. Clair County, Illinois; Parise v. Templeton Funds, Inc., et al., Case No. 2003 L 002049, filed on December 22, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois.

In April 2005, defendants removed these lawsuits to the United States District Court for the Southern District of Illinois. On July 12, 2005, the court dismissed with prejudice one of these lawsuits, Bradfisch v. Templeton Funds, Inc., et al., and dismissed the remaining three lawsuits on August 25, 2005. Plaintiffs appealed the dismissals to the United States Court of Appeals for the Seventh Circuit (Bradfisch v. Templeton Funds, Inc., et al., Case No. 05-3390, Woodbury v. Templeton Global Smaller Companies Fund, Inc., et al., Case No. 05-3559, Kwiatkowski v. Templeton Growth Fund, Inc., et al., Case No. 05-3558, Parise v. Templeton Funds, Inc., et al., Case No. 05-3586). On May 19, 2006, the Seventh Circuit affirmed the dismissals. Plaintiffs’ subsequent requests to the Seventh Circuit for reconsideration were also denied. On November 13, 2006, plaintiffs filed a petition for certiorari to the United States Supreme Court. On February 20, 2007, the United States Supreme Court denied the petition, rendering dismissal of these lawsuits final.

In addition, Franklin Templeton Investments Corp. (“FTIC”), a subsidiary of the Company and the investment manager of Franklin Templeton’s Canadian mutual funds, has been named in four class action market timing lawsuits in Canada. The lawsuits contain allegations similar or identical to allegations asserted by the Ontario Securities Commission in its March 3, 2005 order concerning market timing activities by three institutional investors in certain Canadian mutual funds managed by FTIC between February 1999 and February 2003, as previously reported. The lawsuits seek, among other relief, monetary damages, an order barring any increase in management fees for a period of two years following judgment, and/or attorneys’ fees and costs, as follows: Huneault v. AGF Funds, Inc., et al., Case No. 500-06-000256-046, filed on October 25, 2004 in the Superior Court for the Province of Quebec, District of Montreal; Heinrichs, et al. v. CI Mutual Funds, Inc., et al., Case No. 04-CV-29700, filed on December 17, 2004 in the Ontario Superior Court of Justice; Richardson v. Franklin Templeton Investments Corp., Case No. 05-CV-303069, filed on December 23, 2005 in the Ontario Superior Court of Justice; and Fischer, et al., v. IG Investment Management Ltd., et al. Case No. 06-CV-307599CP, filed on March 9, 2006 in the Ontario Superior Court of Justice.

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As also previously reported, the Company and certain of its subsidiaries have been named in multiple lawsuits alleging violations of federal securities and state laws relating to marketing support payments and/or payment of allegedly excessive commissions, and advisory and distribution fees. All officers and directors originally named in these lawsuits have since been dismissed without prejudice pursuant to stipulated tolling agreements. These lawsuits are styled as class actions and/or derivative actions brought on behalf of certain Funds, and seek, among other relief, monetary damages, restitution, an accounting of all fees, commissions and soft dollar payments, declaratory relief, injunctive relief, and/or attorneys’ fees and costs, and are as follows:

Stephen Alexander IRA v. Franklin Resources, Inc., et al., Case No. 04-982 JLL, filed on March 2, 2004 in the United States District Court for the District of New Jersey; Strigliabotti v. Franklin Resources, Inc., et al., Case No. C 04 0883 SI, filed on March 4, 2004 in the United States District Court for the Northern District of California; Tricarico v. Franklin Resources, Inc., et al., Case No. CV-04-1052 JAP, filed on March 4, 2004 in the United States District Court for the District of New Jersey; Wilcox v. Franklin Resources, Inc., et al., Case No. 04-2258 WHW, filed on May 12, 2004 in the United States District Court for the District of New Jersey; Wolbrink v. Franklin Resources, Inc., et al., Case No. 04-2430WHW, filed on May 25, 2004 in the United States District Court for the District of New Jersey; Alexander v. Franklin Resources, Inc., et al., Case No 06-7121 SI, filed on November 16, 2006 in the United States District Court for the Northern District of California; and Ulferts v. Franklin Resources, Inc., et al., Case No. 06-7847 SI filed on December 22, 2006 in the United States District Court for the Northern District of California.

The United States District Court for the District of New Jersey consolidated for pretrial purposes four of the above lawsuits (Stephen Alexander IRA, Tricarico, Wilcox, and Wolbrink) into a single master file entitled “In re Franklin Mutual Funds Fee Litigation” (Case No. 04-cv-982 (WJM)(RJH)). Following a September 9, 2005 order of dismissal with leave to amend certain claims, on March 10, 2006, plaintiffs in those lawsuits filed a second amended derivative consolidated complaint (the “Complaint”). Defendants moved to dismiss the Complaint on June 9, 2006. On March 13, 2007, the court granted defendants’ motion and dismissed the Complaint with prejudice. On April 12, 2007, plaintiffs filed a notice of appeal to the United States Court of Appeals for the Third Circuit.

On February 14, 2007 and March 16, 2007, respectively, the United States District Court for the Northern District of California ordered the transfer of the Alexander and Ulferts lawsuits, referenced above, to the United States District Court for the District of New Jersey (Alexander v. Franklin Resources, Inc., et al., Case No. 2:07-cv-00848 WJM-MF and Ulferts v. Franklin Resources, Inc., et.al., Case No. 2:07-cv-01309 WJM-MF).

Management strongly believes that the claims made in each of the lawsuits identified above are without merit and intends to defend against them vigorously. The Company cannot predict with certainty, however, the eventual outcome of these lawsuits, nor whether they will have a material negative impact on the Company.

The Company is from time to time involved in litigation relating to claims arising in the normal course of business. Management is of the opinion that the ultimate resolution of such claims will not materially affect the Company’s business, financial position, and results of operations.

Other Commitments and Contingencies

We have reviewed our interest in LAFL and LFL for consolidation under FIN 46-R. Based on our analysis, we determined that we hold a significant interest in both LAFL and LFL; however, we are not the primary beneficiary of either company because we do not hold a majority of the risks and rewards of ownership. At March 31, 2007, total assets of LAFL and LFL were approximately $394.5 million and $11.2 million and our exposure to loss related to LAFL and LFL was approximately $194.1 million and $1.0 million. During the three and six months ended March 31, 2007, we recognized pre-tax income of $1.4 million and $1.1 million for our share of LAFL’s and LFL’s net income over these periods. Due to our significant interest in both LAFL and LFL, we continue to carry on our balance sheet the DCA originally sold to LFL by FTDI until these assets are amortized or sold by LAFL. Neither we nor our distribution subsidiaries retain any direct ownership interest in the DCA sold, and therefore, the sold DCA are not available to satisfy claims of our creditors or those of our distribution subsidiaries.

At March 31, 2007, the total assets in sponsored investment products in which we held a significant interest under FIN 46-R were approximately $1,124.6 million and our exposure to loss as a result of our interest in these products was $165.4 million. These amounts represent our maximum exposure to loss and do not reflect our estimate of the actual losses that could result from adverse changes.

In July 2003, we renegotiated an agreement, originally signed in February 2001, to outsource the operation of our U.S. data centers, which includes responsibility for processing data and managing the centers. We can terminate the amended agreement by incurring a termination charge. The maximum termination charge payable will depend on the termination date

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of the amended agreement, the service levels before our termination of the agreement, costs incurred by our service provider to wind-down the services and costs associated with assuming equipment leases. As of March 31, 2007, we estimated that the termination fee payable in April 2007, not including costs associated with assuming equipment leases, would approximate $8.9 million and would decrease each month thereafter, reaching a payment of approximately $2.2 million in July 2008.

At March 31, 2007, our banking/finance operating segment had commitments to extend credit aggregating $230.1 million, primarily under credit card lines.

Under an accelerated stock repurchase agreement with an unrelated counterparty (see Note 12 – Common Stock Repurchases), we will either receive or pay a future price adjustment based generally on the daily volume-weighted average prices of our common stock over a period of up to several months. The price adjustment can be settled, at our option, in cash or shares of our common stock.

We lease office space and equipment under long-term operating leases. At March 31, 2007, there were no material changes in leasing arrangements that would have a significant effect on future minimum lease payments reported in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

Note 11 - Stock-Based Compensation

Prior to October 1, 2005, we accounted for stock-based employee compensation plans according to the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. Accordingly, compensation costs were not recognized for awards granted with no intrinsic value. Effective October 1, 2005, we adopted FASB Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective transition method. Under this transition method, beginning in the fiscal year ended September 30, 2006, compensation cost is recorded in relation to all stock-based payments granted prior to, but not yet vested at October 1, 2005, based on the grant-date fair value estimated in accordance with the original provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Results for prior periods have not been restated.

As a result of adopting SFAS 123R, income before income taxes for the three and six months ended March 31, 2007 included $1.8 million and $3.8 million of compensation costs that would not have been recognized under our previous accounting method for stock-based compensation. Income before income taxes for the three and six months ended March 31, 2006 included $5.0 million and $9.9 million of compensation costs that would not have been recognized under our previous accounting method for stock-based compensation. Net income for the three and six months ended March 31, 2007 included $1.8 million and $3.7 million of compensation costs, net of taxes that would not have been recognized under our previous accounting method for stock-based compensation. Net income for the three and six months ended March 31, 2006 included $5.2 million and $8.8 million of compensation costs, net of taxes that would not have been recognized under our previous accounting method for stock-based compensation. Had we not adopted SFAS 123R, basic and diluted earnings per share would have been $0.01 higher for the six months ended March 31, 2007, and basic and diluted earnings per share would have been unchanged for the three months ended Match 31, 2007. If we had not adopted SFAS 123R in the fiscal year ended March 31, 2006, basic and diluted earnings per share for the three and six months ended March 31, 2006, would have been $0.02 higher and $0.04 higher.

Prior to the adoption of SFAS 123R, we presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS 123R requires the cash flows resulting from tax deductions in excess of the compensation cost recognized for stock-based payments (“excess tax benefits”) to be classified as financing cash flows. The excess tax benefit of $1.3 million and $34.3 million and $10.4 million and $19.3 million for the three and six months ended March 31, 2007 and 2006, respectively that was classified as a financing cash inflow, would have been classified as an operating cash inflow if we had not adopted SFAS 123R.

We sponsor the Amended and Restated Annual Incentive Plan (the “AIP”) and the 2002 Universal Stock Incentive Plan (the “USIP”). Under the terms of the AIP, eligible employees may receive cash, equity awards and/or cash-settled equity awards generally based on the performance of Franklin Templeton Investments, its funds, and the performance of the individual employee. The USIP provides for the issuance of up to 30.0 million shares of our common stock for various stock-related awards to officers, directors and employees. At March 31, 2007, approximately 5.8 million shares were available for grant under the USIP. In addition to stock awards and stock unit awards, we may award options and other forms of stock-based compensation to officers, directors and employees under the USIP. The Compensation Committee of the Board of Directors determines the terms and conditions of awards under the AIP and USIP.

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Stock Options

The following table summarizes stock option activity:

(in thousands, except weighted average exercise price)	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at September 30, 2006	5,111		$	38.04	4.6	$	346,023
Granted	—			—	—		—
Exercised	(405	)		40.60	4.3
Cancelled	(3	)		47.85	3.6
Forfeited/expired	—			—	—
Outstanding at December 31, 2006	4,703		$	37.82	4.3	$	340,262
Granted	—			—	—
Exercised	(358	)		38.81	3.8
Cancelled	(6	)		39.64	3.1
Forfeited/expired	—			—	—
Outstanding at March 31, 2007	4,339		$	37.73	4.1	$	360,518
Exercisable at March 31, 2007	4,311		$	37.63	4.2	$	358,690

Stock option awards outstanding under the USIP generally have been granted at prices which are either equal to or above the market value of the underlying common stock on the date of grant, generally vest over three years and expire no later than ten years after the grant date. We have not granted stock option awards under the USIP since November 2004.

Effective October 1, 2005, compensation expense related to nonvested options is recognized ratably over the remaining requisite service period. At March 31, 2007, total unrecognized compensation cost related to nonvested options, which is expected to be recognized over a remaining weighted average vesting period of 0.5 years, was not material.

Our option awards are generally subject to graded vesting over a service period. We recognize compensation cost on a straight-line basis over the requisite service period for the entire award.

Stock Awards and Stock Unit Awards

In accordance with SFAS 123R, the fair value of stock awards and stock unit awards granted under the USIP is estimated on the date of grant based on the market price of the underlying shares of common stock and is amortized to compensation expense on a straight-line basis over the related vesting period, which is generally three to four years. The total number of stock awards and stock unit awards expected to vest is adjusted for estimated forfeitures.

Total unrecognized compensation cost related to nonvested stock awards and stock unit awards, net of estimated forfeitures, was $90.2 million at March 31, 2007. This cost is expected to be recognized over a remaining weighted-average vesting period of 2.2 years.

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The following is a summary of nonvested stock award and stock unit award activity:

(shares in thousands)	Shares		Weighted- Average Grant- Date Fair Value
Nonvested balance at September 30, 2006	697		$	75.89
Granted	720			109.87
Vested	(5	)		94.98
Forfeited	(16	)		80.58
Nonvested Balance at December 31, 2006	1,396		$	93.03
Granted	27			118.50
Vested	(136	)		65.77
Forfeited	(16	)		92.37
Nonvested Balance at March 31, 2007	1,271		$	96.78

Our stock awards generally entitle holders to the right to sell their shares of common stock once the awards vest. Stock unit awards generally entitle holders to receive the underlying shares of common stock once the awards vest. In addition, certain performance-based stock awards were granted to our Chief Executive Officer. The total number of shares ultimately received by the Chief Executive Officer depends on our performance against specified performance goals and is subject to vesting provisions. At March 31, 2007, the balance of nonvested shares granted to the Chief Executive Officer and subject to vesting upon the achievement of prior years’ performance goals, set or determined in prior years, was 11.5 thousand and had a weighted-average grant-date fair value of $97.54 per share.

Employee Stock Investment Plan

The Franklin Resources, Inc. 1998 Employee Stock Investment Plan (the “ESIP”) allows eligible participants to buy shares of our common stock at 90% of its market value on defined dates and, at the Company’s sole discretion, to receive a 50% match of the shares purchased, provided the employee, among other conditions, has held the previously purchased shares for a defined period. The Compensation Committee and the Board of Directors determine the terms and conditions of awards under the ESIP. A total of 202.8 thousand shares were issued under the ESIP for the three and six months ended March 31, 2007. At March 31, 2007, 4.2 million shares were reserved for future issuance under this plan.

All Stock-Based Plan Arrangements

Total stock-based compensation costs of $23.8 million and $38.2 million and $14.4 million and $28.6 million were recognized in the Condensed Consolidated Statements of Income for the three and six months ended March 31, 2007 and 2006, respectively. Included in stock-based compensation costs for the three and six months ended March 31, 2007 and 2006, were amounts classified as compensation and benefits liabilities in our Consolidated Balance Sheets. The income tax benefits from stock-based arrangements totaled $2.3 million and $41.8 million and $13.3 million and $25.0 million for the three and six months ended March 31, 2007 and 2006, respectively with approximately $2.2 million and $32.2 million and $10.6 million and $20.0 million attributed to stock option exercises for the same periods. Cash received from stock option exercises for the three and six months ended March 31, 2007 and 2006 was $13.9 million and $30.3 million and $32.2 million and $70.8 million, respectively. We generally do not repurchase shares upon share option exercise or vesting of stock awards and stock unit awards. However, in order to pay taxes due in connection with the vesting of employee and executive officer stock awards and stock unit awards under the USIP and in connection with matching grants under the ESIP, we repurchase shares to pay such taxes using a net stock-issuance method.

Note 12 - Common Stock Repurchases

During the three and six months ended March 31, 2007, we repurchased 4.6 million and 5.2 million shares of our common stock at a cost of $529.9 million and $603.6 million. The common stock repurchases made during the three months ended March 31, 2007, reduced our capital in excess of par value to nil and the excess amount was recognized as a reduction to retained earnings. Approximately 4.2 million shares of our common stock remained available for repurchase under our existing stock repurchase program at March 31, 2007. During the three and six months ended March 31, 2006, we repurchased 0.4 million and 0.9 million shares of our common stock at a cost of $39.4 million and $84.4 million, respectively. Our stock repurchase program is not subject to an expiration date.

Included in the 4.6 million shares of our common stock that we repurchased during the three months ended March 31, 2007, were 4.0 million shares repurchased under an accelerated stock repurchase agreement with an unrelated counterparty, a global investment bank, at an initial price of $116.14 per share or a cash payment totaling $464.6 million. Under the terms of the agreement, we will either receive or pay a future price adjustment based generally on the daily

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volume-weighted average prices of our common stock over a period of up to several months. The price adjustment can be settled, at our option, in cash or shares of our common stock.

Note 13 - Segment Information

We based our operating segment selection process primarily on services offered. We derive the majority of our revenues and net income from providing investment management, fund administration, shareholder services, transfer agency, underwriting, distribution, custodial, trustee and other fiduciary services (collectively “investment management and related services”) to retail mutual funds, and to institutional, high net-worth and separately-managed accounts and other investment products, collectively, “sponsored investment products”. This is our primary business activity and operating segment. Our sponsored investment products and investment management and related services are distributed or marketed to the public globally under six distinct names: Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust, and Darby.

Our secondary business and operating segment is banking/finance. The banking/finance operating segment offers selected retail-banking services to high net-worth clients and consumer lending and trust services. Our consumer lending activities include automotive lending related to the purchase, securitization, and servicing of retail installment sales contracts originated by independent automobile dealerships, consumer credit and debit cards, real estate equity lines, home equity/mortgage lending, and other consumer lending.

Financial information for our two operating segments is presented in the table below. Operating revenues of the banking/finance operating segment are reported net of interest expense and the provision for probable loan losses.

	Three Months Ended March 31,				Six Months Ended March 31,
(in thousands)	2007		2006		2007		2006
Operating Revenues
Investment management and related services	$	1,493,919	$	1,241,911	$	2,906,583	$	2,411,408
Banking/finance		15,087		12,859		30,238		24,814
Total	$	1,509,006	$	1,254,770	$	2,936,821	$	2,436,222
Income Before Taxes on Income
Investment management and related services	$	600,424	$	409,723	$	1,195,762	$	843,182
Banking/finance		7,281		5,289		15,286		10,408
Total	$	607,705	$	415,012	$	1,211,048	$	853,590

Operating segment assets were as follows:

(in thousands)	March 31, 2007		September 30, 2006
Investment management and related services	$	8,633,519	$	8,350,966
Banking/finance		983,391		1,148,893
Total	$	9,616,910	$	9,499,859

All of our goodwill and intangible assets, as well as substantially all of our depreciation and amortization costs and expenditures on long-lived assets, relate to our investment management and related services operating segment.

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Operating revenues of the banking/finance operating segment included above were as follows:

	Three Months Ended March 31,				Six Months Ended March 31,
(in thousands)	2007		2006		2007		2006
Interest and fees on loans	$11,997		$  7,667		$17,356		$18,249
Interest and dividends on investment securities	5,803		4,700		11,075		8,076
Total interest income	17,800		12,367		28,431		26,325
Interest on deposits	(3,873	)	(3,550	)	(7,593	)	(6,515	)
Interest on short-term debt	(3,478	)	(1,172	)	(4,563	)	(4,110	)
Interest expense – inter-segment	—		—		(139	)	(220	)
Total interest expense	(7,351	)	(4,722	)	(12,295	)	(10,845	)
Net interest income	10,449		7,645		16,136		15,480
Other income	4,597		5,008		15,239		11,145
Provision for probable loan losses	41		206		(1,137	)	(1,811	)
Total Operating Revenues	$15,087		$12,859		$30,238		$24,814

Inter-segment interest payments from the banking/finance operating segment to the investment management and related services operating segment are based on market rates prevailing at the inception of each loan. Inter-segment interest income and expense are not eliminated in our Condensed Consolidated Statements of Income.

Note 14 - Banking Regulatory Ratios

We are a bank holding company and a financial holding company subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on our financial statements. We must meet specific capital adequacy guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain a minimum Tier 1 capital and Tier 1 leverage ratio (as defined in the regulations), as well as minimum Tier 1 and Total risk-based capital ratios (as defined in the regulations). Based on our calculations, at March 31, 2007, and September 30, 2006, we exceeded the capital adequacy requirements applicable to us as listed below.

(dollar amounts in thousands)	March 31, 2007			September 30, 2006			Capital Adequacy Minimum
Tier 1 capital	$	5,060,616		$	4,707,956		N/A
Total risk-based capital		5,062,742			4,710,636		N/A
Tier 1 leverage ratio		65	%		66	%	4	%
Tier 1 risk-based capital ratio		97	%		92	%	4	%
Total risk-based capital ratio		97	%		92	%	8	%

Note 15 – Subsequent Events

On April 3, 2007, Franklin Templeton Investments acquired the remaining 25% interest in its joint ventures in India, Franklin Templeton Asset Management (India) Private Limited and Franklin Templeton Trustee Services Private Limited from an unrelated third-party for approximately $89.7 million in cash.

On April 3, 2007, we completed a securitization transaction of automobile loans held for sale with a carrying value of approximately $325.9 million for net sale proceeds of approximately $328.6 million and a pre-tax gain of approximately $2.7 million. A portion of the proceeds was used to settle Variable Funding Notes outstanding.

On April 4, 2007, we sold Templeton Funds Annuity Company (“TFAC”), a wholly-owned subsidiary and a life insurance company, for approximately $14.5 million in cash. Our Consolidated Balance Sheet at March 31, 2007, included assets held for sale of approximately $21.9 million,

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classified in deferred taxes and other current assets, and liabilities held for sale of approximately $9.8 million, classified in other current liabilities, that related to TFAC.

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

This Quarterly Report on Form 10-Q includes trademarks and registered trademarks of Franklin Resources, Inc. (the “Company” or “we”) and its direct and indirect subsidiaries.

Forward-Looking Statements

In this section, we discuss and analyze the results of operations and financial condition of Franklin Resources, Inc. (the “Company” or “we”) and its subsidiaries (collectively, “Franklin Templeton Investments”). In addition to historical information, we also make statements relating to the future, called “forward-looking” statements, which are provided under the “safe harbor” protection of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally written in the future tense and/or are preceded by words such as “will”, “may”, “should”, “could”, “expect”, “believe”, “anticipate”, “intend”, or other similar words. Moreover, statements that speculate about future events are forward-looking statements. These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause the actual results and outcomes to differ materially from any future results or outcomes expressed or implied by such forward-looking statements. You should carefully review the “Risk Factors” section set forth below and in any more recent filings with the U.S. Securities and Exchange Commission (the “SEC”), each of which describes these risks, uncertainties and other important factors in more detail. While forward-looking statements are our best prediction at the time that they are made, you should not rely on them. We undertake no obligation, unless required by law, to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Quarterly Report on Form 10-Q.

Overview

We derive the majority of our operating revenues and net income from providing investment management, fund administration, shareholder services, transfer agency, underwriting, distribution, custodial, trustee and other fiduciary services (collectively “investment management and related services”) to retail mutual funds, and to institutional, high net-worth and separately-managed accounts and other investment products, collectively, “sponsored investment products”. This is our primary business activity and operating segment. Our sponsored investment products and investment management and related services are distributed or marketed to the public globally under six distinct names:

• Franklin

• Templeton

• Mutual Series

• Bissett

• Fiduciary Trust

• Darby

We offer a broad range of sponsored investment products under equity, hybrid, fixed-income and money market categories that meet a wide variety of specific investment needs of individual and institutional investors.

The level of our revenues depends largely on the level and relative mix of assets under management. To a lesser degree, our revenues also depend on the level of mutual fund sales and the number of mutual fund shareholder accounts. The fees charged for our services are based on contracts with our sponsored investment products or our clients. These arrangements could change in the future.

Our secondary business and operating segment is banking/finance. The banking/finance operating segment offers selected retail-banking services to high net-worth clients and consumer lending and trust services. Our consumer lending activities include automotive lending related to the purchase, securitization, and servicing of retail installment sales contracts originated by independent automobile dealerships, consumer credit and debit cards, real estate equity lines, home equity/mortgage lending, and other consumer lending.

In the three and six months ended March 31, 2007, our investment management and related services operating segment continued to experience record levels of assets under management. In addition to market appreciation, which reflected, among other things, the positive performance of many equity markets globally, this growth resulted from excess sales over redemptions. In part, we attribute the continued positive trend in excess sales over redemptions to the strong relative performance of our product offerings, the successful marketing to and diversification of our client base and our focus on customer service. Consistent with the increase in our assets under management, we experienced growth in net income and higher diluted earnings per share in the three and six months ended March 31, 2007, as compared to the three and six months ended March 31, 2006.

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We expect to continue to focus on our core strategies of expanding our assets under management and related operations internationally, continually seeking positive investment performance, protecting and furthering our brand recognition, developing and maintaining broker/dealer and client loyalties, providing a high level of customer service and closely monitoring costs, while also developing our “human capital” base and our systems and technology. The continued success of these strategies in the future is dependent on various factors, including the relative performance of our sponsored investment products, product innovations by our competitors, and changes in consumer preferences.

RESULTS OF OPERATIONS

	Three Months Ended March 31,						Percent Change		Six Months Ended March 31,						Percent Change
(dollar amounts in millions, except per share data)	2007			2006					2007			2006
Net Income	$	440.9		$	196.5		124	%	$	867.7		$	514.5		69	%
Earnings Per Common Share
Basic	$	1.75		$	0.76		130	%	$	3.44		$	2.01		71	%
Diluted		1.73			0.74		134	%		3.40			1.95		74	%
Operating Margin 1		33	%		28	%				34	%		31	%

¹ Defined as operating income divided by total operating revenues.

Net income increased by 124% and 69% for the three and six months ended March 31, 2007, as compared to the same periods in the prior fiscal year reflecting higher fees for providing investment management and fund administration services (“investment management fees”) and underwriting and distribution fees, consistent with a 17% increase in simple monthly average assets under management and higher gross sales on which commissions are earned, partially offset by higher underwriting and distribution expenses. In addition, in the three months ended March 31, 2006 we recognized an income tax charge of $111.6 million related to repatriated earnings of our foreign subsidiaries under the American Jobs Creation Act of 2004 (the “Jobs Act”), and a non-cash impairment charge of $68.4 million to the customer base intangible assets of Fiduciary Trust Company International (“Fiduciary Trust”) relating to the reorganization of its business.

Diluted earnings per share increased by 134% and 74% for the three and six months ended March 31, 2007, as compared to the same periods in the prior fiscal year, consistent with the increase in net income and a decrease in diluted average common shares outstanding during the three and six months ended March 31, 2007.

ASSETS UNDER MANAGEMENT

(in billions)	March 31, 2007		March 31, 2006		Percent Change
Equity
Global/international	$	248.7	$	210.8	18	%
Domestic (U. S.)		95.1		84.8	12	%
Total equity		343.8		295.6	16	%
Hybrid		105.0		83.5	26	%
Fixed-Income
Tax-free		57.3		54.3	6	%
Taxable
Domestic (U. S.)		33.0		31.7	4	%
Global/international		31.0		20.9	48	%
Total fixed-income		121.3		106.9	13	%
Money Market		5.9		5.6	5	%
Total	$	576.0	$	491.6	17	%
Simple Monthly Average for the Three-Month Period2	$	563.7	$	481.2	17	%
Simple Monthly Average for the Six-Month Period2	$	547.8	$	467.6	17	%

² Investment management fees from approximately 56% of our assets under management at March 31, 2007 were calculated using daily average assets under management.

Our assets under management at March 31, 2007 were $576.0 billion, 17% higher than they were at March 31, 2006, due to excess sales over redemptions of $24.6 billion and market appreciation of $66.5 billion during the twelve-months ended

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March 31, 2007. Simple monthly average assets under management, which are generally more indicative of trends in revenue for providing investment management and fund administration services (“investment management services”) than the year over year change in ending assets under management, were 17% higher for the three and six months ended March 31, 2007 than for the three and six months ended March 31, 2006.

The simple monthly average mix of assets under management is shown below.

	Six Months Ended March 31,
	2007		2006
Equity	60	%	59	%
Hybrid	18	%	17	%
Fixed-income	21	%	23	%
Money market	1	%	1	%
Total	100	%	100	%

For the six months ended March 31, 2007, our effective investment management fee rate (investment management fees divided by simple monthly average assets under management) increased to 0.614% from 0.605% for the same period in the prior fiscal year. The change in the mix of assets under management, resulting from higher relative excess sales over redemptions and greater appreciation of equity and hybrid products as compared to fixed-income products, and an increase in performance fees, contributed to an increase in our effective investment management fee rate. Generally, investment management fees earned on equity products are higher than fees earned on fixed-income products.

Assets under management by sales region were as follows:

(dollar amounts in billions)	March 31, 2007		Percent of Total		March 31, 2006		Percent of Total
United States	$	402.1	70	%	$	348.1	71	%
Europe		67.2	12	%		54.5	11	%
Canada		41.9	7	%		36.4	7	%
Asia/Pacific and other3		64.8	11	%		52.6	11	%
Total	$	576.0	100	%	$	491.6	100	%

³ Includes multi-jurisdictional assets under management.

Components of the change in our assets under management were as follows:

(dollar amounts in billions)	Three Months Ended March 31,						Percent Change		Six Months Ended March 31,						Percent Change
	2007			2006					2007			2006
Beginning assets under management	$	552.9		$	464.8		19	%	$	511.3		$	453.1		13	%
Sales		43.4			32.6		33	%		81.0			62.9		29	%
Reinvested distributions		2.3			1.4		64	%		15.2			9.8		55	%
Redemptions		(32.5	)		(30.0	)	8	%		(60.2	)		(54.5	)	10	%
Distributions		(3.4	)		(2.0	)	70	%		(18.9	)		(12.1	)	56	%
Dispositions		—			—		N/A			(2.0	)		—		N/A
Appreciation		13.3			24.8		(46	)%		49.6			32.4		53	%
Ending Assets Under Management	$	576.0		$	491.6		17	%	$	576.0		$	491.6		17	%

For the three and six months ended March 31, 2007, excess sales over redemptions were $10.9 billion and $20.8 billion as compared to $2.6 billion and $8.4 billion for the same periods in the prior fiscal year. Our products experienced appreciation of $13.3 billion and $49.6 billion for the three and six months ended March 31, 2007, related primarily to our equity products, as compared to market appreciation of $24.8 billion and $32.4 billion for the same periods in the prior fiscal year. Dispositions for the six months ended March 31, 2007 included the divestiture of assets under management of a former subsidiary at October 1, 2006.

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OPERATING REVENUES

(dollar amounts in millions)	Three Months Ended March 31,				Percent Change		Six Months Ended March 31,				Percent Change
	2007		2006				2007		2006
Investment management fees	$	850.8	$	726.0	17	%	$	1,682.7	$	1,413.5	19	%
Underwriting and distribution fees		570.8		445.5	28	%		1,080.6		860.4	26	%
Shareholder servicing fees		68.3		65.1	5	%		135.9		129.3	5	%
Consolidated sponsored investment products income, net		1.4		2.6	(46	)%		2.2		2.8	(21	)%
Other, net		17.7		15.6	13	%		35.4		30.2	17	%
Total Operating Revenues	$	1,509.0	$	1,254.8	20	%	$	2,936.8	$	2,436.2	21	%

Investment Management Fees

Investment management fees, accounting for 56% and 57% of our operating revenues for the three and six months ended March 31, 2007, as compared to 58% for the same periods in the prior fiscal year, are generally calculated under contractual arrangements with our sponsored investment products as a percentage of the market value of assets under management. Annual rates vary by investment objective and type of services provided.

Investment management fees increased 17% and 19% for the three and six months ended March 31, 2007, as compared to the same periods in the prior fiscal year, consistent with a 17% increase in simple monthly average assets under management.

Underwriting and Distribution Fees

We earn underwriting fees from the sale of certain classes of sponsored investment products on which investors pay a sales commission at the time of purchase. Sales commissions are reduced or eliminated on some share classes and for some sale transactions depending upon the amount invested and the type of investor. Therefore, underwriting fees will change with the overall level of gross sales, the size of individual transactions, and the relative mix of sales between different share classes and types of investors.

Globally, our mutual funds and certain other products generally pay distribution fees in return for sales, marketing and distribution efforts on their behalf. Specifically, the majority of U.S.-registered mutual funds, with the exception of certain of our money market mutual funds, have adopted distribution plans (the “Plans”) under Rule 12b-1 promulgated under the Investment Company Act of 1940, as amended (“Rule 12b-1”). The Plans permit the mutual funds to bear certain expenses relating to the distribution of their shares, such as expenses for marketing, advertising, printing and sales promotion, subject to the Plans’ limitations on amounts. The individual Plans set a percentage limit for Rule 12b-1 expenses based on average daily net assets under management of the mutual fund. Similar arrangements exist for the distribution of our global funds and where, generally, the distributor of the funds in the local market arranges for and pays commissions.

We pay a significant portion of underwriting and distribution fees to the financial advisers and other intermediaries who sell our sponsored investment products to the public on our behalf. See the description of underwriting and distribution expenses below.

Overall, underwriting and distribution fees increased 28% and 26% for the three and six months ended March 31, 2007, as compared to the same periods in the prior fiscal year. Underwriting fees increased 37% and 30% for the three and six months ended March 31, 2007, consistent with a 33% and 29% increase in gross product sales over the same periods. Distribution fees increased 22% for the three and six months ended March 31, 2007, consistent with a 17% increase in simple monthly average assets under management over the same periods, and a shift in simple average mix of assets under management from fixed-income products to equity products. Distribution fees are generally higher for equity products, as compared to fixed-income products.

Shareholder Servicing Fees

Shareholder servicing fees are generally fixed charges per shareholder account that vary with the particular type of fund and the service being rendered. In some instances, sponsored investment products are charged these fees based on the level of assets under management. We receive fees as compensation for providing transfer agency services, including providing customer statements, transaction processing, customer service and tax reporting. In the United States, transfer agency service agreements provide that accounts closed in a calendar year generally remain billable at a reduced rate through the second quarter of the following calendar year. In Canada, such agreements provide that accounts closed in the calendar year remain

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billable for four months after the end of the calendar year. Accordingly, the level of fees will vary with the growth in new accounts and the level of closed accounts that remain billable. We anticipate that approximately 300 thousand accounts closed in Canada during calendar year 2006 will no longer be billable effective May 1, 2007, as compared to approximately 358 thousand accounts closed during calendar year 2005 that were no longer billable effective May 1, 2006. This event is not expected to have a material impact on the Consolidated Financial Statements as of and for the three and nine months ending June 30, 2007.

Shareholder servicing fees increased 5% for the three and six months ended March 31, 2007, as compared to the same periods in the prior fiscal year. The increase reflects a 14% increase in simple monthly average billable shareholder accounts during both periods, partially offset by a shift to shareholder accounts that are billable at a lower rate, because of service level and changes in the global mix of shareholder accounts.

Consolidated Sponsored Investment Products Income, Net

Consolidated sponsored investment products income, net reflects the net investment income, including dividends received, of sponsored investment products consolidated under Financial Accounting Standards Board (the “FASB”) FASB Statement of Financial Accounting Standards No. 94, “Consolidation of All Majority-Owned Subsidiaries–an amendment of ARB No. 51, with related amendments of APB Opinion No. 18 and ARB No. 43, Chapter 12” and FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities–an interpretation of ARB No. 51” (“FIN 46-R”).

The decrease of 46% and 21% for the three and six months ended March 31, 2007, as compared to the same periods in the prior fiscal year reflects the investment performance of the specific sponsored investment products that we consolidate.

Other, Net

Other, net consists primarily of revenues from our banking/finance operating segment as well as income from custody services. Revenues from the banking/finance operating segment include interest income on loans, servicing income, and investment income on banking/finance investment securities, and are reduced by interest expense and the provision for probable loan losses.

Other, net increased 13% for the three months ended March 31, 2007, as compared to the same period in the prior fiscal year primarily due to an increase in interest income related to our automotive lending business. Other, net increased 17% for the six months ended March 31, 2007, as compared to the same period in the prior fiscal year primarily due to higher securitization gains and net unrealized interest-rate swap losses incurred in the comparative period in the prior fiscal year related to our automotive lending business.

OPERATING EXPENSES

	Three Months Ended March 31,				Percent Change		Six Months Ended March 31,				Percent Change
(dollar amounts in millions)	2007		2006				2007		2006
Underwriting and distribution	$	534.0	$	413.2	29	%	$	1,012.0	$	793.3	28	%
Compensation and benefits		268.5		231.2	16	%		519.5		449.7	16	%
Information systems, technology and occupancy		73.9		73.9	—			149.0		147.8	1	%
Advertising and promotion		46.0		36.1	27	%		80.9		66.5	22	%
Amortization of deferred sales commissions		37.7		32.1	17	%		71.4		64.1	11	%
Amortization of intangible assets		2.6		4.4	(41	)%		5.3		8.7	(39	)%
Intangible assets impairment		—		68.4	(100	)%		—		68.4	(100	)%
Other		47.3		45.7	4	%		91.6		83.4	10	%
Total Operating Expenses	$	1,010.0	$	905.0	12	%	$	1,929.7	$	1,681.9	15	%

Underwriting and Distribution

Underwriting and distribution includes expenses payable to financial advisers and other third parties for providing sales, marketing and distribution services to investors in our sponsored investment products. Underwriting and distribution expense increased 29% and 28% for the three and six months ended March 31, 2007 over the same periods in the prior fiscal year consistent with similar trends in underwriting and distribution revenue.

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Compensation and Benefits

Compensation and benefits expense increased 16% for the three and six months ended March 31, 2007, as compared to the same periods in the prior fiscal year primarily due to an increase in bonus expense, including bonus expense under the Amended and Restated Annual Incentive Compensation Plan (the “AIP”), pursuant to which bonus awards have been made, based, in part, on our performance, and in relation to certain performance-based bonus plans outside of the AIP. The increase also reflected our annual merit salary adjustments that were effective December 1, 2006 and higher staffing levels. We continued to experience a decrease in stock option expense in the three and six months ended March 31, 2007, as compared to the same periods in the prior fiscal year as no new awards have been granted since November 2004.

We continue to place a high emphasis on our pay for performance philosophy. As such, any changes in the underlying performance of our sponsored investment products or changes in the composition of our incentive compensation offerings could have an impact on compensation and benefits going forward. However, in order to attract and retain talented individuals, our level of compensation and benefits may increase more quickly or decrease more slowly than our revenue. We employed approximately 8,300 people at March 31, 2007, as compared to approximately 7,500 at March 31, 2006.

Information Systems, Technology and Occupancy

Information systems, technology and occupancy costs for the three months ended March 31, 2007 were unchanged as compared to the same period in the prior fiscal year and increased 1% for the six months ended March 31, 2007, as compared to the same period in the prior fiscal year. The increase for the six month ended March 31, 2007 is due primarily due to an increase in external data services costs and higher occupancy costs related to global expansion, partially offset by a decline in technology consulting costs that are not eligible for capitalization.

Details of capitalized information systems and technology costs, which exclude occupancy costs, are shown below.

	Three Months Ended March 31,						Six Months Ended March 31,
(in millions)	2007			2006			2007			2006
Net carrying amount at beginning of period	$	42.7		$	42.0		$	44.9		$	42.7
Additions during period, net of disposals and other adjustments		9.3			4.7			12.8			10.1
Amortization during period		(5.9	)		(6.1	)		(11.6	)		(12.2	)
Net Carrying Amount at End of Period	$	46.1		$	40.6		$	46.1		$	40.6

Advertising and Promotion

Advertising and promotion expense increased 27% for the three months ended March 31, 2007, as compared to the same period in the prior fiscal year due to an increase in marketing support payments made to intermediaries who sell our sponsored investment products to the public on our behalf in the United States and an increase in travel and entertainment related to promotion efforts. Advertising and promotion expense increased 22% for the six months ended March 31, 2007, as compared to the same period in the prior fiscal year due to an increase in marketing support payments and media advertising expenditures.

We are committed to investing in advertising and promotion in response to changing business conditions, and in order to advance our products where we see continued or potential new growth opportunities, which means that the level of advertising and promotion expenditures may increase more rapidly, or decrease more slowly, than our revenues. In addition to potential changes in our strategic marketing campaigns, advertising and promotion may also be impacted by changes in levels of sales and assets under management that affect marketing support payments made to the distributors of our sponsored investment products.

Amortization of Deferred Sales Commissions

Certain fund share classes sold globally, including Class C and Class R shares marketed in the United States, are sold without a front-end sales charge to shareholders, although our distribution subsidiaries pay a commission on the sale. In addition, certain share classes, such as Class A shares sold in the United States, are sold without a front-end sales charge to shareholders when minimum investment criteria are met although our distribution subsidiaries pay a commission on these sales. We defer all up-front commissions paid by our distribution subsidiaries and amortize them over 12 months to 8 years depending on share class or financing arrangements.

Our U.S. funds that had offered Class B shares ceased offering these shares to new investors and existing shareholders effective during the quarter ended March 31, 2005. Existing Class B shareholders may continue to exchange shares into Class

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B shares of different funds. Existing Class B shareholders may also continue to reinvest dividends on Class B shares in additional Class B shares.

Historically, Class B and certain of our Class C deferred commission assets (“DCA”) arising from our U.S., Canadian and European operations have been financed through sales to or other arrangements with Lightning Finance Company Limited (“LFL”), a company in which we hold a 49% ownership interest. In December 2005, LFL transferred substantially all of its DCA to Lightning Asset Finance Limited (“LAFL”), an Irish special purpose vehicle formed in December 2005, in which we also hold a 49% ownership interest. The holder of the 51% ownership interests in both LFL and LAFL is a subsidiary of an international banking institution which is not affiliated with Franklin Templeton Investments. As our U.S. distribution subsidiary, Franklin/Templeton Distributors, Inc. (“FTDI”), entered into a financing arrangement with LFL, we maintain a continuing interest in the DCA transferred to it. As a result, we retain the DCA originally sold under the U.S. agreement in our Consolidated Financial Statements and amortize them over an 8-year period, or until sold by LAFL. Neither we nor our distribution subsidiaries retain any direct ownership interest in the DCA sold, and, therefore, the sold DCA are not available to satisfy claims of our creditors or those of our distribution subsidiaries. In contrast to the U.S. arrangements, the arrangements outside the United States are, in most cases, direct agreements with our Canadian and European sponsored investment products, and, as a result, we do not record DCA from these sources in our Consolidated Financial Statements.

Amortization of deferred sales commissions increased 17% and 11% for the three and six months ended March 31, 2007, as compared to the same periods in the prior fiscal year reflecting an increase in the related DCA.

Amortization of Intangible Assets and Intangible Assets Impairment

Amortization of intangible assets decreased 41% and 39% for the three and six months ended March 31, 2007, as compared to the same periods in the prior fiscal year, reflecting the lower net carrying value of definite-lived intangible assets following a $68.4 million non-cash impairment charge, recorded in the quarter ended March 31, 2006, related to certain intangible assets of Fiduciary Trust, as explained below.

During the three months ended March 31, 2006, Fiduciary Trust, a subsidiary of the Company, implemented a plan of reorganization designed to emphasize its distinct high net-worth brand and to pursue further integration opportunities with Franklin Templeton Investments for its institutional business line. These changes to Fiduciary Trust’s business required us to review the carrying value of acquired customer base intangible assets of Fiduciary Trust. As a result of these changes, we recorded a $68.4 million non-cash impairment charge to the customer base definite-lived intangible assets of Fiduciary Trust in the three months ended March 31, 2006.

During the quarter ended December 31, 2006, we completed our most recent annual impairment testing of goodwill and indefinite-lived intangible assets under the guidance set out in FASB Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), and we determined that there was no impairment to these assets as of October 1, 2006.

Other Operating Expenses

Other operating expenses consist primarily of professional fees, investment management and shareholder servicing fees payable to external parties, corporate travel and entertainment, and other miscellaneous expenses.

Other operating expenses increased 3% and 10% for the three and six months ended March 31, 2007, as compared to the same period in the prior fiscal year due primarily to higher investment management fees payable to external parties and higher consulting and professional fees, including additional costs related to the distribution of market-timing settlements.

OTHER INCOME (EXPENSES)

Other income (expenses) includes net realized and unrealized investment gains (losses) of consolidated sponsored investment products, investment and other income, net and interest expense. Investment and other income, net is comprised primarily of income related to our investments, including dividends, interest income, realized gains and losses and income from investments accounted for using the equity method of accounting, as well as minority interest in less than wholly-owned subsidiaries and sponsored investment products that we consolidate and foreign currency exchange gains and losses.

Other income (expenses) increased 66% for the three months ended March 31, 2007, as compared to the same period in the prior fiscal year primarily due to higher realized gains on sale of investments, an increase in dividend and interest income and higher equity-method income from unconsolidated affiliates.

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Other income (expenses) increased 105% for the six months ended March 31, 2007, as compared to the same period in the prior fiscal year primarily due to higher realized gains on sale of investments, equity-method income from unconsolidated affiliates, interest income, realized and unrealized net gains from our consolidated sponsored investment products, dividend income and an other-than-temporary decline in certain of our long-term investments recognized in the prior fiscal year.

Details of Other Income (Expenses) are shown below.

	Three Months Ended March 31,						Six Months Ended March 31,
(in millions)	2007			2006			2007			2006
Consolidated sponsored investment products gain, net	$	13.7		$	17.0		$	44.0		$	27.8
Investment and other income, net
Dividend income		18.1			13.0			36.3			25.6
Interest income		33.5			26.2			66.9			49.0
Realized gains on sale of investments and other assets		39.7			14.1			49.2			18.7
Equity in net income of affiliates		12.8			7.0			30.1			8.8
Other, net		(3.2	)		(4.9	)		(10.5	)		(14.4	)
Total		100.9			55.4			172.0			87.7
Interest expense		(6.0	)		(7.1	)		(12.1	)		(16.3	)
Other income, net	$	108.6		$	65.3		$	203.9		$	99.2

Taxes on Income

As a multi-national corporation, we provide investment management and related services to a wide range of international sponsored investment products, often managed from locations outside the United States. Some of these jurisdictions have lower tax rates than the United States. The mix of pre-tax income (primarily from our investment management and related services business) subject to these lower rates, when aggregated with income originating in the United States, produces a lower overall effective income tax rate than existing U.S. federal and state income tax rates.

Our effective income tax rate was 27.45% and 28.35% for the three and six months ended March 31, 2007, as compared to 52.65% and 39.73% for the comparative periods in the prior fiscal year principally due to an income tax charge of $111.6 million related to repatriated earnings of our foreign subsidiaries under the Jobs Act. The effective income tax rate for future reporting periods will continue to reflect the relative contributions of foreign earnings that are subject to reduced tax rates and that are not currently included in U.S. taxable income, as well as other factors, including a reduction in our tax liabilities due to certain favorable international tax rulings obtained in prior years, which are in effect through fiscal year 2007.

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LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes certain key financial data relating to our liquidity, and sources and uses of capital.

(in millions)	March 31, 2007			September 30, 2006
Balance Sheet Data
Assets
Liquid assets	$	5,630.4		$	5,347.8
Cash and cash equivalents		3,979.2			3,613.1
Liabilities
Debt
Variable Funding Notes	$	241.6		$	232.3
Commercial paper		168.1			168.1
Medium Term Notes		420.0			420.0
Other long-term debt		182.6			207.9
Total Debt	$	1,012.3		$	1,028.3
	Six Months Ended March 31,
(in millions)	2007			2006
Cash Flow Data
Operating cash flows	$	863.1		$	760.5
Investing cash flows		181.9			62.6
Financing cash flows		(679.0	)		(224.8	)

Liquidity

Liquid assets consist of cash and cash equivalents, investment securities (trading and available-for-sale) and current receivables. Cash and cash equivalents include cash, debt instruments with maturities of three months or less at the purchase date and other highly liquid investments that are readily convertible into cash, including money market funds. Cash and cash equivalents increased from September 30, 2006 as we invested cash flows received in the six months ended March 31, 2007, including proceeds on sale of investment securities, available-for-sale primarily in interest-bearing deposits, with maturities of three months or less from the purchase date and in cash and due from banks.

The decrease in total debt outstanding from September 30, 2006 relates primarily to a decrease in deferred commission liabilities.

We experienced higher operating cash flows in the six months ended March 31, 2007, as compared to the same period in the prior fiscal year, due to higher net income, partly offset by higher originations of loans held for sale and a decrease in deferred income taxes and taxes payable. We experienced higher investing cash flows for the six months ended March 31, 2007, as compared to the same period in the prior fiscal year, due primarily to higher net liquidations of investments. The decrease in cash used in financing activities in the six months ended March 31, 2007, as compared to the same period in the prior fiscal year, was primarily due to higher common stock repurchases, partly offset by an increase in debt.

During the three and six months ended March 31, 2007, we repurchased 4.6 million and 5.2 million shares of our common stock at a cost of $529.9 million and $603.6 million. The common stock repurchases made during the three months ended March 31, 2007, reduced capital in excess of par value to nil and the excess amount was recognized as a reduction to retained earnings. Approximately 4.2 million shares of our common stock remained available for repurchase under our existing stock repurchase program at March 31, 2007. During the three and six months ended March 31, 2006, we repurchased 0.4 million and 0.9 million shares of our common stock at a cost of $39.4 million and $84.4 million, respectively. Our stock repurchase program is not subject to an expiration date.

Included in the 4.6 million shares of our common stock that we repurchased during the three months ended March 31, 2007, were 4.0 million shares repurchased under an accelerated stock repurchase agreement with an unrelated counterparty, a global investment bank, at an initial price of $116.14 per share or a cash payment totaling $464.6 million. Under the terms of the agreement, we will either receive or pay a future price adjustment based generally on the daily volume-weighted average prices of our common stock over a period of up to several months. The price adjustment can be settled, at our option, in cash or shares of our common stock.

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Capital Resources

We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets, continuing cash flows from operations, borrowing capacity under current credit facilities and the ability to issue debt or equity securities. In particular, we expect to finance future investment in our banking/finance activities through operating cash flows, debt, increased deposit base, and through the securitization of a portion of the receivables from consumer lending activities.

As of March 31, 2007, we had $420.0 million available under a Five Year Facility Credit Agreement with certain banks and financial institutions expiring in the fiscal year ending September 30, 2010, $300.0 million of debt and equity securities available to be issued under a shelf registration statement filed with the SEC and $330.0 million of commercial paper available for issuance under a $500 million private placement. In addition, at March 31, 2007, our banking/finance operating segment had $451.0 million in available uncommitted short-term bank lines under the Federal Reserve Funds system, the Federal Reserve Bank discount window, and Federal Home Loan Bank short-term borrowing capacity.

Our ability to access the capital markets in a timely manner depends on a number of factors including our credit rating, the condition of the global economy, investors’ willingness to purchase our securities, interest rates, credit spreads and the valuation levels of equity markets. In extreme circumstances, we might not be able to access this liquidity readily.

Our banking/finance operating segment finances its automotive lending activities through operational cash flows, the issuance of notes under a one-year revolving $250.0 million variable funding note warehouse credit facility, inter-segment loans and by selling its automobile loans in securitization transactions with qualified special purpose entities, which then issue asset-backed securities to private investors. Gross sale proceeds from automobile loan securitization transactions were $353.5 million for the six months ended March 31, 2007 and $348.3 million for the six months ended March 31, 2006.

The banking/finance segment finances its automotive lending business primarily by issuing variable funding notes (the “Variable Funding Notes”) under a one-year revolving $250.0 million variable funding note warehouse credit facility, originally entered into in March 2005, and subsequently extended for additional one-year terms in March 2006 and March 2007. The Variable Funding Notes are payable to certain administered conduits and are secured by cash and a pool of automobile loans that meet or are expected to meet certain eligibility requirements. Credit enhancements for the Variable Funding Notes require us to provide, as collateral, loans held for sale with a fair value in excess of the principal amount of the Variable Funding Notes, as well as to hold in trust additional cash balances to cover certain shortfalls. In addition, we provide a payment provider commitment in an amount not to exceed 4.66% of the pool balance. We also enter into interest-rate swap agreements intended to mitigate the interest-rate risk between the fixed interest rate on the pool of automobile loans and the floating interest rate being paid on the Variable Funding Notes accounted for as freestanding derivatives. We expect to extend or replace the variable funding warehouse credit facility upon the expiration of the current facility.

On April 3, 2007, we completed a securitization transaction of automobile loans held for sale with a carrying value of approximately $325.9 million for net sale proceeds of approximately $328.6 million and a pre-tax gain of approximately $2.7 million. A portion of the proceeds was used to settle Variable Funding Notes.

Our ability to access the securitization and capital markets will directly affect our plans to finance the automobile loan portfolio in the future.

On April 4, 2007, we sold Templeton Funds Annuity Company (“TFAC”), a wholly-owned subsidiary and a life insurance company for approximately $14.5 million in cash. Our Consolidated Balance Sheet at March 31, 2007, included assets held for sale of approximately $21.9 million, classified in deferred taxes and other current assets, and liabilities held for sale of approximately $9.8 million, classified in other current liabilities, that related to TFAC.

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Uses of Capital

We expect that the main uses of cash will be to expand our core business, make strategic acquisitions, acquire shares of our common stock, fund property and equipment purchases, pay operating expenses of the business, enhance technology infrastructure and business processes, pay stockholder dividends and repay and service debt.

On March 13, 2007, our Board of Directors declared a regular quarterly cash dividend of $0.15 per share payable on April 13, 2007 to stockholders of record on March 30, 2007.

We continue to look for opportunities to control our costs and expand our global presence. In this regard, in fiscal year 2005 we entered into a commitment to acquire land and build a campus in Hyderabad, India, to establish support services for several of our global functions. Our estimated total cost to complete the campus at March 31, 2007 was $43.9 million, of which $36.2 million had been incurred as of this date. We inaugurated the opening of the campus in January 2007.

On April 3, 2007, Franklin Templeton Investments acquired the remaining 25% interest in its joint ventures in India, Franklin Templeton Asset Management (India) Private Limited and Franklin Templeton Trustee Services Private Limited, from an unrelated third-party for approximately $89.7 million.

On April 2, 2007, the board of directors of Templeton Heritage Limited, an indirect wholly-owned subsidiary of the Company and the general partner of certain limited partnerships (the “Limited Partnership(s)”), announced its intention to recommend the dissolution of the Limited Partnerships subject to approval by the limited partners. The Limited Partnerships were formed for the purpose of obtaining financing for certain DCA arising from our Canadian operations. If approved as proposed, the dissolution of the Limited Partnerships would be effective on or about June 1, 2007. Under the proposed terms of the dissolution arrangement, we would pay approximately $15.6 million to the limited partners to dissolve the Limited Partnerships, that would be recognized as a charge to operating expenses.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Our contractual obligations are summarized in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006. As of March 31, 2007, there had been no material changes outside the ordinary course in our contractual obligations from September 30, 2006.

In relation to the automobile loan securitization transactions that we have entered into with a number of qualified special purpose entities, we are obligated to cover shortfalls in amounts due to the holders of the notes up to certain levels as specified under the related agreements. As of March 31, 2007, the maximum potential amount of future payments related to these obligations was $39.0 million and the fair value of obligations arising from automobile securitization transactions entered into subsequent to December 31, 2002 reflected on our Condensed Consolidated Balance Sheet at March 31, 2007 was $0.2 million.

At March 31, 2007, the banking/finance operating segment had commitments to extend credit aggregating $230.1 million, primarily under its credit card lines, and had issued financial standby letters of credit totaling $1.3 million on which beneficiaries would be able to draw in the event of non-performance by our customers, primarily in relation to lease and lien obligations of these banking customers. These standby letters of credit were secured by marketable securities with a fair value of $2.9 million as of March 31, 2007.

OFF-BALANCE SHEET ARRANGEMENTS

As discussed above, we hold a 49% ownership interest in LAFL and LFL and we account for the ownership interest in these companies using the equity method of accounting. As of March 31, 2007, total assets of LAFL and LFL were approximately $394.5 million and $11.2 million and our exposure to loss related to LAFL and LFL was approximately $194.1 million and $1.0 million. During the three and six months ended March 31, 2007, we recognized pre-tax income of $1.4 million and $1.1 million for our share of LAFL’s and LFL’s net income over these periods. Due to our significant interest in both LAFL and LFL, we continue to carry on our balance sheet the DCA originally sold to LFL by FTDI until these assets are amortized or sold by LAFL. Neither we nor our distribution subsidiaries retain any direct ownership interest in either the DCA sold, and therefore, the sold DCA are not available to satisfy claims of our creditors or those of our distribution subsidiaries.

As discussed above, our banking/finance operating segment periodically enters into automobile loan securitization transactions with qualified special purpose entities, which then issue asset-backed securities to private investors. Our main objective in entering into securitization transactions is to obtain financing for automobile loan activities. Securitized loans held by the securitization trusts totaled $660.2 million at March 31, 2007 and $514.8 million at September 30, 2006.

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CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that impact our financial position and results of operations. These estimates and assumptions are affected by our application of accounting policies. Below we describe certain critical accounting policies that we believe are important to understanding our results of operations and financial position. For additional information about our accounting policies, please refer to Note 1 –Significant Accounting Policies to the financial statements contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

Goodwill and Other Intangible Assets

We make significant estimates and assumptions when valuing goodwill and other intangible assets in connection with the initial purchase price allocation of an acquired entity, as well as when evaluating impairment of intangibles on an ongoing basis.

Under SFAS 142, we are required to test the fair value of goodwill and indefinite-lived intangibles when there is an indication of impairment, or at least once a year. Goodwill impairment is indicated when the carrying amount of a reporting unit exceeds its implied fair value, calculated based on anticipated discounted cash flows. In estimating the fair value of the reporting unit, we use valuation techniques based on discounted cash flows similar to models employed in analyzing the purchase price of an acquisition target.

Intangible assets subject to amortization are reviewed for impairment on the basis of the expected future undiscounted operating cash flows, without interest charges, to be derived from these assets. We review definite-lived intangible assets for impairment when there is an indication of impairment, or at least once a year.

During the quarter ended December 31, 2006, we completed our annual impairment testing of goodwill and indefinite-lived intangible assets under the guidance set out in SFAS 142 and we determined that there was no impairment in the value of these assets as of October 1, 2006.

In performing our analysis, we used certain assumptions and estimates, including those related to discount rates and the expected future period of cash flows to be derived from the assets, based on, among other factors, historical trends and the characteristics of the assets. While we believe that our testing was appropriate, if these estimates and assumptions change in the future, we may be required to record impairment charges or otherwise increase amortization expense.

Income Taxes

As a multinational corporation, we operate in various locations outside the United States and generate earnings from our foreign subsidiaries. At March 31, 2007, and based on tax laws in effect as of this date, it is our intention to continue to indefinitely reinvest the undistributed earnings of foreign subsidiaries. As a result, we have not made a provision for U.S. taxes and have not recorded a deferred tax liability on $2.0 billion of cumulative undistributed earnings recorded by foreign subsidiaries at March 31, 2007. Changes to our policy of reinvesting foreign earnings may have a significant effect on our financial condition and results of operations.

Valuation of Investments

We record substantially all investments in our financial statements at fair value or amounts that approximate fair value. Where available, we use prices from independent sources such as listed market prices or broker or dealer price quotations. For investments in illiquid and privately held securities that do not have readily determinable fair values, we estimate the value of the securities based upon available information. However, even where the value of a security is derived from an independent market price or broker or dealer quote, some assumptions may be required to determine the fair value. For example, we generally assume that the size of positions in securities that we hold would not be large enough to affect the quoted price of the securities when sold, and that any such sale would happen in an orderly manner. However, these assumptions may be incorrect and the actual value realized on sale could differ from the current carrying value.

We evaluate our investments for other-than-temporary decline in value on a periodic basis. This may exist when the fair value of an investment security has been below the carrying value for an extended period of time. As most of our investments are carried at fair value, if an other-than-temporary decline in value is determined to exist, the unrealized investment loss recorded net of tax in accumulated other comprehensive income is realized as a charge to net income, in the period in which the other-than-temporary decline in value is determined. We classify securities as trading when it is management’s intent at

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the time of purchase to sell the security within a short period of time. Accordingly, we record unrealized gains and losses on these securities in our consolidated income.

While we believe that we have accurately estimated the amount of other-than-temporary decline in value in our portfolio, different assumptions could result in changes to the recorded amounts in our financial statements.

Loss Contingencies

We are involved in various lawsuits and claims encountered in the normal course of business. When such a matter arises and periodically thereafter, we consult with our legal counsel and evaluate the merits of the claims based on the facts available at that time. In management’s opinion, an adequate accrual has been made as of March 31, 2007 to provide for any probable losses that may arise from these matters for which we could reasonably estimate an amount. See also Note 10 – Commitments and Contingencies to our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Variable Interest Entities

Under FIN 46-R, a variable interest entity (“VIE”) is an entity in which the equity investment holders have not contributed sufficient capital to finance its activities or the equity investment holders do not have defined rights and obligations normally associated with an equity investment. FIN 46-R requires consolidation of a VIE by the enterprise that has the majority of the risks and rewards of ownership, referred to as the primary beneficiary.

We evaluate whether related entities are VIEs and determine if we qualify as the primary beneficiary of these VIEs. These evaluations are highly complex and involve judgment and the use of estimates and assumptions. To determine our interest in the expected losses or residual returns of VIEs, we generally utilize expected cash flow scenarios that include discount rate and volatility assumptions that are based on available historical information and management’s estimates. While we believe that our testing and approach are appropriate, future changes in estimates and assumptions may affect whether certain related entities are consolidated in our financial statements under FIN 46-R.

RISK FACTORS

We are subject to extensive and often complex, overlapping and frequently changing regulation domestically and abroad. Our investment management and related services business and our banking/finance business are subject to extensive and often complex, overlapping and frequently changing regulation in the United States and abroad, including, among others, securities, banking, accounting and tax laws and regulations. Moreover, financial reporting requirements, and the processes, controls and procedures that have been put in place to address them, are often comprehensive and complex. While management has focused attention and resources on our compliance policies, procedures and practices, non-compliance with applicable laws or rules or regulations, conflicts of interest requirements or fiduciary principles, either in the United States or abroad, or our inability to keep up with, or adapt to, an often ever changing, complex regulatory environment could result in sanctions against us, including fines and censures, injunctive relief, suspension or expulsion from a particular jurisdiction or market or the revocation of licenses, any of which could also adversely affect our reputation, prospects, revenues, and earnings.

We are subject to federal securities laws, state laws regarding securities fraud, other federal and state laws and rules and regulations of certain regulatory and self regulatory organizations, including those rules and regulations promulgated by, among others, the SEC, the National Association of Securities Dealers (the “NASD”) and the NYSE, and to the extent operations or trading in our securities take place outside the United States, by foreign regulations and regulators, such as the U.K. Listing Authority. Certain of our subsidiaries are registered with the SEC under the Investment Advisers Act of 1940, as amended, and many of our funds are registered with the SEC under the Investment Company Act of 1940, as amended, both of which impose numerous obligations, as well as detailed operational requirements, on our subsidiaries which are investment advisers to registered investment companies. Our subsidiaries, both in the United States and abroad, must comply with a myriad of complex and often changing U.S. and/or foreign regulations, some of which may conflict, including complex U.S. and non-U.S. tax regimes. Additionally, as we expand our operations, sometimes rapidly, into non-U.S. jurisdictions, the rules and regulations of these non-U.S. jurisdictions become applicable, sometimes with short compliance deadlines, and add further regulatory complexity to our ongoing compliance operations.

In addition, we are a bank holding company and a financial holding company subject to the supervision and regulation of the Federal Reserve Board, or FRB, and are subject to the restrictions, limitations, or prohibitions of the Bank Holding Company Act of 1956, as amended, and the Gramm-Leach-Bliley Act. The FRB may impose additional limitations or restrictions on our activities, including if the FRB believes that we do not have the appropriate financial and managerial resources to commence or conduct an activity or make an acquisition. Further, our subsidiary, Fiduciary Trust, is subject to extensive

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regulation, supervision and examination by the Federal Deposit Insurance Corporation (the “FDIC”) and New York State Banking Department, while other subsidiaries are subject to oversight by the Office of Thrift Supervision and various state regulators. The laws and regulations imposed by these regulators generally involve restrictions and requirements in connection with a variety of technical, specialized and recently expanding matters and concerns. For example, compliance with anti-money laundering and Know-Your-Customer requirements, both domestically and internationally, and the Bank Secrecy Act has taken on heightened importance with regulators as a result of efforts to, among other things, limit terrorism. At the same time, there has been increased regulation with respect to the protection of customer privacy and the need to secure sensitive customer information. As we continue to address these requirements or focus on meeting new or expanded ones, we may expend a substantial amount of time and resources, even though our banking/finance business does not constitute our dominant business sector. Moreover, any inability to meet these requirements, within the timeframes set by regulators, may subject us to sanctions or other restrictions by the regulators that impact our broader business.

Regulatory and legislative actions and reforms are making the regulatory environment in which we operate more costly and future actions and reforms could adversely impact our assets under management, increase costs and negatively impact our profitability and future financial results. Since 2001, the federal securities laws have been augmented substantially and made significantly more complex by, among other measures, the Sarbanes-Oxley Act of 2002 and the USA Patriot Act of 2001. Moreover, changes in the interpretation or enforcement of existing laws or regulations have directly affected our business. With new laws and changes in interpretation and enforcement of existing requirements, the associated time we must dedicate to, and related costs we must incur in, meeting the regulatory complexities of our business have increased. These outlays have also increased as we expand our business into various non-U.S. jurisdictions. For example, in the past few years following the enactment of the Sarbanes-Oxley Act of 2002, new rules of the SEC, NYSE and NASD were promulgated and other rules revised. Among other things, these new requirements have necessitated us to make changes to our corporate governance and public disclosure policies, procedures and practices and our registered investment companies and investment advisers have been required to make similar changes. In addition, complex accounting and financial reporting requirements have been implemented in the past several years pursuant to the Sarbanes-Oxley Act of 2002 and the rules of the SEC and the Public Company Accounting Oversight Board, which apply across differing legal entities within our corporate structure and varied geographical and/or jurisdictional areas in which we operate. Compliance activities to meet these new requirements have required us to expend additional time and resources, including without limitation substantial efforts to conduct evaluations required to ensure compliance with the management certification and attestation requirements under the Sarbanes-Oxley Act of 2002, and, consequently, we are incurring increased costs of doing business, which potentially negatively impacts our profitability and future financial results. Moreover, any potential accounting or reporting error, whether financial or otherwise, if material, could damage our reputation; adversely affect our ability to conduct business, and decrease revenue and net income. Finally, any regulatory and legislative actions and reforms affecting the mutual fund industry, including compliance initiatives, may negatively impact revenues by increasing our costs of accessing or dealing in the financial markets.

Our ability to maintain the beneficial tax treatment we anticipate with respect to foreign earnings we have repatriated is based on current interpretations of the Jobs Act and timely and permitted use of such amounts in accordance with our domestic reinvestment plan and the Jobs Act. In September 2006, we completed our planned repatriation into the United States of approximately $2.1 billion of undistributed earnings of our non-U.S. subsidiaries in accordance with our domestic reinvestment plan and the American Jobs Creation Act of 2004 (the “Jobs Act”). However, our ability to maintain the anticipated beneficial tax treatment with respect to these foreign earnings is subject to current interpretations and compliance with the Jobs Act (including Internal Revenue Code Section 965), as well as the rules and regulations promulgated by, among others, the Internal Revenue Service and the United States Treasury Department. Moreover, changes in the interpretation of these rules and regulations may have an effect on our ability to maintain the beneficial tax treatment with respect to our repatriated foreign earnings. Our inability to timely complete, to appropriately use repatriated amounts for permitted purposes or to otherwise satisfy the requirements of our planned repatriation could also have a negative impact on the scope and breadth of our anticipated tax treatment with respect to such amounts.

Any significant limitation or failure of our software applications and other technology systems that are critical to our operations could constrain our operations. We are highly dependent upon the use of various proprietary and third-party software applications and other technology systems to operate our business. We use our technology to, among other things, obtain securities pricing information, process client transactions and provide reports and other customer services to the clients of the funds we manage. Any inaccuracies, delays or systems failures in these and other processes could subject us to client dissatisfaction and losses. Although we take protective measures, including measures to effectively secure information through system security technology, our technology systems may still be vulnerable to unauthorized access, computer viruses or other events that have a security impact, such as an authorized employee or vendor inadvertently causing us to release confidential information, which could materially damage our operations or cause the disclosure or modification of sensitive or confidential information. Moreover, loss of confidential customer identification information could harm our reputation. Further, although we take precautions to password protect our laptops and other mobile electronic hardware, if such hardware

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is stolen, misplaced or left unattended, it may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by us. Most of the software applications that we use in our business are licensed from, and supported, upgraded and maintained by, third-party vendors. A suspension or termination of certain of these licenses or the related support, upgrades and maintenance could cause temporary system delays or interruption. In addition, we have outsourced to a single vendor the operation of our U.S. data centers, which includes responsibility for processing data and managing the centers. This vendor is also responsible for our disaster recovery systems. A failure by this vendor to continue to manage our U.S. data centers and our disaster recovery systems adequately in the future could have a material adverse impact on our business. Moreover, although we have in place certain disaster recovery plans, we may experience system delays and interruptions as a result of natural disasters, power failures, acts of war, and third party failures. Technology is subject to rapid change and we cannot guarantee that our competitors may not implement more advanced Internet platforms for their products which could affect our business. Potential system failures or breaches, or advancements in technology, and the cost necessary to address them, could result in material financial loss or costs, regulatory actions, breach of client contracts, reputational harm or legal claims and liability, which in turn could negatively impact our revenues and income.

We face risks, and corresponding potential costs and expenses, associated with conducting operations and growing our business in numerous foreign countries. We sell mutual funds and offer investment management and related services in many different regulatory jurisdictions around the world, and intend to continue to expand our operations internationally. As we do so, we will continue to face various ongoing challenges to ensure that we have sufficient resources, procedures and controls in place to address and ensure that our operations abroad operate consistently and effectively. In order to remain competitive, we must be proactive and prepared to implement necessary resources when growth opportunities present themselves, whether as a result of a business acquisition or rapidly increasing business activities in particular markets or regions. As we grow, we face a heightened risk that the necessary resources and/ or personnel will be unavailable to take full advantage of strategic opportunities when they appear or that strategic decisions can be efficiently implemented. Local regulatory environments may vary widely, as may the adequacy and sophistication of each. Similarly, local distributors, and their policies and practices as well as financial viability, may be inconsistent or less developed or mature. Notwithstanding potential long-term cost savings by increasing certain operations, such as transfer agent and other back-office operations, in countries or regions of the world with lower operating costs, growth of our international operations may involve near-term increases in expenses as well as additional capital costs, such as information, systems and technology costs and costs related to compliance with particular regulatory or other local requirements or needs. Local requirements or needs may also place additional demands on sales and compliance personnel and resources, such as meeting local language requirements while also integrating personnel into an organization with a single operating language. Finding and hiring additional, well-qualified personnel and crafting and adopting policies, procedures and controls to address local or regional requirements remain a challenge as we expand our operations internationally. Moreover, regulators in non-U.S. jurisdictions could also change their policies or laws in a manner that might restrict or otherwise impede our ability to distribute or register investment products in their respective markets. Any of these local requirements, activities or needs could increase the costs and expenses we incur in a specific jurisdiction without any corresponding increase in revenues and income from operating in the jurisdiction. In addition, from time to time we enter into foreign-based joint ventures in which we may not have control. These investments in joint ventures may involve risks, including the risk that the controlling joint venture partner may have business interests, strategies or goals that are inconsistent with ours, and the risk that business decisions or other actions or omissions of the controlling joint venture partner or the joint venture company may result in harm to our reputation or adversely affect the value of our investment in the joint venture.

We depend on key personnel and our financial performance could be negatively affected by the loss of their services. The success of our business will continue to depend upon our key personnel, including our portfolio and fund managers, investment analysts, investment advisers, sales and management personnel and other professionals as well as our executive officers and business unit heads. In a tightening labor market, competition for qualified, motivated and highly skilled executives, professionals and other key personnel in the asset management and banking/finance industries remains significant. Our success depends to a substantial degree upon our ability to attract, retain and motivate qualified individuals, including through competitive compensation packages, and upon the continued contributions of these people. As our business grows, we are likely to need to increase correspondingly the overall number of individuals that we employ. Moreover, in order to retain certain key personnel, we may be required to increase compensation to such individuals, resulting in additional expense without a corresponding increase in potential revenue. We cannot assure you that we will be successful in attracting and retaining qualified individuals, and the departure of key investment personnel, in particular, if not replaced, could cause us to lose clients, which could have a material adverse effect on our financial condition, results of operations and business prospects.

Strong competition from numerous and sometimes larger companies with competing offerings and products could limit or reduce sales of our products, potentially resulting in a decline in our market share, revenues and net income. We compete with numerous asset management companies, mutual fund, stock brokerage and investment banking firms, insurance

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companies, banks, savings and loan associations and other financial institutions. Our investment products also compete with products offered by these competitors as well as real estate investment trusts, hedge funds and others. Over the past decade, a significant number of new asset management firms and mutual funds have been established, increasing competition. At the same time, consolidation in the financial services industry has created stronger competitors with greater financial resources and broader distribution channels than our own. Competition is based on various factors, including, among others, business reputation, investment performance, product offerings, service quality, distribution relationships, and fees charged. Additionally, competing securities broker/dealers whom we rely upon to distribute and sell our mutual funds may also sell their own proprietary funds and investment products, which could limit the distribution of our investment products. To the extent that existing or potential customers, including securities broker/dealers, decide to invest in or distribute the products of our competitors, the sales of our products as well as our market share, revenues and net income could decline. Our ability to attract and retain assets under our management is also dependent on the relative investment performance of our funds and other managed investment portfolios, offering a mix of sponsored investment products that meets investor demand and our ability to maintain our investment management services fees at competitive levels.

Changes in the distribution channels on which we depend could reduce our revenues and hinder our growth. We derive nearly all of our fund sales through broker/dealers and other similar investment advisers. Increasing competition for these distribution channels and recent regulatory initiatives have caused our distribution costs to rise and could cause further increases in the future or could otherwise negatively impact the distribution of our products. Higher distribution costs lower our net revenues and earnings. Additionally, if one or more of the major financial advisers who distribute our products were to cease operations or limit or otherwise end the distribution of our products, it could have a significant adverse impact on our revenues and earnings. There is no assurance we will continue to have access to the third-party broker/dealers and similar investment advisers that currently distribute our products, or continue to have the opportunity to offer all or some of our existing products through them. A failure to maintain strong business relationships with the major investment advisers who currently distribute our products may also impair our distribution and sales operations. Because we use broker/dealers and other similar investment advisers to sell our products, we do not control the ultimate investment recommendations given to clients. Any inability to access and successfully sell our products to clients through third-party distribution channels could have a negative effect on our level of assets under management, related revenues and overall business and financial condition.

The amount or mix of our assets under management are subject to significant fluctuations and could negatively impact our revenues and income. We have become subject to an increased risk of asset volatility from changes in the domestic and global financial and equity markets. Individual financial and equity markets may be adversely affected by political, financial or other instabilities that are particular to the country or regions in which a market is located, including without limitation local acts of terrorism, economic crises or other business, social or political crises. Declines in these markets have caused in the past, and would cause in the future, a decline in our revenues and income. Global economic conditions, exacerbated by war or terrorism or financial crises, changes in the equity market place, currency exchange rates, interest rates, inflation rates, the yield curve and other factors that are difficult to predict affect the mix, market values and levels of our assets under management. Our investment management services revenues are derived primarily from fees based on a percentage of the value of assets under management and vary with the nature of the account or product managed. A decline in the price of stocks or bonds, or in particular market segments, or in the securities market generally, could cause the value and returns on our assets under management to decline, resulting in a decline in our revenues and income. Moreover, changing market conditions may cause a shift in our asset mix between international and U.S. assets, potentially resulting in a decline in our revenue and income depending upon the nature of our assets under management and the level of management fees we earn based on them. Additionally, changing market conditions may cause a shift in our asset mix towards fixed-income products and a related decline in our revenue and income, as we generally derive higher fee revenues and income from equity assets than from fixed-income products we manage. On the other hand, increases in interest rates, in particular if rapid, or high interest rates, as well as any uncertainty in the future direction of interest rates, may have a negative impact on our fixed-income products as rising interest rates or interest rate uncertainty typically decrease the total return on many bond investments due to lower market valuations of existing bonds. Any decrease in the level of assets under management resulting from price declines, interest rate volatility or uncertainty or other factors could negatively impact our revenues and income.

Our increasing focus on international markets as a source of investments and sales of investment products subjects us to increased exchange rate and other risks in connection with earnings and income generated overseas. While we operate primarily in the United States, we also provide services and earn revenues in The Bahamas, Canada, Europe, Asia, Latin America, Africa and Australia. As a result, we are subject to foreign exchange risk through our foreign operations. While we have taken steps to reduce our exposure to foreign exchange risk, for example, by denominating a significant amount of our transactions in U.S. dollars, the situation may change in the future as our business continues to grow outside the United States. Stabilization or appreciation of the U.S. dollar could moderate revenues from sales of investment products internationally or could affect relative investment performance of certain funds invested in non-U.S. securities. Separately,

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management fees that we earn tend to be higher in connection with international assets under management than with U.S. assets under management. Consequently, a downturn in international markets could have a significant effect on our revenues and income. Moreover, as our business grows in non-U.S. markets, any business, social and political unrest affecting these markets, in addition to any direct consequences such unrest may have on our personnel and facilities located in the affected area, may also have a more lasting impact on the long-term investment climate in these and other areas and, as a result, our assets under management and the corresponding revenues and income that we generate from them may be negatively affected.

Poor investment performance of our products could affect our sales or reduce the level of assets under management, potentially negatively impacting our revenues and income. Our investment performance, along with achieving and maintaining superior distribution and client services, is critical to the success of our investment management and related services business. Strong investment performance often stimulates sales of our investment products. Poor investment performance as compared to third-party benchmarks or competitive products could lead to a decrease in sales of investment products we manage and stimulate redemptions from existing products, generally lowering the overall level of assets under management and reducing the management fees we earn. We cannot assure you that past or present investment performance in the investment products we manage will be indicative of future performance. Any poor future performance may negatively impact our revenues and income.

We could suffer losses in earnings or revenue if our reputation is harmed. Our reputation is important to the success of our business. The Franklin Templeton Investments brand has been, and continues to be, extremely well received both in our industry and with our clients, reflecting the fact that our brand, like our business, is based in part on trust and confidence. If our reputation is harmed, existing clients may reduce amounts held in, or withdraw entirely from, funds that we advise or funds may terminate their management agreements with us, which could reduce the amount of assets under management and cause us to suffer a corresponding loss in earnings or revenue. Moreover, reputational harm may cause us to lose current employees and we may be unable to continue to attract new ones with similar qualifications, motivations or skills. If we fail to address, or appear to fail to address, successfully and promptly the underlying causes of any reputational harm, we may be unsuccessful in repairing any existing harm to our reputation and our future business prospects would likely be affected.

Our future results are dependent upon maintaining an appropriate level of expenses, which is subject to fluctuation. The level of our expenses is subject to fluctuation and may increase for the following or other reasons: changes in the level and scope of our advertising expenses in response to market conditions; variations in the level of total compensation expense due to, among other things, bonuses, changes in our employee count and mix, and competitive factors; changes in expenses and capital costs, including costs incurred to maintain and enhance our administrative and operating services infrastructure; and an increase in insurance expenses including through the assumption of higher deductibles and/or co-insurance liability.

Our ability to successfully integrate widely varied business lines can be impeded by systems and other technological limitations. Our continued success in effectively managing and growing our business, both domestically and abroad, depends on our ability to integrate the varied accounting, financial, information and operational systems of our various businesses on a global basis. Moreover, adapting or developing our existing technology systems to meet our internal needs, as well as client needs, industry demands and new regulatory requirements, is also critical for our business. The constant introduction of new technologies presents new challenges to us. We have an ongoing need to continually upgrade and improve our various technology systems, including our data processing, financial, accounting and trading systems. Further, we also must be proactive and prepared to implement technology systems when growth opportunities present themselves, whether as a result of a business acquisition or rapidly increasing business activities in particular markets or regions. These needs could present operational issues or require, from time to time, significant capital spending. It also may require us to reevaluate the current value and/or expected useful lives of our technology systems, which could negatively impact our results of operations.

Our inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability. Should we experience a local or regional disaster or other business continuity problem, such as a pandemic or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities and the proper functioning of our computer, telecommunication and other related systems and operations. While our operational size, the diversity of locations from which we operate, and our redundant back-up systems provide us with a strong advantage should we experience a local or regional disaster or other business continuity event, we could still experience near-term operational challenges, in particular depending upon how a local or regional event may affect our human capital across our operations or with regard to particular segments of our operations, such as key executive officers or personnel in our technology group. Moreover, as we grow our operations in particular areas, such as India, the potential for particular types of natural or man-made disasters, political, economic or infrastructure instabilities, or other country- or region-specific business continuity risks increases. Past disaster recovery efforts have demonstrated that even seemingly localized events may require broader disaster recovery efforts throughout our operations and, consequently, we regularly assess and take steps to improve upon our

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existing business continuity plans and key management succession. However, a disaster on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to successfully recover should we experience a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.

Certain of the portfolios we manage, including our emerging market portfolios, are vulnerable to market-specific political, economic or other risks, any of which may negatively impact our revenues and income. Our emerging market portfolios and revenues derived from managing these portfolios are subject to significant risks of loss from political, economic, and diplomatic developments, currency fluctuations, social instability, changes in governmental policies, expropriation, nationalization, asset confiscation and changes in legislation related to foreign ownership. Foreign trading markets, particularly in some emerging market countries, are often smaller, less liquid, less regulated and significantly more volatile than those in the U.S. and other established markets.

Our revenues, earnings and income could be adversely affected if the terms of our management agreements are significantly altered or these agreements are terminated by the funds we advise. Our revenues are dependent on fees earned under investment management and related services agreements that we have with the funds we advise. These revenues could be adversely affected if these agreements are altered significantly or terminated. The decline in revenue that might result from alteration or termination of our investment management services agreements could have a material adverse impact on our earnings or income.

Diverse and strong competition limits the interest rates that we can charge on consumer loans. We compete with many types of institutions for consumer loans, certain of which can provide loans at significantly below-market interest rates or in some cases zero interest rates in connection with automobile sales. Our inability to compete effectively against these companies or to maintain our relationships with the various automobile dealers through whom we offer consumer loans could limit the growth of our consumer loan business. Economic and credit market downturns could reduce the ability of our customers to repay loans, which could cause losses to our consumer loan portfolio.

Civil litigation arising out of or relating to previously settled governmental investigations or other matters, governmental or regulatory investigations and/or examinations and the legal risks associated with our business could adversely impact our assets under management, increase costs and negatively impact our profitability and/or our future financial results. We have been named as a defendant in shareholder class action, derivative, and other lawsuits, many of which arise out of or relate to previously settled governmental investigations. While management believes that the claims made in these lawsuits are without merit, and intends to vigorously defend against them, litigation typically is an expensive process. Risks associated with legal liability often are difficult to assess or quantify and their existence and magnitude can remain unknown for significant periods of time. Moreover, settlements or judgments against us have the potential of being substantial if we are unsuccessful in settling or otherwise resolving matters early in the process and/or on favorable terms. It is also possible that we may be named as a defendant in additional civil or governmental actions similar to those already instituted. From time to time we may receive requests for documents or other information from governmental authorities or regulatory bodies or we also may become the subject of governmental or regulatory investigations and/or examinations. Moreover, governmental or regulatory investigations or examinations that have been inactive could become active. We may be obligated, and under our standard form of indemnification agreement with certain officers and directors in some instances we are obligated, or we may choose, to indemnify directors, officers or employees against liabilities and expenses they may incur in connection with such matters to the extent permitted under applicable law. Eventual exposures from and expenses incurred relating to current and future litigation, investigations, examinations and settlements could adversely impact our assets under management, increase costs and negatively impact our profitability and/or our future financial results. Judgments or findings of wrongdoing by regulatory or governmental authorities or in civil litigation against us could affect our reputation, increase our costs of doing business and/or negatively impact our revenues, any of which could have a material negative impact on our financial results.

Our ability to meet cash needs depends upon certain factors, including our asset value, credit worthiness and the market value of our stock. Our ability to meet anticipated cash needs depends upon factors including our asset value, our creditworthiness as perceived by lenders and the market value of our stock. Similarly, our ability to securitize and hedge future loan portfolios and credit card receivables, and to obtain continued financing for certain Class C shares, is also subject to the market’s perception of those assets, finance rates offered by competitors, and the general market for private debt. If we are unable to obtain these funds and financing, we may be forced to incur unanticipated costs or revise our business plans.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

In the normal course of business, our financial position is subject to market risk: the potential loss due to changes in the value of financial instruments including those resulting from adverse changes in interest rates, foreign currency exchange and equity prices. Financial instruments include, but are not limited to, trade accounts receivable, investment securities, deposits and other debt obligations. Management is responsible for managing market risk. Our Enterprise Risk Management Committee is responsible for providing a framework to assist management to identify, assess and manage market and other risks.

Our banking/finance operating segment is exposed to interest rate fluctuations on its loans receivable, debt securities held, and deposit liabilities. In our banking/finance operating segment, we monitor the net interest rate margin and the average maturity of interest earning assets, as well as funding sources.

Our investment management and related services operating segment is exposed to changes in interest rates, primarily through its investment in debt securities and its outstanding debt. We minimize the impact of interest rate fluctuations related to our investments in debt securities by managing the maturities of these securities, and through diversification. In addition, we seek to minimize the impact of interest rate changes on our outstanding debt by entering into financing transactions that ensure an appropriate mix of debt at fixed and variable interest rates.

At March 31, 2007, we have considered the potential impact of a 2% movement in market interest rates in relation to the banking/finance segment interest earning assets, net of interest-bearing liabilities, total debt outstanding and our portfolio of debt securities, individually and in the aggregate. Based on our analysis, we do not expect that this change would have a material impact on our operating revenues or results of operations, either individually or in the aggregate.

Our foreign operations expose us to foreign currency exchange risk. While we operate primarily in the United States, we also provide services and earn revenues in Canada, The Bahamas, Europe, Asia, Latin America, Africa and Australia. Our exposure to foreign currency exchange risk is minimized since a significant portion of these revenues and associated expenses are denominated in U.S. dollars. This situation may change in the future as our business continues to grow outside the United States.

We are exposed to equity price fluctuations through securities we hold that are carried at fair value and through investments held by majority-owned sponsored investment products that we consolidate, which are also carried at fair value. To mitigate this risk, we maintain a diversified investment portfolio. Our exposure to equity price fluctuations is also minimized as we sponsor a broad range of investment products in various global jurisdictions, which allows us to mitigate the impact of changes in any particular market(s) or region(s). The following is a summary of the effect of a 10% increase or decrease in equity prices on our financial instruments subject to equity price fluctuations at March 31, 2007.

(in thousands)	Carrying Value		Carrying Value Assuming a 10% Increase		Carrying Value Assuming a 10% Decrease
Current
Investment securities, trading	$	394,767	$	434,244	$	355,290
Investment securities, available-for-sale		420,235		462,258		378,212
Total Current	$	815,002	$	896,502	$	733,502
Banking/Finance
Investment securities, available-for-sale	$	127,711	$	140,482	$	114,940
Non-Current
Investment in equity-method investees	$	244,700	$	269,170	$	220,230
Equities and other		263,555		289,911		237,200
Total Non-Current	$	508,255	$	559,081	$	457,430

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Item 4. Controls and Procedures.

The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2007. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures as of March 31, 2007 were designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s quarter ended March 31, 2007, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

As previously reported, various subsidiaries of the Company, as well as certain Templeton Fund registrants, were named in several class action lawsuits originally filed in state courts in Illinois, which alleged breach of duty with respect to the valuation of the portfolio securities of certain Templeton Funds managed by such subsidiaries.

In April 2005, defendants removed those lawsuits to the United States District Court for the Southern District of Illinois. In July and August 2005, the court dismissed with prejudice each of those lawsuits. Plaintiffs appealed the dismissals to the United States Court of Appeals for the Seventh Circuit. On May 19, 2006, the Seventh Circuit affirmed the dismissals. Plaintiffs’ subsequent requests to the Seventh Circuit for reconsideration were also denied. On November 13, 2006, plaintiffs filed a petition for certiorari to the United States Supreme Court. On February 20, 2007, the United States Supreme Court denied the petition, rendering dismissal of these lawsuits final.

As also previously reported, the Company and certain of its subsidiaries have been named in multiple lawsuits alleging violations of federal securities and state laws relating to marketing support payments and/or payment of allegedly excessive commissions, and advisory and distribution fees. These lawsuits are styled as class actions and/or derivative actions brought on behalf of certain Funds.

The United States District Court for the District of New Jersey consolidated for pretrial purposes four of those lawsuits into a single master file entitled “In re Franklin Mutual Funds Fee Litigation” (Case No. 04-cv-982 (WJM)(RJH)). Following a September 9, 2005 order of dismissal with leave to amend certain claims, on March 10, 2006, plaintiffs in those lawsuits filed a second amended derivative consolidated complaint (the “Complaint”). Defendants moved to dismiss the Complaint on June 9, 2006. On March 13, 2007, the court granted defendants’ motion and dismissed the Complaint with prejudice. On April 12, 2007, plaintiffs filed a notice of appeal to the United States Court of Appeals for the Third Circuit.

Management strongly believes that the claims made in the lawsuit identified above are without merit and intends to defend against them vigorously. The Company cannot predict with certainty, however, the eventual outcome of the lawsuit, nor whether it will have a material negative impact on the Company.

The Company is from time to time involved in litigation relating to claims arising in the normal course of business. Management is of the opinion that the ultimate resolution of such claims will not materially affect the Company’s business or financial position.

Item 1A. Risk Factors.

Our Annual Report on Form 10-K for the fiscal year ended September 30, 2006 includes a detailed discussion of our risk factors. There are no current material amendments to the risk factors included in our previously filed reports.

Page 44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information with respect to the shares of the Company’s common stock we repurchased during the three months ended March 31, 2007.

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2007 through January 31, 2007	47,383	$	115.29	47,383	8,735,858
February 1, 2007 through February 28, 20071	213,057		119.42	213,057	8,522,801
March 1, 2007 through March 31, 2007	4,300,043		116.03	4,300,043	4,222,758
Total	4,560,483			4,560,483

¹ In connection with matching stock awards made on January 31, 2007 pursuant to our 1998 Employee Stock Investment Plan, as amended, we repurchased shares to cover withholding taxes owed by employees. Although February 1, 2007 was the trade and settlement date of these repurchase transactions, we repurchased these shares based on the closing price on the date of the match.

Under our stock repurchase program, we can repurchase shares of the Company’s common stock from time to time in the open market and in private transactions in accordance with applicable laws and regulations, including without limitation applicable federal securities laws. From time to time we have announced the existence of the Company’s continuing policy of purchasing shares of its common stock, including announcements made in March 2000, August 2002, May 2003, August 2003 and July 2006. From the fiscal year ended September 30, 2002 through March 31, 2007, our Board of Directors had authorized and approved the repurchase of up to 40.0 million shares under our stock repurchase program, of which 4.2 million shares of our common stock remained available for repurchase at March 31, 2007. Our stock repurchase program is not subject to an expiration date.

Included in the 4.6 million shares of our common stock that we repurchased during the three months ended March 31, 2007, were 4.0 million shares repurchased under an accelerated stock repurchase agreement with an unrelated counterparty, a global investment bank, at an initial price of $116.14 per share or a cash payment totaling $464.6 million. Under the terms of the agreement, we will either receive or pay a future price adjustment based generally on the daily volume-weighted average prices of our common stock over a period of up to several months. The price adjustment can be settled, at our option, in cash or shares of our common stock.

Page 45

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of stockholders of the Company was held on January 25, 2007.

The matters voted upon at the meeting and the results of the vote were as follows:

1. To elect 13 directors to the Board of Directors to hold office until the next annual meeting of stockholders or until that person’s successor is elected and qualified or until his or her death, resignation, retirement, disqualification or removal.

Each of the thirteen nominees for director was elected in accordance with the voting set forth below:

Name of Director	For	Withheld
Samuel H. Armacost	178,882,992	2,448,837
Charles Crocker	178,933,375	2,338,454
Joseph R. Hardiman	179,165,164	2,106,665
Robert D. Joffe	179,167,904	2,103,925
Charles B. Johnson	174,759,975	6,511,855
Gregory E. Johnson	176,576,842	4,694,987
Rupert H. Johnson, Jr.	174,886,509	6,385,320
Thomas H. Kean	177,417,102	3,854,727
Chutta Ratnathicam	179,172,650	2,099,179
Peter M. Sacerdote	170,876,755	10,395,074
Laura Stein	179,161,314	2,110,515
Anne M. Tatlock	174,504,186	6,767,643
Louis E. Woodworth	177,131,862	4,139,967

2. To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2007.

The ratification of PricewaterhouseCoopers LLP was approved in accordance with the voting set forth below:

For	Against	Abstain	Broker Non-Votes
177,245,497	2,551,711	1,474,619	Not Applicable

3. To approve the amendment and restatement of the Franklin Resources, Inc. 1998 Employee Stock Investment Plan, including an increase of 4,000,000 shares authorized for issuance under the plan.

The approval of the amended and restated 1998 Employee Stock Investment Plan was approved in accordance with the voting set forth below:

For	Against	Abstain	Broker Non-Votes
157,685,282	1,469,588	1,697,047	20,419,911

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Item 6. Exhibits.

Exhibit No.	Description
Exhibit 3(i)(a)	Registrant’s Certificate of Incorporation, as filed November 28, 1969, incorporated by reference to Exhibit (3)(i) to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 1994 (File No. 001-09318) (the “1994 Annual Report”).
Exhibit 3(i)(b)	Registrant’s Certificate of Amendment of Certificate of Incorporation, as filed March 1, 1985, incorporated by reference to Exhibit (3)(ii) to the 1994 Annual Report.
Exhibit 3(i)(c)	Registrant’s Certificate of Amendment of Certificate of Incorporation, as filed April 1, 1987, incorporated by reference to Exhibit (3)(iii) to the 1994 Annual Report.
Exhibit 3(i)(d)	Registrant’s Certificate of Amendment of Certificate of Incorporation, as filed February 2, 1994, incorporated by reference to Exhibit (3)(iv) to the 1994 Annual Report.
Exhibit 3(i)(e)	Registrant’s Certificate of Amendment of Certificate of Incorporation, as filed on February 4, 2005, incorporated by reference to Exhibit (3)(i)(e) to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2004 (File No. 001-09318).
Exhibit 3(ii)	Amended and Restated By-laws of Franklin Resources, Inc. adopted December 13, 2006, incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the SEC on December 19, 2006.
Exhibit 10.1	Master Confirmation between Franklin Resources, Inc. and Merrill Lynch International, dated March 13, 2007 (includes as Exhibit A a Supplemental Confirmation) (filed herewith). Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment.
Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Exhibit 32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
Exhibit 32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

Page 47

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FRANKLIN RESOURCES, INC. (Registrant)
Date: May 9, 2007	By:	/s/KENNETH A. LEWIS
		Kenneth A. Lewis Senior Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer)

Page 48

EXHIBIT INDEX

Exhibit No.	Description
Exhibit 3(i)(a)	Registrant’s Certificate of Incorporation, as filed November 28, 1969, incorporated by reference to Exhibit (3)(i) to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 1994 (File No. 001-09318) (the “1994 Annual Report”).
Exhibit 3(i)(b)	Registrant’s Certificate of Amendment of Certificate of Incorporation, as filed March 1, 1985, incorporated by reference to Exhibit (3)(ii) to the 1994 Annual Report.
Exhibit 3(i)(c)	Registrant’s Certificate of Amendment of Certificate of Incorporation, as filed April 1, 1987, incorporated by reference to Exhibit (3)(iii) to the 1994 Annual Report.
Exhibit 3(i)(d)	Registrant’s Certificate of Amendment of Certificate of Incorporation, as filed February 2, 1994, incorporated by reference to Exhibit (3)(iv) to the 1994 Annual Report.
Exhibit 3(i)(e)	Registrant’s Certificate of Amendment of Certificate of Incorporation, as filed on February 4, 2005, incorporated by reference to Exhibit (3)(i)(e) to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2004 (File No. 001-09318).
Exhibit 3(ii)	Amended and Restated By-laws of Franklin Resources, Inc. adopted December 13, 2006, incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the SEC on December 19, 2006.
Exhibit 10.1	Master Confirmation between Franklin Resources, Inc. and Merrill Lynch International, dated March 13, 2007 (includes as Exhibit A a Supplemental Confirmation) (filed herewith). Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment.
Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Exhibit 32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
Exhibit 32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

Page 49

EX-10.1

EXHIBIT 10.1

CONFIDENTIAL PORTIONS MARKED [*******] HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

Master Confirmation of OTC ASAP Minus (VWAP Pricing)

Date:	March 13, 2007	ML Ref: •
To:	Franklin Resources, Inc. (“Counterparty”)
Attention:	Shelly Painter
From:	Merrill Lynch International (“MLI”)
	Merrill Lynch Financial Centre
	2 King Edward Street
	London EC1A 1HQ

Dear Sir / Madam:

The purpose of this letter agreement (the “Master Confirmation”) and each supplemental confirmation substantially in the form attached hereto as Exhibit A (each, a “Supplemental Confirmation” and the Supplemental Confirmations, together with the Master Confirmation, this “Confirmation”) is to confirm the terms and conditions of each of the above-referenced transactions entered into between Counterparty and MLI through its agent Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Agent”) on the respective Trade Dates specified in the Supplemental Confirmations (each, a “Transaction” and collectively, the “Transactions”). This Confirmation constitutes a “Confirmation” both on behalf of MLI, as referred to in the ISDA Master Agreement specified below, and on behalf of MLPF&S, as agent of MLI.

The definitions and provisions contained in the 2000 ISDA Definitions (the “Swap Definitions”) and the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions” and, together with the Swap Definitions, the “Definitions”), in each case as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between the Swap Definitions and the Equity Definitions, the Equity Definitions will govern, in the event of any inconsistency between the Definitions and the Master Confirmation, the Master Confirmation will govern, and in the event of any inconsistency between the Master Confirmation and any Supplemental Confirmation, the Supplemental Confirmation will govern. References herein to any “Transaction” shall be deemed to be references to a “Share Forward Transaction” for purposes of the Equity Definitions and a “Swap Transaction” for the purposes of the Swap Definitions.

This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transactions to which this Confirmation relates. This Confirmation (notwithstanding anything to the contrary herein), shall be subject to an agreement in the 1992 form of the ISDA Master Agreement (Multicurrency Cross Border) (the “Master Agreement” or “Agreement”) as if we had executed an agreement in such form (but without any Schedule and with elections specified in the “ISDA Master Agreement” Section of the Master Confirmation) on the Trade Date of the first such Transaction between us. In the event of any inconsistency between the provisions of that agreement and this Confirmation, this Confirmation will prevail for the purpose of each Transaction.

The terms of each Transaction to which the Master Confirmation relates are as follows:

General Terms:

Trade: With respect to each Transaction, Counterparty, subject to the terms and conditions and in reliance upon the representations and warranties set forth herein, will purchase from MLI Shares in an amount equal to the Number of Shares (such Shares, the “Repurchase Shares”). On the Initial Settlement Date, (A) Counterparty will make an initial payment

	for the Repurchase Shares by delivering an amount equal to the Initial Settlement Amount by wire transfer of immediately available funds to an account designated by MLI and (B) MLI will deliver the Repurchase Shares to Counterparty. The parties understand and agree that the delivery of the Repurchase Shares by or on behalf of MLI upon the payment of the Initial Settlement Amount by Counterparty is irrevocable and that as of the Initial Settlement Date Counterparty shall be the sole beneficial owner of the Repurchase Shares for all purposes. The parties further understand and agree that the terms and conditions of each Transaction will have the effect of increasing or decreasing the purchase price for the Repurchase Shares to an amount greater than or less than the Initial Settlement Amount.
Trade Date:	For each Transaction, as set forth in the corresponding Supplemental Confirmation.
Buyer:	MLI
Seller:	Counterparty
Shares:	Shares of common stock, par value USD $0.10 per share, of Counterparty (Symbol: BEN)
Number of Shares:	For each Transaction, as set forth in the Supplemental Confirmation.
Initial Share Price:	For each Transaction, as set forth in the Supplemental Confirmation, to be the Relevant Price as of the Trade Date.
Initial Settlement Amount:	The product of the Number of Shares and the Initial Share Price.
Initial Settlement Date:	The Exchange Business Day following the Trade Date.
Forward Price:	The Initial Share Price.
Exchange:	New York Stock Exchange
Related Exchange(s):	All Exchanges
Market Disruption Event:	The definition of “Market Disruption Event” in Section 6.3(a) of the Equity Definitions is hereby amended by replacing the words “at any time during the one-hour period that ends at the relevant Valuation Time” in the third line thereof with the words “at any time on any Scheduled Trading Day during the Valuation Period or” after the word “material”.
Aggregate Adjustment Amount:	For each Transaction, as set forth in the Supplemental Confirmation.
Valuation:
Valuation Period:	For each Transaction, each Scheduled Trading Day from and including the Initial Settlement Date up to and including the Valuation Date; provided, that with respect to each Suspension Event (if any) affecting such Scheduled Trading Days, MLI may, by written notice to Counterparty (which notice shall not specify the reason for MLI’s election to suspend the Valuation Period), exclude the Scheduled Trading Day(s) on which such Suspension Event has occurred (such days, “Suspension Event Days”) and extend the last possible Valuation Date by the total number of such Suspension Event Days; provided, further, that notwithstanding anything to the contrary in the Equity Definitions, to the extent that any Scheduled Trading Days in the Valuation Period are Disrupted Days, the Calculation Agent may exclude such Disrupted Days and extend the last possible Valuation Date by the number of such Disrupted Days (in addition to any Suspension Event Days, without duplication).

Suspension Event:	Each and every one of the following events: (i) MLI concludes, in its sole discretion, that Counterparty will be engaged in a distribution of the Shares for purposes of Regulation M or that the “restricted period” in respect of such distribution has not yet been completed; (ii) MLI commercially reasonably concludes, that it is appropriate with respect to any legal, regulatory or self-regulatory requirements for it to refrain from purchasing Shares during any part of the Valuation Period; (iii) Counterparty is subject to a third-party tender offer; or (iv) a Potential Repurchase Day is elected.
Potential Repurchase Day:	A Scheduled Trading Day specified by the Counterparty by notice to MLI prior to 3 p.m. New York City time on the Trading Day immediately preceding such day; provided that Counterparty may not specify more than five Potential Repurchase Days during the Valuation Period. On a Potential Repurchase Day the Counterparty may purchase Shares in a manner consistent with the conditions of Rule 10b-18(b) of the Exchange Act.
Exclusion Mechanics:	With respect to each Suspension Event Day and Disrupted Day (each, an “Exclusion Day”), the Calculation Agent must determine whether (i) such Exclusion Day should be excluded in full, in which case such Exclusion Day shall not be included for purposes of determining the Settlement Price, or (ii) such Exclusion Day should only be partially excluded, in which case the VWAP Price for such Exclusion Day shall be determined by the Calculation Agent based on Rule 10b-18 eligible transactions in the Shares on such Exclusion Day effected during the portion of the Scheduled Trading Day unaffected by such event or events, and the weighting of the VWAP Prices for the relevant Scheduled Trading Days during the Valuation Period shall be adjusted by the Calculation Agent for purposes of determining the Settlement Price. If a Disrupted Day occurs during the Valuation Period, and each of the nine immediately following Scheduled Trading Days is a Disrupted Day, then the Calculation Agent may either (i) determine the VWAP Price for such ninth Scheduled Trading Day and adjust the weighting of the VWAP Prices for the relevant Scheduled Trading Days during the Valuation Period as it deems appropriate for purposes of determining the Settlement Price based on, among other factors, the duration of any Market Disruption Event and the volume, historical trading patterns and price of the Shares or (ii) disregard such day for purposes of determining the Settlement Price and further postpone the Valuation Date, in either case as it deems appropriate to determine the VWAP Price. In the event that there are Exclusion Days arising from a Suspension Event described in Clause (i) or (iv) under “Suspension Event” above, then MLI shall not purchase Shares in connection with the relevant transaction during each such Exclusion Day that is fully excluded and during each portion of a partially excluded Exclusion Day that is affected by such Suspension Event.
Valuation Date	For each Transaction, the earlier to occur of the date set forth in the Supplemental Confirmation (as the same may be postponed in accordance with the provisions hereof) (the “Scheduled Valuation Date”) and any Accelerated Valuation Date.
Accelerated Valuation Date:	For each Transaction, any date, occurring on or after the First Acceleration Date but prior to the Scheduled Valuation Date, designated by MLI to be the Valuation Date; MLI shall notify Counterparty of such designation prior to 3 p.m. New York City time on the Scheduled Trading Day immediately following such Accelerated Valuation Date. For the avoidance of doubt, MLI may only make one such notification with respect to each Transaction.
First Acceleration Date:	For each Transaction, as set forth in the Supplemental Confirmation.
Settlement Terms:
Settlement Currency:	USD
Settlement Method Election:	Applicable; provided that Section 7.1 of the Equity Definitions is hereby amended by deleting the word “Physical” in the sixth line thereof and replacing it with the words

	“Net Share” and deleting the word “Physical” in the last line thereof and replacing it with the word “Cash”.
Electing Party	Counterparty
Settlement Method Election Date:	The 5th Scheduled Trading Day immediately preceding the relevant First Acceleration Date.
Default Settlement Method:	Cash Settlement, and for this purpose, the words “the settlement method shall be” in the 13th line of Section 7.1 of the Equity Definitions shall be replaced by the words “such non-delivery shall (notwithstanding the first paragraph of “Other Share Deliveries in lieu of Cash Payment” pursuant to a Master Confirmation dated March 13, 2007 between MLI and the Counterparty), constitute an irrevocable election by the Electing Party that the settlement method shall be, and the Settlement Method shall be,”.
Cash Settlement Payment Date:	Three Currency Business Days following the Valuation Date
Forward Cash Settlement Amount:	Notwithstanding Section 8.5 of the Equity Definitions, an amount in the Settlement Currency equal to the sum of (a) the Number of Shares multiplied by an amount equal to (i) the Settlement Price minus (ii) the Forward Price plus (b) the Aggregate Adjustment Amount. This amount shall be paid as specified by Section 8.4(a) of the Equity Definitions.
Settlement Price:	The arithmetic mean of the VWAP Prices of the Shares for each Scheduled Trading Day in the Valuation Period minus the Settlement Price Adjustment Amount.
Settlement Price Adjustment Amount:	For each Transaction, as set forth in the Supplemental Confirmation.
VWAP Price:	For any Scheduled Trading Day that is not an Exclusion Day, the daily volume weighted average price per Share traded on the New York Stock Exchange under the BEN ticker for such Scheduled Trading Day as reported on Bloomberg Page “BEN.N <Equity> AQR SEC” (or any successor thereto) or, in the event such price is not so reported on such Scheduled Trading Day, as reasonably determined by MLI. For the purpose of calculating the VWAP Price, the Calculation Agent will include only those trades which are reported during the period of time during which Counterparty could purchase its own shares under Rule 10b-18(b)(2) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and pursuant to the conditions of Rule 10b-18(b)(3) and (b)(4) under the Exchange Act.
Net Share Settlement:
Net Share Settlement Procedures:	Net Share Settlement shall be made in accordance with the procedures described below under “Details of Net Share Settlement”.
Net Share Settlement Price:	The Relevant Price on the Net Share Valuation Date.
Initial Net Share Settlement Shares:	Notwithstanding Section 9.5 of the Equity Definitions, a number of Shares equal to the Forward Cash Settlement Amount divided by the Net Share Settlement Price.
Valuation Time:	As provided in Section 6.1 of the Equity Definitions; provided that Section 6.1 of the Equity Definitions is hereby amended by inserting the words “Net Share Valuation Date,” before the words “Valuation Date” in the first and third lines thereof.
Net Share Valuation Date:	The Exchange Business Day immediately following the Valuation Date.
Net Share Settlement Date:	The fifth Exchange Business Day immediately following the Valuation Date.

Reserved Shares:	Initially, 4,000,000 Shares; the Reserved Shares may be increased or decreased in a Supplemental Confirmation.
Relevant Price:	As provided in Section 1.23(b) of the Equity Definitions; provided that Section 1.23(b) of the Equity Definitions is hereby amended by replacing each occurrence therein of “the Valuation Date or Averaging Date, as the case may be,” with the term “such day”.
Stock Settlement Deficiency:	With respect to each Transaction, the occurrence of each date, if any, on which MLI determines that there is a Stock Settlement Deficiency Amount.
Stock Settlement Deficiency Amount:	The amount by which the value of the Initial Net Share Settlement Shares and any other Shares delivered by Counterparty to MLI pursuant to “Details of Net Share Settlement” below is less than the Forward Cash Settlement Amount, as determined by MLI.
Share Adjustments:
Method of Adjustment:	Calculation Agent Adjustment; provided, however, that an Extraordinary Dividend occurring with respect to a Transaction shall not constitute a Potential Adjustment Event, but the occurrence of an Extraordinary Dividend shall be an Additional Termination Event under the Agreement with respect to such Transaction, with such Transaction being an Affected Transaction and Counterparty being the Affected Party.
Extraordinary Dividends:	Each dividend or distribution payment (other than any dividend or distribution of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) or (B) of the Equity Definitions) having an ex-dividend date during the Valuation Period, other than the payment of the Ordinary Dividend Amount on each Scheduled Dividend Date. For the avoidance of doubt, the rescheduling of a Scheduled Dividend Date to an earlier date shall result in an Ordinary Dividend Amount payable on such rescheduled day becoming an Extraordinary Dividend.
Ordinary Dividend Amount:	For each Transaction, as set forth in the Supplemental Confirmation.
Scheduled Dividend Dates:	For each Transaction, as set forth in the Supplemental Confirmation.
Extraordinary Events:
Consequences of Merger Events:
Share-for-Share:	Modified Calculation Agent Adjustment
Share-for-Other:	Cancellation and Payment; for the avoidance of doubt, the value of any embedded optionality in the Transaction shall be taken into account in determining the Cancellation Amount.
Share-for-Combined:	Component Adjustment
Determining Party:	MLI
Consequences of Tender Offers:
Share-for-Share:	Modified Calculation Agent Adjustment
Share-for-Other:	Cancellation and Payment; for the avoidance of doubt, the value of any embedded optionality in the Transaction shall be taken into account in determining the Cancellation Amount.
Share-for-Combined:	Component Adjustment

Determining Party:	MLI
New Shares:	The definition of “New Shares” in Section 12.1 of the Equity Definitions shall be amended by inserting at the beginning of subsection (i) the following: “(i) where the Exchange is located in the United States, publicly quoted, traded or listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ Stock Market LLC (or their respective successors) or otherwise,”.
Announcement Event:	If an Announcement Event occurs, the Calculation Agent will determine in good faith and in a commercially reasonable manner the economic effect of the Announcement Event on the theoretical value of the Transaction (including without limitation any change in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or to the Transaction) from the Announcement Date to the Valuation Date. If such economic effect is material, the Calculation Agent will adjust the terms of the Transaction to reflect such economic effect. “Announcement Event” shall mean the occurrence of the Announcement Date of a Merger Event or Tender Offer.
Nationalization, Insolvency or Delisting:	Cancellation and Payment; provided, that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, the American Stock Exchange or The NASDAQ National Market (or their respective successors); and if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall be deemed to be the Exchange.
Determining Party:	MLI
Additional Disruption Events:
Change in Law:	Applicable
Insolvency Filing:	Applicable
Increased Cost of Stock Borrow:	Applicable; provided, that Sections 12.9(a)(viii) of the Equity Definitions is amended by deleting the words “the Initial Stock Loan Rate” and replacing them with “35 basis points” and Section 12.9(b)(v) of the Equity Definitions is amended by deleting the words “at a rate equal to or less than the Initial Stock Loan Rate” and replacing them with “at a rate equal to or less than 35 basis points”.
Hedging Party:	MLI
Determining Party;	MLI
Non-Reliance/Agreements and Acknowledgements Regarding Hedging Activities/Additional Acknowledgements:	Applicable

Details of Net Share Settlement:

In the event that Counterparty elects Net Share Settlement in accordance with the procedures described above, Counterparty shall cause to be delivered the lesser of (i) Initial Net Share Settlement Shares or (ii) the Reserved Shares. If a Stock Settlement Deficiency exists, MLI will notify Counterparty within five Scheduled Trading Days of the determination of such Stock Settlement Deficiency. Within one (1) Exchange Business Day of being notified by MLI of the occurrence of a Stock Settlement Deficiency, Counterparty shall deliver to MLI, at Counterparty’s sole discretion, either (x) an amount in cash (by wire transfer of immediately available funds) equal to the Stock Settlement Deficiency Amount or (y) additional Shares, the value of which is equal to the Stock Settlement Deficiency Amount (such number of shares being based on the Closing Price

on the date of the notification by MLI to Counterparty of the Stock Settlement Deficiency). If Counterparty elects to deliver Shares pursuant to the preceding sentence and such Shares are subject to registration for resale as described below, Counterparty shall be obligated to deliver Shares to MLI, upon notification by MLI, until such time as (x) the aggregate amount received by MLI from the sale of any such Shares and any Initial Net Share Settlement Shares (net of costs and expenses attributable to such sales) equal the Forward Cash Settlement Amount or (y) until such time as Counterparty has delivered a number of Shares equal to the Reserved Shares (whichever of (x) and (y) occurs first).

At the election of Counterparty, the Initial Net Share Settlement Shares and any other Shares made as payment by Counterparty to MLI pursuant to the immediately preceding paragraph shall be delivered by Counterparty in Shares the resale of which shall be covered by a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) and subject to a commission of USD 0.03 per Share payable to an affiliate of MLI; provided that if Counterparty elects not to provide a registration statement for such Shares or is unable to cover such resale of any such Shares by a registration statement, Counterparty may deliver Shares the resale of which need not be covered by a registration statement under the Securities Act. In the event Counterparty delivers Shares that are intended to be registered under the Securities Act, no later than five Scheduled Trading Days prior to any delivery, Counterparty shall have executed and delivered to MLI a Registration Rights Agreement (the “Registration Rights Agreement”), which among other things, will provide that MLI and any underwriters shall have access to the books and records of Counterparty and shall be entitled to conduct a “reasonable investigation” (within the meaning of the Securities Act) with respect to Counterparty, that MLI and any such underwriters shall be entitled to receive customary opinions of counsel and comfort letters in connection with offerings pursuant to the registration statement and that Counterparty shall pay all reasonable out-of-pocket expenses of MLI in connection therewith.

In the event that Shares which are not intended to be registered for resale under the Securities Act are delivered to MLI, MLI shall determine the value of such Shares by applying a discount of 2% for such unregistered Shares. In the event that Counterparty seeks to register Shares pursuant to the Registration Rights Agreement but has not been able to do so for a period of 10 days from the date of delivery of such Shares or in the event that Counterparty is in breach of the Registration Rights Agreement in a manner that would make it impossible or inadvisable for MLI to sell any Shares under the applicable registration statement, then such Shares shall cease to be considered Shares that Counterparty seeks to register under the Securities Act for the purposes of the applicable Transaction, and MLI may sell such Shares in an unregistered transaction or, alternatively, value such Shares in accordance with the immediately preceding sentence. In any such sale of Shares that are not registered under the Securities Act, MLI and the Counterparty shall prior to any such sale enter into a private placement agreement which among other things will detail the manner of sale and provide certain representations and warranties by the Counterparty.

In the event that Counterparty has elected Net Share Settlement and MLI has an obligation to pay the Financial Cash Settlement Amount to Counterparty, MLI shall deliver to Counterparty, for no additional consideration, a number of Shares equal to the Forward Cash Settlement Amount divided by the volume weighted average actual price paid by MLI in purchasing Shares to deliver to the Counterparty. Any such purchase of Shares for delivery to the Counterparty shall be made in a commercially reasonable manner and shall be delivered to the Counterparty within three Trading Days of the last such purchase.

Other Share Deliveries in Lieu of Cash Payment:

If Counterparty would be obligated to pay cash to MLI pursuant to the terms of the Agreement as a result of the declaration by Counterparty of an Early Termination Date as a result of an Event of Default or Termination Event with respect to MLI, without having had the right (other than pursuant to this paragraph) to elect to deliver Shares in satisfaction of such payment obligation, then Counterparty may elect that Counterparty deliver to MLI a number of Shares having an equivalent value (such number of Shares to be delivered to be determined by the Calculation Agent acting in a commercially reasonable manner and taking into account relevant factors, including whether or not the Shares are subject to legal or other restrictions on transfer and the costs and expenses associated with disposing of such Shares). Settlement relating to any delivery of Shares pursuant to this paragraph shall occur within a reasonable period of time and subject to the same provisions as to the treatment of whether such Shares are or are not registered for resale under the Securities Act as specified above in “Details of Net Share Settlement”.

If MLI would be obligated to pay cash to Counterparty pursuant to the terms of the Agreement as a result of the declaration by MLI of an Early Termination Date as a result of an Event of Default or Termination Event with respect to the Counterparty, then Counterparty may elect that MLI deliver to Counterparty a number of Shares having an equivalent value (such number of Shares to be delivered to be determined by the Calculation Agent acting in a commercially reasonable manner and taking into account relevant factors, including whether or not the Shares are subject to legal or other restrictions

on transfer and the costs and expenses associated with disposing of such Shares). Settlement relating to any delivery of Shares pursuant to this paragraph shall occur within a reasonable period of time. In connection with any such election to receive Shares instead of cash, the Counterparty shall confirm that it is not in possession of material non-public information regarding the Shares or the Counterparty.

Additional Agreements, Representations and Covenants of Counterparty, Etc.:

Compliance with Securities Laws:	Each party represents and agrees that it has complied, and will comply, in connection with each Transaction and all related or contemporaneous sales and purchases of Shares, with the applicable provisions of the Securities Act, and the Exchange Act, and the rules and regulations each thereunder, including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act; provided that each party shall be entitled to rely conclusively on any information communicated by the other party concerning such other party’s market activities. Each party further represents and warrants that if such party (“X”) purchases any Shares from the other party pursuant to any Transaction, such purchase(s) will comply in all material respects with (i) all laws and regulations applicable to X and (ii) all contractual obligations of X. Each party acknowledges that the offer and sale of each Transaction to it is intended to be exempt from registration under the Securities Act by virtue of Section 4(2) thereof and the provisions of Regulation D thereunder (“Regulation D”). Accordingly, each party represents and warrants to the other that (i) it has the financial ability to bear the economic risk of its investment in each Transaction and is able to bear a total loss of its investment, (ii) it is an “accredited investor” as that term is defined under Regulation D, (iii) it will purchase each Transaction for investment and not with a view to the distribution or resale thereof, and (iv) the disposition of each Transaction is restricted under this Confirmation, the Securities Act and state securities laws.
	Counterparty represents and warrants as of the date hereof, each Trade Date, the next Scheduled Trading Day following a Potential Repurchase Day unless such day is also a Potential Repurchase Date and each date on which it makes an election in respect of Net Share Settlement or another optional Share delivery that:
	(a) each of its filings under the Exchange Act that are required to be filed from and including the ending date of Counterparty’s most recent prior fiscal year have been filed, and that, as of the respective dates thereof and hereof, there is no misstatement of material fact contained therein or omission of a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading;
	(b) Counterparty is not in possession of material non-public information regarding the Shares or the Counterparty;
	(c) Counterparty is not entering into any Transaction to facilitate a distribution of the common stock or in connection with a future distribution of securities;
	(d) Counterparty is not entering into any Transaction to create actual or apparent trading activity in the common stock (or any security convertible into or exchangeable for common stock) or to manipulate the price of the

common stock (or any security convertible into or exchangeable for common stock);

(e) Counterparty is entering into each Transaction in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 under the Exchange Act (“Rule 10b5-1”); it is the intent of the parties that each Transaction comply with the requirements of Rule l0b5-l(c)(1)(i)(A) and (B) and each Transaction shall be interpreted to comply with the requirements of Rule 10b5-l(c) (the “Plan”); Counterparty will not seek to control or influence MLI or MLPF&S to make “purchases or sales” (within the meaning of Rule 10b5-1(c)(l)(i)(B)(3)) under any Transaction, including, without limitation, any decision to enter into any hedging transactions; Counterparty represents and warrants that it has consulted with its own advisors as to the legal aspects of its adoption and implementation of each Transaction under Rule 10b5-1;

(f) Neither it nor any “affiliated purchaser” (as defined in Rule 10b-18 under the Exchange Act) has made any purchases of blocks pursuant to the proviso in Rule 10b-18(b)(4) under the Exchange Act during the four full calendar weeks immediately preceding the applicable Trade Date;

(g) The purchase or writing of each Transaction will not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act, and Counterparty is not entering into any Transaction in anticipation of, or in connection with, or to facilitate a self-tender offer or a third-party tender offer;

(h) Each Transaction is consistent with the publicly announced program of Counterparty to repurchase, from time to time, Shares (the “Repurchase Program”); and

(i) Counterparty has full power and authority to undertake the Repurchase Program, and the Repurchase Program has been duly authorized and remains valid.

MLI represents and warrants, at all times beginning on the date of this Master Confirmation through and including the Valuation Date, that:

(a) MLI is not entering into this Confirmation or any Transaction to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for Shares) in violation of Section 9(a) or Section 10 of the Exchange Act; and

(b) MLI has implemented reasonable policies and procedure, taking into consideration the nature of its business, to ensure that individuals making decisions to purchase Shares in connection with the Transactions would not violate laws prohibiting trading on the basis of material non-public information concerning Counterparty or the Shares at all relevant times.

Counterparty covenants and agrees that:

(a) during the term of each Transaction to promptly notify MLI telephonically (which oral communication shall be promptly confirmed by telecopy to MLI) if Counterparty determines that as a result of an acquisition or other business transaction or for any other reason Counterparty will be engaged in a distribution of Shares or other securities for which the Shares are a reference security for purposes of Rule 102 of Regulation M under the Exchange Act and to promptly notify MLI by

telecopy of the period commencing on the date that is one (1) business day before the commencement of such distribution and ending on the day on which Counterparty completes the distribution (the “Distribution Period”); for the purposes of this Confirmation, the “term” of a Transaction shall not be considered to have been completed until all Shares required to be transferred to party hereto have been duly transferred and all cash amounts required to be paid to a party hereto have been duly paid;

(b) without the prior written consent of MLI, neither Counterparty nor any “affiliated purchaser” (as such term is defined in Rule 10b-18 under the Exchange Act) will acquire Shares (or equivalent interests or securities exchangeable, convertible or exercisable into Shares) or be a party to any repurchase or similar agreements pursuant to which a valuation, averaging or hedging period or similar such period overlaps or potentially overlaps with the term of any Transaction, other than (i) any acquisition of Shares (or any security convertible into or exchangeable for Shares) by Counterparty from holders of awards granted under Counterparty’s stock incentive plans, in connection with vesting, exercise, settlement, expiration or termination of such awards (or Counterparty being a party to a repurchase or similar agreement for such purpose), (ii) any acquisition of Shares (or any securities convertible into or exchangeable for Shares) by any “affiliated purchaser” (as such term is defined in Rule 10b-18 under the Exchange Act) of Counterparty pursuant to awards granted under the Counterparty’s stock incentive plans or pursuant to the Counterparty’s share purchase or 401(k) plan(s), (iii) any acquisition of Shares (or any securities convertible into or exchangeable for Shares) by the Counterparty in a private transaction from any director or employee of the Counterparty, (iv) any acquisition of Shares by Counterparty as contemplated in the definition of Potential Repurchase Day and (v) in those transactions already disclosed in writing to MLI;

(c) Counterparty shall report each Transaction as required in any applicable report filed by the Counterparty pursuant to the Exchange Act in compliance with Regulation S-K and/or Regulation S-B under the Exchange Act, as applicable;

(d) If a Potential Repurchase Day is elected by the Counterparty, the Counterparty shall advise MLI by 8 p.m. New York City Time on each such Potential Repurchase Day if any purchase made by the Counterparty was a block purchase within the meaning of Rule 10b-18(b)(4); and

(e) If the Counterparty elects two or more consecutive Potential Repurchase Days, MLI may make adjustments to the terms of this Master Confirmation or the relevant Confirmation that will compensate MLI in its good faith and commercially reasonable judgment for the loss in the value of the applicable Transaction resulting from the election of consecutive Potential Repurchase Days.

Counterparty acknowledges and agrees that:

(a) Each Transaction is a derivatives transaction; MLI may purchase Shares for its own account at an average price that may be greater than, or less than, the price paid by Counterparty under the terms of such Transaction; Counterparty also acknowledges that its purchase of Shares hereunder will not qualify as a Rule 10b-18 purchase, as defined in Rule 10b-18 under the Exchange Act, and that, in connection with each Transaction, in addition to purchases of Delivered Shares (as defined

below), MLI will be engaging in customary hedging activities in its sole discretion for its own account and that such activities may involve purchases that, as to time, price and amount, may not necessarily satisfy the conditions specified in Rule 10b-18; and

(b) Notwithstanding the generality of Section 13.1 of the Equity Definitions, MLI is not making any representations or warranties with respect to the treatment of any Transaction under FASB Statements 133 as amended or 150, EITF 00-19 (or any successor issue statements) or under FASB’s Liabilities & Equity Project.

MLI covenants and agrees that:

(a) Notwithstanding anything in the foregoing to the contrary, any Shares delivered to the Counterparty or acquired to close out a stock borrow position related to the Repurchase Shares shall be purchased by MLI in a manner that would comply with the limitations set forth in clauses (b)(2), (b)(3), (b)(4) and (c) of Rule 10b-18 as if such purchases were made by the Counterparty (“Delivered Shares”); and

(b) If a Potential Repurchase Day is elected by the Counterparty, MLI will notify the Counterparty by 5 p.m. New York City time on the date of election of such Potential Repurchase Day whether MLI has made a block purchase within the meaning of Rule 10b-18(b)(4) in connection with the relevant Transaction for the week containing the designated Potential Repurchase Day.

Account Details:
Account for payments to Counterparty:	Bank of America
	ABA#
	A/C:
	Account Name: Franklin Resources, Inc
Account for payment to MLI:	JP Morgan Chase Bank, New York
	ABA#
	FAO: MLI Equity Derivatives
	A/C:

Bankruptcy Rights:	In the event of Counterparty’s bankruptcy, MLI’s rights in connection with any Transaction shall not exceed those rights held by common shareholders. For the avoidance of doubt, the parties acknowledge and agree that MLI’s rights with respect to any other claim arising from any Transaction prior to Counterparty’s bankruptcy shall remain in full force and effect and shall not be otherwise abridged or modified in connection herewith.
Set-Off:	The Set-off provisions in the Agreement shall apply to each Transaction, except in the event of Counterparty’s or MLI’s bankruptcy, in which case each of the parties waives any and all rights it may have to set-off, whether arising under any agreement, applicable law or otherwise.
Collateral:	None.
Transfer:	Counterparty may transfer any of its rights or delegate its obligations under any Transaction with the prior written consent of MLI. MLI may assign and delegate its rights and obligations under any Transaction (the “Transferred Obligations”) to any subsidiary of ML & Co. (the “Assignee”) by notice specifying the effective date of such transfer (“Effective Date”) and including an executed acceptance and assumption by the Assignee of the Transferred Obligations; provided that (i) the obligations of the Assignee shall be guaranteed by a guarantee of Merrill Lynch & Co. in the form attached as Exhibit B; (ii) Counterparty will not, as a result of such transfer, be required to pay to the Assignee an amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) of the Agreement (except in respect of interest under Section 2(e), 6(d)(ii), or 6(e)) greater than the amount in respect of which Counterparty would have been required to pay to MLI in the absence of such transfer; (iii) Such assignment or delegation will not result in any adverse regulatory consequences to Counterparty; and (iv) the Assignee will not, as a result of such

	transfer, be required to withhold or deduct on account of a Tax under Section 2(d)(i) of the Agreement (except in respect of interest under Section 2(e), 6(d)(ii), or 6(e)) an amount in excess of that which MLI would have been required to withhold or deduct in the absence of such transfer, unless the Assignee would be required to make additional payments pursuant to Section 2(d)(i)(4) of the Agreement corresponding to such excess. On the Effective Date, (a) MLI shall be released from all obligations and liabilities arising under the Transferred Obligations; and (b) if MLI has not assigned and delegated its rights and obligations under the Agreement and all Transactions thereunder, the Transferred Obligations shall cease to be a Transaction under the Agreement and shall be deemed to be a Transaction under the master agreement, if any, between Assignee and Counterparty, provided that, if at such time Assignee and Counterparty have not entered into a master agreement, Assignee and Counterparty shall be deemed to have entered into an ISDA form of Master Agreement (Multicurrency-Cross Border) and Schedule substantially in the form of the Agreement but amended to reflect the name of the Assignee and the address for notices and any amended representations under Part 2 of the Agreement as may be specified in the notice of transfer.
Regulation:	MLI is regulated by The Securities and Futures Authority Limited and has entered into each Transaction as principal.
Indemnity:	Each party hereto (an “Indemnifying Party”) agrees to indemnify the other party, its Affiliates and their respective directors, officers, agents and controlling parties (each such person being an “Indemnified Party”) from and against any and all losses, claims, damages and liabilities, joint and several, to which such Indemnified Party may become subject because of the untruth of any representation by the Indemnifying Party or a breach by the Indemnifying Party of any agreement or covenant under this Confirmation, in the Agreement, the Plan or any other agreement relating to the Agreement or any Transaction and will reimburse any Indemnified Party for all reasonable expenses (including reasonable legal fees and expenses) as they are incurred in connection with the investigation of, preparation for, or defense of, any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto.
	Indemnifying Party will not be liable under this provision to the extent that any loss, claim, damage, liability or expense results from Indemnified Party’s gross negligence and/or willful misconduct.

ISDA Master Agreement

With respect to the Agreement, MLI and Counterparty each agree as follows:

Specified Entities:

(i) in relation to MLI, for the purposes of:
(ii)
Section 5(a)(v):	not applicable
Section 5(a)(vi):	not applicable
Section 5(a)(vii):	not applicable
Section 5(b)(iv):	not applicable
and (ii) in relation to Counterparty, for the purposes of:
Section 5(a)(v):	not applicable
Section 5(a)(vi):	not applicable
Section 5(a)(vii):	not applicable
Section 5(b)(iv):	not applicable

“Specified Transaction” will have the meaning specified in Section 14 of the Agreement.

The “Credit Event Upon Merger” provisions of Section 5(b)(iv) of the Agreement will not apply to MLI and Counterparty.

The “Automatic Early Termination” provision of Section 6(a) of the Agreement will not apply to MLI or to Counterparty.

Payments on Early Termination for the purpose of Section 6(e) of the Agreement: (i) Market Quotation shall apply; and (ii) the Second Method shall apply.

“Termination Currency” means USD.

Tax Representations:

(I) For the purpose of Section 3(e) of the Agreement, each party represents to the other party that it is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 2(e), 6(d)(ii), or 6(e) of the Agreement) to be made by it to the other party under the Agreement. In making this representation, each party may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of the Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of the Agreement, and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of the Agreement, and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of the Agreement; provided that it will not be a breach of this representation where reliance is placed on clause (ii) above and the other party does not deliver a form or document under Section 4(a)(iii) of the Agreement by reason of material prejudice to its legal or commercial position.

(II) For the purpose of Section 3(f) of the Agreement, each party makes the following representations to the other party:

(i) MLI represents that it is a company organized under the laws of England and Wales.

(ii) Counterparty represents that it is a corporation incorporated under the laws of the State of Delaware.

Delivery Requirements: For the purpose of Sections 3(d), 4(a)(i) and (ii) of the Agreement, each party agrees to deliver the following documents:

Tax forms, documents or certificates to be delivered are:

Each party agrees to complete (accurately and in a manner reasonably satisfactory to the other party), execute, and deliver to the other party, United States Internal Revenue Service Form W-9 or W-8 BEN, or any successor of such form(s): (i) before the first payment date under this agreement; (ii) promptly upon reasonable demand by the other party; and (iii) promptly upon learning that any such form(s) previously provided by the other party has become obsolete or incorrect.

Other documents to be delivered:

Party Required to Deliver Document	Document Required to be Delivered	When Required	Covered by Section 3(d) Representation
Counterparty	Copy of the resolution of the Board of Directors or equivalent document authorizing the Repurchase Program	Upon or before execution and delivery of this Confirmation	Yes
Each party	Executed Supplemental Confirmation, substantially in the form of Exhibit A hereto, in respect of each Transaction	On or before the corresponding Trade Date	Yes

MLI Guarantee of its Credit Support Provider, substantially in the form of Exhibit C attached hereto, together with evidence of the authority and true signatures of the signatories, if applicable Upon or before execution and delivery of this Confirmation Yes

Addresses for Notices: For the purpose of Section 12(a) of the Agreement:

Address for notices or communications to MLI:

Address:	Merrill Lynch International
	Merrill Lynch Financial Centre
	2 King Edward Street, London EC1A 1HQ
	Attention: Manager, Fixed Income Settlements
	Facsimile No.:
	Telephone No.: +44 207 995 3769

(For all purposes)

Additionally, a copy of all notices pursuant to Sections 5, 6, and 7 as well as any changes to Counterparty’s address, telephone number or facsimile number should be sent to:

Address: GMI Counsel

Merrill Lynch World Headquarters

4 World Financial Center, 5th Floor

New York, New York 10080

Attention: Global Equity Derivatives

Facsimile No.:              Telephone No.: 212 449-6309

Address for notices or communications to Counterparty for all purposes:

Franklin Resources, Inc.

One Franklin Parkway

San Mateo, CA 94403-1906

Attention:	Kenneth A. Lewis, Senior Vice President - Chief Financial Officer and Treasurer
	Facsimile No.:              Telephone No.: (650) 312-2230
	Shelly Painter
	Facsimile No.:              Telephone No.: (650)312-6249
	Barry Forbes
	Facsimile No.:              Telephone No.: (954) 527-7346
	Craig S. Tyle, Executive Vice President and General Counsel
	Facsimile No.:              Telephone No.: (650) 312-4161
	Barbara J. Green, Vice President, Deputy General Counsel and Secretary
	Facsimile No.:              Telephone No.: (650) 525-7188

Process Agent: For the purpose of Section 13(c) of the Agreement, MLI appoints as its process agent:

Merrill Lynch, Pierce, Fenner & Smith Incorporated

222 Broadway, 16^th Floor

New York, NY 10038

Attention: Litigation Department

Counterparty does not appoint a Process Agent.

Multibranch Party. For the purpose of Section 10(c) of the Agreement: Neither MLI nor Counterparty is a Multibranch Party.

Calculation Agent. The Calculation Agent is MLI, whose judgments, determinations and calculations in each Transaction and any related hedging transaction between the parties shall be made in good faith and in a commercially reasonable manner.

Credit Support Document.

MLI: Guarantee of ML&Co in the form attached hereto as Exhibit B.

Counterparty: Not Applicable

Credit Support Provider.

With respect to MLI: Merrill Lynch and Co. and with respect to Counterparty, Not Applicable.

Governing Law. This Confirmation will be governed by, and construed in accordance with, the laws of the State of New York.

Netting of Payments. The provisions of Section 2(c) of the Agreement shall not be applicable to each Transaction; provided, however, that with respect to this Agreement or any other ISDA Master Agreement between the parties, any Share delivery obligations on any day of Counterparty, on the one hand, and MLI, on the other hand, shall be netted. The resulting Share delivery obligation of a party upon such netting shall be rounded down to the nearest number of whole Shares, such that neither party shall be required to deliver any fractional Shares.

Accuracy of Specified Information. Section 3(d) of the Agreement is hereby amended by adding in the third line thereof after the word “respect” and before the period the words “or, in the case of audited or unaudited financial statements or balance sheets, a fair presentation of the financial condition of the relevant person.”

Basic Representations. Section 3(a) of the Agreement is hereby amended by the deletion of “and” at the end of Section 3(a)(iv); the substitution of a semicolon for the period at the end of Section 3(a)(v) and the addition of Sections 3(a)(vi), as follows:

Eligible Contract Participant; Line of Business. It is an “eligible contract participant” as defined in the Commodity Futures Modernization Act of 2000, and it has entered into this Confirmation and each Transaction in connection with its business or a line of business (including financial intermediation), or the financing of its business.

Amendment of Section 3(a)(iii). Section 3(a)(iii) of the Agreement is modified to read as follows:

No Violation or Conflict. Such execution, delivery and performance do not materially violate or conflict with any law known by it to be applicable to it, any provision of its constitutional documents, any order or judgment of any court or agency of government applicable to it or any of its assets or any material contractual restriction relating to Specified Indebtedness binding on or affecting it or any of its assets.

Additional Representations:

Counterparty Representations. As of the date hereof and each Trade Date, Counterparty represents and warrants that it: (i) has such knowledge and experience in financial and business affairs as to be capable of evaluating the merits and risks of entering into each Transaction; (ii) has consulted with its own legal, financial, accounting and tax advisors in connection with each Transaction; and (iii) is entering into each Transaction for a bona fide business purpose to hedge or repurchase Shares.

As of the date hereof and each Trade Date, Counterparty represents and warrants that it is not and has not been the subject of any civil proceeding of a judicial or administrative body of competent jurisdiction that could reasonably be expected to impair materially Counterparty’s ability to perform its obligations hereunder.

As of the date hereof and each Trade Date, Counterparty is not insolvent.

Acknowledgements:

(1) The parties acknowledge and agree that there are no other representations, agreements or other undertakings of the parties in relation to any Transaction, except as set forth in this Confirmation and the Master Agreement.

(2) The parties hereto intend for:

(a) each Transaction to be a “securities contract” as defined in Section 741(7) of Title 11 of the United States Code (the “Bankruptcy Code”), qualifying for the protections under Section 555 of the Bankruptcy Code;

(b) a party’s right to liquidate each Transaction and to exercise any other remedies upon the occurrence of any Event of Default under the Agreement with respect to the other party to constitute a “contractual right” as defined in the Bankruptcy Code;

(c) all payments for, under or in connection with each Transaction, all payments for the Shares and the transfer of such Shares to constitute “settlement payments” as defined in the Bankruptcy Code.

Amendment of Section 6(d)(ii). Section 6(d)(ii) of the Agreement is modified by deleting the words “on the day” in the second line thereof and substituting therefor “on the day that is three Local Business Days after the day”. Section 6(d)(ii) is further modified by deleting the words “two Local Business Days” in the fourth line thereof and substituting therefor “three Local Business Days.”

Amendment of Definition of Reference Market-Makers. The definition of “Reference Market-Makers” in Section 14 is hereby amended by adding in clause (a) after the word “credit” and before the word “and” the words “or to enter into transactions similar in nature to Transactions”.

Consent to Recording. Each party consents to the recording of the telephone conversations of trading and marketing personnel of the parties and their Affiliates in connection with this Confirmation. To the extent that one party records telephone conversations (the “Recording Party”) and the other party does not (the “Non-Recording Party”), the Recording Party shall in the event of any dispute, make a complete and unedited copy of such party’s tape of the entire day’s conversations with the Non-Recording Party’s personnel available to the Non-Recording Party. The Recording Party’s tapes may be used by either party in any forum in which a dispute is sought to be resolved and the Recording Party will retain tapes for a consistent period of time in accordance with the Recording Party’s policy unless one party notifies the other that a particular transaction is under review and warrants further retention.

Disclosure / Confidentiality. Each party hereby acknowledges and agrees that MLI has authorized Counterparty to disclose this Confirmation and each Transaction and any related hedging transaction between the parties to any and all persons. The Parties and Agent agree to treat the Valuation Date, First Acceleration Date, Aggregate Adjustment Amount, Ordinary Dividend Amount, Scheduled Dividend Dates, and Settlement Price Adjustment Amount as set forth in any Supplemental Confirmation as confidential and not to disclose them to any other person except as required by applicable law or the regulations of an applicable securities exchange (in which case MLI or Agent, as the case may be, shall inform Counterparty promptly of such disclosure). Each party agrees that notwithstanding anything to the contrary in this Confirmation, the confidentiality obligation of the preceding sentence shall survive the termination of this Confirmation and the Transactions, and shall remain in effect until the seventh anniversary of the date of this Master Confirmation.

Severability. If any term, provision, covenant or condition of this Confirmation, or the application thereof to any party or circumstance, shall be held to be invalid or unenforceable in whole or in part for any reason, the remaining terms, provisions, covenants, and conditions hereof shall continue in full force and effect as if this Confirmation had been executed with the invalid or unenforceable provision eliminated, so long as this Confirmation as so modified continues to express, without material change, the original intentions of the parties as to the subject matter of this Confirmation and the deletion of such portion of this Confirmation will not substantially impair the respective benefits or expectations of parties to this Agreement; provided, however, that this severability provision shall not be applicable if any provision of Section 2, 5, 6 or 13 of the Agreement (or any definition or provision in Section 14 to the extent that it relates to, or is used in or in connection with any such Section) shall be so held to be invalid or unenforceable.

Affected Parties. For purposes of Section 6(e) of the Agreement, each party shall be deemed to be an Affected Party in connection with Illegality and any Tax Event.

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Master Confirmation enclosed for that purpose and returning it to us.

Very truly yours,
MERRILL LYNCH INTERNATIONAL
By:	/s/ W. Morley
Name:	William Morley
Title:	Authorised Signatory
Confirmed as of the date first above written:
FRANKLIN RESOURCES, INC.
By:	/s/ Kenneth Lewis
Name:	Kenneth Lewis
Title:	S.V.P. / C.F.O.
Acknowledged and agreed as to matters relating to the Agent:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, solely in its capacity as Agent hereunder
By:	/s/ Angelina Lopes
Name:	Angelina Lopes
Title:

EXHIBIT A

FORM OF SUPPLEMENTAL CONFIRMATION

Supplemental Confirmation of OTC ASAP Minus (VWAP Pricing)

Date:	March 13, 2007	ML Ref: •
To:	Franklin Resources, Inc. (“Counterparty”)
Attention:	Shelly Painter
From:	Merrill Lynch International (“MLI”)
	Merrill Lynch Financial Centre
	2 King Edward Street
	London EC1A 1HQ

Dear Sir / Madam:

Capitalized terms used herein, unless defined herein, have the meanings set forth in the Master Confirmation of OTC ASAP Minus (VWAP Pricing) between Counterparty and MLI, dated as of March 13, 2007.

The purpose of this Supplemental Confirmation is to confirm the terms and conditions of a Transaction under the Master Confirmation.

The terms of the Transaction to which the Supplemental Confirmation relates are as follows:

Trade Date:	March 13, 2007
Initial Share Price:	USD $116.14
Valuation Date:	*******, 2007
First Acceleration Date:	*******, 2007
Number of Shares:	4,000,000
Aggregate Adjustment Amount:	*******
Ordinary Dividend Amount:	USD $*******
Scheduled Dividend Dates:	*********************
Settlement Price Adjustment Amount:	******* basis points multiplied by *******
Valuation Period:	Notwithstanding the definition of Valuation Period in the Master Confirmation dated March 13, 2007, the following definition shall apply to this Transaction: “For each Transaction, each Scheduled Trading Day from and including the third Business Day after the Trade Date to and including the Valuation Date; provided, that with respect to each Suspension Event (if any) affecting such Scheduled Trading Days, MLI may, by

written notice to Counterparty (which notice shall not specify the reason for MLI’s election to suspend the Valuation Period), exclude the Scheduled Trading Day(s) on which such Suspension Event has occurred (such days, “Suspension Event Days”) and extend the last possible Valuation Date by the total number of such Suspension Event Days; provided, further, that notwithstanding anything to the contrary in the Equity Definitions, to the extent that any Scheduled Trading Days in the Valuation Period are Disrupted Days, the Calculation Agent may exclude such Disrupted Days and extend the last possible Valuation Date by the number of such Disrupted Days (in addition to any Suspension Event Days, without duplication).

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Supplemental Confirmation enclosed for that purpose and returning it to us.

Very truly yours,
MERRILL LYNCH INTERNATIONAL
By:	/s/ W. Morley
Name:	William Morley
Title:	Authorised Signatory
Confirmed as of the date first above written:
FRANKLIN RESOURCES, INC.
By:	/s/ Kenneth Lewis
Name:	Kenneth Lewis
Title:	S.V.P. / C.F.O.
Acknowledged and agreed as to matters relating to the Agent:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, solely in its capacity as Agent hereunder
By:	/s/ Angelina Lopes
Name:	Angelina Lopes
Title:

EXHIBIT B

GUARANTEE OF MERRILL LYNCH & CO., INC.

FOR VALUE RECEIVED, receipt of which is hereby acknowledged, MERRILL LYNCH & CO., INC., a corporation duly organized and existing under the laws of the State of Delaware (“ML & Co.”), hereby unconditionally guarantees to Franklin Resources, Inc. (the “Company”), the due and punctual payment of any and all amounts payable by Merrill Lynch International, a company organized under the laws of England and Wales (“MLI”), under the terms of the Master Confirmation of OTC ASAP Minus (VWAP Pricing) between the Company and MLI, dated as of March 13, 2007 (with the Supplemental Confirmations thereto, the “Agreement”), including, in case of default, interest on any amount due, when and as the same shall become due and payable, whether on the scheduled payment dates, at maturity, upon declaration of termination or otherwise, according to the terms thereof. In case of the failure of MLI punctually to make any such payment, ML & Co. hereby agrees to make such payment, or cause such payment to be made, promptly upon demand made by the Company to ML & Co.; provided, however that delay by the Company in giving such demand shall in no event affect ML & Co.’s obligations under this Guarantee. This Guarantee shall remain in full force and effect or shall be reinstated (as the case may be) if at any time any payment guaranteed hereunder, in whole or in part, is rescinded or must otherwise be returned by the Company upon the insolvency, bankruptcy or reorganization of MLI or otherwise, all as though such payment had not been made. This is a guarantee of payment in full, not collection.

ML & Co. hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Agreement; the absence of any action to enforce the same; any waiver or consent by the Company concerning any provisions thereof; the rendering of any judgment against MLI or any action to enforce the same; or any other circumstances that might otherwise constitute a legal or equitable discharge of a guarantor or a defense of a guarantor. ML & Co. covenants that this guarantee will not be discharged except by complete payment of the amounts payable under the Agreement. This Guarantee shall continue to be effective if MLI merges or consolidates with or into another entity, loses its separate legal identity or ceases to exist.

ML & Co. hereby waives diligence; presentment; protest; notice of protest, acceleration, and dishonor; filing of claims with a court in the event of insolvency or bankruptcy of MLI; all demands whatsoever, except as noted in the first paragraph hereof; and any right to require a proceeding first against MLI.

ML & Co. hereby certifies and warrants that this Guarantee constitutes the valid obligation of ML & Co. and complies with all applicable laws.

This Guarantee shall be governed by, and construed in accordance with, the laws of the State of New York.

This Guarantee may be terminated at any time by notice by ML & Co. to the Company given in accordance with the notice provisions of the Agreement, effective upon receipt of such notice by the Company or such later date as may be specified in such notice; provided, however, that this Guarantee shall continue in full force and effect with respect to any obligation of MLI under the Agreement entered into prior to the effectiveness of such notice of termination.

This Guarantee becomes effective concurrent with the effectiveness of the Agreement, according to its terms.

IN WITNESS WHEREOF, ML & Co. has caused this Guarantee to be executed in its corporate name by its duly authorized representative.

MERRILL LYNCH & CO., INC.
By:	/s/ Patricia Kreplewnick
Name:	Patricia Kreplewnick
Title:	Designated Signatory
Date:	March 13, 2007

COVER STATEMENT

CLIENT/COUNTERPARTY RELATIONSHIP

Dear Client/Counterparty:

Merrill Lynch is pleased to provide the attached statement of Generic Risks Associated with Over-the-Counter Derivative Transactions under this Cover Statement that concerns, among other things, the nature of our relationship with you in the context of such transactions. This statement was developed for our new and our ongoing client/counterparties in response to suggestions that OTC derivative dealers consider taking steps to ensure that market participants utilizing OTC derivatives understand their risk exposures and the nature of their relationships with dealers before they enter into OTC derivative transactions.

Merrill Lynch (“we”) are providing to you and your organization (“you”) the attached statement of Generic Risks Associated with Over-the-Counter Derivative Transactions in order to identify, in general terms, certain of the principal risks associated with individually negotiated over-the-counter (“OTC”) derivative transactions. The attached statement does not purport to identify the nature of the specific market or other risks associated with a particular transaction.

Before entering into an OTC derivative transaction, you should ensure that you fully understand the terms of the transaction, relevant risk factors, the nature and extent of your risk of loss and the nature of the contractual relationship into which you are entering. You should also carefully evaluate whether the transaction is appropriate for you in light of your experience, objectives, financial resources, and other relevant circumstances and whether you have the operational resources in place to monitor the associated risks and contractual obligations over the term of the transaction. If you are acting as a financial adviser or agent, you should evaluate these considerations in light of the circumstances applicable to your principal and the scope of your authority.

If you believe you need assistance in evaluating and understanding the terms or risks of a particular OTC derivative transaction, you should consult appropriate advisers before entering into the transaction.

Unless we have expressly agreed in writing to act as your adviser with respect to a particular OTC derivative transaction pursuant to terms and conditions specifying the nature and scope of our advisory relationship, we are acting in the capacity of an arm’s length contractual Counterparty to you in connection with the transaction and not as your financial adviser or fiduciary. Accordingly, unless we have so agreed to act as your adviser, you should not regard transaction proposals, suggestions or other written or oral communications from us as recommendations or advice or as expressing our view as to whether a particular transaction is appropriate for you or meets your financial objectives.

Finally, we and/or our affiliates may from time to time take proprietary positions and/or make a market in instruments identical or economically related to OTC derivative transactions entered into with you, or may have an investment banking or other commercial relationship with and access to information from the issuer(s) of securities, financial instruments, or other interests underlying OTC derivative transactions entered into with you. We may also undertake proprietary activities, including hedging transactions related to the initiation or termination of an OTC derivative transaction with you, that may adversely affect the market price, rate index or other market factor(s) underlying an OTC derivative transaction entered into with you and consequently the value of the transaction.

A. GENERIC RISKS ASSOCIATED WITH

OVER-THE-COUNTER DERIVATIVE TRANSACTIONS

OTC derivative transactions, like other financial transactions, involve a variety of significant risks. The specific risks presented by a particular OTC derivative transaction necessarily depend upon the terms of the transaction and your circumstances. In general, however, all OTC derivative transactions involve some combination of market risk, credit risk, funding risk and operational risk.

Market risk is the risk that the value of a transaction will be adversely affected by fluctuations in the level or volatility of or correlation or relationship between one or more market prices, rates or indices or other market factors or by illiquidity in the market for the relevant transaction or in a related market.

Credit risk is the risk that a Counterparty will fail to perform its obligations to you when due.

Funding risk is the risk that, as a result of mismatches or delays in the timing of cash flows due from or to your counterparties in OTC derivative transactions or related hedging, trading, collateral or other transactions, you or your Counterparty will not have adequate cash available to fund current obligations.

Operational risk is the risk of loss to you arising from inadequacies in or failures of your internal systems and controls for monitoring and quantifying the risks and contractual obligations associated with OTC derivative transactions, for recording and valuing OTC derivative and related transactions, or for detecting human error, systems failure or management failure.

There may be other significant risks that you should consider based on the terms of a specific transaction. Highly customized OTC derivative transactions in particular may increase liquidity risk and introduce other significant risk factors of a complex character. Highly leveraged transactions may experience substantial gains or losses in value as a result of relatively small changes in the value or level of an underlying or related market factor.

Because the price and other terms on which you may enter into or terminate an OTC derivative transaction are individually negotiated, these may not represent the best price or terms available to you from other sources.

In evaluating the risks and contractual obligations associated with a particular OTC derivative transaction, you should also consider that an OTC derivative transaction may be modified or terminated only by mutual consent of the original parties and subject to agreement on individually negotiated terms. Accordingly, it may not be possible for you to modify, terminate or offset your obligations or your exposure to the risks associated with a transaction prior to its scheduled termination date.

Similarly, while market makers and dealers generally quote prices or terms for entering into or terminating OTC derivative transactions and provide indicative or mid-market quotations with respect to outstanding OTC derivative transactions, they are generally not contractually obligated to do so. In addition, it may not be possible to obtain indicative or mid-market quotations for an OTC derivative transaction from a market maker or dealer that is not a Counterparty to the transaction. Consequently, it may also be difficult for you to establish an independent value for an outstanding OTC derivative transaction. You should not regard your Counterparty’s provision of a valuation or indicative price at your request as an offer to enter into or terminate the relevant transaction at that value or price, unless the value or price is identified by the Counterparty as firm or binding.

This brief statement does not purport to disclose all of the risks and other material considerations associated with OTC derivative transactions. You should not construe this generic disclosure statement as business, legal, tax or accounting advice or as modifying applicable law. You should consult your own business, legal, tax and accounting advisers with respect to proposed OTC derivative transactions and you should refrain from entering into any OTC derivative transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss.

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Gregory E. Johnson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Franklin Resources, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2007	/s/ GREGORY E. JOHNSON
	Gregory E. Johnson
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Kenneth A. Lewis, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Franklin Resources, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2007	/s/ KENNETH A. LEWIS
	Kenneth A. Lewis Senior Vice President, Chief Financial Officer and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002 (FURNISHED HEREWITH)

I, Gregory E. Johnson, President and Chief Executive Officer of Franklin Resources, Inc. (the “Company”), certify, as of the date hereof and solely for purposes of and pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1. The Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended March 31, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Dated: May 9, 2007	/s/ GREGORY E. JOHNSON
	Gregory E. Johnson President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002 (FURNISHED HEREWITH)

I, Kenneth A. Lewis, Senior Vice President, Chief Financial Officer and Treasurer of Franklin Resources, Inc. (the “Company”), certify, as of the date hereof and solely for purposes of and pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1. The Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended March 31, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Dated: May 9, 2007	/s/ KENNETH A. LEWIS
	Kenneth A. Lewis Senior Vice President, Chief Financial Officer and Treasurer