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 December 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: 238,277,402 shares of common stock, par value $0.10 per share, of Franklin Resources, Inc. as of January 31, 2008.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

FRANKLIN RESOURCES, INC.

Condensed Consolidated Statements of Income

Unaudited

	Three Months Ended December 31,
(in thousands, except per share data)	2007		2006
Operating Revenues
Investment management fees	$	1,020,315	$	831,890
Underwriting and distribution fees		573,796		509,773
Shareholder servicing fees		73,175		67,565
Consolidated sponsored investment products income, net		2,904		837
Other, net		15,401		17,750
Total operating revenues		1,685,591		1,427,815
Operating Expenses
Underwriting and distribution		552,590		478,051
Compensation and benefits		280,290		251,016
Information systems, technology and occupancy		79,617		75,063
Advertising and promotion		46,644		34,861
Amortization of deferred sales commissions		44,551		33,747
Other		46,170		47,007
Total operating expenses		1,049,862		919,745
Operating income		635,729		508,070
Other Income (Expenses)
Consolidated sponsored investment products (losses) gains, net		(977)		30,286
Investment and other income, net		80,773		71,109
Interest expense		(6,045)		(6,122)
Other income, net		73,751		95,273
Income before taxes on income		709,480		603,343
Taxes on income		191,164		176,543
Net Income	$	518,316	$	426,800
Earnings per Share
Basic	$	2.15	$	1.69
Diluted		2.12		1.67
Dividends per Share	$	0.20	$	0.15

See Notes to Condensed Consolidated Financial Statements.

2

FRANKLIN RESOURCES, INC.

Condensed Consolidated Balance Sheets

Unaudited

(in thousands)	December 31, 2007		September 30, 2007
Assets
Current Assets
Cash and cash equivalents	$	2,573,250	$	3,304,495
Receivables		781,626		865,128
Investment securities, trading		374,956		365,968
Investment securities, available-for-sale		500,883		539,051
Other investments		600,000		300,000
Deferred taxes and other		86,894		82,084
Total current assets		4,917,609		5,456,726
Banking/Finance Assets
Cash and cash equivalents		309,023		279,688
Loans held for sale		478,049		341,719
Loans receivable, net		270,963		240,520
Investment securities, available-for-sale		203,875		160,223
Other		18,511		26,028
Total banking/finance assets		1,280,421		1,048,178
Non-Current Assets
Investments, other		539,092		523,901
Deferred sales commissions		241,400		257,888
Property and equipment, net		561,006		559,483
Goodwill		1,456,915		1,456,411
Other intangible assets, net		599,584		601,833
Receivable from banking/finance group		50,640		10,978
Other		26,084		27,852
Total non-current assets		3,474,721		3,438,346
Total Assets	$	9,672,751	$	9,943,250

[Table continued on next page]

See Notes to Condensed Consolidated Financial Statements.

3

FRANKLIN RESOURCES, INC.

Condensed Consolidated Balance Sheets

Unaudited

[Table continued from previous page]

( in thousands, except share data)	December 31, 2007		September 30, 2007
Liabilities and Stockholders’ Equity
Current Liabilities
Compensation and benefits	$	170,766	$	322,956
Current maturities of long-term debt		420,000		420,000
Accounts payable and accrued expenses		206,406		272,248
Commissions		287,010		274,697
Income taxes		136,902		119,667
Other		27,908		26,075
Total current liabilities		1,248,992		1,435,643
Banking/Finance Liabilities
Deposits		516,336		442,011
Payable to parent		50,640		10,978
Variable funding notes		340,254		240,773
Other		48,973		58,243
Total banking/finance liabilities		956,203		752,005
Non-Current Liabilities
Long-term debt		151,624		162,125
Deferred taxes		186,871		214,511
Other		78,168		5,287
Total non-current liabilities		416,663		381,923
Total liabilities		2,621,858		2,569,571
Minority Interest		38,002		41,404
Commitments and Contingencies (Note 11)
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; 239,729,048 and 245,469,895 shares issued and outstanding, at December 31, 2007 and September 30, 2007		23,973		24,547
Capital in excess of par value		—		—
Retained earnings		6,767,556		7,049,417
Accumulated other comprehensive income		221,362		258,311
Total stockholders’ equity		7,012,891		7,332,275
Total Liabilities and Stockholders’ Equity	$	9,672,751	$	9,943,250

See Notes to Condensed Consolidated Financial Statements.

4

FRANKLIN RESOURCES, INC.

Condensed Consolidated Statements of Cash Flows

Unaudited

	Three Months Ended December 31,
(in thousands)	2007		2006
Net Income	$	518,316	$	426,800
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		52,284		52,539
Equity in net income of affiliated companies		(16,810)		(17,290)
Net gains on sale of assets		(14,105)		(8,055)
Stock-based compensation		16,299		14,362
Excess tax benefits from stock-based compensation arrangements		(26,600)		(33,000)
Changes in operating assets and liabilities:
Decrease (increase) in receivables, prepaid expenses and other		59,128		(28,966)
Originations of loans held for sale		(139,057)		(157,223)
Proceeds from securitization of loans held for sale		—		354,974
Increase in trading securities, net		(102,034)		(36,353)
Advances of deferred sales commissions		(31,058)		(30,097)
Increase in deferred income taxes and taxes payable		70,637		106,651
Increase in commissions payable		12,314		23,624
Decrease in other liabilities		(37,446)		(5,870)
Decrease in accrued compensation and benefits		(157,860)		(110,825)
Net cash provided by operating activities		204,008		551,271
Purchase of investments		(481,446)		(125,726)
Liquidation of investments		233,430		108,198
Purchase of banking/finance investments		(49,190)		(179)
Liquidation of banking/finance investments		7,542		33,778
(Increase) decrease in loans receivable		(30,890)		27,291
Additions of property and equipment, net		(14,547)		(17,589)
Dispositions of subsidiaries, net of cash acquired		—		(2,414)
Net cash (used in) provided by investing activities		(335,101)		23,359
Increase (decrease) in bank deposits		74,325		(17,663)
Exercise of common stock options		2,495		16,438
Dividends paid on common stock		(36,791)		(30,386)
Purchase of common stock		(780,508)		(73,715)
Excess tax benefits from stock-based compensation arrangements		26,600		33,000
Increase in debt		124,187		122,200
Payments on debt		(24,703)		(250,581)
Minority interest		51,571		18,991
Net cash used in financing activities		(562,824)		(181,716)
Effect of exchange rate changes on cash and cash equivalents		(7,993)		—
(Decrease) increase in cash and cash equivalents		(701,910)		392,914
Cash and cash equivalents, beginning of period		3,584,183		3,613,135
Cash and Cash Equivalents, End of Period	$	2,882,273	$	4,006,049

[Table continued on next page]

See Notes to Condensed Consolidated Financial Statements.

5

FRANKLIN RESOURCES, INC.

Condensed Consolidated Statements of Cash Flows

Unaudited

[Table continued from previous page]

	Three Months Ended December 31,
(in thousands)	2007		2006
Components of Cash and Cash Equivalents
Cash and cash equivalents, beginning of period:
Current assets	$	3,304,495	$	3,310,545
Banking/finance assets		279,688		302,590
Total	$	3,584,183	$	3,613,135
Cash and cash equivalents, end of period:
Current assets	$	2,573,250	$	3,683,267
Banking/finance assets		309,023		322,782
Total	$	2,882,273	$	4,006,049
Supplemental Disclosure of Non-Cash Information
Total assets related to the net deconsolidation of certain sponsored investment products	$	(111,114)	$	(3,298)
Total liabilities related to the net (deconsolidation) consolidation of certain sponsored investment products		(47,147)		10,139

See Notes to Condensed Consolidated Financial Statements.

6

FRANKLIN RESOURCES, INC.

Notes to Condensed Consolidated Financial Statements

December 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, 2007. Certain amounts for the comparative prior fiscal year periods have been reclassified to conform to the financial presentation for and at the period ended December 31, 2007.

Note 2 - New Accounting Standards

In December 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R changes the accounting for and reporting of business combinations including, among other things, expanding the definition of a business and a business combination; requiring all assets and liabilities of the acquired business, including goodwill, contingent assets and liabilities, and contingent consideration to be recorded at fair value on the acquisition date; requiring acquisition-related transaction and restructuring costs to be expensed, rather than accounted for as acquisition costs; and requiring reversals of valuation allowances related to acquired deferred tax assets and changes to acquired income tax uncertainties to be recognized in earnings. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier application of SFAS 141R is prohibited. We currently are evaluating the impact that the adoption of SFAS 141R will have on our Consolidated Financial Statements.

In December 2007, the FASB issued Statement of Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (SFAS 160”). SFAS 160 changes the accounting and reporting for noncontrolling interests (previously referred to as minority interests) such that noncontrolling interests will be reported as a component of equity; losses will be allocated to the noncontrolling interest; changes in ownership interests that do not result in a change in control will be accounted for as equity transactions and, upon a loss of control, any gain or loss on the interest sold will be recognized in earnings and any ownership retained will be remeasured at fair value. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier application of SFAS 160 is prohibited. SFAS 160 applies prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements which apply retrospectively for all periods presented. We currently are evaluating the impact that the adoption of SFAS 160 will have on our Consolidated Financial Statements.

In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) in EITF Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”). EITF 06-11 requires that the realized income tax benefit from dividends and dividend equivalents that are charged to retained earnings and paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recorded as an increase to capital in excess of par value. The Company currently accounts for the income tax benefit of dividends paid on nonvested restricted stock units and nonvested restricted stock awards as an increase to capital in excess of par value. EITF 06-11 applies prospectively to the income tax benefits on dividends declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. The adoption of EITF 06-11 is not expected to have a material impact on our Consolidated Financial Statements.

In June 2007, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance for determining whether the specialized accounting principles of the AICPA “Audit and Accounting Guide Investment Companies” (the “Guide”) should be applied by an entity and whether those specialized accounting principles should be retained by a parent company in consolidation or by an investor in the application of the equity method of accounting. SOP 07-1 is effective for fiscal years beginning on or after December 15, 2007, with early application encouraged. On February 6, 2008, the FASB agreed to indefinitely delay the

7

effective date of SOP 07-1 to address the implementation issues that have arisen and to possibly revise SOP 07-1. We currently are evaluating the impact that the adoption of SOP 07-1 will have on our Consolidated Financial Statements.

In May 2007, the FASB issued FASB Staff Position (“FSP”) No. FIN 46R-7, “Application of FASB Interpretation No. 46R to Investment Companies” (“FSP FIN 46R-7”). FSP FIN 46R-7 amends FIN 46R, to make permanent the temporary deferral of the application of FIN 46R to entities within the scope of the Guide under SOP 07-1. FSP FIN 46R-7 is effective upon adoption of SOP 07-1 for fiscal years beginning on or after December 15, 2007. On October 17, 2007, the FASB proposed to indefinitely delay the effective date of FSP FIN 46R-7 for entities that meet the definition of an investment company in SOP 07-1. We currently are evaluating the impact that the adoption of FSP FIN 46R-7 will have on our Consolidated Financial Statements.

In February 2007, 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 currently are evaluating the impact that the fair value election of SFAS 159 would have on 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. On February 6, 2008, the FASB agreed to partially defer the effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently occurring basis, until years beginning after November 15, 2008 and remove certain leasing transactions from the scope of SFAS 157. We currently are evaluating the impact that the adoption of SFAS 157 will have on our Consolidated Financial Statements.

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. Under FIN 48, a company must determine for each tax position whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. 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 beginning retained earnings. The adoption of FIN 48 on October 1, 2007 resulted in a reduction to beginning retained earnings of $20.8 million as described in Note 10 – Accounting for Uncertainty in Income Taxes.

Note 3 - - Comprehensive Income

The following table computes comprehensive income.

	Three Months Ended December 31,
(in thousands)	2007		2006
Net income	$	518,316	$	426,800
Net unrealized (losses) gains on investments, net of tax		(26,055)		32,349
Currency translation adjustments		(10,836)		19,403
Other		(58)		1,831
Comprehensive Income	$	481,367	$	480,383

8

Note 4 - Earnings per Share

Basic earnings per share is computed on the basis of the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. The components of basic and diluted earnings per share were as follows:

	Three Months Ended December 31,
(in thousands, except per share data)	2007		2006
Net income	$	518,316	$	426,800
Weighted-average shares outstanding – basic		241,585		252,400
Incremental shares from assumed conversions:
Common stock options and nonvested stock awards and stock unit awards		2,562		3,147
Weighted-Average Shares Outstanding – Diluted		244,147		255,547
Earnings per Share
Basic	$	2.15	$	1.69
Diluted		2.12		1.67

For the three months ended December 31, 2007 and 2006, approximately 7.8 thousand and 674.8 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.

Note 5 - Cash and Cash Equivalents

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

(in thousands)	December 31, 2007		September 30, 2007
Cash and due from banks	$	681,542	$	724,809
Federal funds sold and securities purchased under agreements to resell		178,401		87,879
Money market mutual funds, time deposits, securities of U.S. federal agencies, corporate debt securities and other		2,022,330		2,771,495
Total	$	2,882,273	$	3,584,183

Federal Reserve Board regulations require that certain of our banking subsidiaries maintain reserve balances on deposits with the Federal Reserve Banks. The required reserve balances were $9.1 million at December 31, 2007 and $4.6 million at September 30, 2007.

9

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” and FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46R”).

	Three Months Ended December 31, 2007
(in thousands)	Before Consolidation		Sponsored Investment Products		Consolidated
Operating Revenues
Investment management fees	$	1,023,028	$	(2,713)	$	1,020,315
Underwriting and distribution fees		574,243		(447)		573,796
Shareholder servicing fees		73,184		(9)		73,175
Consolidated sponsored investment products income, net		—		2,904		2,904
Other, net		15,401		—		15,401
Total operating revenues		1,685,856		(265)		1,685,591
Operating Expenses		1,049,862		—		1,049,862
Operating income		635,994		(265)		635,729
Other Income (Expenses)
Consolidated sponsored investment products losses, net		—		(977)		(977)
Investment and other income, net		88,802		(8,029)		80,773
Interest expense		(6,045)		—		(6,045)
Other income, net		82,757		(9,006)		73,751
Income before taxes on income		718,751		(9,271)		709,480
Taxes on income		193,802		(2,638)		191,164
Net Income	$	524,949	$	(6,633)	$	518,316

	December 31, 2007
(in thousands)	Before Consolidation		Sponsored Investment Products		Consolidated
Assets
Current assets	$	4,832,066	$	85,543	$	4,917,609
Banking/finance assets		1,280,421		—		1,280,421
Non-current assets		3,477,053		(2,332)		3,474,721
Total Assets	$	9,589,540	$	83,211	$	9,672,751
Liabilities and Stockholders’ Equity
Current liabilities	$	1,198,808	$	50,184	$	1,248,992
Banking/finance liabilities		956,203		—		956,203
Non-current liabilities		433,690		(17,027)		416,663
Total Liabilities		2,588,701		33,157		2,621,858
Minority interest		752		37,250		38,002
Total stockholders’ equity		7,000,087		12,804		7,012,891
Total Liabilities and Stockholders’ Equity	$	9,589,540	$	83,211	$	9,672,751

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

10

Note 7 - Securitization of Loans Held for Sale

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 December 31,
(in thousands)	2007		2006
Net sale proceeds	$	—	$	353,508
Less: net carrying amount of loans held for sale		—		351,013
Pre-Tax Gain	$	—	$	2,495

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 three months ended December 31, 2006 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).

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 December 31,
	2007	2006
Excess cash flow discount rate (annual rate)	—	12.0%
Cumulative life loss rate	—	4.0%
Pre-payment speed assumption (average monthly rate)	—	1.6%

We determined these assumptions using data from comparable market transactions, historical information, and management’s estimate.

The interest-only strips receivable is generally fully realizable 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 table 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)	December 31, 2007	September 30, 2007
Carrying amount/fair value of interest-only strips receivable	$    16,005	$    19,484
Excess cash flow discount rate (annual rate)	16.0%	14.0%
Impact on fair value of 10% adverse change	$      (282)	$      (281)
Impact on fair value of 20% adverse change	(554)	(552)
Cumulative life loss rate	3.7%	4.0%
Impact on fair value of 10% adverse change	$   (1,874)	$   (1,879)
Impact on fair value of 20% adverse change	(3,401)	(3,427)
Pre-payment speed (average monthly rate)	1.6%	1.6%
Impact on fair value of 10% adverse change	$   (1,900)	$   (1,715)
Impact on fair value of 20% adverse change	(3,393)	(3,069)

11

Actual future market conditions may differ materially. Accordingly, this sensitivity analysis should not be considered our projection of future events or losses. Changes in the fair value of interest-only receivable are recognized currently in earnings.

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. At December 31, 2007, the interest-rate swap had a notional value of $362.3 million and we recorded its fair value of $5.2 million as a part of our banking/finance liabilities on the Condensed Consolidated Balance Sheet. At September 30, 2007, the interest-rate swap had a notional value of $251.4 million and we recorded its fair value of $2.2 million as a part of our banking/finance assets on the Condensed Consolidated Balance Sheet. Changes in fair value of the interest-rate swap are recognized currently in earnings.

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 do not recognize 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”, as amended, because the benefits of servicing are just adequate to compensate us for our servicing responsibilities as our servicing fees are consistent with current market rates that would be charged to compensate a substitute servicer for providing these services.

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

	Three Months Ended December 31,
(in thousands)	2007		2006
Servicing fees received	$	3,376	$	4,081
Interest-only strips cash flows received		3,701		3,189
Purchase of loans from trusts		(20,490)		(10,577)

Amounts payable to the trustee related to loan principal and interest collected on behalf of the trusts of $21.5 million at December 31, 2007 and $35.3 million at September 30, 2007 are included in other banking/finance liabilities.

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

(in thousands)	December 31, 2007		September 30, 2007
Principal amount of loans	$	645,201	$	749,824
Principal amount of loans 30 days or more past due		21,187		22,841

Net charge-offs on the securitized loan portfolio were $6.4 million and $2.9 million for the three months ended December 31, 2007 and 2006.

Note 8 - Goodwill and Other Intangible Assets

The changes in the carrying value of goodwill and gross intangible assets were as follows:

(in thousands)	Goodwill		Amortized Intangible Assets		Non-amortized Intangible Assets
Balance at October 1, 2007	$	1,456,411	$	201,505	$	520,449
Foreign currency movement		504		9		436
Balance at December 31, 2007	$	1,456,915	$	201,514	$	520,885

Certain of our goodwill and intangible assets are denominated in currencies other than the U.S. dollar; therefore, their gross and net carrying amounts are subject to foreign currency movements.

12

Intangible assets as of December 31, 2007 and September 30, 2007 were as follows:

	December 31, 2007
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets
Customer base	$	166,477	$	(94,074)	$	72,403
Other		35,037		(28,741)		6,296
		201,514		(122,815)		78,699
Non-amortized intangible assets
Investment management contracts		520,885		—		520,885
Total	$	722,399	$	(122,815)	$	599,584
	September 30, 2007
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets
Customer base	$	166,471	$	(91,866)	$	74,605
Other		35,034		(28,255)		6,779
		201,505		(120,121)		81,384
Non-amortized intangible assets
Investment management contracts		520,449		—		520,449
Total	$	721,954	$	(120,121)	$	601,833

We completed our most recent annual impairment test of goodwill and indefinite-lived intangible assets during the quarter ended December 31, 2007, under the guidance of FASB Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, and we determined that there was no impairment in the value of these assets as of October 1, 2007. No impairment loss in the value of goodwill and indefinite-lived intangible assets was recognized during fiscal year 2007. No impairment loss in the value of intangible assets subject to amortization was recognized during the three months ended December 31, 2007 and 2006.

Amortization expense related to definite-lived intangible assets was $2.7 million for the three months ended December 31, 2007 and 2006. The estimated amortization expense related to definite-lived intangible assets as of December 31, 2007 was as follows:

(in thousands)

for the fiscal years ending September 30,
2008 (remaining nine months)	$	7,899
2009		10,448
2010		10,448
2011		10,426
2012		8,962
Thereafter		30,516
Total	$	78,699

13

Note 9 - Debt

Outstanding debt consisted of the following:

(in thousands)	December 31, 2007		September 30, 2007
Current
Medium-term notes	$	420,000	$	420,000
Banking/Finance
Variable funding notes		340,254		240,773
Non-Current
Other		151,624		162,125
Total Debt	$	911,878	$	822,898

The current portion of long-term debt consists 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.

The banking/finance operating segment finances its automobile lending business primarily through the issuance of variable funding notes (the “variable funding notes”) under one-year revolving variable funding note warehouse credit facilities. A $250.0 million facility, originally entered into in March 2005 and subsequently extended for additional one-year terms in March 2006 and March 2007, expires in March 2008. In November 2007, we also entered into a $100.0 million facility which expires in November 2008. The variable funding notes issued under these facilities 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 payment provider commitments in an amount not to exceed 4.66% of the pool balances. 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 renew or replace the variable funding warehouse credit facilities when they expire.

Other long-term debt primarily relates to deferred commission liabilities recognized in relation to deferred commission assets (“DCA”) generated 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 the Company. Due to our significant interest in LAFL, we continue to carry on our balance sheet the DCA generated in the United States and originally sold to LFL by Franklin/Templeton 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 December 31, 2007, we had $420.0 million in revolving credit available under a Five Year Credit Agreement with certain banks and financial institutions expiring on June 10, 2010 and $500.0 million of short-term commercial paper available for issuance under a $500.0 million private placement. In addition, at December 31, 2007, our banking/finance segment had $350.0 million available in uncommitted short-term bank lines under the Federal Reserve Funds system and an aggregate amount of $178.0 million available in secured Federal Reserve Bank short-term discount window and Federal Home Loan Bank short-term borrowing capacity.

Note 10 – Accounting for Uncertainty in Income Taxes

On October 1, 2007, we adopted the provisions of FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements for a tax position taken or expected to be taken in a tax return. FIN 48 requires that the tax effects of a position be recognized only if it is more-likely-than-not to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. The difference between the tax benefit recognized in the financial statements for a tax position in accordance with FIN 48 and the tax benefit claimed in the income tax return is referred to as an unrecognized tax benefit.

14

The adoption of FIN 48 resulted in a net decrease to beginning retained earnings of $20.8 million, which was reflected as a cumulative effect of a change in accounting principle, with a corresponding $36.2 million increase to the liability for unrecognized tax benefits, a $3.8 million increase to accrued expenses for interest and penalties, and a $19.2 million increase to deferred tax assets. The increase in the liability for unrecognized tax benefits primarily reflects accruals for U.S. state and local income taxes and foreign income taxes. The increase in deferred tax assets reflects the corresponding U.S. federal tax benefit resulting from the increase in the liability for unrecognized tax benefits.

At October 1, 2007, the total gross amount of unrecognized tax benefits was approximately $72.9 million. If recognized, substantially all of this amount, net of any deferred tax benefits, would favorably affect our effective income tax rate in future periods. At December 31, 2007, the total gross amount of unrecognized tax benefits was approximately $74.7 million. The Company historically classified the accrual for unrecognized tax benefits in current income taxes payable. As a result of the adoption of FIN 48, unrecognized tax benefits not expected to be paid in the next twelve months were reclassified to other non-current liabilities.

It is the Company’s policy to recognize the accrual of interest on uncertain tax positions in interest expense and the accrual of penalties in other operating expenses. Prior to the adoption of FIN 48, our policy was to recognize interest expense as a component of the income tax provision. Accrued interest at October 1, 2007 and December 31, 2007 was approximately $6.5 million and $8.2 million. Accrued penalties at October 1, 2007 and December 31, 2007 were insignificant.

The Company files a consolidated U.S. federal income tax return, multiple U.S. state and local income tax returns, and income tax returns in multiple foreign jurisdictions. The Company is subject to examination by the taxing authorities in these jurisdictions. The Company’s major tax jurisdictions and the tax years for which the statue of limitations have not expired are as follows: India 1995 to 2007; Hong Kong 2001 to 2007; Singapore 2002 to 2007; Canada and the State of California 2003 to 2007; U.S federal, the City of New York and the State of Florida 2004 to 2007; the State of New York and the United Kingdom 2006 to 2007.

The Company has on-going examinations in various stages of completion in Canada and India. Examination outcomes and the timing of settlements are subject to significant uncertainty. Such settlements will involve some or all of the following: the payment of additional taxes, the adjustment of deferred taxes and/or the recognition of unrecognized tax benefits. The Company has recognized a tax benefit only for those positions that meet the more-likely-than-not recognition threshold. It is reasonably possible that the total unrecognized tax benefit as of December 31, 2007 could decrease by an estimated $7.4 million within the next twelve months as a result of expiration of statues of limitations in the U.S. federal and certain U.S. state and local and foreign tax jurisdictions, and potential settlements with foreign taxing authorities.

The unrecognized tax benefits described above will be included in the Company’s Annual Report on Form 10-K contractual obligations table to the extent the Company is able to make reliable estimates of the timing of cash settlements with the respective taxing authorities. If not, the total amount of unrecognized tax benefits will be disclosed in a footnote to the contractual obligations table. At this time, the Company can not make a reliable estimate as to the timing of cash settlements beyond the next twelve months. The amount of unrecognized tax benefits and related interest and penalties that are expected to be paid in the next twelve months are not material.

Note 11 - 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 December 31, 2007, the maximum potential amount of future payments related to these obligations was $44.2 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 December 31, 2007 was not material.

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 various United States federal courts, alleging violations of federal securities and state

15

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 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.

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 market-timing lawsuits in Canada that are styled as class actions. 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

16

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. On July 25, 2007, plaintiffs in the Fischer lawsuit served FTIC with a motion for class certification.

As previously reported, the Company and certain of its subsidiaries have been named in two lawsuits alleging violations of federal securities laws relating to marketing support payments and payment of allegedly excessive commissions. The lawsuits are styled as class actions and seek, among other relief, compensatory damages and attorneys’ fees and costs. They are: 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.

On February 14, 2007 and March 16, 2007, respectively, the United States District Court for the Northern District of California ordered the transfer of these lawsuits 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). Defendants filed motions to dismiss the lawsuits on September 25, 2007. On November 27, 2007, the New Jersey District Court granted defendants’ motion to dismiss the Alexander lawsuit. Defendants’ motion to dismiss the Ulferts lawsuit remains under submission with the court.

Management strongly believes that the claims made in each of the unresolved lawsuits identified above are without merit and intends to defend against them vigorously. The Company cannot predict with certainty, however, the eventual outcome of those 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. In management’s opinion, an adequate accrual has been made as of December 31, 2007 to provide for any probable losses that may arise from these matters for which we could reasonably estimate an amount.

Other Commitments and Contingencies

We have reviewed our interest in LAFL and LFL for consolidation purposes under FIN 46R. 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 December 31, 2007, total assets of LAFL and LFL were approximately $302.6 million and $13.9 million and our exposure to loss related to LAFL and LFL was approximately $149.4 million and $1.2 million. During the three months ended December 31, 2007, we recognized total pre-tax losses of $0.9 million for our share of LAFL’s and LFL’s net losses over this period. Due to our significant interest in LAFL, we continue to carry on our balance sheet the DCA generated in the United States until these assets are amortized or sold by LAFL. Neither we nor our distribution subsidiaries retain any direct ownership interest in the DCA, and therefore, the DCA are not available to satisfy claims of our creditors or those of our distribution subsidiaries.

At December 31, 2007, the total assets in sponsored investment products in which we held a significant interest under FIN 46R were approximately $1,424.6 million and our exposure to loss as a result of our interest in these products was $214.6 million. This amount represents our maximum exposure to loss and does not reflect our estimate of the actual losses that could result from adverse changes in the net asset values of these sponsored investment products.

At December 31, 2007, our banking/finance operating segment had commitments to extend credit in an aggregate principal amount of $230.3 million, primarily under credit card lines.

The Company in its role as agent or trustee facilitates the settlement of investor share purchase, redemption, and other transactions with affiliated mutual funds. The Company is appointed by the affiliated mutual funds as agent or trustee to manage, on behalf of the affiliated mutual funds, bank deposit accounts that contain only (i) cash remitted by investors to the affiliated mutual funds for the direct purchase of fund share, or (ii) cash remitted by the affiliated mutual funds for direct delivery to the investors for either the proceeds of funds shares liquidated at the investors’ direction, or dividends and capital gains earned on fund shares. As of December 31, 2007 and September 30, 2007, we held cash of approximately $126.7 million and $170.2 million off-balance sheet in agency or trust for investors and the affiliated mutual funds.

At December 31, 2007, there were no changes in other commitments and contingencies that would have a material effect on commitments and contingencies reported in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007.

17

Note 12 - Stock-Based Compensation

We sponsor the Amended and Restated Annual Incentive Plan (the “AIP”) and the 2002 Universal Stock Incentive Plan, as amended and restated (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 December 31, 2007, approximately 5.0 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.

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, 2007	3,754	$	37.92	4.5	$	336,241
Granted	—		—	—
Exercised	(62)	$	40.16	4.2
Cancelled	—		—	—
Forfeited/expired	—		—	—
Outstanding and Exercisable at December 31, 2007	3,692	$	37.89	4.3	$	282,538

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. At September 30, 2007, all options were vested and all related compensation cost was recognized. The intrinsic value of stock options exercised during the three months ended December 31, 2007 and 2006 was $4.6 million and $28.2 million.

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 $135.4 million at December 31, 2007. This cost is expected to be recognized over a remaining weighted-average vesting period of 2.3 years.

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, 2007	727	$	105.09
Granted	809	$	121.59
Vested	(8)	$	97.54
Forfeited/cancelled	(27)	$	110.81
Nonvested Balance at December 31, 2007	1,501	$	113.92

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 December 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 28.5 thousand and had a weighted-average grant-date fair value of $118.49 per share.

18

Employee Stock Investment Plan

The Franklin Resources, Inc. 1998 Employee Stock Investment Plan, as amended and restated (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. No shares were issued under the ESIP during the three months ended December 31, 2007. At December 31, 2007, 4.0 million shares were reserved for future issuance under this plan.

All Stock-Based Plan Arrangements

Total stock-based compensation costs of $16.3 million and $14.4 million were recognized in the Condensed Consolidated Statements of Income for the three months ended December 31, 2007 and 2006. The income tax benefits from stock-based arrangements totaled $31.9 million and $39.5 million for the three months ended December 31, 2007 and 2006. Stock option exercise income tax benefits for the three months ended December 31, 2007 and 2006 was $16.6 million and $30.0 million. Cash received from stock option exercises for the three months ended December 31, 2007 and 2006 was $2.5 million and $16.4 million. 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 using a net stock-issuance method.

Note 13 - Common Stock Repurchases

During the three months ended December 31, 2007, we repurchased 6.5 million shares of our common stock at a cost of $780.5 million. The common stock repurchases made as of December 31, 2007 reduced our capital in excess of par value to nil and the excess amount was recognized as a reduction to retained earnings. At December 31, 2007, approximately 2.8 million shares of our common stock remained available for repurchase under our stock repurchase program. During the three months ended December 31, 2006, we repurchased 0.7 million shares of our common stock at a cost of $73.7 million. Our stock repurchase program is not subject to an expiration date.

Note 14 - Segment Information

We base our operating segment selection process primarily on services offered. 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 our 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 and consumer lending services and private banking services to high net-worth clients. Our consumer lending activities include automobile lending services 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 December 31,
(in thousands)	2007		2006
Operating Revenues
Investment management and related services	$	1,672,718	$	1,412,664
Banking/finance		12,873		15,151
Total	$	1,685,591	$	1,427,815
Income Before Taxes on Income
Investment management and related services	$	704,657	$	595,338
Banking/finance		4,823		8,005
Total	$	709,480	$	603,343

19

Operating segment assets were as follows:

(in thousands)	December 31, 2007		September 30, 2007
Investment management and related services	$	8,392,330	$	8,895,072
Banking/finance		1,280,421		1,048,178
Total	$	9,672,751	$	9,943,250

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.

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

	Three Months Ended December 31,
(in thousands)	2007		2006
Interest and fees on loans	$	15,653	$	5,359
Interest and dividends on investment securities		5,436		5,272
Total interest income		21,089		10,631
Interest on deposits		(3,099)		(3,720)
Interest on short-term debt		(7,108)		(1,086)
Interest expense – inter-segment		(419)		(139)
Total interest expense		(10,626)		(4,945)
Net interest income		10,463		5,686
Other income		5,016		10,643
Provision for loan losses		(2,606)		(1,178)
Total Operating Revenues	$	12,873	$	15,151

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 15 - 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 December 31, 2007 and September 30, 2007, we exceeded the capital adequacy requirements applicable to us as listed below.

(dollar amounts in thousands)	December 31, 2007		September 30, 2007		Capital Adequacy Minimum
Tier 1 capital	$	4,915,046	$	5,206,495	N/A
Total risk-based capital		4,918,332		5,209,267	N/A
Tier 1 leverage ratio		65%		68%	4%
Tier 1 risk-based capital ratio		91%		91%	4%
Total risk-based capital ratio		91%		91%	8%

20

Note 16 – Subsequent Event

On January 24, 2008, the Company’s Board of Directors authorized the Company to purchase, from time to time, up to an aggregate of 10.0 million shares of its common stock in either open market or off-market transactions. The size and timing of these purchases will depend on price, market and business conditions, and other factors. The new board authorization is in addition to the prior authorization. The company repurchased an aggregate of 1.4 million shares of its common stock for a total cost of $156.5 million during the period January 1, 2008 to February 5, 2008, leaving 11.4 million shares remaining available for repurchase at February 5, 2008. Shares repurchased under the program are retired.

21

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 the Company and its direct and indirect subsidiaries.

Forward-Looking Statements

In this section, we discuss and analyze the results of operations and financial condition of the Company and its subsidiaries. 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 SEC, each of which describes certain 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.

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2007 filed with the SEC, and the condensed consolidated financial statements and notes thereto included elsewhere in 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 our 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. As noted in the “Risk Factors” section set forth below, the amount or mix of our assets under management are subject to significant fluctuations and could negatively impact our revenues and net income. 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. Our banking/finance group offers selected private banking services to high net-worth clients, and retail banking, consumer lending and trust services. Our consumer lending activities include automobile 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.

22

In the three months ended December 31, 2007, as compared to the same period in the prior fiscal year, our investment management and related services operating segment experienced record levels of assets under management. In addition to market appreciation during the period from December 31, 2006 to December 31, 2007, which reflected, among other things, the overall positive performance of many equity markets globally despite market uncertainties, this growth resulted from excess sales over redemptions. In part, we attribute the continued positive net flows 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 months ended December 31, 2007, as compared to the three months ended December 31, 2006.

We expect to continue focusing on our core strategies of expanding our assets under management and related operations internationally, 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 December 31,				Percent Change
(dollar amounts in millions, except per share data)	2007		2006
Net Income	$	518.3	$	426.8	21%
Earnings Per Common Share
Basic	$	2.15	$	1.69	27%
Diluted		2.12		1.67	27%
Operating Margin 1		38%		36%

¹ Defined as operating income divided by total operating revenues.

Net income increased 21% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year. This increase was primarily due to increased fees for providing investment management and fund administration services (“investment management fees”) reflecting a 22% increase in our simple monthly average assets under management, partially offset by a 12% increase in compensation and benefit expenses and a 23% decrease in other income, net.

Diluted earnings per share increased 27% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year. This increase was attributable to the increase in net income and the decrease in diluted weighted-average common stock outstanding primarily due to the repurchases of shares of our common stock.

23

ASSETS UNDER MANAGEMENT

(in billions)	December 31, 2007		December 31, 2006		Percent Change
Equity
Global/international	$	286.1	$	240.6	19%
Domestic (U.S.)		95.8		91.0	5%
Total equity		381.9		331.6	15%
Hybrid		116.4		98.7	18%
Fixed-Income
Tax-free		59.3		56.6	5%
Taxable
Global/international		47.2		27.3	73%
Domestic (U.S.)		31.5		32.4	(3)%
Total fixed-income		138.0		116.3	19%
Money Market		7.4		6.3	17%
Total	$	643.7	$	552.9	16%
Simple Monthly Average for the Three-Month Period2	$	651.5	$	533.1	22%

² Investment management fees from approximately 57% of our assets under management at December 31, 2007 were calculated using daily average assets under management.

Our assets under management at December 31, 2007 were $643.7 billion, 16% higher than they were at December 31, 2006. This increase was primarily due to market appreciation of $55.5 billion and excess sales over redemptions of $41.5 billion during the twelve-month period ended December 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 than the year over year change in ending assets under management, increased by 22% during the three months ended December 31, 2007, as compared to the three months ended December 31, 2006.

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

	Three Months Ended December 31,
	2007	2006
Equity	60%	59%
Hybrid	18%	18%
Fixed-income	21%	22%
Money market	1%	1%
Total	100%	100%

For the three months ended December 31, 2007, our effective investment management fee rate (investment management fees divided by simple monthly average assets under management) increased to 0.626% from 0.624% for the same period in the prior fiscal year. The change in the effective management fee rate was primarily due to the favorable change in the mix of assets under management, resulting from greater appreciation of equity products, as compared to fixed-income products, from December 31, 2006 to December 31, 2007. Generally, investment management fees earned on equity products are higher than fees earned on fixed-income products.

24

Assets under management by sales region were as follows:

(dollar amounts in billions)	December 31, 2007		Percent of Total	December 31, 2006		Percent of Total
United States	$	462.2	72%	$	413.4	75%
Europe		77.8	12%		60.1	11%
Asia/Pacific		55.9	9%		39.2	7%
Canada		47.8	7%		40.2	7%
Total	$	643.7	100%	$	552.9	100%

As shown in the table, approximately 72% of our assets under management at December 31, 2007 originated from our U.S. sales region. In addition, approximately 61% of our operating revenues originated from our U.S. operations in the three months ended December 31, 2007. Due to the global nature of our business operations, investment management and related services may be performed in locations unrelated to the sales region.

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

(dollar amounts in billions)	Three Months Ended December 31,				Percent Change
	2007		2006
Beginning assets under management	$	645.9	$	511.3	26%
Sales		50.6		37.6	35%
Reinvested distributions		19.5		12.9	51%
Redemptions		(45.7)		(27.6)	66%
Distributions		(23.1)		(15.6)	48%
Dispositions		—		(2.0)	(100)%
(Depreciation) appreciation		(3.5)		36.3	N/A
Ending Assets Under Management	$	643.7	$	552.9	16%

Excess sales over redemptions were $4.9 billion in the three months ended December 31, 2007, as compared to $10.0 billion for the same period in the prior fiscal year. Our products experienced $3.5 billion in depreciation for the three months ended December 31, 2007, related primarily to our equity products, as compared to $36.3 billion in appreciation for the same period in the prior fiscal year, also related primarily to our equity products. Dispositions for the three months ended December 31, 2006 included the divestiture of assets under management of a former subsidiary at October 1, 2006.

OPERATING REVENUES

The table below presents the percentage change in each revenue category.

(dollar amounts in millions)	Three Months Ended December 31,				Percent Change
	2007		2006
Investment management fees	$	1,020.3	$	831.9	23%
Underwriting and distribution fees		573.8		509.8	13%
Shareholder servicing fees		73.2		67.6	8%
Consolidated sponsored investment products income, net		2.9		0.8	263%
Other, net		15.4		17.7	(13)%
Total Operating Income	$	1,685.6	$	1,427.8	18%

Investment Management Fees

Investment management fees accounted for 61% of our operating revenues for the three months ended December 31, 2007, as compared to 58% for the same period in the prior fiscal year. Investment management fees 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.

25

Investment management fees increased 23% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year, consistent with a 22% increase in simple monthly average assets under management and an increase in our effective investment management fee rate resulting from a shift in simple monthly average mix of assets from fixed-income products toward equity products, which generally carry higher management fees than fixed-income products.

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 non-U.S. 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 13% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year. Underwriting fees decreased 4% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year, primarily due to a decrease in commissionable sales products and a simultaneous increase in product sales that generate lower underwriting fees. Distribution fees increased 24% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year, consistent with a 22% increase in simple monthly average assets under management over the same period, and an increase in equity products as compared to fixed-income products in the simple monthly average mix of assets under management. 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, which include 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 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.

Shareholder servicing fees increased 8% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year, consistent with a 7% increase in simple monthly average billable shareholder accounts and the favorable effects of currency exchange rates from our non-U.S. operations.

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 FASB Statement of Financial Accounting Standard No. 94, “Consolidation of All Majority-Owned Subsidiaries” and FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46R”).

Consolidated sponsored investment products income, net increased 263% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year, reflecting investment performance and net assets balances of the specific sponsored investment products that we consolidate.

26

Other, Net

Other, net primarily consists of revenues from the 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 loan losses.

Other, net decreased 13% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year primarily due to securitization gains recognized in the three months ended December 31, 2006, an increase in unrealized losses on swap contracts and interest expenses relating to our consumer lending business, partially offset by an increase in interest income from automobile loans receivable.

OPERATING EXPENSES

The table below presents the percentage change in each expense category.

	Three Months Ended December 31,				Percent       Change
(dollar amounts in millions)	2007		2006
Underwriting and distribution	$	552.6	$	478.0	16%
Compensation and benefits		280.3		251.0	12%
Information systems, technology and occupancy		79.6		75.1	6%
Advertising and promotion		46.6		34.9	34%
Amortization of deferred sales commissions		44.6		33.7	32%
Other		46.2		47.0	(2)%
Total Operating Expenses	$	1,049.9	$	919.7	14%

Underwriting and Distribution

Underwriting and distribution expenses include 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 expenses increased 16% for the three months ended December 31, 2007 over the same period in the prior fiscal year consistent with similar trends in underwriting and distribution revenues.

Compensation and Benefits

Compensation and benefit expenses increased 12% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year primarily due to an increase in bonus expense, including bonus expense under the Company’s AIP, pursuant to which bonus awards have been made, based, in part, on our performance. The increase also reflected our annual merit salary adjustments that were effective December 1, 2007 and higher staffing levels.

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 benefit expenses going forward. However, in order to attract and retain talented individuals, our level of compensation and benefit expenses may increase more quickly or decrease more slowly than our revenue. We employed approximately 8,900 people at December 31, 2007, as compared to approximately 8,200 at December 31, 2006.

Information Systems, Technology and Occupancy

Information systems, technology and occupancy costs increased 6% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year primarily due to higher occupancy costs related to our existing offices worldwide as well as global expansion and an increase in technology supplies costs. These increases were partially offset by a decrease in external data services costs.

27

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

	Three Months Ended December 31,
(in millions)	2007		2006
Net carrying amount at beginning of period	$	61.6	$	44.9
Additions during period, net of disposals and other adjustments		8.4		3.5
Amortization during period		(6.6)		(5.7)
Net Carrying Amount at End of Period	$	63.4	$	42.7

Advertising and Promotion

Advertising and promotion expense increased 34% for the three months ended December 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 marketing and promotion efforts globally.

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.

The U.S. funds that had offered Class B shares and carried a deferred sales charge arrangement 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 B shares of different funds and they 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 transfers to or other arrangements with Lightning Finance Company Limited (“LFL”), a company registered in Ireland 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 the Company. As of December 2005, our DCA have been financed generally by an independent third party.

Under the U.S. arrangements, the funds contract with our U.S. distributor, which in turn contracted with LFL. As a result, we maintain a significant interest in both LFL and LAFL and continue to carry the DCA on our Consolidated Balance Sheets until these assets are amortized or until sold by LAFL. Neither we nor our distribution subsidiaries retain any direct ownership interest in the DCA and, therefore, the 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 32% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year reflecting an increase in the related DCA. The increase was consistent with increases in product sales that carry deferred commission charges primarily related to the U.S. and Canadian funds.

28

Impairment of Intangible Assets

During the quarter ended December 31, 2007, we completed our most recent annual impairment test 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, 2007. No impairment loss in the value of goodwill and indefinite-lived intangible assets was recognized during fiscal year 2007. No impairment loss in the fair value of intangible assets subject to amortization was recognized during the three months ended December 31, 2007 and 2006.

Other Operating Expenses

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

Other operating expenses decreased 2% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year primarily due to a reduction of withholding tax settlement costs and a decrease in litigation costs, partially offset by an increase in business travel expenses and fund administration services fees payable to external parties.

Other Income (Expenses)

	Three Months Ended December 31,
(in millions)	2007		2006
Consolidated sponsored investment products (losses) gains, net	$	(1.0)	$	30.3
Investment and other income, net
Dividend income		17.7		18.1
Interest income		31.4		33.4
Realized gains on sale of available-for-sale securities and other investments, net		18.9		9.0
Equity in net income of affiliates		16.8		17.3
Other, net		(4.0)		(6.7)
Total		80.8		71.1
Interest expense		(6.0)		(6.1)
Other income, net	$	73.8	$	95.3

Other income (expenses) includes net realized and unrealized investment gains (losses) on 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) decreased 23% for the three months ended December 31, 2007, as compared to the same period in the prior fiscal year primarily due to net losses recognized by our consolidated sponsored investment products during the current reporting period and net gains in the same period in the prior fiscal year, partially offset by higher net realized gains on sale of investments.

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 26.94% for the three months ended December 31, 2007, as compared to 29.26% for the comparative period in the prior fiscal year. The decrease was primarily due to the mix of pre-tax income, partially offset by the expiration of tax holiday in a foreign jurisdiction. 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.

29

LIQUIDITY AND CAPITAL RESOURCES

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

(in millions)	December 31, 2007		September 30, 2007
Balance Sheet Data
Assets
Liquid assets	$	5,343.6	$	5,814.6
Cash and cash equivalents		2,882.3		3,584.2
Liabilities
Debt
Medium-term notes	$	420.0	$	420.0
Variable funding notes		340.3		240.8
Other long-term debt		151.6		162.1
Total Debt	$	911.9	$	822.9
	Three Months Ended December 31,
(in millions)	2007		2006
Cash Flow Data
Operating cash flows	$	204.0	$	551.3
Investing cash flows		(335.1)		23.4
Financing cash flows		(562.8)		(181.7)

Liquidity

Liquid assets consist of cash and cash equivalents, current receivables, and current investments (trading, available-for-sale and other). Cash and cash equivalents include cash on hand, 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 at December 31, 2007 decreased from September 30, 2007 primarily due to net cash usage in financing and investing activities, partially offset by an increase in operating cash flows. The percentage of cash and cash equivalents held by our U.S. and non-U.S. operations were approximately 57% and 43%, respectively, at both December 31, 2007 and September 30, 2007.

The increase in total debt outstanding from September 30, 2007 relates primarily to an additional one-year revolving $100.0 million variable funding note warehouse credit facility entered into in November 2007.

We experienced lower operating cash inflows in the three months ended December 31, 2007, as compared to the same period in the prior fiscal year primarily due to proceeds received from the securitization of loans during the three months ended December 31, 2006, partly offset by higher net income in the current reporting period. We experienced investing cash outflows for the three months ended December 31, 2007, as compared to investing cash inflows for the same period in the prior fiscal year, mainly due to an increase in purchase of investments. The purchase of investments primarily related to time deposits with maturities of greater than three months but less than one year. Net cash used in financing activities increased in the three months ended December 31, 2007, as compared to the same period in the prior fiscal year, primarily due to increased repurchases of shares of our common stock using cash on hand, partially offset by an increase in variable funding notes.

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.

At December 31, 2007, we had $420.0 million in revolving credit available under a Five Year Credit Agreement with certain banks and financial institutions expiring on June 10, 2010 and $500.0 million of short-term commercial paper available for issuance under a $500.0 million private placement. In addition, at December 31, 2007, our banking/finance segment had $350.0 million available in uncommitted short-term bank lines under the Federal Reserve Funds system and an

30

aggregate amount of $178.0 million available in secured Federal Reserve Bank short-term 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.

The banking/finance operating segment finances its automobile lending business primarily through issuance of variable funding notes (the “variable funding notes”) under one-year revolving variable funding note warehouse credit facilities. A $250.0 million facility, originally entered into in March 2005 and subsequently extended for additional one-year terms in March 2006 and March 2007, expires in March 2008. In November 2007, we also entered into a $100.0 million facility which expires in November 2008. The variable funding notes issued under these facilities 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 payment provider commitments in an amount not to exceed 4.66% of the pool balances. 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 currently expect to renew or replace the variable funding warehouse credit facilities when they expire. Our ability to access the securitization and capital markets will directly affect our plans to finance the automobile loan portfolio in the future.

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.

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 December 31, 2007 was $75.0 million, of which approximately $58.0 million had been incurred as of this date. We inaugurated the opening of the campus in January 2007 and expect to complete the construction of an additional building in fiscal year 2008.

At December 31, 2007, debt included five-year senior notes due April 15, 2008 totaling $420.0 million (the “medium-term notes”), classified as current maturities of long-term debt in our Condensed Consolidated Balance Sheet. We currently expect to repay the medium-term notes at the scheduled maturity date.

On December 14, 2007, our Board of Directors declared a regular quarterly cash dividend of $0.20 per share payable on January 11, 2008 to stockholders of record on December 28, 2007.

We maintain a stock repurchase program to manage our equity capital with the objective of maximizing shareholder value. Our stock repurchase program is affected through regular open-market purchases and private transactions in accordance with applicable laws and regulations. During the three months ended December 31, 2007, we repurchased 6.5 million shares of our common stock at a cost of $780.5 million using available cash on hand. The common stock repurchases made as of December 31, 2007 reduced our capital in excess of par value to nil and the excess amount was recognized as a reduction to retained earnings. At December 31, 2007, approximately 2.8 million shares of our common stock remained available for repurchase under our stock repurchase program. In January 2008, our Board of Directors authorized the Company to purchase, from time to time, up to an aggregate of 10.0 million shares of its common stock in addition to any remaining shares then available pursuant to the prior existing authorization of our Board of Directors. Our stock repurchase program is not subject to an expiration date.

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, 2007. As of December 31, 2007, there had been no material changes outside the ordinary course in our contractual obligations from September 30, 2007.

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 note holders up to certain levels as specified in the related agreements. As of December 31, 2007, the maximum potential amount of future payments related to these

31

obligations was $44.2 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 December 31, 2007 were not significant.

At December 31, 2007, the banking/finance operating segment had commitments to extend credit in an aggregate principal amount of $230.3 million, primarily under its credit card lines.

OFF-BALANCE SHEET ARRANGEMENTS

As discussed above, we hold a 49% ownership interest in LFL and LAFL and we account for the ownership interest in these companies using the equity method of accounting. As of December 31, 2007, LFL had approximately $13.9 million in total assets and our exposure to loss related to LFL was limited to the carrying value of our investment, and interest and fees receivable totaling approximately $1.2 million. As of December 31, 2007, LAFL had approximately $302.6 million in total assets and our maximum exposure to loss related to LAFL totaled approximately $149.4 million. We recognized pre-tax losses of approximately $0.9 million for our share of LFL’s and LAFL’s net losses for the three months ended December 31, 2007. Due to our significant interest in LAFL, we continue to carry on our balance sheet the DCA generated in the United States until these assets are amortized or sold by LAFL. Neither we nor our distribution subsidiaries retain any direct ownership interest in the DCA, and therefore, the 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 these securitization transactions is to obtain financing for automobile loan activities. Securitized loans held by the securitization trusts totaled $645.2 million at December 31, 2007.

The Company, in its role as agent or trustee, facilitates the settlement of investor share purchase, redemption, and other transactions with affiliated mutual funds. The Company is appointed by the affiliated mutual funds as agent or trustee to manage, on behalf of the affiliated mutual funds, bank deposit accounts that contain only (i) cash remitted by investors to the affiliated mutual funds for the direct purchase of fund shares, or (ii) cash remitted by the affiliated mutual funds for direct delivery to the investors for either the proceeds of funds shares liquidated at the investors’ direction, or dividends and capital gains earned on funds shares. As of December 31, 2007 and September 30, 2007, we held cash of approximately $126.7 million and $170.2 million off-balance sheet in agency or trust for investors and the affiliated mutual funds.

CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. 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 in the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007.

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 goodwill and other intangible assets on an ongoing basis.

In accordance with SFAS 142, goodwill is tested for impairment annually at the same time every year and when an event occurs or circumstances change that more likely than not reduce the fair value of a reporting unit below its carrying amount. SFAS 142 also requires indefinite-lived intangible assets to be tested for impairment annually and when events or changes in circumstances indicate the asset might be impaired. We perform annual impairment tests in the first quarter of each fiscal year.

Goodwill is tested for impairment utilizing a two-step process. The first step requires the identification of the reporting units and comparison of the fair value of each of these reporting units to the respective carrying value. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step is performed to compute the amount of the impairment. In the second step, the impairment is computed by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. In estimating the fair value of the reporting units, we use valuation techniques based on discounted cash flow projections and models similar to those employed in analyzing the purchase price of an acquisition target.

32

Indefinite-lived intangible asset impairment is indicated when the carrying amount of the intangible asset exceeds its fair value. In estimating the fair value of indefinite-lived intangible assets, we use valuation techniques based on discounted cash flow projections to be derived from these assets.

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), we test definite-lived intangible assets subject to amortization for impairment when there is an indication that the carrying amount of the asset may not be recoverable. Impairment is indicated when the carrying amount of the asset exceeds its fair value. In estimating the fair value of intangible assets subject to amortization, we use valuation techniques based on undiscounted cash flow projections, without interest charges, to be derived from these assets.

In performing our impairment analyses, we use 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

Income taxes are provided for in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”), as interpreted by FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities, computed pursuant to FIN 48 and the reported amounts in the Consolidated Financial Statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is recovered or settled, respectively. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets to the amount that is more likely than not to be realized. For each tax position taken or expected to be taken in a tax return, we determine whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. We recognize the accrual of interest on uncertain tax positions in interest expense and penalties in other operating expenses.

As a multinational corporation, we operate in various locations outside the United States and generate earnings from our non-U.S. subsidiaries. At December 31, 2007, and based on tax laws then in effect, it is our intention to continue to indefinitely reinvest the undistributed earnings of non-U.S. subsidiaries, except for previously taxed foreign subsidiary Subpart F income and the earnings of material consolidated non-U.S. subsidiaries taxed at higher local jurisdiction rates than the U.S. income tax rate. As a result, we have not made a provision for U.S. taxes and have not recorded a deferred tax liability on $2.9 billion of cumulative undistributed earnings recorded by non-U.S. subsidiaries at December 31, 2007. Changes to our policy of reinvesting non-U.S. 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 in available-for-sale securities, the unrealized loss recorded net of tax in accumulated other comprehensive income is realized as a charge to earnings, in the period in which the other-than-temporary decline in value is determined. We classify securities as trading

33

when it is management’s intent at the time of purchase to sell the security within a short period of time. Accordingly, changes in the fair value of these securities are recognized as gains and losses currently in earnings. During the three months ended December 31, 2007, we recognized an immaterial other-than-temporary decline in the value of an investment classified as investments, other in non-current assets in our Condensed Consolidated Balance Sheet. No other-than-temporary declines in value of our investments were recognized for the three months ended December 31, 2006.

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 December 31, 2007 to provide for probable losses that may arise from these matters for which we could reasonably estimate an amount. See also Note 11 – Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q.

Consolidation of Variable Interest Entities

Under FIN 46R, 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 46R 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 utilize expected cash flow scenarios that include discount rate and volatility assumptions that are based on available historical information and management’s estimates. Based on our analysis, we determined that no entities were required to be consolidated in our financial statements under FIN 46R as of and during the three months ended December 31, 2007. 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 46R.

RISK FACTORS

We are subject to extensive and often complex, overlapping and frequently changing rules, regulations and legal interpretations in the United States 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 rules, regulations and legal interpretations 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 Financial Industry Regulatory Authority (“FINRA”) and the NYSE, and to the extent operations or trading in our securities take place outside the United States, by non-U.S. 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 non-U.S. rules and 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.

34

In addition, we are a bank holding company and a financial holding company subject to the supervision and regulation of the Federal Reserve Board (the “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 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 have made 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 FINRA 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 different 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 non-U.S. earnings we have repatriated is based on current interpretations of the American Jobs Creation Act of 2004 (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 Jobs Act. However, our ability to maintain the anticipated beneficial tax treatment with respect to these non-U.S. 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 non-U.S. 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

35

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 and subject us to liability under laws that protect confidential personal data, resulting in increased costs or loss of revenue.

Further, although we take precautions to password protect our laptops and other mobile electronic hardware, if such hardware 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 the vast majority of 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 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 international 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.

36

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 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 mix and offerings, service quality and innovation, 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 and sales 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.

37

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, Asia, Canada, Europe, Latin America, Africa, and Australia. As a result, we are subject to foreign exchange risk through our non-U.S. 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, 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. We believe that our Franklin Templeton Investments brand has been, and continues to be, 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 or to cover uninsured losses 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.

38

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 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. International 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.

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.

39

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.

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, deposit liabilities and variable funding notes outstanding. We monitor the net interest rate margin and the average maturity of interest earning assets, as well as funding sources of our banking/finance operating segment and, from time to time, we may enter into interest-rate swap agreements to mitigate the interest rate exposure arising from the loans receivable portfolio and variable funding notes liabilities of our banking/finance operating segment.

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 December 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, for each of these categories 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, for each of these categories or in the aggregate.

We are subject to foreign currency exchange risk through our international operations. While we operate primarily in the United States, we also provide services and earn revenues in The Bahamas, Asia, Canada, Europe, 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 market valuation risks related to securities we hold that are carried at fair value and investments held by majority-owned sponsored investment products that we consolidate, which are also carried at fair value. To mitigate these risks, we maintain a diversified investment portfolio and, from time to time, we may enter into derivative agreements. Our exposure to market valuation risks 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 the market values of our financial instruments subject to market valuation risks at December 31, 2007.

(in thousands)	Carrying Value		Carrying Value Assuming a 10% Increase		Carrying Value Assuming a 10% Decrease
Current
Investment securities, trading	$	374,956	$	412,452	$	337,460
Investment securities, available-for-sale		500,883		550,971		450,795
Total Current	$	875,839	$	963,423	$	788,255
Banking/Finance
Investment securities, available-for-sale	$	203,875	$	224,263	$	183,488
Non-Current
Investments, other	$	539,092	$	593,001	$	485,183

40

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 December 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 December 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 required 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 fiscal quarter ended December 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, the Company and certain of its subsidiaries have been named in two lawsuits alleging violations of federal securities laws relating to marketing support payments and payment of allegedly excessive commissions. The lawsuits are styled as class actions and seek, among other relief, compensatory damages and attorneys’ fees and costs. They are: 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.

On February 14, 2007 and March 16, 2007, respectively, the United States District Court for the Northern District of California ordered the transfer of these lawsuits 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). Defendants filed motions to dismiss the lawsuits on September 25, 2007. On November 27, 2007, the New Jersey District Court granted defendants’ motion to dismiss the Alexander lawsuit. Defendants’ motion to dismiss the Ulferts lawsuit remains under submission with the court.

For a further description of our legal proceedings, please see the description of our legal proceedings set forth in the “Legal Proceedings” section in Note 11 – Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A. Risk Factors.

Our Annual Report on Form 10-K for the fiscal year ended September 30, 2007 includes a detailed discussion of the risk factors applicable to us which are also set forth under Item 2 of Part I of this Form 10-Q. There are no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007.

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 December 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
October 1, 2007 through October 31, 2007	1,526,921	$	129.49	1,526,921	7,775,029
November 1, 2007 through November 30, 2007	3,882,753	$	119.70	3,882,753	3,892,276
December 1, 2007 through December 31, 2007	1,052,558	$	112.13	1,052,558	2,839,718
Total	6,462,232			6,462,232

41

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 and updates to the Company’s continuing policy of repurchasing shares of its common stock, including announcements made in March 2000, August 2002, May 2003, August 2003, July 2006 and June 2007. From the fiscal year ended September 30, 2002 through December 31, 2007, our Board of Directors had authorized and approved the repurchase of up to 50.0 million shares under our stock repurchase program, of which approximately 2.8 million shares of our common stock remained available for repurchase at December 31, 2007.

In January 2008, the Board of Directors authorized the Company to purchase, from time to time, up to an aggregate of 10.0 million shares of its common stock in either open market or off-market transactions. The size and timing of these purchases will depend on price, market and business conditions, and other factors. Our stock repurchase program is not subject to an expiration date. The new Board of Directors authorization is in addition to the prior authorization.

There were no unregistered sales of equity securities during the period covered by this report.

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 July 9, 2007, incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the SEC on July 10, 2007.
Exhibit 10.1	2006 Directors Deferred Compensation Plan, as amended and restated December 14, 2007, and form of Supplemental Deferral Election Form thereunder (filed herewith).
Exhibit 10.2	Amendment Number 7 dated December 21, 2007 to the Managed Operations Services Agreement dated February 6, 2001, between Franklin Templeton Companies, LLC and International Business Machines Corporation, as amended (filed herewith).
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).

42

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: February 8, 2008	By:	/s/ KENNETH A. LEWIS
		Kenneth A. Lewis
		Executive Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

43

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 July 9, 2007, incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the SEC on July 10, 2007.
Exhibit 10.1	2006 Directors Deferred Compensation Plan, as amended and restated December 14, 2007, and form of Supplemental Deferral Election Form thereunder (filed herewith).
Exhibit 10.2	Amendment Number 7 dated December 21, 2007 to the Managed Operations Services Agreement dated February 6, 2001, between Franklin Templeton Companies, LLC and International Business Machines Corporation, as amended (filed herewith).
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).

44

EX-10.1

Exhibit 10.1

FRANKLIN RESOURCES, INC.

2006 DIRECTORS DEFERRED COMPENSATION PLAN

Amended and Restated Effective as of December 14, 2007

Originally Effective as of December 15, 2005

FRANKLIN RESOURCES, INC.

2006 DIRECTORS DEFERRED COMPENSATION PLAN

Franklin Resources, Inc., a Delaware corporation, in order to retain the services of and provide incentives to its non-employee Directors, hereby adopts this amended and restated deferred compensation plan, effective as of December 14, 2007; this plan was originally adopted effective as of December 15, 2005.

RECITALS

WHEREAS, the Company (as defined below) has adopted a deferred compensation plan that is unfunded for tax and Title I of ERISA (as defined below) purposes to permit its non-employee Directors (as defined below) to postpone receipt and taxation of certain specific amounts of compensation in accordance with the terms hereof;

NOW THEREFORE, the Company hereby amends and restates this deferred compensation plan.

ARTICLE 1

DEFINITIONS

1.1 “Beneficiary” shall mean the beneficiary or beneficiaries designated by a Director to receive his or her deferred compensation benefits in the event of the Director’s death.

1.2 “Board of Directors” shall mean the board of directors of the Company.

1.3 “Change in Control” shall mean the occurrence of any change in ownership of the Company, change in effective control of the Company, or change in the ownership of a substantial portion of the assets of the Company, as defined in Code Section 409A(a)(2)(A)(v), the Treasury regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

1.4 “Code” shall mean the U.S. Internal Revenue Code of 1986, as amended from time to time.

1.5 “Committee” shall mean the Compensation Committee of the Board of Directors unless an alternate committee is designated by the Board of Directors to administer the Plan in accordance with Article 8 below. If the Board of Directors has not appointed such a committee, then each reference to the “Committee” shall be construed to refer to the Board of Directors.

1.6 “Common Stock” shall mean the common stock of the Company.

1.7 “Company” shall mean Franklin Resources, Inc., a Delaware corporation, and any successor organization thereto.

1

1.8 “Compensation” shall mean any fees (including meeting fees, committee fees, chairperson fees as well as all other fees) payable or an annual or other stock or Company equity or mutual fund grant issuable by the Company to a Director with respect to his or her service as a Director.

1.9 “Deferral” shall mean a contribution of Compensation credited under the Plan made by the Company (or a subsidiary of the Company, as applicable) on behalf of a specified Participant and shall include any notional distributions credited pursuant to Section 3.4 below.

1.10 “Deferred Compensation Account” shall mean the separate account established under the Plan and the Trust, if any, for each Participant. From time to time, the Company shall furnish each Participant with a statement of his or her Deferred Compensation Account balance.

1.11 “Director” shall mean (a) a member of the Board of Directors who is not an employee of the Company or (b) a member of the board of directors of any subsidiary of the Company who is not an employee of the Company or such subsidiary of the Company.

1.12 “Disability” shall mean the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, as defined in Code Section 409A(a)(2)(C), the Treasury regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

1.13 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

1.14 “Participant” shall mean a Director who has elected to participate in the Plan; references to a Participant herein shall refer also to his or her designated Beneficiary where the context so requires.

1.15 “Plan” shall mean this Franklin Resources, Inc. 2006 Directors Deferred Compensation Plan.

1.16 “Separation from Service” shall mean the date a Participant ceases to serve as a Director of the Company or any subsidiary of the Company. Notwithstanding the foregoing, no payments under the Plan shall be triggered by any Separation from Service that is not considered to constitute a “separation from service” within the meaning of Section Code 409A(a)(2)(A)(i) and its related regulatory and administrative guidance, as determined by the Committee in its sole discretion.

1.17 “Trust” or “Trust Agreement” shall mean the Franklin Resources, Inc. Deferred Compensation Trust Agreement (if and when adopted by the Company) which is intended to conform to terms of the model trust described in Revenue Procedure 92-64, 1992-2 C.B. 422, including any amendments thereto, entered into between the Company and the Trustee to carry out the provisions of the Plan.

2

1.18 “Trust Fund” shall mean the cash and other property held and administered by the Trustee pursuant to the Trust (if any) to carry out the provisions of the Plan.

1.19 “Trustee” shall mean the designated trustee acting at any time under the Trust.

1.20 “Unforeseeable Emergency” shall mean an unforeseeable emergency as defined in Code Section 409A(a)(2)(B)(ii)(I) (as limited by Code Section 409A(a)(2)(B)(ii)(II)), the Treasury regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.¹

ARTICLE 2

PARTICIPATION

2.1 Eligible Participants. The Committee shall, from time to time, designate by name those Directors who are eligible to participate in the Plan and the date upon which each such Directors participation may commence. All designated Directors shall be notified by the Committee of their eligibility to participate.

ARTICLE 3

CONTRIBUTIONS AND DETERMINATION OF BENEFITS

3.1 Contributions to the Plan. Participants may make Deferrals by electing to defer the payment or issuance, as applicable, of all or any part of his or her Compensation in accordance with the terms hereof. Elections shall be made in the form attached hereto as Exhibit B. Elections must be made no later than the last day of the deferral election period. The last day of the deferral election period shall be (i) December 31^st of the calendar year prior to the calendar year in which the Participant will render the services for which he or she will receive any part of the Compensation payable to the Participant during that year or (ii) in the first year in which a Participant first becomes

¹ Code Section 409A(a)(2)(B)(ii) provides the following definition of “unforeseeable emergency”:

Unforeseeable emergency. For purposes of subparagraph (A)(vi) —

(I) In general. The term “unforeseeable emergency” means a severe financial hardship to the participant resulting from an illness or accident of the participant, the participant's spouse, or a dependent (as defined in Section 152(a)) of the participant, loss of the participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.

(II) Limitation on distributions. The requirement of subparagraph (A)(vi) is met only if, as determined under regulations of the Secretary, the amounts distributed with respect to an emergency do not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the participant's assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

3

eligible to participate in the Plan (within the meaning of Section 1.409A-2(a)(7)(ii)), thirty (30) days after the Participant becomes eligible to participate in the Plan. No direct contributions by Participants are required or permitted. An election to defer Compensation shall be effective on the date an eligible Participant delivers a completed deferral election form to the Committee or its designee; provided, however, that, if the Participant delivers another properly completed election to defer Compensation prior to the close of the deferral election period described in this Section 3.1, the deferral election on the form bearing the latest date shall control. On the last day of the deferral election period, the controlling election made prior to the close of the period shall be irrevocable.

3.2 Investment Elections. In accordance with rules, procedures and options established by the Committee, and subject to Section 3.5 hereof, each Participant shall be permitted to provide written instructions regarding the investment of his or her Deferred Compensation Account. Each Participant may direct that his or her Deferred Compensation Account be invested in shares of Common Stock and/or one or more Franklin Templeton mutual funds as selected by the Participant; provided, however, that the Committee shall have the authority, in its sole discretion, with or without notice, to change or eliminate one or more of the foregoing investment alternatives available to the Participant at any time. Each Participant shall direct the investment of his or her Deferred Compensation Account by submitting to the Company an Investment Direction in the form set forth at Exhibit C. In accordance with procedures established by the Committee, each Participant may change his or her investment directions effective as of the first day of any calendar quarter. Such changes may be made on a validly submitted Investment Direction in the form set forth at Exhibit C no later than the last day of any calendar quarter preceding the effective date of the change. If a Participant fails to provide any investment directions at a time when the Participant has a positive balance in the Deferred Compensation Account, the Company or the Committee shall deem the entire Deferred Compensation Account invested in shares of Company Common Stock. The Company may invest assets allocable to a Participant’s Deferred Compensation Account in any manner, in any amount and for any period of time which the Company in its sole discretion may select; but the Company must credit or charge the Participant’s Deferred Compensation Account with the same earnings, gains or losses that the Participant would have incurred if the Company had invested the assets allocable to the Participant’s Deferred Compensation Account in the specific investments, in the specific amounts and for the specific periods directed by the Participant. If and to the extent that the Plan is determined to be subject to the fiduciary provisions of Part 4 of Title I of ERISA, the Plan shall be treated as a plan described in Section 404(c) of ERISA and Title 29 of the Code of Federal Regulations Section 2550.404c-1, in which Plan fiduciaries may be relieved of liability for any losses which are the direct and necessary result of investment instructions given by a Participant or a Participant’s Beneficiary.

3.3 Investment Earnings or Losses. Any amounts credited to a Participant’s Deferred Compensation Account may increase or decrease as a result of the Company’s investment of such amounts, as described in Section 3.2 above. In a manner consistent with the allocations described in Section 3.2, the investment earnings or losses under this Section 3.3 shall be credited to a Participant’s Deferred Compensation Account, as determined in good faith by the Committee. Each Participant and each Participant’s Beneficiary understand and agree that they assume all risk in connection with any decrease in the value of the Deferred Compensation Account as invested in accordance with these Sections 3.2 and 3.3.

4

3.4 Contribution of Notional Distributions. The Deferred Compensation Account of each Participant shall be credited with notional dividends and other distributions at the same time, in the same form and in the same manner, and in equivalent amounts as dividends and other distributions that are payable from time to time with respect to investments selected by the Participant under the Deferred Compensation Account. Any such notional dividends and other distributions shall be valued as of the date on which they are credited to a Participant’s Deferred Compensation Account and reallocated to acquire additional shares of the investments selected by a Participant under the Deferred Compensation Account. If such notional dividends and other distributions are credited in a form other than Common Stock, shares of Franklin Templeton mutual funds or cash, the Committee will determine their value in good faith.

3.5 Blackout Periods. Notwithstanding anything herein to the contrary, during any “blackout period” (as defined in Regulation BTR promulgated by the Securities and Exchange Commission and referred to hereinafter as “Regulation BTR”) in connection with the Plan, if a Participant otherwise would defer receipt of such Participant’s Director fees for services rendered as a Director during such blackout period under the Plan and/or direct the investment of such fees in shares of the Common Stock during such blackout period, the Company shall not cause an actual or deemed investment by the Company of such Director fees into shares of Common Stock during such blackout period, but, rather, shall take all steps necessary or appropriate to suspend such investment during, and until then end of, such blackout period required by Regulation BTR. As soon as practicable following the termination of the blackout period required by Regulation BTR, the Company shall cause an actual or deemed investment of the Director fees in shares of Common Stock in accordance with Section 3.2 and such Director’s applicable deferral or investment election. Also, during any period that the Director fees are not invested in Common Stock as a result of this Section 3.5, such fees will be credited with interest at the same rate applicable to dividends paid by a Franklin Templeton money market fund as determined by the Committee.

3.6 Valuation of Participant’s Deferred Compensation Account. The value of a Participant’s Deferred Compensation Account as of any date shall be determined based on the value of the underlying investments (selected by the Participant or otherwise in accordance with Section 3.2 hereof) as of the date the value of the Deferred Compensation Account is determined. The value of each underlying investment shall be determined based on the closing sales price for such investment as quoted or otherwise reported on the date of determination (or, if no closing sales price was reported on that date, on the last trading date such closing sales price was reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable.

ARTICLE 4

VESTING AND DISTRIBUTION OF BENEFITS

4.1 Vesting of Deferred Compensation Accounts. A Participant’s Deferred Compensation Account shall be fully vested at all times.

4.2 Form of Payment. Distributions under the Plan shall be paid solely in cash.

5

4.3 Scheduled Distribution of Deferred Compensation Accounts. Subject to Sections 4.4, 4.5, 4.6, 4.7 and 4.8, distribution of a Participant’s Deferred Compensation Account shall occur on the date or dates elected by the Participant pursuant to Section 3.1. In the event the valuation and distribution of all or a portion of a Participant’s Deferred Compensation Account shall occur on the same date, the distribution of all or a portion of the Participant’s Deferred Compensation Account shall be made as soon as administratively practicable following the valuation of the Participant’s Deferred Compensation Account but in no event later than the latest date permitted by Section 1.409A-3(d) of the Treasury regulations.

4.4 Change of Distribution Schedule. A Participant may elect, at any time, to change his or her distribution date(s), provided that such election shall not take effect for one (1) year from the date of the new election and that under the amended payment schedule, each distribution installment (or lump sum) shall occur no earlier than five (5) years after such installment (or lump sum) would have been paid under the prior distribution schedule, and in conformance with Code Section 409A(a)(4)(C), the Treasury regulations thereunder, and any other published interpretive authority, as issued or amended from time to time. Notwithstanding the foregoing, for purposes of subsequent changes to an election to receive distributions in a series of installment payments, the series of installment payments shall be treated as the entitlement to a single payment. As a result, any change to a previously-scheduled distribution shall not take effect for one (1) year from the date of the new election and distribution installments (or a lump sum payment) shall occur no earlier than five (5) years after the date the first distribution would have been paid under the prior schedule of installment payments.

4.5 Change in Control. In the event of a Change in Control prior to complete distribution to a Participant of the entire balance of his or her Deferred Compensation Account, the remaining balance of the Participant’s Deferred Compensation Account shall be determined and payable to the Participant either (a) in accordance with the Participant’s distribution schedule, or (b) in a lump sum immediately prior to the consummation of the Change in Control, as previously elected by the Participant on Exhibit B or in the Supplemental Deferral Election Form, as applicable.

4.6 Death Benefit. Upon the death of a Participant prior to complete distribution to him or her of the entire balance of his or her Deferred Compensation Account, the remaining balance of his or her Deferred Compensation Account on the date of death shall be payable to the Participant’s Beneficiary designated on Exhibit A. The remaining balance of a Participant’s Deferred Compensation Account on the date of death shall be payable to the Participant’s Beneficiary either (a) in accordance with the Participant’s distribution schedule or (b) in a lump sum, as previously elected by the Participant on Exhibit B.

4.7 Disability Benefit. Upon a Participant’s Disability prior to complete distribution to him or her of the entire balance of his or her Deferred Compensation Account, the remaining balance of his or her Deferred Compensation Account on the date of Disability shall be payable to the Participant either (a) in accordance with the Participant’s distribution schedule or (b) in a lump sum, as previously elected by the Participant on Exhibit B or in the Supplemental Deferral Election Form, as applicable.

6

4.8 Accelerated Full or Partial Distributions. Notwithstanding the foregoing, the Committee may accelerate the payment of a Participant’s Deferred Compensation Account in any of the following circumstances, and in such event, the distributed amounts shall be deducted from the Participant’s Deferred Compensation Account balance.

(a) Unforeseeable Emergency. In the event of an Unforeseeable Emergency, the Committee may, in its sole discretion, permit distribution to a Participant from his or her Deferred Compensation Account of an amount no greater than the amount necessary to satisfy the emergency plus any taxes reasonably anticipated as a result of the distribution.

(b) Domestic Relations Order. In its sole discretion, the Committee may permit acceleration of the time or schedule of a payment under the Plan to an individual other than the Participant as may be necessary to fulfill a domestic relations order (as defined in Code Section 414(p)(1)(B)).

(c) Conflict of Interest. In its sole discretion, the Committee may permit the acceleration of the time or schedule of a payment under the Plan (i) to the extent necessary to permit any Participant who becomes employed in the Federal executive branch to comply with an ethics agreement with the Federal government; or (ii) to the extent reasonably necessary to avoid the violation of an applicable Federal, state, local, or foreign ethics or conflicts of interest law.

(d) De Minimis Distribution. In its sole discretion, the Committee may distribute a Participant’s entire Deferred Compensation Account balance in a single lump sum payment to the Participant, provided that (i) the value of the Participant’s Deferred Compensation Account as of the relevant distribution date does not exceed the applicable dollar amount then in effect under Code Section 402(g)(1)(B); and (ii) the payment accompanies the termination of the entirety of the Participant’s interest in the Plan and all agreements, methods, programs, or other arrangements with respect to which deferrals of compensation are treated as having been deferred under a single nonqualified deferred compensation plan under Section 1.409A-1(c)(2)of the Treasury regulations.

(e) Employment Taxes. In its sole discretion, the Committee may permit acceleration of the time or schedule of a distribution under the Plan as may be necessary to pay the Federal Insurance Contributions Act (“FICA”) tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2) (as applicable) on amounts deferred under the Plan. In addition, the Committee may permit acceleration of the time or schedule of a distribution under the Plan as may be necessary to pay the income tax at source on wages imposed under Code Section 3401 or the corresponding withholding provisions of applicable state, local, or non-U.S. tax laws as a result of the payment of the FICA tax, and to pay the additional income tax at source on wages attributable to the pyramiding Section 3401 wages and taxes. Notwithstanding the foregoing, the total accelerated distribution to a Participant under this Section 4.8(e) shall not exceed the aggregate amount of FICA taxes and the income tax withholding related to such amount of FICA taxes.

(f) Income Inclusion under Code Section 409A. In its sole discretion, the Committee may permit acceleration of the time or schedule of a distribution under the Plan at any time the Plan fails to meet the requirements of Code Section 409A and its related Treasury

7

regulations. Notwithstanding the foregoing, the total accelerated distribution to a Participant under this Section 4.8(f) shall not exceed the amount required to be included as income by the Participant as a result of the failure to meet the requirements of Code Section 409A and the applicable Treasury regulations.

4.9 Delay of Distributions. To the extent permitted under Code Section 409A and the related Treasury regulations, a scheduled distribution of a Participant’s Deferred Compensation Account shall be delayed to a date after the scheduled payment date under any of the following circumstances:

(a) Company’s Financial Exigency. A scheduled distribution of a Participant’s Deferred Compensation Account shall be delayed to a date after the scheduled payment date in the event the Committee reasonably anticipates that making the distribution will jeopardize the Company’s ability to continue as a going concern. Any such delayed distribution shall be made during the first taxable year of the Participant when the making of the distribution will not cause such a risk to the Company.

(b) Payments that would Violate Federal Securities Laws or other Applicable Law. A scheduled distribution from a Participant’s Deferred Compensation Account shall be delayed to a date after the scheduled payment date in the event the Committee reasonably anticipates that making the distribution will violate federal securities laws or other applicable law. The delayed distribution must be made at the earliest date at which the Committee reasonably anticipates that making the distribution will not cause such violation. For purposes of this Section 4.9(b), making a payment that would cause inclusion in gross income or the application of any penalty provision or other provision of the Code is not considered a violation of applicable law.

(c) Other Events and Conditions. The Committee may delay a scheduled distribution from the Participant’s Deferred Compensation Account upon such other events and conditions as may be prescribed in generally applicable guidance published in the Internal Revenue Bulletin relating to Code Section 409A.

4.10 Participant’s Rights Unsecured. The right of Participants and their Beneficiaries to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company, and neither the Participants nor their Beneficiaries shall have any rights in or against any amount credited to their Deferred Compensation Accounts or any other specific assets of the Company, except as otherwise provided in the Trust Agreement. The Deferred Compensation Accounts shall be kept solely as nominal accounts, may be carried in cash or any other liquid assets, may be invested in Common Stock, or may be invested in any other assets as may be selected by the Committee in its sole and absolute discretion.

ARTICLE 5

DESIGNATION OF BENEFICIARY

5.1 Designation of Beneficiary. A Participant may designate a Beneficiary to receive any amount due hereunder to the Participant via written notice thereof to the Committee at any time

8

prior to his or her death and may revoke or change the Beneficiary designated therein without the Beneficiary’s consent by written notice delivered to the Committee at any time and from time to time prior to the Participant’s death, provided that any such designation or change of designation naming a primary Beneficiary other than the Participant’s spouse shall be effective only if written spousal consent is provided to the Committee. If a Participant’s spouse is incapacitated, then the person who holds a power of attorney for the incapacitated spouse or other person authorized to act on behalf of the incapacitated spouse may provide the required spousal consent. If a Participant fails to designate a Beneficiary, or if no such designated Beneficiary shall survive him or her, then such amount shall be paid to his or her estate. The designations of Beneficiaries shall be made in the form attached hereto as Exhibit A.

ARTICLE 6

TRUST PROVISIONS

6.1 Trust Agreement. The Company may establish the Trust for the purpose of retaining assets set aside by the Company pursuant to the Trust Agreement for payment of all or a portion of the amounts payable pursuant to the Plan. Any benefits not paid from the Trust shall be paid from the Company’s general funds, and any benefits paid from the Trust shall be credited against and reduce by a corresponding amount the Company’s liability under the Plan. All Trust Funds shall be subject to the claims of general creditors of the Company in the event the Company is insolvent as defined in the Trust Agreement. The obligations of the Company to pay benefits under the Plan and the obligation of the Trustee to pay benefits under the Trust constitute an unfunded, unsecured promise to pay benefits in the future and the Participant and his or her Beneficiaries shall have no greater rights than general creditors of the Company. No Trust may hold assets located outside of the United States nor provide that assets will become restricted to the provision of benefits under the Plan in connection with a change in the Company’s financial health.

ARTICLE 7

AMENDMENT AND TERMINATION

7.1 Amendment or Termination.

(a) The Committee shall have the general authority, in its sole discretion, to amend, suspend, or terminate the Plan at any time and for any reason it deems appropriate; provided however, that neither an amendment to the Plan nor the Plan’s suspension or termination may adversely affect a Participant’s vested rights hereunder without such Participant’s prior written consent. Any amendment, suspension, or termination of the Plan must be pursuant to a written document that is executed by a duly-authorized officer of the Company. Except as required under Code Section 409A, no Deferrals shall be made during any suspension of the Plan or after termination of the Plan.

(b) Notwithstanding any provision in the Plan to the contrary, the Committee, in its sole discretion, may amend or modify the Plan in any manner to provide for the application and effects of Code Section 409A and any related regulatory or administrative guidance issued by the

9

Internal Revenue Service. To the extent applicable, the Committee shall have the authority to delay the payment of any benefits payable under the Plan to the extent it deems necessary or appropriate to comply with Code Section 409A(a)(2)(B)(i) (relating to payments made to certain “specified employees” of certain publicly-traded companies) and in such event, any such amount to which a Participant would otherwise be entitled during the six (6) month period immediately following his or her Separation from Service will be paid on the first business day following the expiration of such six (6) month period.

7.2 Liquidation of the Plan. In connection with the termination of the Plan under Section 7.1, the Committee may liquidate the Plan and distribute all Deferred Compensation Account balances; provided, however, that

(a) The termination and liquidation of the Plan does not occur proximate to a downturn in the financial health of the Company;

(b) All agreements, methods, programs, and other arrangements sponsored by the Company that would be aggregated with the Plan under Section 1.409A-1(c) of the Treasury regulations are also terminated and liquidated;

(c) No payments in liquidation of the Plan are made within twelve (12) months of the date on which the Company takes all necessary action to irrevocably terminate and liquidate the Plan other than payments that would have been payable under the terms of the Plan if the action to terminate and liquidate it had not occurred;

(d) All payments are made within twenty-four (24) months of the date the Company takes all necessary action to irrevocably terminate and liquidate the Plan; and

(e) Neither the Company nor any related entity (within the meaning of Section 1.409A-1(g) of the Treasury regulations) adopts a new plan that would be aggregated with the Plan under Section 1.409A-1(c) of the Treasury regulations within three (3) years following the date the Company takes all necessary action to irrevocably terminate and liquidate the Plan.

7.3 Termination in the Event of Insolvency. To the extent permitted under Code Section 409A, the Committee shall have the authority, in its sole discretion, to terminate the Plan and distribute each Participant’s outstanding Deferred Compensation Account balance within twelve (12) months of a corporate dissolution taxed under Code Section 331 or with the approval of a bankruptcy court pursuant to 11 U.S.C. § 503(b)(1)(a). The total accelerated distribution under this Section 7.3 must be included in a Participant’s gross income in the latest of:

(a) The calendar year in which the Plan is terminated;

(b) The calendar year in which the Participant’s Deferred Compensation Account balance is no longer subject to a substantial risk of forfeiture; or

(c) The calendar year in which distribution of the Participant’s Deferred Compensation Account is administratively practicable.

10

7.4 Automatic Termination of Plan. The Plan shall automatically terminate on the date when no Participant (or Beneficiary) has any right to or expectation of payment of further benefits under the Plan.

7.5 Other Termination Events. The Committee shall have the authority to terminate the Plan and distribute all Deferred Compensation Account balances to Participants or, if applicable, their Beneficiaries, upon the occurrence of such other events and conditions as may be prescribed in generally applicable guidance published in the Internal Revenue Bulletin relating to Code Section 409A.

ARTICLE 8

ADMINISTRATION

8.1 Administration. The Committee shall administer and interpret the Plan in accordance with the provisions of the Plan and the Trust Agreement (if any) and shall have the authority in its discretion to adopt, amend or rescind such rules and regulations as it deems advisable in the administration of the Plan. Any determination or decision by the Committee shall be made in its sole discretion and shall be conclusive and binding on all persons who at any time have or claim to have any interest under the Plan. Notwithstanding anything in the Plan to the contrary, the Committee shall administer and construe the Plan in accordance with Code Section 409A, the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time

8.2 Liability of Committee, Indemnification. The Committee shall not be liable for any determination, decision, or action made in good faith with respect to the Plan. The Company will indemnify, defend and hold harmless the members of the Committee from and against any and all liabilities, costs, and expenses incurred by such person(s) as a result of any act, or omission, in connection with the performance of such persons’ duties, responsibilities, and obligations under the Plan, other than such liabilities, costs, and expenses as may result from the bad faith, gross misconduct, breach of fiduciary duty or willful failure to follow the lawful instructions of the Board or criminal acts of such persons. All members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.

8.3 Expenses. The cost of the establishment and the adoption of the Plan by the Company, including but not limited to legal and accounting fees, shall be borne by the Company. The expenses of administering the Plan shall be borne by the Company, and the Company shall bear, and shall not be reimbursed by the Trust, for any tax liability of the Company associated with the investment of assets held by the Trust.

11

ARTICLE 9

GENERAL AND MISCELLANEOUS

9.1 Rights Against Company. Except as expressly provided by the Plan, the establishment of the Plan shall not be construed as giving to any Participant, employee or any person, any legal, equitable or other rights against the Company, or against its officers, directors, agents or members, or as giving to any Participant or Beneficiary any equity or other interest in the assets or business of the Company or giving any Participant the right to be retained in the employ of the Company. In no event shall the terms of service of a Participant, expressed or implied, be modified or in any way affected by the adoption of the Plan or Trust or any election under the Plan made by a Participant. The rights of a Participant or his or her Beneficiaries hereunder shall be solely those of an unsecured general creditor of the Company.

9.2 Claims Procedures. Claims for benefits under the Plan by a Participant (or his or her beneficiary or duly appointed representative) shall be filed in writing with the Committee. The Committee shall follow the procedures set forth in this Section 9.2 in processing a claim for benefits.

(a) Within 90 days following receipt by the Committee of a claim for benefits and all necessary documents and information, the Committee shall furnish the person claiming benefits under the Plan (the “Claimant”) with written notice of the decision rendered with respect to such claim. Should special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the expiration of the initial 90 day period. The notice shall indicate the special circumstances requiring an extension of time and the date by which a final decision is expected to be rendered. In no event shall the period of the extension exceed 90 days from the end of the initial 90 day period.

(b) In the case of a denial of the Claimant’s claim, the written notice of such denial shall set forth (1) the specific reason(s) for the denial, (2) references to the Plan provisions upon which the denial is based, (3) a description of any additional information or material necessary for perfection of the application (together with an explanation why such material or information is necessary), and (4) an explanation of the Plan’s appeals procedures and the time limits applicable to these procedures, including a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse determination on review. If no notice of denial is provided as herein described, the Claimant may appeal the claim as though his or her claim had been denied.

9.3 Appeals Procedures. A Claimant who wishes to appeal the denial of his or her claim for benefits or to contest the amount of benefits payable shall follow the administrative procedures for an appeal as set forth in this Section 9.3 and shall exhaust such administrative procedures prior to seeking any other form of relief.

(a) In order to appeal a decision rendered with respect to his or her claim for benefits or with respect to the amount of his or her benefits, the Claimant must file an appeal with

12

the Committee in writing within 60 days after the date of notice of the decision with respect to the claim.

(b) The Committee shall provide a full and fair review of all appeals filed under the Plan and shall take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. In connection with the filing of an appeal, the Claimant may submit written comments, documents, records, and other information relevant to his or her appeal. The Committee will provided, upon the Claimant’s request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits. The decision of the Committee shall be made not later than 60 days after the Claimant has completed his or her submission to the Committee of his or her appeal and any documentation or other information to be submitted in support of such appeal. Should special circumstances require an extension of time for processing, written notice of the extension shall be furnished to the Claimant prior to the expiration of the initial 60 day period. The notice shall indicate the special circumstances requiring an extension of time and the date by which a final decision is expected to be rendered. In no event shall the period of the extension exceed 60 days from the end of the initial 60 day period.

(c) The decision on the Claimant’s appeal shall be in writing and shall include specific reason(s) for the decision, written in a manner calculated to be understood by the Claimant and shall, in the case of a adverse determination, include: (1) the specific reason or reasons for the adverse determination; (2) reference to the specific plan provisions on which the benefit determination is based; (3) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to his or her claim for benefits; and (4) a statement describing any voluntary appeal procedures offered by the Plan and the Claimant’s right to obtain the information about such procedures.

(d) If the Committee does not respond within 120 days, the Claimant may consider his or her appeal denied.

(e) In the event of any dispute over benefits under the Plan, all remedies available to the disputing individual under this Section 9.3 must be exhausted before legal recourse of any type is sought.

9.4 Assignment or Transfer. No right, title or interest of any kind in the Plan shall be transferable or assignable by any Participant or Beneficiary or be subject to alienation, anticipation, encumbrance, garnishment, attachment, execution or levy of any kind, whether voluntary or involuntary, nor subject to the debts, contracts, liabilities, engagements, or torts of a Participant or his or her Beneficiary. Any attempt to alienate, anticipate, encumber, sell, transfer, assign, pledge, garnish, attach or otherwise subject to legal or equitable process or to dispose of any interest in the Plan shall be void.

13

9.5 Severability. If any provision of the Plan shall be declared illegal or invalid for any reason, said illegal or invalid provision shall not affect the remaining provisions of the Plan but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provision was not part of the Plan.

9.6 Construction. The article and section headings and numbers are included only for convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of the Plan. Whenever appropriate, words used in the singular shall include the plural or the plural may be read as the singular. When used herein, the masculine gender includes the feminine and neuter genders, the feminine gender includes the masculine and neuter genders and the neuter gender includes the masculine and feminine genders.

9.7 Governing Law. The validity and effect of the Plan and the rights and obligations of all persons affected hereby shall be construed, administered and enforced in accordance with ERISA and, to the extent applicable, the internal laws of the State of California, without giving effect to any choice of law rule.

9.8 Payment Due to Incompetence. If the Committee receives evidence that a Participant or Beneficiary entitled to receive any payment under the Plan is physically or mentally incompetent to receive such payment, the Committee may, in its sole and absolute discretion, direct the payment to any other person who or trust which has been legally appointed or established for the benefit of such person.

9.9 Taxes. All amounts payable hereunder shall be reduced by any and all federal, state, and local taxes imposed upon the Participant or his or her Beneficiary which are required to be paid or withheld by the Company. The determination of the Company regarding applicable income and employment tax withholding requirements shall be final and binding on the Participant.

IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its duly authorized officer as of this 16^th day of January, 2008.

FRANKLIN RESOURCES, INC., a Delaware corporation
By:	/s/ Donna S. Ikeda
	Donna S. Ikeda
Its:	Vice President, Human Resources - International

14

EXHIBIT A

FRANKLIN RESOURCES, INC.

2006 DIRECTORS DEFERRED COMPENSATION PLAN

BENEFICIARY DESIGNATION

In the event that I should die prior to the receipt of all amounts credited to my Deferred Compensation Account under the Franklin Resources, Inc. 2006 Directors Deferred Compensation Plan (the “Plan”), and in lieu of disposing of my interest¹ in my Deferred Compensation Account by my will or the laws of intestate succession, I hereby designate the following person(s) as primary Beneficiary(ies) and contingent Beneficiary(ies) of my interest in my Deferred Compensation Account (please attach additional sheets if necessary):

Primary Beneficiary(ies) (Select only one of the three alternatives)
¨ (a) Individuals and/or Charities	% Share
Name __________________________________________________________________________________	_______
Address __________________________________________________________________________________________
Name __________________________________________________________________________________	_______
Address __________________________________________________________________________________________
Name __________________________________________________________________________________	_______
Address __________________________________________________________________________________________
Name __________________________________________________________________________________	_______
Address __________________________________________________________________________________________

² A married Participant whose Deferred Compensation Account is community property may dispose only of his or her own interest in the Deferred Compensation Account. In such cases, the Participant’s spouse may designate the Participant or any other person(s) as the beneficiary(ies) of his or her interest in the Deferred Compensation Account on a separate Beneficiary Designation.

Exhibit A A-1

¨ (b) Residuary Testamentary Trust

In trust, to the trustee of the trust named as the beneficiary of the residue of my probate estate.

¨ (c) Living Trust

The______________________________________________ Trust, dated ________________________

                (print name of trust)                                                                     (fill in date trust was established)

Contingent Beneficiary(ies) (Select only one of the three alternatives)
¨ (a) Individuals and/or Charities	% Share
Name __________________________________________________________________________________	_______
Address ___________________________________________________________________________________________
Name __________________________________________________________________________________	______
Address ___________________________________________________________________________________________
Name __________________________________________________________________________________	______
Address ___________________________________________________________________________________________
Name __________________________________________________________________________________	_______
Address ___________________________________________________________________________________________

Exhibit A A-2

¨ (b) Residuary Testamentary Trust

In trust, to the trustee of the trust named as the beneficiary of the residue of my probate estate.

¨ (c) Living Trust

The______________________________________________ Trust, dated ________________________

                (print name of trust)                                                                                  (fill in date trust was established)

Should all the individual primary Beneficiary(ies) fail to survive me or if the trust named as the primary Beneficiary does not exist at my death (or no will of mine containing a residuary trust is admitted to probate within six months of my death), the contingent Beneficiary(ies) shall be entitled to my interest in the Deferred Compensation Account in the shares indicated. Should any individual beneficiary fail to survive me or a charity named as a beneficiary no longer exists at my death, such beneficiary’s share shall be divided among the remaining named primary or contingent Beneficiaries, as appropriate, in proportion to the percentage shares I have allocated to them. In the event that no individual primary Beneficiary(ies) or contingent Beneficiary(ies) survives me, no trust (excluding a residuary testamentary trust) or charity named as a primary Beneficiary or contingent Beneficiary exists at my death, and no will of mine containing a residuary trust is admitted to probate within six months of my death, then my interest in the Deferred Compensation Account shall be disposed of by my will or the laws of intestate succession, as applicable.

Capitalized terms used but not otherwise defined herein shall have the same meanings as set forth in the Plan.

This Beneficiary Designation is effective until I file another such Beneficiary Designation with the Company. Any previous Beneficiary Designations are hereby revoked.

Submitted by:		Filing Acknowledgement:
¨ Participant            ¨ Participant’s Spouse		Franklin Resources, Inc.
		By:
Name:		Its:
Date:	_________________________________________________	Filed with the records of the Company this          day of                 , 20

Exhibit A A-3

Spousal Consent for any interest in a Deferred Compensation Account that is Community Property

Participant’s spouse should file a separate beneficiary designation for the spouse’s community property interest in the Participant’s Deferred Compensation Account.

Spousal Consent for any interest in a Deferred Compensation Account that is not Community Property (necessary if beneficiary is other than Spouse):

I hereby consent to this Beneficiary Designation. This consent does not apply to any subsequent Beneficiary Designation which may be filed by my spouse.

	(Signature of Spouse)
Date:

Exhibit A A-4

EXHIBIT B

FRANKLIN RESOURCES, INC.

2006 DIRECTORS DEFERRED COMPENSATION PLAN

DEFERRAL ELECTION FORM

Name: ___________________

Deferral Elections

I hereby elect to defer the following Compensation amounts in accordance with the terms of the Franklin Resources, Inc. 2006 Directors Deferred Compensation Plan (the “Plan”). This election shall be effective for amounts earned as a Director of the Company and/or any subsidiary of the Company. This election shall remain in effect indefinitely for all years of service until terminated or modified by a subsequent deferral election form which shall generally be effective for amounts earned in the calendar year following the calendar year such subsequent deferral election form is filed with the Company:

¨ _______% of my annual stock grant(s).

¨ _______% of my other stock grant(s).

¨ _______% of my Directors’ fees.

¨ _______% of my meeting fees.

¨ _______% of my committee fees.

¨ _______% of my chairperson fees.

¨ _______% of all other fees.

Note: As stated above, this election shall remain in effect indefinitely for all years of service until terminated or modified by a subsequent deferral election form. You can file a new election form at any time with respect to deferrals in a subsequent calendar year. A new election form must be filed no later than December 31^st of the calendar year prior to the calendar year for which the new election will be effective.

Exhibit B B-1

Distribution Elections

Once I am eligible to receive distributions from the Plan, my Plan deferrals, as adjusted for income, gains or losses under the Plan, shall be paid to me on the following date(s) and in the following increment(s). If the payment date is a Saturday, Sunday or holiday, then the payment shall be made on the next business day. Please elect either “Equal Payments Over a Period of Years” or “Fixed Payment Dates” and then make the appropriate sub-election(s).

1. Lump Sum

¨ ______________________    _________________________________________________________________

Percentage                                     Upon Separation from Service

2. Equal Payments Over a Period of Years

¨ Substantially equal quarterly installments over five (5) years beginning on the earlier of the January 20, April 20, July 20, or October 20 immediately following my Separation from Service and continuing on each January 20, April 20, July 20, or October 20 thereafter.

¨ Substantially equal quarterly installments over ten (10) years beginning on the earlier of the January 20, April 20, July 20, or October 20 immediately following my Separation from Service and continuing on each January 20, April 20, July 20, or October 20 thereafter. (Note: Elect this alternative if you are not a resident of California and intend to comply with California R&TC Section 17952.5.)

Important Note: For purposes of subsequent changes in the timing of the payments as elected above, the series of installment payments shall be treated as the entitlement to a single payment. If you wish to change this election for amounts previously deferred, (a) any change shall not take effect for one (1) year from the date of the new election and (b) distribution installments (or a lump sum payment) shall occur no earlier than five (5) years after the date the first distribution would have been paid under the prior distribution schedule.

3. Fixed Payment Dates

¨        ______________
Percentage	Month	Day	Year

¨        ______________
Percentage	Month	Day	Year

Exhibit B B-2

¨        ___________________
Percentage	Month	Day	Year
¨        ___________________
Percentage	Month	Day	Year

Important Note: If you wish to change this election for amounts previously deferred, (a) any change shall not take effect for one (1) year from the date of the new election and (b) each distribution (or lump sum) shall occur no earlier than five (5) years after such distribution (or lump sum) would have been paid under the prior distribution election.

Once the payout of my Plan deferrals has commenced, dividends and other distributions accrued with respect to my Plan deferrals shall be paid to me in the following manner:

Dividends and other distributions accrued with respect to Franklin Templeton Mutual Funds:

¨ Reinvested.

¨ Paid out on the next payment date.

Dividends and other distributions accrued with respect to Company Common Stock:

¨ Reinvested.

¨ Paid out on the next payment date.

Upon my death prior to the complete distribution of my Plan deferrals (as adjusted for income, gains and losses under the Plan), the remaining balance shall be payable to my designated beneficiary in the following manner:

¨ In a lump sum.

¨ In accordance with the distribution schedule elected by me on this Exhibit B.

Exhibit B B-3

In the event of my Disability prior to the complete distribution of my Plan deferrals (as adjusted for income, gains and losses under the Plan), the remaining balance shall be payable in the following manner:

¨ In a lump sum.

¨ In accordance with the distribution schedule elected by me on this Exhibit B.

In the event of a Change in Control prior to the complete distribution of my Plan deferrals (as adjusted for income, gains and losses under the Plan), the remaining balance shall be payable in the following manner:

¨ In a lump sum immediately prior to the consummation of a Change in Control.

¨ In accordance with the distribution schedule elected by me on this Exhibit B.

Submitted by:		Filing Acknowledgement:
Participant		Franklin Resources, Inc.
		By:
Name:		Its:
Date:	_________________________________________________	Filed with the records of the Company this          day of                 , 20

Exhibit B B-4

EXHIBIT C

FRANKLIN RESOURCES, INC.

2006 DIRECTORS DEFERRED COMPENSATION PLAN

INVESTMENT DIRECTION

Effective Date of Change in Investment Direction:                                    

(select first day of any upcoming calendar quarter)

The Participant hereby directs the investment of his or her Deferred Compensation Account in Franklin Resources, Inc. Common Stock and/or one or more Franklin Templeton mutual funds in accordance with the percentages indicated below.

INVESTMENT	Percentage
Franklin Resources, Inc. Common Stock	%
____________________________________________________________________________	%
____________________________________________________________________________	%
____________________________________________________________________________	%
____________________________________________________________________________	%
	100	%

Submitted by:		Filing Acknowledgement:
Participant		Franklin Resources, Inc.
		By:
Name:		Its:
Date:	_________________________________________________	Filed with the records of the Company this          day of                 , 20

Exhibit C C-1

FRANKLIN RESOURCES, INC.

2006 DIRECTORS DEFERRED COMPENSATION PLAN

SUPPLEMENTAL DEFERRAL ELECTION FORM

Name:                             

This Supplemental Deferral Election Form is in addition to the Deferral Election Form I have previously filed with Franklin Resources, Inc. (the “Company”) with respect to the Franklin Resources, Inc. 2006 Directors Deferred Compensation Plan (the “Plan”) and relates only to payment of my Plan deferrals in any of the circumstances described below. This supplemental election shall remain in effect indefinitely for all years of service until terminated or modified by a subsequent deferral election form which shall generally be effective for amounts earned in the calendar year following the calendar year such subsequent deferral election form is filed with the Company:

In the event of my Disability prior to the complete distribution of my Plan deferrals (as adjusted for income, gains and losses under the Plan), the remaining balance shall be payable in the following manner:

¨ In a lump sum.

¨ In accordance with the distribution schedule elected by me on the Deferral Election Form (Exhibit B of the Plan).

In the event of a Change in Control prior to the complete distribution of my Plan deferrals (as adjusted for income, gains and losses under the Plan), the remaining balance shall be payable in the following manner:

¨ In a lump sum immediately prior to the consummation of the Change in Control.

¨ In accordance with the distribution schedule elected by me on the Deferral Election Form (Exhibit B of the Plan).

Page 1 of 2

Special Election Relating to Existing Supplemental Deferral Election

If you have previously elected to receive quarterly installment payments under the Plan, a special one-time election is now available to modify the date on which your distributions will commence. You may also elect to retain your existing deferral election. In either event, please select one of the following alternatives:

¨ Retain existing deferral election. I understand that my quarterly installment payments will commence on the April 20 following the date on which the event triggering my distribution occurs and will continue thereafter on each following July 20, October 20, January 20, or April 20.

¨ Amend existing deferral election. I understand that my quarterly installment will be commence to be made on the earlier of the January 20, April 20, July 20, or October 20 immediately following the date on which the event triggering my distribution occurs and will continue thereafter on each following January 20, April 20, July 20, or October 20.

Submitted by:		Filing Acknowledgement:
Participant		Franklin Resources, Inc.
		By:
Name:		Its:
Date:	_________________________________________________	Filed with the records of the Company this          day of                 , 20

Page 2 of 2

EX-10.2

Exhibit 10.2

Amendment Number 7

to the

Managed Operations Services Agreement

This Amendment Number 7 to the Managed Operations Services Agreement (this “Amendment”), is made by and between Franklin Templeton Companies, LLC, a Delaware Limited Liability Company, having a place of business at One Franklin Parkway, San Mateo, CA, 94403 (“Franklin”) and International Business Machines Corporation, having place of business at Route 100, Somers, NY, 10589 (“IBM”) (collectively referred to herein as the “Parties”). This Amendment is effective as of August 1, 2007 (the “Amendment Number 7 Effective Date”). This Amendment amends the Managed Operations Services Agreement, dated February 6, 2001, between Franklin and IBM as modified or amended prior to the date hereof including any schedules, supplements, exhibits and attachments thereto (the “Agreement”). Capitalized terms used but not defined herein shall have their respective meanings as defined in the Agreement. In the event of any inconsistency between the terms of the Agreement and the terms of this Amendment, the terms of this Amendment shall prevail. All terms and conditions of the Agreement not specifically amended or supplemented herein, shall remain unchanged and in full force and effect. The Term of this Amendment will begin as of the Amendment Number 7 Effective Date and will run concurrently with the Agreement.

This Amendment modifies the Agreement for purposes of extending the Business Recovery Services Term, clarification of charges regarding BR Services (as defined in Schedule M of the Agreement) and to add mobile recovery services to the scope of the BR Services, clarification of the Parties’ obligations to obtain consents for Franklin products added to the environment after Initial Refresh and to define certain changes due to the change in control of root access.

The affected and changed sections and Schedules of the Agreement are as indicated below.

I. The Agreement:

1. Section 20(b) of the Agreement shall be deleted in its entirety and replaced with the following:

Schedule M shall commence on the Effective Date and shall extend until 2400 hours, Pacific time, on the tenth anniversary of the Commencement Date, if not terminated earlier pursuant to Section 18 or 21 (the “Business Recovery Services Term”). Franklin shall have the right to renew Business Recovery Services Term for three successive one year renewal terms, on the same terms and conditions as set forth in Schedule M, by providing IBM with written notice ninety (90) days before the expiration of the ten year term or before expiration of a one-year renewal term.

2. Section 21(c) of the Agreement shall be deleted in its entirety and replaced with the following:

Termination of Schedule M. At any time on or after February 28, 2010, Franklin may terminate Schedule M for convenience for any reason or no reason upon at least one hundred twenty (120) days written notice, and Franklin shall have no further obligations under Schedule M except for (i) payment for any acceptable Services provided under Schedule M and completed by IBM prior to the effective date of termination; (ii) payment of the Termination for Convenience Charge for termination of Schedule M as follows: fifty percent (50%) of the sum of the Monthly BR Service Charges Franklin would have paid from the effective date of such termination through the end of the Business Recovery Services Term had Franklin not terminated. Further, Franklin shall have the right to terminate Schedule M, for convenience for any reason or no reason, if IBM and Franklin enter into an agreement, mutually agreeable to both parties, pursuant to which IBM shall provide managed operation services at a location not listed in Schedule I (which location shall be

IBM/FRANKLIN CONFIDENTIAL Page 1 of 4

a “New Facility”), where such services include business recovery services and replace the business recovery services that IBM was providing hereunder. Such termination shall be effective ninety (90) days after IBM has commenced such managed operation services at the New Facility. Franklin shall also have the right to terminate Schedule M, immediately upon written notice, if IBM is more than ninety (90) days late in completing the final Business Recovery Milestone described in Schedule M.

3. Add the following to Section 8.d. of the Agreement (Required Consents

Franklin shall be responsible to secure the consents (if any) required to be obtained to allow IBM to use the In-Scope Software added to the environment after Initial Refresh which Franklin is required to provide pursuant to the Agreement in order for IBM to perform the Services.

4. Section 23.b.v shall be deleted in its entirety and replaced with the following:

Other than the consents as to which Franklin is required to obtain pursuant to Section 8.d and Section 23.d, IBM will obtain all consents and license or other rights necessary from third parties (including but not limited to third party vendors of software and hardware that IBM uses to provide the Services) to enable Franklin to receive and enjoy the benefits of the Services; and

5. The following shall be added as Section 24.b.viii of the Agreement:

To the extent that such claim arises from the use of the e-BRS/Internet Access Services (as defined in Exhibit M-3 to Revision 2 of Schedule M) by Franklin or any third party authorized by Franklin.

6. The following shall be added as Section 32 of the Agreement:

32. Control of Root Access. Franklin will provide IBM individual staff members with the needed permission levels as reasonably necessary to perform their assigned work up to and including root access. In the event that an additional level of root access is needed, that has not been provided in the assigned ID, the Franklin HotID process will be deployed. In the event that IBM can not be assigned an ID or a HotID and cannot perform their work within the committed SLA’s due to not having an ID or HotID, IBM will be relieved from SLA commitments and associated penalties for that specific event to the extent that noncompliance with the SLA is due to not having an ID or HotID.

II. The Schedules:

A. Revision 1 to Schedule A is hereby amended as follows:

1. Add the following as Section 4.1.b.6 (Systems Operations, Franklin responsibilities):

be responsible to provide, manage and maintain control of root access and to provide root access to IBM when reasonably necessary in a timely manner when required by IBM to meet its obligations.

B. Intentionally left blank

IBM/FRANKLIN CONFIDENTIAL Page 2 of 4

C. Revision 2 to Schedule C is hereby amended as follows:

1. Section 3.7(d)(2) shall be deleted in its entirety and replaced with the following:

The removal of Serviced Applications will result in a monthly reduction to the BR Services charges in the amount set forth in Revision 1 to Exhibit C-3, subject to the minimum revenue commitment described in Section 3.7e.

2. Section 3.7(e) shall be deleted in its entirety and replaced with the following:

In no event will the Business Recovery Services ASC as described in Exhibit C-1 be reduced to an amount less than $190,000 per month.

3. Add the following as Section 3.7(k):

If at any time during the period from August 1, 2007 through February 28, 2011, for the Shared Recovery Configurations identified by supplements CFTR4YP, CFTBTXJ, CFTQ8MM, CFTBTYJ, CFTBTWJ, CFTY5SB, CFT2K4M, CFTK2DP, CFTK2FP and CFTQQ1L, Franklin requests increases to Shared Recovery Configurations of the BR Serviced Applications, such increases shall be at the monthly rates set forth in Exhibit C-4, provided that any additional capacity being requested is also available to IBM’s general subscriber base at the IBM data recovery site associated with such supplement.

IBM will use its standard measurement of MIPS and GB when calculating such adjustments. If Franklin requests that items be removed from a Shared Recovery Configuration, IBM will issue a BR Service Authorization reflecting the removal of the requested items and an adjustment to the BR Services Annual Services Charge, as set forth in Revision 1 to Exhibit C-3 and pursuant to Section 3.7(e) of this Schedule.

4. Add the following as Section 3.9:

3.9 Mobile Recovery Services Charges

For the mobile recovery services set forth in Section 11 of Revision 2 to Schedule M of the Agreement, IBM will invoice Franklin the charges set forth in Exhibit C-5 of Revision 2 to Schedule C of the Agreement.

5. Those certain sections of Exhibit C-1 applicable to the BR ASC shall be modified as follows;

See Amendment Number 7 Exhibits to Revision 2 to Schedule C

6. Exhibit C-3 to Revision 2 of Schedule C of the Agreement shall be deleted in its entirety and replaced with Revision 1 to Exhibit C-3:

See Amendment Number 7 Exhibits to Revision 2 to Schedule C

7. The following shall be added as Exhibit C-4 to Revision 2 of Schedule C of the Agreement:

See Amendment Number 7 Exhibits to Revision 2 to Schedule C

8. The following five (5) tables shall be added as Exhibit C-5 to Revision 2 of Schedule C of the Agreement:

See Amendment Number 7 Exhibits to Revision 2 to Schedule C

IBM/FRANKLIN CONFIDENTIAL Page 3 of 4

D. Revision 1 to Schedule M:

1. “Revision 1 to Schedule M” is deleted in its entirety and replaced with “Revision 2 to Schedule M” which is attached hereto.

THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AMENDMENT, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. FURTHER, THE PARTIES AGREE THAT THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES RELATING TO THIS SUBJECT SHALL CONSIST OF 1) THIS AMENDMENT, 2) THE SCHEDULES AND SUPPLEMENTS TO THE SCHEDULES, AND 3) THE AGREEMENT, DATED FEBRUARY 6, 2001, AS PREVIOUSLY AMENDED. FRANKLIN’S APPROVAL OF THIS AMENDMENT SHALL BE CONSIDERED ACCEPTANCE BY FRANKLIN OF IBM’S PROVISION OF THE SERVICES FOR THE CORRESPONDING CHARGES SPECIFIED IN THE AGREEMENT, AS AMENDED. THIS STATEMENT OF THE AMENDMENT SUPERSEDES ALL PROPOSALS OR OTHER PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER DESCRIBED IN THIS AMENDMENT.

Accepted by:				Accepted by:
International Business Machines Corporation				Franklin Templeton Companies, LLC
By:	/s/ France Dubé			By:	/s/ Jennifer J. Bolt
	Authorized Signature				Authorized Signature
France Dubé		Date:	December 21, 2007	Jennifer J. Bolt, SVP		Date:	December 21, 2007
Name (Type or Print)				Name (Type or Print)

IBM/FRANKLIN CONFIDENTIAL Page 4 of 4

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: February 8, 2008	/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: February 8, 2008	/s/    KENNETH A. LEWIS
	Kenneth A. Lewis
	Executive Vice President and Chief Financial Officer

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 December 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: February 8, 2008	/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, Executive Vice President and Chief Financial 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 December 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: February 8, 2008	/s/    KENNETH A. LEWIS
	Kenneth A. Lewis
	Executive Vice President and Chief Financial Officer