Welcome to Franklin Resources conference call for the Quarter ended December 31, 2007. Please note that the financial results to be discussed in this Conference Call are preliminary. Statements made in this conference call regarding Franklin Resources Incorporated, which are not historical facts, are forward looking statements within the meaning of the private securities litigation reform act of 115. These forward looking statements involve number of known and unknown risk, uncertainties and other important factors that can cause actual results to differ materially from any future results expressed or implied, message forward looking statements. These and other risk uncertainties and other factors are described in more detail in Franklin’s recent filings with the Securities and Exchange Commission included in the risk factors and MD&A sections of Franklin’s most recent Form 10-K and 10-Q filings. (Operator instructions): Mr. Johnson you may begin your conference.

This is Greg Johnson, Chief Executive Officer of Franklin Resources, and joining me today is Ken Lewis, our CFO. We are pleased to report another record quarter of earnings highlighted by positive overall net flows during a period of heightened volatility in the equity markets. Looking at the assets under management, they are relatively flat quarter-to-quarter. We are down 0.3% and ended at $643.7 billion and quarterly average assets were up 4% over the quarter. Really no shift to note, slight shift towards the fixed income as you would expect with fixed income having a relatively strong quarter versus the equity market, but in terms of our overall objective as well as by investment brand, really no significant changes, very stable from the previous quarters. Looking at the fund flows, flows did decrease from $9.8 billion to $4.9 billion on the back of quarterly depreciation of $3.5 billion. Gross sales were down 3.8% to $50.6 billion, redemptions were up 6.8% to $45.7 billion resulting in the net number of $4.9 billion. Looking at sales from within the US and outside of the US, overall US net sales declined 2.9% to 1.2 and non-US sales from 6.9 of inflows to 3.7. Within the US, the income fund had net sales decreased $540 million from $993 million in the prior quarter, and we are pleased to see that our year-long fixed income sales and marketing campaign continues to do very well, highlighted by the Five-Star Templeton Global Bond Fund, which is our best selling fund in the quarter with net sales of almost $1.2 billion compared to $ 776 million in the Fourth Quarter and it was still remains a top decile performer for the 1,3,5 and 10-year period. Looking at non-US, Europe has been very difficult where the industry continues to…

Thank you, Greg. We are pleased to report that this is another record quarter for us driven by good expense and capital management. Net income increased 18.6% from last quarter while earnings per share was up more than 20% to $2.12 as a result of our share repurchase activity during the quarter. Operating income increase 17% from last quarter due to the increased revenue and effective management of expenses. Just a couple of comments on the individual line items. Investment management fees increased almost 6% due to the 4% increase in average assets under management and the remainder is due to some performance fees and extra day in the quarter. Underwriting and distribution fee revenue decreased slightly reflecting a shift in sales mix and that was offset by increased distribution fees from increased average assets under management. I guess one of the expense items that might have jumped out is the compensation and benefits that decreased almost 2% for the quarter. But, if you normalize the prior quarter to exclude non-recurring items, we actually experienced an approximately 3% sequential increase. And that related mostly to variable compensation. Technology and occupancy expense decreased from 11% from the prior quarter. It is just that the last quarter was a little high. This quarter is a bit on a low side and that is consistent with the seasonal patterns. Advertising and promotions decreased nearly 17% this quarter as we reduced our TV and web media advertising and typically we do see spending in this line item in the first quarter as well. Amortization of differed sales commission decreased slightly as expected reflecting lower US sales and other expenses were lower by about 20% due to the decreased legal consulting aand professional fees as well as general and administrative expenses. I should also note…

For some highlights in the US, a year long fixed income, as I have mentioned earlier, a campaign as seen very strong results with market shares, speeding 11% of the 9% actually hit a high of 13% of non-prop sales We are also please to see our New Jersey best college saving program passed at 2 billion in assets. In Canada, Cotentiol (Ph), the number one rep program in Canada, passed $8 billion in assets. We continue to see strong growth on both gross and net sales in Canada with one of our best quarters there on record. Overall on the performance side, there is really not too much change. I think the 66% long term assets were in the top two quartiles, 79% in the five-year and 92% in the ten-year. We will now like to open it up for questions.

Your first question comes from Michael Kemp with Sandler O’Neill Michael Kemp - Sandler O’Neill: The first question I have deals with portfolio allocation, now to what extent if any do you think investors both on the retails and institutional side are starting to reallocate money back into US strategies and perhaps out of an international fund given some concerns around slowing economic growth, particularly in emerging markets.

Well, I think it is a little too early to draw any conclusions there. The dollar really has not done much so, I think the trend with the global equities is still very much in place. I think the bigger move has been towards fixed income and we are seeing some real shift from both US equities and global equities into the fixed income in this kind of environment. Michael Kemp - Sandler O’Neill: Okay, and just maybe in terms of investment performance, if I look at the percentage of fund assets that are ranked in the top two Lipper quartiles, based on one and three in returns, it looks like you have some decline across the kind of broader equity platform but some improvement on the Templeton side, can you just give us a sense of where the turn down may have been during the quarter?

I think it is always hard and that is why we do not talk too much about the one year or other than it can give you some leading indication where the three and five are going. But just to give an example, the income fund for the period ended 12-31 which is about 16% point in shift in Lipper quartiles with the overall group slip down into the third. But, if we look the twelve months through yesterday, it’s back up. So even that one fund in that short of period resulted in the big shift in the one year number. I think in terms general performance statements, mutual series in the kind of market through 12-31 relatively average short term year but in the kind of market that we seen since then doing what we expect and that is out performing other funds. We expect to see those numbers increasing. Templeton has done much better on the international foreign side and we continue to see little weakness in the overall world category for the group, but some big improvements in the area where we have the biggest outflows in Templeton. Michael Kemp - Sandler O’Neill: Okay, and then just a final question. In terms of maybe more generally speaking the muni bond markets, with some of the recent issues surrounding the bond and shares, I guess number one, how do you see the potential for ratings downgrades affect the pricing and demands from muni bonds or generally, and number two, do you think you are in a position to perhaps gain market share given from what I understand the fact that your funds would not be required to sell any potentially downgraded holdings and strong investment performance track records.

I think I share the sentiments that munis are probably one of the most attractive categories right now and even some of the problems with insurance wrappers, they really get some people comfort. But at the end of the day, I think you have default of some where around half a percentage historically, so we do not see that as a big problem for us. I think the muni funds is still been in positive flows. Our relative performance has been very strong with some of the problems of some of the other different strategies, so that is an area that we are pretty optimistic on. We had very good results and I think there are probably not fcheaper, attractive sectors than munis right now. Michael Kemp - Sandler O’Neill: Okay. Thanks a lot.

Your next question comes from Greg with Credit Suisse

Can you give us some perspective on the institutional front? So while in the retail front we have seen a lot of shift to conservative asset class in the US and Europe such as money market funds, what is going on, on the institutional front? Are your clients satisfied earning the low rate returns that some of your bond products may provide? Or are they looking more towards global equity now? I am just wondering if there is any asset shift that is going on?

Well, we really have not seen any shift on the institutional side, I think some of the big mandates that we won on the last quarter were around global equities and global bonds. The global bond is a new area for us where we have a lot of momentum but the global equity search is still very steady and I guess the good new is, that, we will not have as many redemption from very positive performance and re-balancing and may get the benefit that come from the other way. So, we are not seeing any meaningful shift there from the institutional side. I think most of these clients can not afford to go into lower yielding vehicles at this point.

Do you think the institutional side of the business could continue to give mandates to global equity which is kind of the opposite of trend we are seeing right now from the retail investors?

Yes. I think we would expect that as there is a lot more discipline around in the consultants and the time frames with institutions.

I got it. And then one of your other income line, the consolidated sponsored investment product line, we feel a lot of volatility there. I never really had a good color of what actually is in that item. So, I am wondering, is it equity pieces or what is actually in there?

Our sponsored investment products are essentially products that we have a controlling interest in and that is the unrealized gains and losses that go through that line. So it is kind of, you get the volatility in there because it really reflective of the volatile overall markets we have. It is pretty much long only product in plain vanilla equity.

Is this seed money for some of your funds.

Yes. It is.

Is there a portion of that in CDO equity or a fixed income structured product?

No, not material. No.

Okay, I have one more question on target date fund. I am just wondering what your view on the market is because certain executives out there are pretty positive on the prospect there and the shift within the defined contribution plans. You guy are very active in the DC market, I am just wondering what are your thoughts on the target date funds?

I think clearly that it will continue to grow on popularity and as more people are mandated to invest in their retirement fund, these are somewhat of a natural and whether it is life cycle or target date funds, it is nice, simple way to get diversified and try to get some suitability there without having an advisor in between.

And what is your AUM in your target date funds?

I do not have that in front of me so I am not sure.

Is that less than $5 billion?

Yes.

Your next question comes from Jeff Hopson with Stifel

On the non-US flows, it seems like a fair amount of that is driven by newer products, can you give us any sense of pipeline of new product possibilities now on the road? And, Greg you mentioned that there is a little bit of a shift to fixed income, does that include domestic as well?

Well, yes. I think the big seller for us is on the global bond side and actually, it has been as popular in the US as outside of the US. And what was the other part of the question?

And then the new product pipeline on the retail side overseas.

Well, we brought out a lot of new products in the last year so a lot both on the equity side and fixed income side, I think we have most of the mandates out there covered. We will continue to bring new funds. We are bringing out a core equity fund here in the US market and actually our aggressive growth fund had a very strong quarter in the CCAB as well.

Okay. Great. Thanks.

Your next question comes from William Stud with Buckingham Research

The question I have is just coming back to retail for a moment. Just looking at some of the trends here and US retail you saw it slipped negative in the quarter. I am just curious if you can talk a little about, if you have seen any kind of change into the first quarter, and a related question is, strategically have you given any greater thought to potentially accelarating the penetration to growth platform, the acquisition route.

Well, I think first of all, this quarter you would not expect to see a big turnaround in the flows from the prior quarter. It has been extremely difficult, the equity market and a lot of people are going to stay on the sidelines until we seem to settle here. So I think that trend of volatility and especially in flows as you would expect, it is like when you look at the industry would be a difficult period. Now, the growth side we continue to wrestle with and I think one of the positive notes on performance has been with the Franklin and Global advisers, specifically the team with Fiduciaries has some very strong results on the growth side, specially Global Growth and we are able, we think, to leverage those performance records so that again gives us another arrow there to hopefully address the growth platform. But it continues to be a priority for us to fill that gap.

Are you giving any greater probability to doing an acquisition if there is more decisive shift coming into the New Year.

As we said before, I mean, it continues to be a large segment of the market where we have a lower penetration and, as always, we are open to looking at everything out there.

If you calculate the manufacturing margin, if you will, excluding the impact of distribution, it was 55%, which in my recollection it is probably the highest has ever been. I am just curious, can you mention how much of that was just belt tightening versus any residual leverage you have in the platform.

I think is what you have seen there is classic revenue growth outpacing expense growth. I think what you see in expense side is there was a little belt tightening. There was also a little bit of what I called seasonal spending patterns that we saw the same time last year, so a little bit of both there.

If you could talk a little bit about on the global products which have slowed versus the Greg you comment that the mandate environment has not really slowed that much. What then is driving the sequential deceleration on a product basis, the global product? Given the earlier question on relative performance deteriorating a little bit sequentially what gives confidence that that would not continue the sort of adverse trend?

Well I think the big one I mentioned earlier was the world products specific Templeton growth and that quarter to quarter was a difference of $1.3 billion inflows from the prior quarters. So that is under pressure, which is really the one that contributed to the over all decline. Mutual discovery continues to perform extremely well, Mutual European continues to perform extremely well, and continues to have strong inflows, but the real change has been with the growth fund. It has had a difficult year, just some of the weightings with consumer discretionary not having materials. It made a very difficult year but the good news is that the foreign and international side is where we had the big outflows has turned around

Okay, if you look at your comp to revenue ratio and maybe its days weighted, etcetera, that ratio has dropped pretty precipitously. Is this tied to relative performance or any other strategies? The reason I ask that is, I am sort of curious, how you dimension trying to rebuild the equity side of the business against efficiencies.

I think that is a little bit of, a lot of questions in there but the equity groups do have separate pools that they are base on performance but they really are a bottom up build up the overall pool, which tends to be a percentage of PTOI, which is actually consistent with the prior years. There is not a big change in compensation anticipated to correct the performance at this stage.

I would just add that it is the First Quarter of the year, we have taken our best guess on what the numbers is going to be for the full year and it is based on profitability, so you are going to take a stab at what it is going to be for the whole year, but it is nothing, it is kind of business as usual.

Your next question comes from Marc Irizarry with Goldman Sachs.

Just a question on the positioning on style, if you will. Do you have a comment obviously, that there is this perceived or actually observed shift into growth. What are you doing strategically, if anything at all? How do you think the firm is positioned strategically at retail or institutionally to capture or to benefit from the shift in any way?

I think I talked a little bit about that. We have a lot of initiatives in the firm to address just that. Part of it was the combination last year with fiduciary analyst portfolio managers with Franklin’s and the development of a lot of new growth products from that. Franklin here in San Mateo also had a very strong performance, but had a somewhat a tough year, year to date, not all, but some of the growth products, so it is something we are aware of, but it really does not change our thinking to building and focusing on taking the organic path. What is the part of the question?

Just in terms of the style shift.

I think one thing to look at just year to date, a lot of the large gap growth names that have really led to some of the out performance here have been the worst performers in the sell off in the market. So it may not be as obvious of the value to growth rotation and I still think it would be a stock pickers market more towards core than the kind of shift that we have seen to value and the shift before that to growth. So, I just don’t think that you are going to have the same kind of move and you do not have the same kind of valuation in equities you had in the past cycles. I just do not think there will be a huge swing to growth.

Understood, just in terms of your acquisition appetite and obviously, you did this the deal or with the investment with Algebra. I am just curious, regionally, where do you see some of the pockets of opportunity to increase your investment expertise, your local level investment expertise. Is that something that in this environment do you think that evaluations would imply that you would be able to maybe accelerate that initiative?

I think that is certainly a possibility. I think we have been a little bit hesitant on some of the past valuations on firms that we were interested in and hopefully some of those would get cheaper and look attractive to us, but I also think, as far as, number of funds, styles we do have quite a bit to support today. But whether it’s small kind of niche that fits in nicely or a firm from outside of the US that helps build our local business in that market. Those again are things that we are going to be open to, but our appetite hasn’t changed.

Your next question comes from Cynthia Mayer with Merrill Lynch.

Could you just talk a little bit about the pattern of net flows within the quarter between three months and whether things, the sales or their redemptions tailed off in December.

Well, again, I think when you look at the volatility and I will tell you it will follow very closely to what the market is doing during the quarter. We did have positive flows in every month.

Ok. On the income fund, what has caused the under performance that I remember in the summer. You are talking about utilities, but actually did not do pretty well through the end of the year. I am wondering what else it could be and also, in terms of the sales falling off in that, is that a function of relative performance you think or is it a function of people recognizing that it is not a pure substitute for a bond fund.

I think it is all the above. It has approximately 50% weighting in high-yield bonds, so relatively performance, its credits spreads widened. That fund did not as well relative to its peer group now. That fund always had high-yield bonds and will probably always will, so really we expect that kind of performance. The good news is that high-yield selection has done well across the board for us relative to its peer group. You are right utilities did do well. When we talk about under performance, we are talking about a very small amount that was primarily due to some financial exposure in some high-yield. Now, as I mentioned some of that has got actually better and the relative numbers are back to the top two quartiles for the year to date numbers. It had such a huge swing on our total numbers, because it is such a large part of our asset base and we are looking at those weightings but there is also some concern from the buyer at this point will credit spreads widen, so anything with high-yield, I think advisers are being a little bit more cautious with, as we had this kind of volatility. That too has affected the income fund flows.

On the expenses, I am just wondering if you could give it a little more color on what you mean by belt tightening and how sustainable your lower other expenses line is and also, in a tough market environment is at a type of environment where you will pull back on marketing expenses.

I just add for Ken, I think, as far as belt tightening, I mean hopefully we are always belt tightening and that is the kind of culture we have and I don’t not think anything in this quarter was due to a concerted effort to suddenly control the cost. Some of that was due to some timing differences, the marketing number, as Ken mentioned, that is really a seasonal lower spend for us, but it is not something that we expect to have to reduce, but if you continue to have a sell-off, at least that is a decision you can make during the year and control that. So, really some of that is seasonal and today with the market sell off, a little bit different situation than where we were three months ago, so I think like any business in this investment management you are going to take a hard look on all your discretionary spending right now.

Let me add a couple of things to that. First, just a clarification on previous question about the income fund, the high-yield holdings are 50% of the fixed income component, so it is not all, is not 50% of fund, but on the expenses, I agree on everything that Greg said, I do not think you should make too much about this, any decisions that we make today with our cost base probably would not be reflected for sometime. So, the short terms it is kind of hard to make too much of the belt tightening comments.

Our final question comes from Kenneth Worthington with J.P. Morgan.

It was answered at this point. Thank you.

Are there any more questions?

We have a question from Jeff Hopson with Stifel

Just back on the growth products, you actually have a fair number of large gap growth products that have done pretty well. So I am curious is there just a perception issue out there that you do not have a full products and is there any attempt here to place more emphasis on those products as we you move forward or have you been doing that?

The answer is yes to both. I think if you are successful and perceived, whether it is international or value. It will always be difficult to get the kind of attention you deserve on the growth side and it is an area that our distribution group is focused on and it is talking about and will continue to be. We think the organic path is clearly the best one for us and we have the team and the expertise in place to do that. So, that is really the path we are going on, but I think you hit it on the head that it is somewhat difficult. That is part of the of the reason why we retain separate investment management firms and brands, because the advisers, consultants, identifies so strongly with the brand where it has been specifically successful and has the greatest penetration, so that is why we keep all our options open and just thinking about what is the right formula going forward, but the organic path, the one that we are committed to today.

At this time now, there are no further questions. Do you have any closing remarks?

Well, I would just like to thank for participating today and we look forward to speaking to next quarter, thank you.

This concludes today’s quarterly analyst conference call you may now disconnect.