Table of Contents

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, 2018
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-09318
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) 312-2000
(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     o   NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     x   YES     o   NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer     x
 
Accelerated filer      o
 
Non-accelerated filer  o
 
Smaller reporting company    o
 
 
 
Emerging growth company    o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act).     o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o   YES     x   NO
Number of shares of the registrant’s common stock outstanding at January 23, 2019 : 509,510,446 .

Table of Contents


INDEX TO FORM 10-Q
 
 
Page
Financial Information
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
3
 
 
4
 
 
5
 
 
6
 
 
7
 
 
8
 
Item 2.
21
 
Item 3.
43
 
Item 4.
43
 
 
 
 
Other Information
 
 
Item 1.
44
 
Item 1A.
44
 
Item 2.
44
 
Item 6.
44
 
 
 
 
45
46


2
Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
 
 
Three Months Ended
December 31,
(in millions, except per share data)
 
2018
 
2017
Operating Revenues
 
 
 
 
Investment management fees
 
$
971.8

 
$
1,113.6

Sales and distribution fees
 
354.8

 
417.8

Shareholder servicing fees
 
55.1

 
54.9

Other
 
29.8

 
29.2

Total operating revenues
 
1,411.5

 
1,615.5

Operating Expenses
 
 
 
 
Sales, distribution and marketing
 
444.5

 
528.7

Compensation and benefits
 
355.0

 
332.5

Information systems and technology
 
60.9

 
55.0

Occupancy
 
31.2

 
29.4

General, administrative and other
 
108.4

 
88.8

Total operating expenses
 
1,000.0

 
1,034.4

Operating Income
 
411.5

 
581.1

Other Income (Expenses)
 
 
 
 
Investment and other income (losses), net
 
(59.1
)
 
81.3

Interest expense
 
(6.4
)
 
(10.8
)
Other income (expenses), net
 
(65.5
)
 
70.5

Income before taxes
 
346.0

 
651.6

Taxes on income
 
86.0

 
1,223.5

Net income (loss)
 
260.0

 
(571.9
)
Less: net income (loss) attributable to
 
 
 
 
Nonredeemable noncontrolling interests
 
(0.5
)
 
(0.1
)
Redeemable noncontrolling interests
 
(15.4
)
 
11.5

Net Income (Loss) Attributable to Franklin Resources, Inc.
 
$
275.9

 
$
(583.3
)
 
 
 
 
 
Earnings (Loss) per Share
 
 
 
 
Basic
 
$
0.54

 
$
(1.06
)
Diluted
 
0.54

 
(1.06
)




See Notes to Consolidated Financial Statements.

3
Table of Contents

FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
(in millions)
 
Three Months Ended
December 31,
 
2018
 
2017
Net Income (Loss)
 
$
260.0

 
$
(571.9
)
Other Comprehensive Income (Loss)
 
 
 
 
Currency translation adjustments, net of tax
 
(14.6
)
 
15.8

Net unrealized losses on defined benefit plans, net of tax
 
(0.4
)
 
(1.1
)
Net unrealized gains on investments, net of tax
 
—

 
3.5

Total other comprehensive income (loss)
 
(15.0
)
 
18.2

Total comprehensive income (loss)
 
245.0

 
(553.7
)
Less: comprehensive income (loss) attributable to
 
 
 
 
Nonredeemable noncontrolling interests
 
(0.5
)
 
(0.1
)
Redeemable noncontrolling interests
 
(15.4
)
 
11.5

Comprehensive Income (Loss) Attributable to Franklin Resources, Inc.
 
$
260.9

 
$
(565.1
)

See Notes to Consolidated Financial Statements.

4
Table of Contents

FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited
(in millions, except share and per share data)
 
December 31,
2018
 
September 30,
2018
Assets
 
 
 
 
Cash and cash equivalents
 
$
6,430.7

 
$
6,610.8

Receivables
 
723.9

 
733.7

Investments (including $522.4 and $551.6 at fair value at December 31, 2018 and September 30, 2018)
 
1,385.9

 
1,426.5

Assets of consolidated investment products
 
 
 
 
Cash and cash equivalents
 
228.2

 
299.8

Receivables
 
81.7

 
114.2

Investments, at fair value
 
2,040.2

 
2,109.4

Property and equipment, net
 
541.3

 
535.0

Goodwill and other intangible assets, net
 
2,326.2

 
2,333.4

Other
 
192.5

 
220.7

Total Assets
 
$
13,950.6

 
$
14,383.5

 
 
 
 
 
Liabilities
 
 
 
 
Compensation and benefits
 
$
218.9

 
$
405.6

Accounts payable and accrued expenses
 
180.5

 
158.9

Dividends
 
139.2

 
127.7

Commissions
 
259.4

 
297.9

Income taxes
 
1,071.9

 
1,034.8

Debt
 
697.7

 
695.9

Liabilities of consolidated investment products
 
 
 
 
Accounts payable and accrued expenses
 
28.9

 
68.0

Debt
 
32.7


32.6

Deferred taxes
 
132.6

 
126.5

Other
 
179.8

 
184.1

Total liabilities
 
2,941.6

 
3,132.0

Commitments and Contingencies (Note 10)
 

 

Redeemable Noncontrolling Interests
 
932.3

 
1,043.6

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; 511,482,401 and 519,122,574 shares issued and outstanding at December 31, 2018 and September 30, 2018
 
51.1

 
51.9

Retained earnings
 
10,087.9

 
10,217.9

Accumulated other comprehensive loss
 
(393.6
)
 
(370.6
)
Total Franklin Resources, Inc. stockholders’ equity
 
9,745.4

 
9,899.2

Nonredeemable noncontrolling interests
 
331.3

 
308.7

Total stockholders’ equity
 
10,076.7

 
10,207.9

Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity
 
$
13,950.6

 
$
14,383.5




See Notes to Consolidated Financial Statements.

5
Table of Contents

FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’  EQUITY
Unaudited
 
 
Franklin Resources, Inc.
 
Non-
redeemable
Non-
controlling
Interests
 
Total
Stockholders’
Equity
 
Common Stock
 
Capital
in Excess
of Par
Value
 
Retained
Earnings
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Stockholders’
Equity
(in millions)
for the three months ended
December 31, 2018
Shares
 
Amount
Balance at October 1, 2018
 
519.1

 
$
51.9

 
$
—

 
$
10,217.9

 
$
(370.6
)
 
$
9,899.2

 
$
308.7

 
$
10,207.9

Adoption of new accounting guidance
 
 
 
 
 
 
 
22.9

 
(8.0
)
 
14.9

 
 
 
14.9

Net income (loss)
 
 

 
 

 
 

 
275.9

 
 

 
275.9

 
(0.5
)
 
275.4

Other comprehensive loss
 
 

 
 

 
 

 
 

 
(15.0
)
 
(15.0
)
 
 

 
(15.0
)
Dividends declared on common stock ($0.26 per share)
 
 
 
 
 
 
 
(133.8
)
 
 

 
(133.8
)
 
 

 
(133.8
)
Repurchase of common stock
 
(10.7
)
 
(1.1
)
 
(30.8
)
 
(295.0
)
 
 

 
(326.9
)
 
 

 
(326.9
)
Issuance of common stock
 
3.1

 
0.3

 
33.6

 
 

 
 

 
33.9

 
 

 
33.9

Stock-based compensation
 
 

 
 

 
(2.8
)
 
 

 
 

 
(2.8
)
 
 

 
(2.8
)
Net subscriptions and other
 
 

 
 

 
 

 
 

 
 

 
 

 
23.1

 
23.1

Balance at December 31, 2018
 
511.5

 
$
51.1

 
$
—

 
$
10,087.9

 
$
(393.6
)
 
$
9,745.4

 
$
331.3

 
$
10,076.7


 
 
Franklin Resources, Inc.
 
Non-
redeemable
Non-
controlling
Interests
 
Total
Stockholders’
Equity
 
Common Stock
 
Capital
in Excess
of Par
Value
 
Retained
Earnings
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Stockholders’
Equity
(in millions)
for the three months ended
December 31, 2017
Shares
 
Amount
Balance at October 1, 2017
 
554.9

 
$
55.5

 
$
—

 
$
12,849.3

 
$
(284.8
)
 
$
12,620.0

 
$
315.8

 
$
12,935.8

Adoption of new accounting guidance
 
 
 
 
 
2.1

 
(1.7
)
 
 
 
0.4

 
 
 
0.4

Net loss
 
 

 
 

 
 

 
(583.3
)
 
 

 
(583.3
)
 
(0.1
)
 
(583.4
)
Other comprehensive income
 
 

 
 

 
 

 
 

 
18.2

 
18.2

 
 

 
18.2

Dividends declared on common stock ($0.23 per share)
 
 
 
 
 
 
 
(127.4
)
 
 

 
(127.4
)
 
 

 
(127.4
)
Repurchase of common stock
 
(4.6
)
 
(0.5
)
 
(32.1
)
 
(167.4
)
 
 

 
(200.0
)
 
 

 
(200.0
)
Issuance of common stock
 
2.1

 
0.2

 
27.6

 
 

 
 

 
27.8

 
 

 
27.8

Stock-based compensation
 
 

 
 

 
2.4

 
 

 
 

 
2.4

 
 

 
2.4

Net subscriptions and other
 
 

 
 

 
 

 
 

 
 

 
 

 
7.0

 
7.0

Deconsolidation of investment product
 
 
 
 
 
 
 
 
 
 
 
 
 
(0.3
)
 
(0.3
)
Balance at December 31, 2017
 
552.4

 
$
55.2

 
$
—

 
$
11,969.5

 
$
(266.6
)
 
$
11,758.1

 
$
322.4

 
$
12,080.5



See Notes to Consolidated Financial Statements.

6
Table of Contents

FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
 
 
Three Months Ended
December 31,
(in millions)
 
2018
 
2017
Net Income (Loss)
 
$
260.0

 
$
(571.9
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Amortization of deferred sales commissions
 
21.7

 
19.1

Depreciation and other amortization
 
20.3

 
20.9

Stock-based compensation
 
31.2

 
30.3

Losses (income) from investments in equity method investees
 
37.6

 
(35.2
)
Net gains on investments of consolidated investment products
 
(2.0
)
 
(4.7
)
Deferred income taxes
 
11.5

 
(49.9
)
Other
 
8.7

 
5.3

Changes in operating assets and liabilities:
 
 
 
 
Decrease (increase) in receivables and other assets
 
43.1

 
(33.8
)
Decrease (increase) in receivables of consolidated investment products
 
19.5

 
(94.8
)
Decrease in trading securities, net
 
105.8

 
18.6

Increase in trading securities of consolidated investment products, net
 
(88.7
)
 
(187.1
)
Decrease in accrued compensation and benefits
 
(186.0
)
 
(186.1
)
Increase (decrease) in commissions payable
 
(38.5
)
 
9.1

Increase in income taxes payable
 
37.1

 
1,232.0

Increase in accounts payable, accrued expenses and other liabilities
 
15.4

 
1.5

Increase (decrease) in accounts payable and accrued expenses of consolidated investment products
 
(30.7
)
 
147.1

Net cash provided by operating activities
 
266.0

 
320.4

Purchase of investments
 
(115.7
)
 
(39.7
)
Liquidation of investments
 
73.2

 
33.9

Purchase of investments by consolidated investment products
 
(18.2
)
 
(11.0
)
Liquidation of investments by consolidated investment products
 
7.0

 
22.5

Additions of property and equipment, net
 
(25.7
)
 
(19.2
)
Net deconsolidation of investment products
 
(30.9
)
 
(45.1
)
Net cash used in investing activities
 
(110.3
)
 
(58.6
)
Dividends paid on common stock
 
(122.3
)
 
(111.7
)
Repurchase of common stock
 
(321.4
)
 
(198.7
)
Proceeds from loan
 
1.7

 
—

Payments on debt by consolidated investment products
 
—

 
(2.4
)
Noncontrolling interests
 
45.9

 
261.7

Net cash used in financing activities
 
(396.1
)
 
(51.1
)
Effect of exchange rate changes on cash and cash equivalents
 
(11.3
)
 
10.0

Increase (decrease) in cash and cash equivalents
 
(251.7
)
 
220.7

Cash and cash equivalents, beginning of period
 
6,910.6

 
8,749.7

Cash and Cash Equivalents, End of Period
 
$
6,658.9

 
$
8,970.4

 
 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
 
Cash paid for income taxes
 
$
35.8

 
$
38.8

Cash paid for interest
 
6.0

 
14.1

Cash paid for interest by consolidated investment products
 
0.5

 
0.7


See Notes to Consolidated Financial Statements.

7
Table of Contents

FRANKLIN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
(Unaudited)
Note 1 – Basis of Presentation
The unaudited interim financial statements of Franklin Resources, Inc. (“Franklin”) and its consolidated subsidiaries (collectively, the “Company”) included herein have been prepared by the Company in accordance with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission. Under these rules and regulations, some information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States of America have been shortened or omitted. Management believes that all adjustments necessary for a fair statement of the financial position and the results of operations for the periods shown have been made. All adjustments are normal and recurring. These financial statements should be read together with the Company’s audited financial statements included in its Form 10-K for the fiscal year ended September 30, 2018 (“fiscal year 2018 ”). Certain comparative amounts for the prior fiscal year period have been reclassified to conform to the financial statement presentation as of and for the period ended December 31, 2018 .
Note 2 – New Accounting Guidance
On October 1, 2018 , the Company adopted new guidance issued by the Financial Accounting Standards Board (“FASB”) that requires use of a single principles-based model for recognition of revenue from contracts with customers. The core principle of the model is that revenue is recognized upon the transfer of promised goods or services to customers in an amount that reflects the expected consideration to be received for the goods or services. The guidance also changes the accounting for certain contract costs and revises the criteria for determining if an entity is acting as a principal or agent in certain arrangements. The Company adopted the new guidance using the modified retrospective approach which did not require the restatement of prior periods, and recognized a cumulative effect adjustment resulting in decreases in total assets, total liabilities and retained earnings of $9.1 million , $2.2 million and $6.9 million .
The adoption of the guidance had no impact on operating income or net income. Individual line items in the consolidated statement of income were impacted as follows:
(in millions)
 
As
Reported
 
Adoption
Impact
 
Amount
Without
Adoption
for the three months ended December 31, 2018
 
 
 
Operating Revenues
 
 
 
 
 
 
Investment management fees
 
$
971.8

 
$
15.5

 
$
987.3

Sales and distribution fees
 
354.8

 
(15.5
)
 
339.3

Shareholder servicing fees
 
55.1

 
(2.2
)
 
52.9

 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
General, administrative and other
 
$
108.4

 
$
(2.2
)
 
$
106.2

On October 1, 2018 , the Company adopted an amendment to the financial instruments guidance issued by the FASB that requires substantially all equity investments in nonconsolidated entities to be measured at fair value with changes recognized in earnings, except for those accounted for using the equity method of accounting, which impacted all equity securities previously classified as available-for-sale and investments in fund products for which fair value was estimated using net asset value (“NAV”) as a practical expedient. The amendment also provides an election to measure equity investments that do not have a readily determinable fair value at cost adjusted for observable price changes and impairment, if any, which the Company made. The Company adopted the amendment using the modified retrospective approach and recognized a cumulative effect adjustment resulting in increases in investments, retained earnings and accumulated other comprehensive loss of $21.8 million , $29.8 million and $8.0 million .
There were no significant updates to the new accounting guidance that the Company has not yet adopted as disclosed in its Form 10-K for fiscal year 2018.

8

Note 3 – Earnings (Loss) per Share
The components of basic and diluted earnings (loss) per share were as follows:  
(in millions, except per share data)
 
Three Months Ended
December 31,
 
2018
 
2017
Net income (loss) attributable to Franklin Resources, Inc.
 
$
275.9

 
$
(583.3
)
Less: allocation of earnings to participating nonvested stock and stock unit awards
 
2.5

 
1.0

Net Income (Loss) Available to Common Stockholders
 
$
273.4

 
$
(584.3
)
 
 
 
 
 
Weighted-average shares outstanding – basic
 
510.3

 
550.7

Dilutive effect of nonparticipating nonvested stock unit awards
 
0.5

 
—

Weighted-Average Shares Outstanding – Diluted
 
510.8

 
550.7

 
 
 
 
 
Earnings (Loss) per Share
 
 
 
 
Basic
 
$
0.54

 
$
(1.06
)
Diluted
 
0.54

 
(1.06
)
Nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings (loss) per share because their effect would have been antidilutive were 0.3 million and 1.9 million for the three months ended December 31, 2018 and 2017 .
Note 4 – Revenues
The Company earns revenue primarily from providing investment management and related services to its customers, which are generally investment products or investors in separate accounts. Related services include fund administration, sales and distribution, and shareholder servicing. Revenues are recognized when the Company’s obligations related to the services are satisfied and it is probable that a significant reversal of the revenue amount would not occur in future periods. The obligations are satisfied over time as the services are rendered, except for the sales and distribution obligations for the sale of shares of sponsored funds which are satisfied on trade date. Multiple services included in customer contracts are accounted for separately when the obligations are determined to be distinct.
Fees from providing investment management and fund administration services (“investment management fees”), other than performance-based investment management fees, are determined based on a percentage of assets under management (“AUM”), primarily on a monthly basis using daily average AUM, and are recognized as the services are performed over time. Performance-based investment management fees are generated when investment products’ performance exceeds targets established in customer contracts. These fees are recognized when the amount is no longer probable of significant reversal and may relate to investment management services that were provided in prior periods.
Sales and distribution fees primarily consist of upfront sales commissions and ongoing distribution fees. Sales commissions are based on contractual rates for sales of certain classes of sponsored funds and are recognized on trade date. Distribution service fees are determined based on a percentage of AUM, primarily on a monthly basis using daily average AUM. As the fee amounts are uncertain on trade date, they are recognized over time as the amounts become known and may relate to sales and distribution services provided in prior periods.
Shareholder servicing fees are primarily determined based on a percentage of AUM on a monthly basis using daily average AUM and either the number of transactions in shareholder accounts or the number of shareholder accounts, while fees from certain investment products are based only on AUM. The fees are recognized as the services are performed over time.
AUM is generally based on the fair value of the underlying securities held by investment products and is calculated using fair value methods derived primarily from unadjusted quoted market prices, unadjusted independent third-party broker or dealer price quotes in active markets, or market prices or price quotes adjusted for observable price movements after the close of the primary market in accordance with the Company’s global valuation and pricing policy. The fair values of the underlying securities for which market prices are not readily available are valued internally using various methodologies which incorporate significant unobservable inputs as appropriate for each security type and represent an insignificant percentage of total AUM.

9

Revenue is recorded gross of payments made to third-party service providers in the Company’s role as principal as it controls the delegated services provided to customers.
Operating revenues by geographic area were as follows:
 
 
Earned From Contracts With Customers
 
Not Earned From
Contracts With Customers  1
 
Total
(in millions)
United States
 
Luxembourg
 
Americas
Excluding United States
 
Asia-Pacific
 
Europe, Middle East and Africa, Excluding Luxembourg
for the three months ended
December 31, 2018
Investment management fees
 
$
533.1

 
$
267.7

 
$
85.6

 
$
61.4

 
$
24.0

 
$
—

 
$
971.8

Sales and distribution fees
 
233.0

 
104.3

 
16.6

 
0.5

 
0.4

 
—

 
354.8

Shareholder servicing fees
 
44.9

 
7.7

 
—

 
2.5

 
—

 
—

 
55.1

Other
 
3.0

 
0.3

 
—

 
0.1

 
0.3

 
26.1

 
29.8

Total
 
$
814.0

 
$
380.0


$
102.2


$
64.5


$
24.7

 
$
26.1

 
$
1,411.5

__________________  
1  
Consists of interest and dividend income from consolidated investment products.
Operating revenues are attributed to geographic areas based on the locations of the Company’s subsidiaries that provide the services, which may differ from the regions in which the related investment products are sold.
Note 5 – Investments
The disclosures below include details of the Company’s investments, excluding those of consolidated investment products. See Note  7 – Consolidated Investment Products for information related to the investments held by these entities.
The Company adopted new accounting guidance on October 1, 2018 that requires substantially all equity investments in nonconsolidated entities to be measured at fair value with changes recognized in earnings, except for those accounted for using the equity method of accounting. The new guidance did not change the accounting for investments in non-equity securities.
Investments consisted of the following:
(in millions)
 
December 31,
2018
Equity securities, at fair value
 
 
Sponsored funds
 
$
309.7

Other equity securities
 
110.0

Total equity securities, at fair value
 
419.7

Debt securities
 
 
Trading
 
79.8

Available-for-sale
 
11.0

Total debt securities
 
90.8

Investments in equity method investees
 
819.8

Other investments
 
55.6

Total
 
$
1,385.9


10

(in millions)
 
September 30,
2018
Investment securities, trading
 
 
Sponsored funds
 
$
248.1

Debt and other equity securities
 
97.6

Total investment securities, trading
 
345.7

Investment securities, available-for-sale
 
 
Sponsored funds
 
178.6

Debt and other equity securities
 
15.5

Total investment securities, available-for-sale
 
194.1

Investments in equity method investees
 
780.8

Other investments
 
105.9

Total
 
$
1,426.5

Equity securities, at fair value include trading investment securities and investments that were classified as available-for-sale or carried at cost prior to adoption of the new guidance. Changes in the fair value of the investments are recognized as gains and losses in earnings. The fair value of funds is determined based on their published NAV or estimated using NAV as a practical expedient. The fair value of equity securities other than funds is determined using independent third-party broker or dealer price quotes or based on discounted cash flows using significant unobservable inputs.
As of October 1, 2018 , equity investments that do not have a readily determinable fair value are measured at cost adjusted for observable price changes and impairment, if any, which are recognized in earnings. The impairment assessment for these investments considers qualitative factors, including the financial condition and specific events related to the investee, that may indicate the fair value of the investment is less than its carrying value. 
Investment balances and related changes for the prior year have not been reclassified to conform to the financial statement presentation as of and for the period ended December 31, 2018 .
Investment securities with aggregate carrying amounts of $1.2 million were pledged as collateral at December 31, 2018 and September 30, 2018 .
Gross unrealized gains and losses relating to investment securities, available-for-sale were as follows:
(in millions)
 
Cost Basis
 
Gross Unrealized
 
Fair Value
 
Gains
 
Losses
 
as of December 31, 2018
 
 
 
 
 
 
 
 
Debt securities
 
$
13.0

 
$
—

 
$
(2.0
)
 
$
11.0

 
 
 
 
 
 
 
 
 
as of September 30, 2018
 
 
 
 
 
 
 
 
Sponsored funds
 
$
172.9

 
$
8.3

 
$
(2.6
)
 
$
178.6

Debt and other equity securities
 
16.8

 
0.5

 
(1.8
)
 
15.5

Total
 
$
189.7

 
$
8.8

 
$
(4.4
)
 
$
194.1


11

Gross unrealized losses relating to investment securities, available-for-sale aggregated by length of time that individual securities have been in a continuous unrealized loss position were as follows:
(in millions)
 
Less Than 12 Months
 
12 Months or Greater
 
Total
Fair Value
 
Gross
Unrealized
Losses
Fair Value
 
Gross
Unrealized
Losses
Fair Value
 
Gross
Unrealized
Losses
 
 
 
as of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
$
10.7

 
$
(2.0
)
 
$
—

 
$
—

 
$
10.7

 
$
(2.0
)
 
 
 
 
 
 
 
 
 
 
 
 
 
as of September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Sponsored funds
 
$
48.8

 
$
(2.1
)
 
$
21.0

 
$
(0.5
)
 
$
69.8

 
$
(2.6
)
Debt and other equity securities
 
10.9

 
(1.8
)
 
—

 
—

 
10.9

 
(1.8
)
Total
 
$
59.7

 
$
(3.9
)
 
$
21.0

 
$
(0.5
)
 
$
80.7

 
$
(4.4
)
Note 6 – Fair Value Measurements
The disclosures below include details of the Company’s fair value measurements, excluding those of consolidated investment products. See Note  7 – Consolidated Investment Products for information related to fair value measurements of the assets and liabilities of these entities.
The assets and liability measured at fair value on a recurring basis were as follows:  
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
NAV as a
Practical
Expedient
 
Total
as of December 31, 2018
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Equity securities, at fair value
 
 
 
 
 
 
 
 
 
 
Sponsored funds
 
$
286.2

 
$
—

 
$
—

 
$
23.5

 
$
309.7

Other equity securities
 
21.2

 
0.3

 
0.7

 
87.8

 
110.0

Debt securities
 
 
 
 
 
 
 
 
 

Trading
 
2.5

 
61.2

 
16.1

 
—

 
79.8

Available-for-sale
 
—

 
10.7

 
0.3

 
—

 
11.0

Life settlement contracts
 
—

 
—

 
11.9

 
—

 
11.9

Total Assets Measured at Fair Value
 
$
309.9

 
$
72.2

 
$
29.0


$
111.3

 
$
522.4

 
 
 
 
 
 
 
 
 
 
 
Liability
 
 
 
 
 
 
 
 
 
 
Contingent consideration liability
 
$
—

 
$
—

 
$
40.0

 
$
—

 
$
40.0


12

(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
as of September 30, 2018
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Investment securities, trading
 
 
 
 
 
 
 
 
Sponsored funds
 
$
248.1

 
$
—

 
$
—

 
$
248.1

Debt and other equity securities
 
26.6

 
50.5

 
20.5

 
97.6

Investment securities, available-for-sale
 
 
 
 
 
 
 
 
Sponsored funds
 
178.6

 
—

 
—

 
178.6

Debt and other equity securities
 
4.4

 
10.8

 
0.3

 
15.5

Life settlement contracts
 
—

 
—

 
11.8

 
11.8

Total Assets Measured at Fair Value
 
$
457.7

 
$
61.3

 
$
32.6

 
$
551.6

 
 
 
 
 
 
 
 
 
Liability
 
 
 
 
 
 
 
 
Contingent consideration liability
 
$
—

 
$
—

 
$
38.7

 
$
38.7

Level 1 assets consist primarily of sponsored funds and other equity securities for which the fair values are based on published NAV or quoted market prices. Level 2 assets consist of debt and equity securities for which the fair values are determined using independent third-party broker or dealer price quotes. Level 3 assets consist of debt and equity securities and life settlement contracts for which the fair values are based on discounted cash flows using significant unobservable inputs.
The fair value of the contingent consideration liability is determined using the net present value of anticipated future cash flows based on estimated future revenue and profits and timing of payments.
Investments for which fair value was estimated using reported NAV as a practical expedient primarily consist of nonredeemable private debt, equity and infrastructure funds. These investments are expected to be returned through distributions over the life of the funds as a result of liquidations of the funds’ underlying assets. The expected weighted-average life for $54.1 million of the investments was 2.1 years at December 31, 2018 . The liquidation period for a $50.0 million investment in a nonredeemable private debt fund is unknown. The Company’s unfunded commitments to these funds totaled $5.0 million at December 31, 2018 .
Changes in the Level 3 assets and liability were as follows:  
 
 
2018
 
2017
(in millions)
 
Investments
 
Contingent
Consideration
Liability
 
Investments
 
Contingent
Consideration
Liability
for the three months ended December 31,
 
 
 
 
Balance at beginning of period
 
$
32.6

 
$
(38.7
)
 
$
199.9

 
$
(51.0
)
Total realized and unrealized gains (losses)
 
 
 
 
 
 
 
 
Included in investment and other income (losses), net
 
2.8

 
—

 
1.2

 
—

Included in general, administrative and other expense
 
—

 
(1.3
)
 
—

 
(4.0
)
Purchases
 
—

 
—

 
5.3

 
—

Sales
 
(4.3
)
 
—

 
—

 
—

Transfers out of Level 3
 
(2.1
)
 
—

 
—

 
—

Foreign exchange revaluation and other
 
—

 
—

 
3.7

 
(7.0
)
Balance at End of Period
 
$
29.0

 
$
(40.0
)
 
$
210.1

 
$
(62.0
)
Change in unrealized gains (losses) included in net income (loss) relating to assets and liability held at end of period
 
$
2.8

 
$
(1.3
)
 
$
1.2

 
$
(4.0
)
There were no transfers into Level 3 during the three months ended December 31, 2018 and 2017 .

13

Valuation techniques and significant unobservable inputs used in the Level 3 fair value measurements were as follows:
(in millions)
 
 
 
 
 
 
 
 
as of December 31, 2018
 
Fair Value
 
Valuation Technique
 
Significant Unobservable Inputs
 
Range (Weighted Average 1 )
Debt securities, trading
 
$
16.1

 
Discounted cash flow
 
Discount rate
 
4.0%–12.7% (6.3%)
Risk premium
 
2.0%–6.0% (2.9%)
 
 
 
 
 
 
 
 
 
Life settlement contracts
 
11.9

 
Discounted cash flow
 
Life expectancy
 
20–113 months (59)
Discount rate
 
8.0%–20.0% (13.2%)
 
 
 
 
 
 
 
 
 
Contingent consideration liability
 
40.0

 
Discounted cash flow
 
Discount rate
 
12.3%
__________________  
1  
Based on the relative fair value of the instruments.
(in millions)
 
 
 
 
 
 
 
 
as of September 30, 2018
 
Fair Value
 
Valuation Technique
 
Significant Unobservable Inputs
 
Range (Weighted Average)
Investment securities, trading – debt and other equity securities
 
$
20.5

 
Discounted cash flow
 
Discount rate
 
4.1%–12.3% (5.8%)
Risk premium
 
2.0%–6.7% (3.6%)
 
 
 
 
 
 
 
 
 
Life settlement contracts
 
11.8

 
Discounted cash flow
 
Life expectancy
 
20–115 months (61)
Discount rate
 
8.0%–20.0% (13.1%)
 
 
 
 
 
 
 
 
 
Contingent consideration liability
 
38.7

 
Discounted cash flow
 
Discount rate
 
13.0%
If the relevant significant inputs used in the discounted cash flow valuations were independently higher (lower) as of December 31, 2018 , the resulting fair value of the assets or liability would be lower (higher).
Financial instruments that were not measured at fair value were as follows:
(in millions)
 
Fair Value
Level
 
December 31, 2018
 
September 30, 2018
 
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
1
 
$
6,430.7

 
$
6,430.7

 
$
6,610.8

 
$
6,610.8

Other investments
 
 
 
 
 
 
 
 
 
 
Time deposits
 
2
 
15.1

 
15.1

 
12.3

 
12.3

Equity securities
 
3
 
28.6

 
28.6

 
81.8

 
103.6

 
 
 
 
 
 
 
 
 
 
 
Financial Liability
 
 
 
 
 
 
 
 
 
 
Debt
 
2
 
$
697.7

 
$
675.2

 
$
695.9

 
$
671.1


14

Note 7 – Consolidated Investment Products
Consolidated investment products (“CIPs”) consist of mutual and other investment funds, limited partnerships and similar structures, substantially all of which are sponsored by the Company, and include both voting interest entities and variable interest entities. The Company had 57 and 53 CIPs as of December 31, 2018 and September 30, 2018 .
The balances related to CIPs included in the Company’s consolidated balance sheets were as follows:
(in millions)
 
December 31,
2018
 
September 30,
2018
Assets
 
 
 
 
Cash and cash equivalents
 
$
228.2

 
$
299.8

Receivables
 
81.7

 
114.2

Investments, at fair value
 
2,040.2

 
2,109.4

Other assets
 
—

 
1.0

Total Assets
 
$
2,350.1

 
$
2,524.4

 
 
 
 
 
Liabilities
 
 
 
 
Accounts payable and accrued expenses
 
$
28.9

 
$
68.0

Debt
 
32.7

 
32.6

Other liabilities
 
—

 
9.3

Total liabilities
 
61.6

 
109.9

Redeemable Noncontrolling Interests
 
932.3

 
1,043.6

Stockholders ’  Equity
 
 
 
 
Franklin Resources, Inc.’s interests
 
1,052.1

 
1,092.6

Nonredeemable noncontrolling interests
 
304.1

 
278.3

Total stockholders’ equity
 
1,356.2

 
1,370.9

Total Liabilities, Redeemable Noncontrolling Interests and Stockholders ’  Equity
 
$
2,350.1

 
$
2,524.4

The CIPs did not have a significant impact on net income (loss) attributable to the Company during the three months ended December 31, 2018 and 2017 .
The Company has no right to the CIPs’ assets, other than its direct equity investments in them and investment management and other fees earned from them. The debt holders of the CIPs have no recourse to the Company’s assets beyond the level of its direct investment, therefore the Company bears no other risks associated with the CIPs’ liabilities.
Investment products are typically consolidated when the Company makes an initial investment in a newly launched investment entity. They are typically deconsolidated when the Company no longer has a controlling financial interest due to redemptions of its investment or increases in third-party investments. The Company’s investments in these products subsequent to deconsolidation are accounted for as either equity method investments or equity securities measured at fair value with changes recognized in earnings depending on the structure of the product and the Company’s role and level of ownership.

15

Investments
Investments of CIPs consisted of the following:
(in millions)
 
December 31,
2018
 
September 30,
2018
Investment securities, trading
 
$
1,570.5

 
$
1,651.8

Other equity securities
 
329.6

 
311.0

Other debt securities
 
140.1

 
146.6

Total
 
$
2,040.2

 
$
2,109.4

Investment securities, trading consist of debt and equity securities that are traded in active markets. Other equity securities consist of equity securities of entities in emerging markets and fund products. Other debt securities consist of debt securities of entities in emerging markets and other debt instruments.
Fair Value Measurements
Assets and liabilities of CIPs measured at fair value on a recurring basis were as follows:  
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
NAV as a
Practical
Expedient
 
Total
as of December 31, 2018
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Investments
 
 
 
 
 
 
 
 
 
 
Equity securities
 
$
155.4

 
$
233.8

 
$
193.6

 
$
137.5

 
$
720.3

Debt securities
 
0.3

 
1,179.5

 
140.1

 
—

 
1,319.9

Total Assets Measured at Fair Value
 
$
155.7

 
$
1,413.3

 
$
333.7

 
$
137.5

 
$
2,040.2

(in millions)
 
Level 1
 
Level 2
 
Level 3
 
NAV as a
Practical
Expedient
 
Total
as of September 30, 2018
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Investments
 
 
 
 
 
 
 
 
 
 
Equity securities
 
$
270.7

 
$
154.8

 
$
199.7

 
$
113.8

 
$
739.0

Debt securities
 
0.6

 
1,219.5

 
150.3

 
—

 
1,370.4

Total Assets Measured at Fair Value
 
$
271.3

 
$
1,374.3

 
$
350.0

 
$
113.8

 
$
2,109.4

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
Other liabilities
 
$
0.6

 
$
8.7

 
$
—

 
$
—

 
$
9.3

Level 1 assets consist of equity and debt securities for which the fair values are based on quoted market prices. Level 2 assets consist of debt and equity securities for which the fair values are determined using independent third-party broker or dealer price quotes. Level 3 assets consist of equity and debt securities of entities in emerging markets and other debt instruments for which the fair values are determined using significant unobservable inputs in either a market-based or income-based approach.
Investments for which fair value was estimated using reported NAV as a practical expedient consist of nonredeemable real estate and private equity funds. These investments are expected to be returned through distributions over the life of the funds as a result of liquidations of the funds’ underlying assets over a weighted-average period of 4.0 years and 3.5 years at December 31, 2018 and September 30, 2018 . The CIPs’ unfunded commitments to these funds totaled $62.8 million and $1.9 million , of which the Company was contractually obligated to fund $19.0 million and $0.4 million based on its ownership percentage in the CIPs, at December 31, 2018 and September 30, 2018 .

16

Changes in Level 3 assets were as follows:  
 
 
2018
 
2017
(in millions)
 
Equity
Securities
 
Debt
Securities
 
Total 
Level 3
Assets
 
Equity
Securities
 
Debt
Securities
 
Total 
Level 3
Assets
for the three months ended December 31,
 
 
 
 
 
Balance at beginning of period
 
$
199.7

 
$
150.3

 
$
350.0

 
$
160.7

 
$
135.4

 
$
296.1

Realized and unrealized gains (losses) included in investment and other income (losses), net
11.4

 
(8.2
)
 
3.2

 
1.9

 
0.1

 
2.0

Purchases
 
9.7

 
8.2

 
17.9

 
11.1

 
—

 
11.1

Sales
 
(0.1
)
 
(6.2
)
 
(6.3
)
 
(14.9
)
 
—

 
(14.9
)
Settlements
 
(1.0
)
 
(0.1
)
 
(1.1
)
 
—

 
—

 
—

Transfers into Level 3
 
0.1

 
—

 
0.1

 
—

 
—

 
—

Transfers out of Level 3
 
(25.4
)
 
(3.6
)
 
(29.0
)
 
—

 
—

 
—

Foreign exchange revaluation
 
(0.8
)
 
(0.3
)
 
(1.1
)
 
0.8

 
0.7

 
1.5

Balance at End of Period
 
$
193.6

 
$
140.1

 
$
333.7

 
$
159.6

 
$
136.2

 
$
295.8

Change in unrealized gains (losses) included in net income (loss) relating to assets held at end of period
 
$
11.7

 
$
(1.4
)
 
$
10.3

 
$
1.0

 
$
0.1

 
$
1.1

Valuation techniques and significant unobservable inputs used in Level 3 fair value measurements were as follows:
(in millions)
 
 
 
 
 
 
 
 
as of December 31, 2018
 
Fair Value
 
Valuation Technique
 
Significant Unobservable Inputs
 
Range (Weighted Average 1 )
Equity securities
 
$
165.3

 
Market comparable companies
 
EBITDA multiple
 
5.0–13.6 (9.1)
28.3

Discounted cash flow
Discount rate
8.0%–16.5% (13.8%)
 
 
 
 
 
 
 
 
 
Debt securities
 
116.6

 
Discounted cash flow
 
Discount rate
 
7.0%–14.8% (10.8%)
Loss-adjusted discount rate
3.0%–22.7% (13.2%)
23.5

Comparable trading multiple
Price-to-earnings ratio
10.0
Enterprise value/
EBITDA multiple
20.9
__________________  
1  
Based on the relative fair value of the instruments.

(in millions)
 
 
 
 
 
 
 
 
as of September 30, 2018
 
Fair Value
 
Valuation Technique
 
Significant Unobservable Inputs
 
Range (Weighted Average)
Equity securities
 
$
171.9

 
Market comparable companies
 
EBITDA multiple
 
5.0–13.6 (9.3)
27.8

Discounted cash flow
Discount rate
8.0%–16.5% (14.1%)
 
 
 
 
 
 
 
 
 
Debt securities
 
111.0

 
Discounted cash flow
 
Discount rate
 
7.0%–14.8% (10.8%)
Loss-adjusted discount rate
3.0%–22.7% (12.0%)
33.9

Comparable trading multiple
Price-to-earnings ratio
10.0
Enterprise value/
EBITDA multiple
20.9
5.4

Market pricing
Private sale pricing
$42 per $100 of par

If the relevant significant inputs used in the market-based valuations were independently higher (lower) as of December 31, 2018 , the resulting fair value of the securities would be higher (lower). If the relevant significant inputs used in the discounted cash flow valuations were independently higher (lower) as of December 31, 2018 , the resulting fair value of the securities would be lower (higher).

17

Financial instruments of CIPs that were not measured at fair value were as follows:
(in millions)
 
Fair Value
Level
 
December 31, 2018
 
September 30, 2018
 
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial Asset
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
1
 
$
228.2

 
$
228.2

 
$
299.8

 
$
299.8

Financial Liability
 
 
 
 
 
 
 
 
 
 
Debt
 
3
 
$
32.7

 
$
32.6

 
$
32.6

 
$
32.4

Debt
Debt of CIPs totaled $32.7 million and $32.6 million at December 31, 2018 and September 30, 2018 . The debt had fixed and floating interest rates ranging from 3.07% to 7.90% with a weighted-average effective interest rate of 6.81% at December 31, 2018 , and from 3.07% to 7.88% with a weighted-average effective interest rate of 6.79% at September 30, 2018 . The debt matures in fiscal year 2019.  
Redeemable Noncontrolling Interests
Changes in redeemable noncontrolling interests of CIPs were as follows:
(in millions)
 
 
 
 
for the three months ended December 31,
 
2018
 
2017
Balance at beginning of period
 
$
1,043.6

 
$
1,941.9

Net income (loss)
 
(15.4
)
 
11.5

Net subscriptions and other
 
22.8

 
254.7

Net deconsolidations
 
(118.7
)
 
—

Balance at End of Period
 
$
932.3

 
$
2,208.1

Note 8 – Nonconsolidated Variable Interest Entities
Variable interest entities (“VIEs”) for which the Company is not the primary beneficiary consist of sponsored funds and other investment products in which the Company has an equity ownership interest. The Company’s maximum exposure to loss from these VIEs consists of equity investments and investment management and other fee receivables as follows:  
(in millions)
 
December 31,
2018
 
September 30,
2018
Investments
 
$
228.0

 
$
161.8

Receivables
 
133.1

 
140.1

Total
 
$
361.1

 
$
301.9

While the Company has no contractual obligation to do so, it routinely makes cash investments in the course of launching sponsored funds. The Company also may voluntarily elect to provide its sponsored funds with additional direct or indirect financial support based on its business objectives. The Company did not provide financial or other support to its sponsored funds during the three months ended December 31, 2018 . During fiscal year 2018 , the Company purchased $32.6 million of certain equity and debt securities from two sponsored funds. None of the purchases occurred during the three months ended December 31, 2017 .

18

Note 9 – Taxes on Income
The Tax Cuts and Jobs Act (the “Tax Act”), which was enacted into law in the U.S. in December 2017, includes various changes to the tax law, including a permanent reduction in the corporate income tax rate to 21% and assessment of a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiaries’ earnings. The Company completed its analysis of the Tax Act impact during the quarter ended December 31, 2018 with no significant adjustment to the provisional amounts previously recorded. The transition tax liability of $982.8 million at December 31, 2018 is net of an $87.6 million tax benefit related to U.S. taxation of deemed foreign dividends. This benefit may be reduced or eliminated by future regulation or legislation. The transition tax liability may also be adjusted in the future upon issuance of state legislative updates on tax reform and the completion of the Company’s tax return filings for fiscal year 2018.
Note 10 – Commitments and Contingencies
Legal Proceedings
In July 2016, a former employee filed a class action lawsuit captioned Cryer v. Franklin Resources, Inc., et al. in the United States District Court for the Northern District of California against Franklin, the Franklin Templeton 401(k) Retirement Plan (“Plan”) Investment Committee (“Investment Committee”), and unnamed Investment Committee members. The plaintiff asserts a claim for breach of fiduciary duty under the Employee Retirement Income Security Act (“ERISA”), alleging that the defendants selected mutual funds sponsored and managed by the Company (the “Funds”) as investment options for the Plan when allegedly lower-cost and better performing non-proprietary investment vehicles were available. The plaintiff also claims that the total Plan costs, inclusive of investment management and administrative fees, are excessive. The plaintiff alleges that Plan losses exceed $79.0 million and seeks, among other things, damages, disgorgement, rescission of the Plan’s investments in the Funds, attorneys’ fees and costs, and pre- and post-judgment interest.
In November 2017, a second former employee, represented by the same law firm, filed another class action lawsuit relating to the Plan in the same court, captioned Fernandez v. Franklin Resources, Inc., et al. The plaintiff filed an amended complaint in February 2018, naming the same defendants as those named in the Cryer action, as well as the Franklin Board of Directors, the Plan Administrative Committee, individual current and former Franklin directors, and individual current and former Investment Committee members. The plaintiff in this second lawsuit asserts the same ERISA breach of fiduciary duty claim asserted in the Cryer action, as well as claims for alleged prohibited transactions by virtue of the Plan’s investments in the Funds and for an alleged failure to monitor the performance of the Investment Committee. The plaintiff alleges that Plan losses exceed $60.0 million and seeks the same relief sought in the Cryer action. In April 2018, the court consolidated the Fernandez action with the existing Cryer action.
While management strongly believes that the claims asserted in the consolidated litigation are without merit, in order to avoid protracted litigation, on December 3, 2018, Franklin elected to enter into an agreement-in-principle to resolve the matter for a cash payment of $13.9 million , which the Company accrued as of December 31, 2018 . In addition, Franklin agreed, among other Plan changes, to increase its existing matching contributions from 75% to 85% for eligible participant salary deferrals for a period of three years. The agreement is subject to court approval.
The Company is from time to time involved in other 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, results of operations or liquidity. In management’s opinion, an adequate accrual has been made as of December 31, 2018 to provide for any probable losses that may arise from such matters for which the Company could reasonably estimate an amount.
Other Commitments and Contingencies
At December 31, 2018 , there were no material changes in the other commitments and contingencies as reported in the Company’s Form 10-K for fiscal year 2018 .

19

Note 11 – Stock-Based Compensation
Stock and stock unit award activity was as follows:
(shares in thousands)
 
Time-Based
Shares
 
Performance-
Based Shares
 
Total
Shares
 
Weighted-Average
Grant-Date
Fair Value
for the three months ended December 31, 2018
 
 
 
 
Nonvested balance at October 1, 2018
 
2,678

 
1,813

 
4,491

 
$
39.08

Granted
 
3,305

 
890

 
4,195

 
30.79

Vested
 
(251
)
 
(606
)
 
(857
)
 
38.07

Forfeited/canceled
 
(51
)
 
(163
)
 
(214
)
 
39.86

Nonvested Balance at December 31, 2018
 
5,681

 
1,934

 
7,615

 
$
34.61

Total unrecognized compensation expense related to nonvested stock and stock unit awards was $211.0 million at December 31, 2018 . This expense is expected to be recognized over a remaining weighted-average vesting period of 2.1 years .
Note 12 – Other Income (Expenses)
Other income (expenses) consisted of the following:  
 
 
Three Months Ended
December 31,
(in millions)
 
2018
 
2017
Investment and Other Income (Losses), Net
 
 
 
 
Dividend income
 
$
25.6

 
$
4.7

Interest income
 
9.0

 
23.8

Gains (losses) on investments, net
 
(15.8
)
 
0.6

Income (losses) from investments in equity method investees
 
(37.6
)
 
35.2

Gains (losses) on investments of CIPs, net
 
(49.0
)
 
16.0

Rental income
 
4.9

 
3.7

Foreign currency exchange gains (losses), net
 
4.7

 
(2.9
)
Other, net
 
(0.9
)
 
0.2

Total
 
(59.1
)
 
81.3

Interest Expense
 
(6.4
)
 
(10.8
)
Other Income (Expenses), Net
 
$
(65.5
)
 
$
70.5

Substantially all dividend income was generated by investments in nonconsolidated funds. Interest income was primarily generated by cash equivalents and debt securities. Gains (losses) on investments, net consists primarily of realized and unrealized gains (losses) on trading investment securities and other equity securities measured at fair value through profit and loss.
Proceeds from the sale of available-for-sale securities were $16.0 million for the three months ended December 31, 2017 . There were no sales of available-for-sale securities in the current fiscal year.
Net losses recognized on trading investment securities and other equity securities that were held by the Company at December 31, 2018 were $12.1 million , and net gains recognized on trading investment securities that were held by the Company at December 31, 2017 were $1.3 million . Net gains (losses) recognized on trading investment securities of CIPs that were held at December 31, 2018 and 2017 were $(31.2) million and $20.0 million .

20

Note 13 – Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component were as follows:
(in millions)
 
Currency
Translation
Adjustments
 
Unrealized
Losses on
Defined Benefit
Plans
 
Unrealized
Gains (Losses) on
Investments
 
Total
for the three months ended December 31, 2018
 
 
 
 
Balance at October 1, 2018
 
$
(372.9
)
 
$
(4.2
)
 
$
6.5

 
$
(370.6
)
Adoption of new accounting guidance
 
—

 
—

 
(8.0
)
 
(8.0
)
Other comprehensive loss
 
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications, net of tax
 
(14.4
)
 
(0.4
)
 
—

 
(14.8
)
Reclassifications to net investment and other income (losses), net of tax
 
(0.2
)
 
—

 
—

 
(0.2
)
Total other comprehensive loss
 
(14.6
)
 
(0.4
)
 
—

 
(15.0
)
Balance at December 31, 2018
 
$
(387.5
)

$
(4.6
)

$
(1.5
)

$
(393.6
)
(in millions)
 
Currency
Translation
Adjustments
 
Unrealized
Losses on
Defined Benefit
Plans
 
Unrealized
Gains on
Investments
 
Total
for the three months ended December 31, 2017
 
 
 
 
Balance at October 1, 2017
 
$
(281.0
)
 
$
(6.0
)
 
$
2.2

 
$
(284.8
)
Other comprehensive income (loss)
 
15.8

 
(1.1
)
 
3.5

 
18.2

Balance at December 31, 2017
 
$
(265.2
)

$
(7.1
)

$
5.7


$
(266.6
)
There were no reclassifications from accumulated other comprehensive income (loss) for the three months ended December 31, 2017 .
Note 14 – Subsequent Event
On January 29, 2019 , the Company offered a voluntary buyout to certain U.S. employees who meet specific criteria related to age and years of service. The impact of this voluntary termination plan is unknown but is expected to result in increased compensation and benefits expense during the remainder of fiscal year 2019 .
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
In this section, we discuss and analyze the results of operations and financial condition of Franklin Resources, Inc. (“Franklin”) and its subsidiaries (collectively, the “Company”). 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 U.S. 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,” “could,” “expect,” “believe,” “anticipate,” “intend,” “plan,” “seek,” “estimate” 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 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, which describes these risks, uncertainties and other important factors in more detail.
While forward-looking statements are our best prediction at the time that they are made, you should not rely on them and are cautioned against doing so. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. They are neither statements of historical fact nor guarantees or assurances of future performance. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. If a circumstance occurs after the date of this Form 10-Q that causes any of our forward-looking statements to be inaccurate, whether as a result of new information, future developments or otherwise, we do not have an obligation, and we undertake no obligation, to announce publicly the change to our expectations, or to make any revision to our forward-looking statements, unless required by law.

21

The following discussion should be read in conjunction with our Form 10-K for the fiscal year ended September 30, 2018 (“fiscal year 2018 ”) filed with the U.S. Securities and Exchange Commission, and the consolidated financial statements and notes thereto included elsewhere in this Form 10-Q.
OVERVIEW
We are a global investment management organization and derive our operating revenues and net income from providing investment management and related services to investors in jurisdictions worldwide through our investment products which include our sponsored funds, as well as institutional and high net-worth separate accounts. In addition to investment management, our services include fund administration, sales and distribution, marketing, shareholder servicing and other services. Our products and investment management and related services are distributed or marketed to investors globally under various distinct brand names, including: Franklin ® , Templeton ® , Franklin Mutual Series ® , Franklin Bissett ® , Fiduciary Trust™, Darby ® , Balanced Equity Management ® , K2 ® , LibertyShares ® and Edinburgh Partners™. We offer a broad product mix of equity, multi-asset/balanced, fixed income and cash management funds and accounts, including alternative investment products, which meet a wide variety of specific investment needs of individual and institutional investors. We also provide sub-advisory services to certain investment products sponsored by other companies which may be sold to investors under the brand names of those other companies or on a co-branded basis.
The level of our revenues depends largely on the level and relative mix of assets under management (“AUM”). As noted in the “Risk Factors” section set forth below, the amount and mix of our AUM are subject to significant fluctuations and can negatively impact our revenues and income. The level of our revenues also depends on mutual fund sales, the number of shareholder transactions and accounts, and the fees charged for our services, which are based on contracts with our funds or our clients. These arrangements could change in the future.
During our first fiscal quarter, the global equity markets experienced sharp declines as the S&P 500 Index and MSCI World Index decreased 13.5% and 13.3% amid ongoing concerns about slowing economic growth, global trade tensions and rising interest rates, among other things. The global bond markets were positive as the Bloomberg Barclays Global Aggregate Index increased 1.2% during the quarter.
Our total AUM at December 31, 2018 was $649.9 billion , 9% lower than at September 30, 2018 and 14% lower than at December 31, 2017 . Simple monthly average AUM (“average AUM”) for the three months ended December 31, 2018 decreased 9% from the same period in the prior fiscal year.
Uncertainties regarding the global economy remain for the foreseeable future. As we continue to confront the challenges of the current economic and regulatory environments, we remain focused on the investment performance of our products and on providing high quality service to our clients. We continuously perform reviews of our business model. While we remain focused on expense management, we will also seek to attract, retain and develop employees and invest strategically in systems and technology that will provide a secure and stable environment. We will continue to seek to protect and further our brand recognition while developing and maintaining broker-dealer and client relationships. The success of these and other strategies may be influenced by the factors discussed in the “Risk Factors” section set forth below.
RESULTS OF OPERATIONS
 
 
Three Months Ended
December 31,
 
Percent
Change
(in millions, except per share data)
 
2018
 
2017
 
Operating revenues
 
$
1,411.5

 
$
1,615.5

 
(13
%)
Operating income
 
411.5

 
581.1

 
(29
%)
Net income (loss) attributable to Franklin Resources, Inc.
 
275.9

 
(583.3
)
 
NM

Diluted earnings (loss) per share
 
$
0.54

 
$
(1.06
)
 
NM

Operating margin 1
 
29.2
%
 
36.0
%
 
 
__________________  
1  
Defined as operating income divided by total operating revenues.
Operating income decreased $169.6 million for the three months ended December 31, 2018 , as compared to the same period in the prior fiscal year, as operating revenues decreased 13% and operating expenses decreased 3% . The net loss attributable to Franklin Resources, Inc. for the three months ended December 31, 2017 included an estimated income tax charge of $1.1 billion resulting from enactment of the Tax Cuts and Jobs Act of 2017.

22

Diluted earnings per share of $0.54 for the three months ended December 31, 2018 includes the impact of a 7% decrease in diluted average common shares outstanding primarily resulting from repurchases of shares of our common stock during the twelve-month period ended December 31, 2018 . The diluted loss per share in the prior year reflects a $1.94 per share impact of the estimated income tax charge.
ASSETS UNDER MANAGEMENT
AUM by investment objective was as follows:
(in billions)
 
December 31,
2018
 
December 31,
2017
 
Percent
Change
Equity
 
 
 
 
 
 
Global/international
 
$
166.0

 
$
212.0

 
(22
%)
United States
 
97.1

 
109.4

 
(11
%)
Total equity
 
263.1

 
321.4

 
(18
%)
Multi-Asset/Balanced
 
124.8

 
142.7

 
(13
%)
Fixed Income
 
 
 
 
 
 
Tax-free
 
62.0

 
69.4

 
(11
%)
Taxable
 
 
 
 
 
 
Global/international
 
147.7

 
163.7

 
(10
%)
United States
 
42.2

 
50.0

 
(16
%)
Total fixed income
 
251.9

 
283.1

 
(11
%)
Cash Management
 
10.1

 
6.6

 
53
%
Total
 
$
649.9

 
$
753.8

 
(14
%)
AUM at December 31, 2018 decreased 14% from December 31, 2017 as a $70.7 billion decrease from net market change, distributions and other and $43.0 billion of net outflows were partially offset by $9.8 billion from an acquisition.
Average AUM and the mix of average AUM by investment objective are shown below.
(in billions)
 
Average AUM
 
Percent
Change
 
Mix of Average AUM
for the three months ended December 31,
 
2018
 
2017
 
 
2018
 
2017
Equity
 
 
 
 
 
 
 
 
 
 
Global/international
 
$
179.4

 
$
210.0

 
(15
%)
 
26
%
 
28
%
United States
 
106.4

 
108.7

 
(2
%)
 
16
%
 
14
%
Total equity
 
285.8

 
318.7

 
(10
%)
 
42
%
 
42
%
Multi-Asset/Balanced
 
132.1

 
143.0

 
(8
%)
 
19
%
 
19
%
Fixed Income
 
 
 
 
 


 
 
 
 
Tax-free
 
62.7

 
70.1

 
(11
%)
 
9
%
 
9
%
Taxable
 
 
 
 
 


 
 
 
 
Global/international
 
149.7

 
164.1

 
(9
%)
 
22
%
 
22
%
United States
 
43.4

 
50.3

 
(14
%)
 
7
%
 
7
%
Total fixed income
 
255.8

 
284.5

 
(10
%)
 
38
%
 
38
%
Cash Management
 
9.5

 
6.5

 
46
%
 
1
%
 
1
%
Total
 
$
683.2

 
$
752.7

 
(9
%)
 
100
%
 
100
%

23

Components of the change in AUM are shown below. Net market change, distributions and other includes appreciation (depreciation), distributions to investors that represent return on investments and return of capital, foreign exchange revaluation and net cash management.
(in billions)
 
Three Months Ended
December 31,
 
Percent
Change
 
2018
 
2017
 
Beginning AUM
 
$
717.1

 
$
753.2

 
(5
%)
Long-term sales
 
21.7

 
28.1

 
(23
%)
Long-term redemptions
 
(42.4
)
 
(39.4
)
 
8
%
Long-term net exchanges
 
(0.5
)
 
(0.1
)
 
400
%
Long-term reinvested distributions
 
13.9

 
9.1

 
53
%
Net flows
 
(7.3
)
 
(2.3
)
 
217
%
Net market change, distributions and other
 
(59.9
)
 
2.9

 
NM

Ending AUM
 
$
649.9

 
$
753.8

 
(14
%)
Components of the change in AUM by investment objective were as follows:
(in billions)
 
Equity
 
Multi-Asset/
Balanced
 
Fixed Income
 
Cash
Management
 
Total
for the three months ended
December 31, 2018
 
Global/
International
 
United
States
 
 
Tax-Free
 
Taxable
Global/
International
 
Taxable
United
States
 
 
AUM at October 1, 2018
 
$
194.4

 
$
115.2

 
$
138.9

 
$
63.9

 
$
150.6

 
$
44.8

 
$
9.3

 
$
717.1

Long-term sales
 
4.3

 
4.0

 
2.8

 
1.6

 
7.4

 
1.6

 
—

 
21.7

Long-term redemptions
 
(9.7
)
 
(6.3
)
 
(6.8
)
 
(3.9
)
 
(12.1
)
 
(3.6
)
 
—

 
(42.4
)
Long-term net exchanges
 
(0.4
)
 
0.1

 
(0.2
)
 
(0.2
)
 
0.2

 
—

 
—

 
(0.5
)
Long-term reinvested distributions
 
4.4

 
5.0

 
1.9

 
0.5

 
1.8

 
0.3

 
—

 
13.9

Net flows
 
(1.4
)
 
2.8

 
(2.3
)
 
(2.0
)
 
(2.7
)
 
(1.7
)
 
—

 
(7.3
)
Net market change, distributions and other
 
(27.0
)
 
(20.9
)
 
(11.8
)
 
0.1

 
(0.2
)
 
(0.9
)
 
0.8

 
(59.9
)
AUM at December 31, 2018
 
$
166.0


$
97.1


$
124.8


$
62.0


$
147.7


$
42.2


$
10.1

 
$
649.9

(in billions)
 
Equity
 
Multi-Asset/
Balanced
 
Fixed Income
 
Cash
Management
 
Total
for the three months ended
December 31, 2017
 
Global/
International
 
United
States
 
 
Tax-Free
 
Taxable
Global/
International
 
Taxable
United
States
 
 
AUM at October 1, 2017
 
$
209.8

 
$
107.2

 
$
143.3

 
$
71.0

 
$
165.0

 
$
50.6

 
$
6.3

 
$
753.2

Long-term sales
 
5.9

 
3.6

 
3.5

 
1.5

 
11.1

 
2.5

 
—

 
28.1

Long-term redemptions
 
(11.6
)
 
(5.5
)
 
(5.8
)
 
(3.2
)
 
(10.2
)
 
(3.1
)
 
—

 
(39.4
)
Long-term net exchanges
 
0.1

 
—

 
0.1

 
(0.2
)
 
(0.3
)
 
0.2

 
—

 
(0.1
)
Long-term reinvested distributions
 
2.0

 
3.4

 
1.7

 
0.5

 
1.2

 
0.3

 
—

 
9.1

Net flows
 
(3.6
)
 
1.5

 
(0.5
)
 
(1.4
)
 
1.8

 
(0.1
)
 
—

 
(2.3
)
Net market change, distributions and other
 
5.8

 
0.7

 
(0.1
)
 
(0.2
)
 
(3.1
)
 
(0.5
)
 
0.3

 
2.9

AUM at December 31, 2017
 
$
212.0

 
$
109.4

 
$
142.7

 
$
69.4

 
$
163.7

 
$
50.0

 
$
6.6

 
$
753.8

AUM decreased $67.2 billion during the three months ended December 31, 2018 due to $59.9 billion of net market change, distributions and other, and $7.3 billion of net outflows. Net market change, distributions and other primarily consists of $43.5 billion of market depreciation, $15.8 billion of long-term distributions and a $1.4 billion decrease from foreign exchange revaluation. The market depreciation occurred primarily in equity and multi-asset/balanced products, partially offset by appreciation in global/international fixed income products, and reflected sharp declines in global equity markets as evidenced by decreases of 13.5% and 13.3% in the S&P 500 Index and MSCI World Index and slightly positive returns in global fixed income markets as evidenced by a 1.2% increase in the Bloomberg Barclays Global Aggregate Index. The net outflows included $1.4 billion from a multi-asset/balanced fund. Long-term sales decreased 23% to $21.7 billion , as compared to the prior-year period, primarily due

24

to lower sales of global/international products. Long-term redemptions increased 8% to $42.4 billion with increases in all investment objectives except global/international equity products.
AUM increased $0.6 billion during the three months ended December 31, 2017 due to $2.9 billion of net market change, distributions and other, substantially offset by $2.3 billion of net outflows. Net market change, distributions and other primarily consists of $13.4 billion of market appreciation net of $11.5 billion of long-term distributions. The market appreciation occurred primarily in equity products and reflected positive returns in global equity markets as evidenced by increases of 6.6% and 5.6% in the S&P 500 Index and MSCI World Index. The net outflows occurred most significantly in global/international equity products. Included in the net outflows were outflows of $0.9 billion from two global/international fixed income funds with global macro strategies and $0.7 billion from an institutional separate account, and inflows of $1.3 billion in a global/international fixed income fund that introduced a new share class structure during fiscal year 2017 and $1.1 billion in an institutional separate account.
Average AUM by sales region was as follows:
 
 
Three Months Ended
December 31,
 
Percent
Change
(in billions)
 
2018
 
2017
 
United States
 
$
458.6

 
$
499.0

 
(8
%)
International
 
 
 
 
 
 
Europe, Middle East and Africa
 
93.3

 
109.0

 
(14
%)
Asia-Pacific
 
88.5

 
94.9

 
(7
%)
Canada
 
27.9

 
31.8

 
(12
%)
Latin America 1
 
14.9

 
18.0

 
(17
%)
Total international
 
224.6

 
253.7

 
(11
%)
Total
 
$
683.2

 
$
752.7

 
(9
%)
__________________  
1  
Includes North America-based advisers serving non-resident clients.
The percentage of average AUM in the United States sales region was 67% and 66% for the three months ended December 31, 2018 and 2017 .
The region in which investment products are sold may differ from the geographic area in which we provide investment management and related services to the products.
Investment Performance Overview
A key driver of our overall success is the long-term investment performance of our investment products. A standard measure of the performance of these products is the percentage of AUM exceeding benchmarks and peer group medians. Our global/international fixed income products generated notable long-term results with at least 90% of AUM exceeding the benchmark and peer group median comparisons for the ten-year period. Higher relative investment performance by these products during the three months ended December 31, 2018 resulted in significant increases from September 30, 2018 to the benchmark and peer group median comparisons for the one-year period. The performance of our multi-asset/balanced products significantly exceeded the peer group medians for the three- and ten-year periods, but has lagged in the five-year comparison and against the benchmarks for the one- and five-year periods, reflecting the performance of a fund that represents 67% of this category. Higher relative investment performance by this fund during the three months ended December 31, 2018 resulted in significant increases from September 30, 2018 to the benchmark comparisons for the three- and ten-year periods and the peer group median comparison for the one-year period. The performance of our tax-free and U.S. taxable fixed income, as well as of our equity products, has mostly lagged the benchmarks and peer group medians during the periods presented.

25

The performance of our products against benchmarks and peer group medians is presented in the table below.
 
 
Benchmark Comparison 1,2
 
Peer Group Comparison 1,3
 
 
% of AUM Exceeding Benchmark
 
% of AUM in Top Two Peer Group Quartiles
as of December 31, 2018
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
1-Year
 
3-Year
 
5-Year
 
10-Year
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global/international
 
12
%
 
15
%
 
20
%
 
26
%
 
49
%
 
29
%
 
22
%
 
33
%
United States
 
44
%
 
40
%
 
21
%
 
33
%
 
88
%
 
69
%
 
63
%
 
37
%
Total equity
 
25
%
 
25
%
 
21
%
 
29
%
 
65
%
 
45
%
 
39
%
 
35
%
Multi-Asset/Balanced
 
5
%
 
72
%
 
5
%
 
70
%
 
71
%
 
92
%
 
15
%
 
98
%
Fixed Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax-free
 
17
%
 
38
%
 
44
%
 
20
%
 
43
%
 
45
%
 
45
%
 
47
%
Taxable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global/international
 
72
%
 
68
%
 
52
%
 
90
%
 
78
%
 
83
%
 
73
%
 
95
%
United States
 
5
%
 
31
%
 
12
%
 
60
%
 
32
%
 
36
%
 
24
%
 
8
%
Total fixed income
 
48
%
 
55
%
 
43
%
 
62
%
 
61
%
 
65
%
 
57
%
 
62
%
__________________  
1  
AUM measured in the 1-year benchmark and peer group rankings represents 88% and 86% of our total AUM as of December 31, 2018 .
2  
The benchmark comparisons are based on each fund’s return as compared to a market index that has been selected to be generally consistent with the investment objectives of the fund.
3  
The peer group rankings are sourced from Lipper, a Thomson Reuters Company, Morningstar or eVestment and various international third-party providers in each fund’s market and were based on an absolute ranking of returns. © 2018 Morningstar, Inc. All rights reserved. The information herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
For products with multiple share classes, rankings for all share classes with applicable history in their respective time periods are included. Rankings for most institutional separate accounts are as of the prior quarter-end due to timing of availability of information. Private equity funds, certain privately-offered emerging market and real estate funds, cash management funds and certain hedge and other funds are not included. Certain other funds and products were also excluded because of limited benchmark or peer group data. Had this data been available, the results may have been different. These results assume the reinvestment of dividends, are based on data available as of January 14, 2019 and are subject to revision. While we remain focused on achieving strong long-term performance, our future benchmark and peer group rankings may vary from our past performance.
OPERATING REVENUES
The table below presents the percentage change in each operating revenue category.
(in millions)
 
Three Months Ended
December 31,
 
Percent
Change
 
2018
 
2017
 
Investment management fees
 
$
971.8

 
$
1,113.6

 
(13
%)
Sales and distribution fees
 
354.8

 
417.8

 
(15
%)
Shareholder servicing fees
 
55.1

 
54.9

 
0
%
Other
 
29.8

 
29.2

 
2
%
Total Operating Revenues
 
$
1,411.5

 
$
1,615.5

 
(13
%)
Investment Management Fees
Investment management fees are generally calculated under contractual arrangements with our investment products and the products for which we provide sub-advisory services as a percentage of AUM. Annual fee rates vary by investment objective and type of services provided. Fee rates for products sold outside of the U.S. are generally higher than for U.S. products.

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Investment management fees decreased $141.8 million for the three months ended December 31, 2018 primarily due to a 9% decrease in average AUM, a lower effective investment management fee rate and a $15.5 million decrease from a change in presentation of certain fees from investment management fees to distribution fees upon adoption of new revenue recognition accounting guidance on October 1, 2018 . The decrease in average AUM occurred primarily in the global/international and multi-asset/balanced investment objectives, and across all sales regions, most significantly in the U.S. and Europe, Middle East and Africa.
Our effective investment management fee rate (annualized investment management fees divided by average AUM) decreased to 56.9  basis points for the three months ended December 31, 2018 , from 59.2  basis points for the same period in the prior fiscal year. The rate decrease was primarily due to a lower weighting of AUM in the global/international equity investment objective, which generally has the highest fee rates, along with a higher mix of AUM in lower fee products within the U.S. and Europe, Middle East and Africa sales regions for this investment objective, and the $15.5 million decrease from the change in presentation of certain fees discussed above.
Performance-based investment management fees were $4.1 million and $1.8 million for the three months ended December 31, 2018 and 2017 , with the increase primarily due to fees earned from a real estate fund.
Our product offerings and global operations are diverse. As such, the impact of future changes in AUM on investment management fees will be affected by the relative mix of investment objective, geographic region, distribution channel and investment vehicle of the assets.
Sales and Distribution Fees
Sales and distribution fees primarily consist of upfront sales commissions and ongoing distribution fees. Sales commissions are earned from the sale of certain classes of sponsored funds at the time of purchase (“commissionable sales”) and may be reduced or eliminated depending on the amount invested and the type of investor. Therefore, sales 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.
Our sponsored mutual funds and certain other products generally pay us distribution fees in return for sales, marketing and distribution efforts on their behalf. The majority of U.S.-registered mutual funds, with the exception of certain money market funds, have adopted distribution plans under Rule 12b-1 (the “Rule 12b-1 Plans”) promulgated under the Investment Company Act of 1940. The Rule 12b-1 Plans permit the funds to pay us for marketing, marketing support, advertising, printing and sales promotion services relating to the distribution of their shares, subject to the Rule 12b-1 Plans’ limitations on amounts based on daily average AUM. Similar arrangements exist for the distribution of non-U.S. funds.
We pay substantially all of our sales and distribution fees to the financial advisers and other intermediaries who sell our funds on our behalf. See the description of sales, distribution and marketing expenses below.
Sales and distribution fees by revenue driver are presented below.
(in millions)
 
Three Months Ended
December 31,
 
Percent
Change
 
2018
 
2017
 
Asset-based fees
 
$
302.4

 
$
340.8

 
(11
%)
Sales-based fees
 
49.6

 
74.3

 
(33
%)
Contingent sales charges
 
2.8

 
2.7

 
4
%
Sales and Distribution Fees
 
$
354.8

 
$
417.8

 
(15
%)
Asset-based distribution fees decreased $38.4 million for the three months ended December 31, 2018 primarily due to a $42.5 million decrease from a 12% decrease in the related average AUM and a $13.8 million decrease from a lower mix of U.S. Class C assets which have higher fee rates than other share classes. The decreases were partially offset by a $15.5 million increase from a change in presentation of certain fees to distribution fees from investment management fees upon adoption of new revenue recognition accounting guidance on October 1, 2018 .
Sales-based fees decreased $24.7 million for the three months ended December 31, 2018 primarily due to a $25.3 million decrease from a 38% decrease in total commissionable sales. Commissionable sales represented 7% and 9% of total sales for the three months ended December 31, 2018 and 2017 .
Contingent sales charges are earned from investor redemptions within a contracted period of time. These charges are levied only on certain shares sold without a front-end sales charge, and vary with the mix of redemptions of these shares.

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Shareholder Servicing Fees
Substantially all shareholder servicing fees are earned from our sponsored funds for providing transfer agency services, which include providing shareholder statements, transaction processing, customer service and tax reporting. These fees are primarily determined based on a percentage of AUM and either the number of transactions in shareholder accounts or the number of shareholder accounts, while fees from certain funds are based only on AUM.
Shareholder servicing fees increased $0.2 million for the three months ended December 31, 2018 , primarily due to a $2.2 million increase from the recognition of certain fund reimbursements as revenue upon adoption of new revenue recognition accounting guidance on October 1, 2018 . This increase was substantially offset by fee decreases primarily resulting from lower levels of related AUM.
Other
Other revenue increased $0.6 million for the three months ended December 31, 2018 primarily due to higher interest and dividend income from consolidated investment products (“CIPs”).
OPERATING EXPENSES
The table below presents the percentage change in each operating expense category.
 
 
Three Months Ended
December 31,
 
Percent
Change
(in millions)
 
2018
 
2017
 
Sales, distribution and marketing
 
$
444.5

 
$
528.7

 
(16
%)
Compensation and benefits
 
355.0

 
332.5

 
7
%
Information systems and technology
 
60.9

 
55.0

 
11
%
Occupancy
 
31.2

 
29.4

 
6
%
General, administrative and other
 
108.4

 
88.8

 
22
%
Total Operating Expenses
 
$
1,000.0

 
$
1,034.4

 
(3
%)
Sales, Distribution and Marketing
Sales, distribution and marketing expenses primarily relate to services provided by financial advisers, broker-dealers and other third parties to our sponsored funds, including marketing support services. Substantially all sales expenses are incurred from the same commissionable sales transactions that generate sales fee revenues and are determined as a percentage of sales. Substantially all distribution expenses are incurred from assets that generate distribution fees and are determined as a percentage of AUM. Marketing support expenses are based on AUM, sales or a combination thereof. Also included is the amortization of deferred sales commissions related to up-front commissions on shares sold without a front-end sales charge. The deferred sales commissions are amortized over the periods in which commissions are generally recovered from related revenues.
Sales, distribution and marketing expenses by cost driver are presented below.
 
 
Three Months Ended
December 31,
 
Percent
Change
(in millions)
 
2018
 
2017
 
Asset-based expenses
 
$
370.3

 
$
440.6

 
(16
%)
Sales-based expenses
 
52.5

 
69.0

 
(24
%)
Amortization of deferred sales commissions
 
21.7

 
19.1

 
14
%
Sales, Distribution and Marketing
 
$
444.5

 
$
528.7

 
(16
%)
Asset-based expenses decreased $70.3 million for the three months ended December 31, 2018 primarily due to a $54.3 million decrease from a 12% decrease in the related average AUM and a $14.4 million decrease from a lower mix of U.S. Class C assets which have higher expense rates than other share classes. Distribution expenses are generally not directly correlated with distribution fee revenues due to certain international fee structures that do not provide full recovery of distribution costs.

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Sales-based expenses decreased $16.5 million for the three months ended December 31, 2018 primarily due to a $22.6 million decrease from a 38% decrease in total commissionable sales. The decrease was partially offset by a $4.2 million increase from the recognition of sales commissions on U.S. Class C shares as expense at the time of sale, which is consistent with the treatment of contract costs with a useful life of one year or less under new revenue recognition accounting guidance adopted on October 1, 2018 . The commissions relate to shares sold without a front-end sales charge and were deferred and amortized over one year in prior periods.
Amortization of deferred sales commissions increased $2.6 million for the three months ended December 31, 2018 primarily due to higher sales of non-U.S. shares sold without a front-end sales charge, partially offset by the change in accounting for U.S. Class C shares discussed above which resulted in no further deferral and amortization. The unamortized deferred Class C commission balance of $9.1 million at September 30, 2018 was reversed against retained earnings upon adoption of the new accounting guidance.
Compensation and Benefits
Compensation and benefit expenses increased $22.5 million for the three months ended December 31, 2018 due to increases of $14.8 million in salaries, wages and benefits and $7.7 million in variable compensation. Salaries, wages and benefits increased primarily due to increases of $8.2 million from higher average staffing levels and $5.8 million for annual salary increases that were effective December 1, 2018 and 2017. Variable compensation increased primarily due to increases of $4.6 million for retention bonuses related to acquisitions and $1.1 million related to product performance fees.
Variable compensation as a percentage of compensation and benefits was 33% for the three months ended December 31, 2018 and 2017 . At December 31, 2018 , our global workforce had increased to approximately 9,700 employees from approximately 9,500 at December 31, 2017 .
We continue to place a high emphasis on our pay for performance philosophy. As such, any changes in the underlying performance of our 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.
Information Systems and Technology
Information systems and technology expenses increased $5.9 million for the three months ended December 31, 2018 primarily due to higher technology consulting and external data service costs.
Details of capitalized information systems and technology costs are shown below.
 
 
Three Months Ended
December 31,
(in millions)
 
2018
 
2017
Net carrying value at beginning of period
 
$
106.2

 
$
102.1

Additions, net of disposals
 
9.5

 
16.0

Amortization
 
(11.8
)
 
(12.2
)
Net Carrying Value at End of Period
 
$
103.9

 
$
105.9

Occupancy
We conduct our worldwide operations using a combination of leased and owned facilities. Occupancy expenses include rent and other facilities-related costs including depreciation and utilities.
Occupancy expenses increased $1.8 million for the three months ended December 31, 2018 primarily due to higher rent expense.

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General, Administrative and Other
General, administrative and other operating expenses primarily consist of fund-related service fees payable to external parties, professional fees, advertising and promotion, travel and entertainment, and other miscellaneous expenses.
General, administrative and other operating expenses increased $19.6 million for the three months ended December 31, 2018 primarily due to a $13.9 million litigation settlement and higher professional fees and third-party service and fund administration fees, partially offset by lower CIPs expenses. Professional fees increased $7.3 million primarily related to the imminent acquisition of Benefit Street Partners L.L.C. Third-party fees primarily for sub-advisory and fund administration services increased $7.1 million , including $2.2 million from the recognition of certain payments reimbursed by funds as expense upon adoption of new revenue recognition accounting guidance on October 1, 2018 . These increases were partially offset by a $6.0 million decrease in CIPs expenses.
We are committed to investing in advertising and promotion in response to changing business conditions, and to advance our products where we see continued or potential new growth opportunities. As a result of potential changes in our strategic marketing campaigns, the level of advertising and promotion expenses may increase more rapidly, or decrease more slowly, than our revenues.
OTHER INCOME (EXPENSES)
Other income (expenses) consisted of the following:
 
 
Three Months Ended
December 31,
 
Percent
Change
(in millions)
 
2018
 
2017
 
Investment and other income (losses), net
 
$
(59.1
)
 
$
81.3

 
NM

Interest expense
 
(6.4
)
 
(10.8
)
 
(41
%)
Other Income (Expenses), Net
 
$
(65.5
)
 
$
70.5

 
NM

Investment and other income (losses), net consists primarily of income (losses) from equity method investees, gains (losses) on investments held by the Company and investments of CIPs, dividend and interest income, rental income and foreign currency exchange gains (losses).
Other income (expenses), net decreased $136.0 million for the three months ended December 31, 2018 , primarily due to lower market valuations which resulted in losses from equity method investees, investments held by CIPs and investments held by the Company, as compared to gains from each in the prior year. Lower interest income also contributed to the decrease, which was partially offset by higher dividend income. Equity method investees generated losses of $37.6 million as compared to income of $35.2 million in the prior year, primarily due to losses on investments held by a global equity fund as compared to gains in the prior year. Investments of CIPs generated net losses of $49.0 million as compared to net gains of $16.0 million in the prior year. The losses were primarily from lower market valuations of holdings by various global/international equity and fixed income funds, a multi-asset/balanced fund and a U.S. fixed income fund. Investments held by the Company generated net losses of $15.8 million as compared to net gains of $0.6 million in the prior year. The losses include $8.4 million from trading investment securities and $7.5 million from equity securities that were classified as available-for-sale or carried at cost prior to the adoption of new financial instruments accounting guidance on October 1, 2018 which requires the changes in fair value of these securities to be recognized in earnings. The losses primarily resulted from lower market valuations of various nonconsolidated funds and other debt and equity securities. Interest income decreased $14.8 million primarily due to lower levels of cash equivalents and debt securities, partially offset by higher interest rates. The decreases were partially offset by a $20.9 million increase in dividend income primarily due to higher investments in, and yields on, money market funds.
Significant portions of the net gains (losses) of CIPs are offset in noncontrolling interests in our consolidated statements of income.
Our investments in sponsored funds include initial cash investments made in the course of launching mutual fund and other investment product offerings, as well as investments for other business reasons. The market conditions that impact our AUM similarly affect the investment income earned or losses incurred on our investments in sponsored funds.

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Our cash, cash equivalents and investments portfolio by investment objective and accounting classification at December 31, 2018 , excluding third-party assets of CIPs, was as follows:
 
 
Accounting Classification  1
 
Total Direct
Portfolio
(in millions)
 
Cash and Cash Equivalents
and Other  2
 
Equity Securities,
at
Fair Value
 
Equity Method
Investments
 
Direct Investments
in CIPs
 
Cash and Cash Equivalents
 
$
6,430.7

 
$
—

 
$
—

 
$
—

 
$
6,430.7

Investments
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
Global/international
 
3.7

 
111.5

 
592.2

 
88.3

 
795.7

United States
 
25.4

 
7.8

 
11.5

 
5.5

 
50.2

Total equity
 
29.1

 
119.3

 
603.7

 
93.8

 
845.9

Multi-Asset/Balanced
 
4.4

 
18.4

 
52.0

 
139.4

 
214.2

Fixed Income
 
 
 
 
 
 
 
 
 
 
Tax-free
 
—

 
0.2

 
4.1

 
—

 
4.3

Taxable
 
 
 
 
 
 
 
 
 
 
Global/international
 
81.6

 
98.3

 
160.0

 
619.5

 
959.4

United States
 
31.3

 
183.5

 
—

 
199.2

 
414.0

Total fixed income
 
112.9

 
282.0

 
164.1

 
818.7

 
1,377.7

Total investments
 
146.4

 
419.7

 
819.8

 
1,051.9

 
2,437.8

Total Cash and Cash Equivalents and Investments
$
6,577.1

 
$
419.7

 
$
819.8

 
$
1,051.9

 
$
8,868.5

 
______________  
1  
See Note 1 – Significant Accounting Policies in the notes to consolidated financial statements in Item 8 of Part II of our Form 10-K for fiscal year 2018 for information on investment accounting classifications.
2  
Other consists of $90.8 million of debt securities and $11.9 million of investments in life settlement contracts, both of which are measured at fair value, and $43.7 million of investments carried at adjusted cost.
TAXES ON INCOME
The Tax Cuts and Jobs Act (the “Tax Act”), which was enacted into law in the U.S. in December 2017, includes various changes to the tax law, including a permanent reduction in the corporate income tax rate from 35% to 21% effective January 1, 2018 and assessment of a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiaries’ earnings. We completed our analysis of the Tax Act impact during the quarter ended December 31, 2018 with no significant adjustment to the provisional amounts previously recorded. The transition tax liability of $982.8 million at December 31, 2018 is net of an $87.6 million tax benefit related to U.S. taxation of deemed foreign dividends. This benefit may be reduced or eliminated by future regulation or legislation. The transition tax liability may also be adjusted in the future upon issuance of state legislative updates on tax reform and the completion of our tax return filings for fiscal year 2018.
Our effective income tax rate was 24.9% and 187.8% for the three months ended December 31, 2018 and 2017 . The rate decrease was primarily due to the prior year impact of the transition tax, net of the tax benefit from the revaluation of net deferred tax liabilities at the lower statutory rate, and the current year impact of the lower 21% statutory rate as compared to a blended statutory rate of 24.5% in the prior year.
The effective income tax rate for future reporting periods will continue to reflect the relative contributions of earnings by jurisdictions. Changes in tax rates or tax legislation in these jurisdictions may affect our effective income tax rate and net income.

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LIQUIDITY AND CAPITAL RESOURCES
Cash flows were as follows:  
 
 
Three Months Ended
December 31,
(in millions)
 
2018
 
2017
Operating cash flows
 
$
266.0

 
$
320.4

Investing cash flows
 
(110.3
)
 
(58.6
)
Financing cash flows
 
(396.1
)
 
(51.1
)
Net cash provided by operating activities decreased during the three months ended December 31, 2018 primarily due to activities of CIPs which had a decrease in accounts payable as compared to an increase in the prior year, partially offset by a decrease in receivables as compared to an increase in the prior year. Net cash used in investing activities increased primarily due to higher net purchases of investments and net purchases of investments of CIPs as compared to net liquidations in the prior year. Net cash used in financing activities increased primarily due to lower net subscriptions in CIPs by noncontrolling interests and higher repurchases of common stock.
The assets and liabilities of CIPs attributable to third-party investors do not impact our liquidity and capital resources. We have no right to the CIPs’ assets, other than our direct equity investment in them and investment management and other fees earned from them. The debt holders of the CIPs have no recourse to our assets beyond the level of our direct investment, therefore we bear no other risks associated with the CIPs’ liabilities. Accordingly, the assets and liabilities of CIPs, other than our direct investments in them, are excluded from the amounts and discussion below.
Our liquid assets and debt consisted of the following:  
(in millions)
 
December 31,
2018
 
September 30,
2018
Assets
 
 
 
 
Cash and cash equivalents
 
$
6,430.7

 
$
6,610.8

Receivables
 
723.9

 
733.7

Investments
 
1,985.0

 
2,130.6

Total Liquid Assets
 
$
9,139.6

 
$
9,475.1

 
 
 
 
 
Liability
 
 
 
 
Debt
 
$
697.7

 
$
695.9

Liquidity
Liquid assets consist of cash and cash equivalents, receivables and certain investments. Cash and cash equivalents at December 31, 2018 primarily consist of money market funds and deposits with financial institutions. Liquid investments consist of direct investments in redeemable CIPs, investments in sponsored and other funds, other equity and debt securities and time deposits with maturities greater than three months.
We utilize a significant portion of our liquid assets to satisfy operational and regulatory requirements and fund capital contributions relating to our products. Certain of our subsidiaries are required by our internal policy or regulation to maintain minimum levels of capital which are partially maintained by retaining cash and cash equivalents. As a result, such subsidiaries may be restricted in their ability to transfer cash to their parent companies. At December 31, 2018 , our subsidiaries held $3,340.4 million of liquid assets to satisfy operational and regulatory requirements and capital contributions to our products, as compared to $3,382.6 million held at September 30, 2018 . Included in these amounts were liquid assets restricted by regulatory requirements from transfer to Franklin and other subsidiaries of $242.8 million at December 31, 2018 and $252.6 million at September 30, 2018 . Should we require more capital than is available for use, we could elect to reduce the level of discretionary activities, such as share repurchases, or we could raise capital through debt or equity issuance. These alternatives could result in increased interest expense or other dilution to our earnings.

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Capital Resources
We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets, continuing cash flows from operations, the ability to issue debt or equity securities and borrowing capacity under our uncommitted private placement program.
In prior fiscal years, we issued senior unsecured unsubordinated notes for general corporate purposes, to redeem outstanding notes and to finance an acquisition. At December 31, 2018 , $699.3 million of the notes were outstanding with an aggregate face value of $700.0 million . The notes were issued at fixed interest rates and consist of $300.0 million at 2.800% per annum which mature in 2022 and $400.0 million at 2.850% per annum which mature in 2025 .
Interest on the notes is payable semi-annually. The notes contain an optional redemption feature that allows us to redeem each series of notes prior to maturity in whole or in part at any time, at a make-whole redemption price. The indentures governing the notes contain limitations on our ability and the ability of our subsidiaries to pledge voting stock or profit participating equity interests in our subsidiaries to secure other debt without similarly securing the notes equally and ratably. The indentures also include requirements that must be met if we consolidate or merge with, or sell all of our assets to, another entity. We were in compliance with all debt covenants at December 31, 2018 .
At December 31, 2018 , we had $500.0 million of short-term commercial paper available for issuance under an uncommitted private placement program which has been inactive since 2012 .
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. If we are unable to access capital markets in a timely manner, our business could be adversely impacted.
Uses of Capital
We expect that our main uses of cash will be to invest in and grow our business, repurchase shares of our common stock, invest in our products, fund property and equipment purchases, pay operating expenses of the business, enhance technology infrastructure and business processes, pay stockholder dividends and income taxes, and repay and service debt.
We declare dividends on a quarterly basis. We declared regular dividends of $0.26 and $0.23 per share during the three months ended December 31, 2018 and 2017 . We currently expect to continue paying comparable regular dividends on a quarterly basis to holders of our common stock depending upon earnings and other relevant factors.
We maintain a stock repurchase program to manage our equity capital with the objective of maximizing shareholder value. Our stock repurchase program is effected through regular open-market purchases and private transactions in accordance with applicable laws and regulations, and is not subject to an expiration date. The size and timing of these purchases will depend on price, market and business conditions and other factors. We repurchased 10.7 million shares of our common stock at a cost of $326.9 million during the three months ended December 31, 2018 , and 4.6 million shares at a cost of $200.0 million in the prior-year period. At December 31, 2018 , 61.0 million shares remained available for repurchase under the authorization approved by our Board of Directors in April 2018.
We invested $6.5 million , net of redemptions, into our sponsored products during the three months ended December 31, 2018 , and redeemed $91.3 million , net of investments, in the prior-year period.
On October 24, 2018 , we entered into an acquisition agreement with a purchase consideration of approximately $683 million in cash.
The funds that we manage have their own resources available for purposes of providing liquidity to meet shareholder redemptions, including securities that can be sold or provided to investors as in-kind redemptions, and lines of credit. While we have no contractual obligation to do so, we may voluntarily elect to provide the funds with direct or indirect financial support based on our business objectives. We did not provide financial or other support to our sponsored funds during the three months ended December 31, 2018 . During fiscal year 2018 , we purchased $32.6 million of certain equity and debt securities from two sponsored funds. None of these purchases occurred during the three months ended December 31, 2017 .
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENT LIABILITY
At December 31, 2018 , there were no material changes in our contractual obligations, commitments, contingent liability and federal transition tax liability as reported in our Form 10‑K for fiscal year 2018 .

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Table of Contents

CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. These estimates, judgments, and assumptions are affected by our application of accounting policies. Actual results could differ from the estimates. The following are updates to our critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for fiscal year 2018 .
Consolidation
We consolidate our subsidiaries and investment products in which we have a controlling financial interest. We have a controlling financial interest when we own a majority of the voting interest in a voting interest entity (“VOE”) or are the primary beneficiary of a variable interest entity (“VIE”). Substantially all of our VIEs are investment products and our variable interests consist of our equity ownership interests in and investment management fees earned from these products. As of December 31, 2018 , we were the primary beneficiary of 32 investment product VIEs.
Fair Value Measurements
A substantial amount of our investments is recorded at fair value or amounts that approximate fair value on a recurring basis. We use a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on whether the inputs to those valuation techniques are observable or unobservable.
As of December 31, 2018 , Level 3 assets represented 14% of total assets measured at fair value, substantially all of which related to CIPs’ investments in equity and debt securities. There was one Level 3 liability, a contingent consideration liability which was the only liability measured at fair value. There were $31.1 million of transfers out of and insignificant transfers into Level 3 during the three months ended December 31, 2018 .
We adopted new accounting guidance on October 1, 2018 that requires substantially all equity investments in nonconsolidated entities to be measured at fair value with changes recognized in earnings, except for those accounted for using the equity method of accounting. The policy description for equity securities measured at fair value and their fair value methodologies is as follows.
Equity securities, at fair value consist of investments in nonconsolidated sponsored funds and other equity securities. Changes in the fair value of the investments are recognized as gains and losses in earnings. The fair value of funds is determined based on their published net asset value (“NAV”) or estimated using NAV as a practical expedient. The fair value of equity securities other than funds is determined using independent third-party broker or dealer price quotes or based on discounted cash flows using significant unobservable inputs.
Goodwill and Other Intangible Assets
Subsequent to our annual impairment tests as of August 1, 2018 , there were no impairments to goodwill or indefinite-lived intangible assets. We monitored market conditions, including changes in our AUM and weighted-average cost of capital, and their potential impact on the assumptions used in the annual calculations of fair value to determine whether circumstances have changed that would more likely than not reduce the fair value of the reporting unit below its carrying value, or indicate that the indefinite-lived intangible assets might be impaired. We also monitored fluctuations of our common stock per share price to evaluate our market capitalization relative to the reporting unit as a whole.
While we believe that the assumptions used to estimate fair value in our impairment tests are reasonable and appropriate, future changes in the assumptions could result in recognition of impairment.
Revenues
We earn revenue primarily from providing investment management and related services to our customers, which are generally investment products or investors in separate accounts. In addition to investment management, services include fund administration, sales and distribution, and shareholder servicing. Revenues are recognized when our obligations related to the services are satisfied and it is probable that a significant reversal of the revenue amount would not occur in future periods. The obligations are satisfied over time as the services are rendered, except for the sales and distribution obligations for the sale of shares of sponsored funds, which are satisfied on trade date. Multiple services included in customer contracts are accounted for separately when the obligations are determined to be distinct.

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Table of Contents

Fees from providing investment management and fund administration services (“investment management fees”), other than performance-based investment management fees, are determined based on a percentage of AUM, primarily on a monthly basis using daily average AUM, and are recognized as the services are performed over time. Performance-based investment management fees are generated when we exceed performance targets established in customer contracts. These fees are recognized when the amount is no longer probable of significant reversal and may relate to investment management services that were provided in prior periods.
Sales and distribution fees primarily consist of upfront sales commissions and ongoing distribution fees. Sales commissions are based on contractual rates for sales of certain classes of sponsored funds and are recognized on trade date. Distribution service fees are determined based on a percentage of AUM, primarily on a monthly basis using daily average AUM. As the fee amounts are uncertain on trade date they are recognized over time as the amounts become known and may relate to sales and distribution services provided in prior periods.
Shareholder servicing fees are primarily determined based on a percentage of AUM on a monthly basis using daily average AUM and either the number of transactions in shareholder accounts or the number of shareholder accounts, while fees from certain investment products are based only on AUM. These fees are recognized as the services are performed over time.
AUM is generally based on the fair value of the underlying securities held by our investment products and is calculated using fair value methods derived primarily from unadjusted quoted market prices, unadjusted independent third-party broker or dealer price quotes in active markets, or market prices or price quotes adjusted for observable price movements after the close of the primary market in accordance with the Company’s global valuation and pricing policy. The fair values of securities for which market prices are not readily available are valued internally using various methodologies which incorporate significant unobservable inputs as appropriate for each security type. As of December 31, 2018 , our total AUM by fair value hierarchy level was 49% Level 1, 50% Level 2 and 1% Level 3. As substantially all of our AUM is valued based on observable market prices or inputs, market risk is the most significant risk underlying the valuation of our AUM.
NEW ACCOUNTING GUIDANCE
See Note  2 – New Accounting Guidance in the notes to consolidated financial statements in Item 1 of Part I of this Form 10‑Q.
RISK FACTORS
Volatility and disruption of the capital and credit markets, and adverse changes in the global economy, may significantly affect our results of operations and may put pressure on our financial results. The capital and credit markets may from time to time experience volatility and disruption worldwide. Declines in global financial market conditions have in the past resulted in significant decreases in our assets under management (“AUM”), revenues and income, and future declines may further negatively impact our financial results. Such declines have had and may in the future have an adverse impact on our results of operations. We may need to modify our business, strategies or operations and we may be subject to additional constraints or costs in order to compete in a changing global economy and business environment.
The amount and mix of our AUM are subject to significant fluctuations . Fluctuations in the amount and mix of our AUM may be attributable in part to market conditions outside of our control that have had, and in the future could have, a negative impact on our revenues and income. We derive substantially all of our operating revenues and net income from providing investment management and related services to investors in jurisdictions worldwide through our investment products which include our sponsored funds, as well as institutional and high net-worth separate accounts. In addition to investment management, our services include fund administration, sales, distribution, marketing, shareholder servicing, and other services. The level of our revenues depends largely on the level and mix of AUM. Our investment management fee revenues are primarily based on a percentage of the value of AUM and vary with the nature and strategies of our products. Any decrease in the value or amount of our AUM because of market volatility or other factors, such as a decline in the price of stocks, in particular market segments or in the securities market generally, negatively impacts our revenues and income. We are subject to significant risk of asset volatility from changes in the global financial, equity, debt and commodity markets. Individual financial, equity, debt and commodity markets may be adversely affected by financial, economic, political, electoral, diplomatic or other instabilities that are particular to the country or region in which a market is located, including without limitation local acts of terrorism, economic crises, political protests, insurrection or other business, social or political crises. Global economic conditions, exacerbated by war, terrorism, natural disasters or financial crises, changes in the equity, debt or commodity marketplaces, changes in currency exchange rates, interest rates, inflation rates, the yield curve, defaults by trading counterparties, bond defaults, revaluation and bond market liquidity risks, geopolitical risks, the imposition of economic sanctions and other factors that are difficult to predict, affect the mix, market values and levels of our AUM. For example, changes in financial market prices, currency exchange rates and/or interest rates have in the past and could in the future cause the value of our AUM to decline, which would result in lower investment management fee

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revenues. Changing market conditions could also cause an impairment to the value of our goodwill and other intangible assets. Our funds may be subject to liquidity risks or an unanticipated large number of redemptions as a result of the events or conditions described above, causing the funds to sell securities they hold, possibly at a loss, or draw on any available lines of credit, to obtain cash to maintain sufficient liquidity or settle these redemptions, or settle in-kind with securities held in the applicable fund. We have in the past, and may in the future, at our discretion, provide financial support to our funds to enable them to maintain sufficient liquidity in any such event. Changes in investor preferences regarding our more popular products have in the past and could in the future cause sizable redemptions and lower the value of our AUM, which would result in lower revenue and operating results. 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 revenues and income depending upon the nature of our AUM and the level of management fees we earn based on our AUM. We generally derive higher investment management and distribution fees from our international products than from our U.S. products, and higher sales fees from our U.S. products than from our international products. Additionally, changing market conditions may cause a shift in our asset mix towards fixed income products and away from equity and multi-asset/balanced products, and a related decline in our revenues and income, as we generally derive higher fee revenues and income from our equity and certain multi-asset/balanced products than from our fixed income products. Further, changing market conditions and investor preferences also may cause a shift in our asset mix towards lower fee exchange-traded funds. Increases in interest rates, in particular if rapid, as well as any uncertainty in the future direction of interest rates, may have a negative impact on our fixed income products. Although the shorter duration of the bond investments in many of these products may help mitigate the interest rate risk, 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 our AUM resulting from market declines, interest rate volatility or uncertainty, increased redemptions or other factors could negatively impact our revenues and income.
We are subject to extensive, complex, overlapping and frequently changing rules, regulations, policies, and legal interpretations. There is uncertainty associated with the regulatory environments in which we operate. As described below, our business is subject to extensive and complex, overlapping and/or conflicting, and frequently changing and increasing rules, regulations, policies and legal interpretations in the countries in which we operate. Our regulatory and compliance obligations impose significant operational and cost burdens on us and cover a broad range of requirements related to securities and other financial instruments, investment and advisory matters, accounting, tax, compensation, ethics, data protection, privacy, sanctions programs, and escheatment laws and regulations.
As a U.S. reporting company, we are subject to U.S. 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 U.S. Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. As a global investment management organization, certain of our subsidiaries are also subject to the rules and regulations promulgated by the SEC, the Financial Industry Regulatory Authority, the U.S. Commodity Futures Trading Commission (“CFTC”), the National Futures Association, the U.S. Department of Justice (“DOJ”), the U.S. Department of Labor (“DOL”) and the U.S. Department of Treasury. Given our global operations, our subsidiaries are also subject to applicable securities and other laws of various non-U.S. jurisdictions, and to various non-U.S. and cross-border rules and regulations, such as the European Union’s (“EU”) data protection rules under the EU’s General Data Protection Regulation (“GDPR”). Our non-U.S. regulators include, among others, the United Kingdom (“U.K.”) Financial Conduct Authority, the Luxembourg Commission de Surveillance du Secteur Financier, the Canadian provincial and territorial securities regulatory authorities, the Monetary Authority of Singapore, the Australian Securities and Investments Commission, the Hong Kong Securities and Futures Commission, the Securities and Exchange Board of India, the Japanese Financial Services Agency and various international stock exchanges. Our non-U.S. operations may also be subject to regulation by U.S. regulators, including the SEC, the CFTC and the DOJ (for example, with respect to the Foreign Corrupt Practices Act of 1977). We are also subject not only to the sanctions programs administered by the U.S. Department of Treasury’s Office of Foreign Assets Control, but also to sanctions programs adopted and administered by non-U.S. jurisdictions, including the EU, where our services and products are offered. We are also subject to the laws and regulations of states and other jurisdictions regarding the reporting and escheatment of unclaimed or abandoned property. Further, certain federal and state anti-takeover or business combination laws may impose various disclosure and procedural requirements on the ability of a person to acquire control of us, which may discourage potential merger and acquisition proposals and may delay, deter or prevent a change of control, including through transactions that some stockholders may consider desirable.
Certain of our subsidiaries are registered with the SEC under the Investment Advisers Act of 1940, the CFTC and/or registered with or licensed by various non-U.S. regulators. In addition, many of our funds are registered with the SEC under the Investment Company Act of 1940 (the “Investment Company Act”) or authorized by various European and other non-U.S. regulators pursuant to the EU’s Undertakings for Collective Investment in Transferable Securities (“UCITS”) Directive or under other non-U.S. laws in Europe, Middle East and Africa, Asia-Pacific, Canada and Latin America. These registrations, licenses and authorizations impose numerous obligations, as well as detailed operational requirements, on such subsidiaries and such funds. Our subsidiaries must also comply with complex tax regimes.

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Financial reporting requirements, and the processes, controls and procedures that have been put in place to address them, are often comprehensive and complex. We may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation of existing laws and regulations. Political and electoral changes, developments and conflicts may also introduce additional uncertainty. While management has focused attention and resources on our compliance policies, procedures and practices, non-compliance with applicable laws, rules, regulations, conflicts of interest requirements or fiduciary principles, or our inability to keep up with, or adapt to, an ever changing, complex regulatory environment, could result in civil liability, criminal liability and/or sanctions against us, including fines and censures, injunctive relief, suspension or expulsion from a particular jurisdiction or market or the revocation of licenses or charters, any of which could adversely affect our reputation, prospects, revenues and income. Moreover, any potential accounting or reporting error, whether financial or otherwise, if material, could damage our reputation and adversely affect our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) authorized the establishment of the Financial Stability Oversight Council (“FSOC”), the mandate of which is to identify and respond to threats to U.S. financial stability. Similarly, the U.S. and other members of the G-20 group of nations have empowered the Financial Stability Board (“FSB”) to identify and respond, in a coordinated manner, to threats to global financial stability. The FSOC may designate certain non-bank financial companies as systemically important financial institutions (“SIFIs”), which are subject to supervision and regulation by the Board of Governors of the Federal Reserve System. The FSB may designate certain non-bank financial companies as global systemically important financial institutions (“G-SIFIs”); the additional regulatory requirements triggered by any such designation are not yet established. The FSOC and the FSB, as well as other global regulators including the European Commission, are considering what threats to U.S., EU and global financial stability, if any, arise from asset management companies and/or the funds that they sponsor or manage, and whether such threats can be mitigated by treating such entities as SIFIs or G-SIFIs and/or subjecting them to additional regulation. To the extent that we or any of our funds are designated as a SIFI or G-SIFI, such regulation, which could include requirements related to risk-based capital, leverage, liquidity, credit exposure, stress testing, resolution plans, early remediation, and certain risk management requirements, could impact our business. The Dodd-Frank Act, as well as other legislative and regulatory changes, impose other restrictions and limitations on us, resulting in increased scrutiny and oversight of our services and products. We continue to analyze the impact of the Dodd-Frank Act as implementing rules are adopted and become effective. Under the Dodd-Frank Act, which imposes a number of regulations governing derivative transactions, certain categories of swaps are currently required, and further categories of swaps are likely to be required, to be submitted for clearing by a regulated clearing organization and reported on a swap execution facility. The EU and other countries are in the process of implementing similar requirements, and there is some risk that full mutual recognition may not be achieved between the various regimes, and duplication of regulation and transaction costs may result. These and other requirements are likely to impact how we manage our investment strategies because of, among other things, an increase in the costs and expenses of utilizing swaps and other derivatives. In addition, the SEC has adopted rules that have changed the structure and operation for certain types of money market funds, and that will require certain registered funds to adopt liquidity management programs. (Compliance with certain aspects of the latter was required by December 1, 2018, and other aspects are delayed until June 1, 2019, subject to further regulatory update.) The SEC has also proposed a rule that would impose restrictions on the use of derivatives by registered funds. We expect that the complex regulatory requirements and developments applicable to us will cause us to incur additional administrative and compliance costs.
The laws and regulations applicable to our business generally involve restrictions and requirements in connection with a variety of technical, specialized, and expanding matters and concerns. For example, compliance with the Bank Secrecy Act of 1970, anti-money laundering and Know Your Customer requirements, and economic, trade and other sanctions, both domestically and internationally, has taken on heightened importance as a result of efforts to, among other things, limit terrorism and actions that undermine the stability, sovereignty and territorial integrity of countries. 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. Any inability to meet these requirements within the required timeframes may subject us to sanctions or other restrictions by governments and/or regulators that could adversely impact our broader business objectives.
Global 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 financial condition and results of operations. The U.S. federal securities laws have been augmented substantially and made significantly more complex by, among other measures, the Dodd-Frank Act, the Sarbanes-Oxley Act of 2002 and the USA Patriot Act of 2001. Similarly, the securities and related laws outside the U.S. have been augmented substantially and made more complex by measures such as the EU’s Alternative Investment Fund Managers Directive (“AIFMD”) and Markets in Financial Instruments Directive II (“MiFID II”). Although negotiations between the U.K. and EU regarding the U.K.’s proposed withdrawal from the EU (“Brexit”) began in June 2017, it is still unclear what terms may be agreed to in the final outcome and for any transitional period. Ongoing changes in the EU’s regulatory framework applicable to our business, including changes related to Brexit and any other changes in the composition of the EU’s member states, may add further complexity to our global risks and operations. Moreover, the adoption of new laws, regulations or standards

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and changes in the interpretation or enforcement of existing laws, regulations or standards have directly affected, and will continue to affect, our business. With new laws and changes in interpretation 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. In particular, certain provisions of the Dodd-Frank Act and MiFID II still require the adoption of implementing rules. We may be required to invest significant additional management time and resources to address the new regulations being adopted pursuant to the Dodd-Frank Act, MiFID II and other laws. For example, MiFID II requires the “unbundling” of research and execution charges for trading. The industry’s response to the unbundling rules is still evolving and could lead to increased research costs. Outlays associated with meeting regulatory complexities have also increased as we expand our business into new jurisdictions.
As of May 2018, the EU’s GDPR strengthened and unified data protection rules for individuals within the EU. The GDPR also addresses export of personal data outside the EU. The primary objectives of the GDPR are to give citizens control of their personal data and to simplify the regulatory environment for international business by unifying data protection regulation within the EU. Compliance with the stringent data protection rules under the GDPR requires an extensive review of all of our global data processing systems. The failure to comply properly with GDPR rules on a timely basis and to maintain ongoing compliance with such rules may subject us to enforcement proceedings and significant fines and costs. For example, a failure to comply with the GDPR could result in fines up to 20 million Euros or 4% of our annual global revenues, whichever is higher.
Further, pursuant to ongoing efforts to encourage global tax compliance, the Organization for Economic Co-operation and Development has adopted a global common reporting standard for the automatic exchange of financial information among participating countries (“CRS”), aimed at ensuring that persons with financial assets located outside of their tax residence country pay required taxes. In many cases, intergovernmental agreements between the participating countries will govern implementation of the new CRS rules. CRS will be implemented over a multi-year period and we will continue to monitor the implementing regulations and corresponding intergovernmental agreements to determine our requirements. CRS may subject us to additional reporting, compliance and administrative costs and burdens in jurisdictions where we operate as a qualifying financial institution.
Compliance activities to address these and other new legal requirements have required, and will continue to require, us to expend additional time and resources, and, consequently, we are incurring increased costs of doing business, which potentially negatively impacts our profitability and future financial results. Finally, any further regulatory and legislative actions and reforms affecting the investment management industry, including compliance initiatives, may negatively impact revenues by increasing our costs of accessing or operating in the financial markets or by making certain investment offerings less favorable to our clients.
Failure to comply with the laws, rules or regulations in any of the jurisdictions in which we operate could result in substantial harm to our reputation and results of operations. As with all investment management companies, our activities are highly regulated in almost all countries in which we conduct business. The regulatory environments of the jurisdictions where we conduct our business, or where our products are organized or sold, are complex, uncertain and subject to change. Local regulatory environments may vary widely and place additional demands on our sales, investment, legal and compliance personnel. Failure to comply with the applicable laws, rules, regulations, codes, directives, notices or guidelines in any of our jurisdictions could result in a wide range of penalties and disciplinary actions, including fines, censures and the suspension or expulsion from a particular jurisdiction or market or the revocation of licenses, any of which could adversely affect our reputation and operations. In recent years, the regulatory environments in which we operate have seen significant increased and evolving regulations, which have imposed and may continue to impose additional compliance and operational requirements and costs on us in the applicable jurisdictions. Regulators could also change their policies or laws in a manner that might restrict or otherwise impede our ability to offer our services and products in their respective markets, or we may be unable to keep up with, or adapt to, the ever changing, complex regulatory requirements in such jurisdictions or markets, which could further negatively impact our business.
Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition, results of operations and liquidity. We are subject to income taxes as well as non-income based taxes, and are subject to ongoing tax audits, in various jurisdictions in which we operate. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcomes of these audits, and the actual outcomes could have a material impact on our net income or financial condition. Changes in tax laws or tax rulings may at times materially impact our effective tax rate. For example, the Tax Cuts and Jobs Act enacted into law in the U.S. in December 2017 includes various changes to the tax law, including a permanent reduction in the corporate income tax rate and one-time transition tax on certain non-U.S. earnings.

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Any significant limitation, failure or security breach of our information and cyber security infrastructure, software applications, technology or other systems that are critical to our operations could disrupt our business and harm our operations and reputation. We are highly dependent upon the use of various proprietary and third-party information and security technology, software applications and other technology systems to operate our business. We are also dependent on the continuity and effectiveness of our information and cyber security infrastructure, management oversight and reporting framework, policies, procedures and capabilities to protect our computer and telecommunications systems and the data that reside on or are transmitted through them and contracted third-party systems. We use technology on a daily basis in our business to, among other things, support our business continuity and operations, process and transmit confidential communications, store and maintain data, obtain securities pricing information, process client transactions, and provide reports and other customer services to our clients. Any disruptions, inaccuracies, delays, systems failures, data or privacy breaches, or cyber or other security breaches in these and other processes could subject us to significant client dissatisfaction and losses and damage our reputation. Although we take protective measures, including measures to secure and protect information through system security technology and our internal security procedures, the technology systems we use remain vulnerable to unauthorized access, computer viruses, potential human errors or other events and circumstances that have a security impact, such as an external or internal hacker attack by one or more cyber criminals (including through the use of phishing attacks, malware, ransomware and other methods and activities designed to maliciously obtain and exploit confidential information and to otherwise cause damage) or an authorized employee or vendor inadvertently or recklessly causing us to release confidential information, which could materially harm our operations and reputation.
Potential system disruptions, failures or breaches of the technology systems we use or the security infrastructure we rely upon, and the costs necessary to address them, could result in: significant material financial loss or costs; the unauthorized disclosure or modification of sensitive or confidential client and business information; loss of valuable information; breach of client and vendor contracts; liability for stolen assets, information or identity; remediation costs to repair damage caused by the failure or breach; additional security and organizational costs to mitigate against future incidents; reputational harm; loss of confidence in our business and products; liability for failure to properly and timely review and disclose applicable incidents or provide relevant updated disclosure; regulatory investigations or actions; and/or legal claims, liability and litigation costs resulting from the incident. Moreover, loss or unauthorized disclosure or transfer of confidential customer identification information could further harm our reputation and subject us to liability under laws that protect confidential personal data, resulting in increased costs or a decline in our revenues or common stock price. Further, although we take precautions to password protect and encrypt our laptops and sensitive information on our other mobile electronic devices, if such devices are stolen, misplaced or left unattended, they may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by us.
In addition, due to our interconnectivity with third-party vendors, advisors, central agents, exchanges, clearing organizations and other financial institutions, we may be adversely affected if any of them are subject to a successful cyber attack or other information security event, including those arising due to the use of mobile technology or a third-party cloud environment. Most of the software applications that we use in our business are licensed from, and supported, upgraded and maintained by, third-party vendors. Our third-party applications include enterprise cloud storage and cloud computing application services provided 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 that could adversely impact our business. Also, our third-party applications may include confidential and proprietary data provided by vendors and by us. We may be subject to indemnification costs and liability to third parties if we breach any confidentiality obligations regarding vendor data, for losses related to the data, or if data we provide is deemed to infringe upon the rights of others. In addition, the failure to properly manage and operate the data centers we use could have an adverse impact on our business. 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 advancements and changes and our competitors may from time to time implement new technologies or more advanced platforms for their services and products, including digital advisers and other advanced electronic systems, which could adversely affect our business if we are unable to remain competitive.
Our business operations are complex and a failure to properly perform operational tasks or the misrepresentation of our services and products, or the termination of investment management agreements representing a significant portion of our AUM, could have an adverse effect on our revenues and income. Through our subsidiaries, we provide investment management and related services to investors globally through our products. In order to be competitive and comply with our agreements, we must properly perform our fund and portfolio administration and related responsibilities, including portfolio recordkeeping and accounting, security pricing, corporate actions, investment restrictions compliance, daily net asset value computations, account reconciliations, and required distributions to fund shareholders. Many of our operations are complex and dependent on our ability to effectively process and monitor a large number of transactions, many of which may occur across numerous markets and currencies at high volumes and frequencies. Although we expend considerable resources on internal controls, supervision, technology and training in an effort to ensure that such transactions do not violate applicable guidelines, rules and regulations or adversely affect our clients, counterparties or us, our operations are ultimately dependent on our employees and subject to potential human errors.

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Our employees and others involved in our business may, from time to time, make mistakes that are not always immediately detected, which may disrupt our operations, cause losses, lead to regulatory fines or sanctions, or otherwise damage our reputation. In addition, any misrepresentation of our services and products in advertising materials, public relations information, social media or other external communications could also adversely affect our reputation and business prospects. Our investment management fees, which represent the majority of our revenues, are dependent on fees earned under investment management agreements that we have with our products. Our revenues could be adversely affected if such agreements representing a significant portion of our AUM are terminated or significantly altered. Further, certain of our subsidiaries may act as general partner for various investment partnerships, which may subject them to liability for the partnerships’ liabilities. If we fail to properly perform and monitor our operations, our business could suffer and our revenues and income could be adversely affected.
We face risks, and corresponding potential costs and expenses, associated with conducting operations and growing our business in numerous countries. We sell our products such as our funds and strategies, and offer our 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 challenges to the adequacy of our resources, procedures and controls to consistently and effectively operate our business. 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. Local regulatory environments may vary widely in terms of scope, adequacy and sophistication. Similarly, local distributors, and their policies and practices as well as financial viability, may also vary widely, or be inconsistent or less developed or mature than other more internationally focused distributors. 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, hiring and retaining 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 authorize products or maintain their authorizations 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. Certain laws and regulations both inside and outside the U.S. have included extraterritorial application. This may lead to duplicative or conflicting legal or regulatory burdens and additional costs and risks. In addition, from time to time we enter into joint ventures or take minority stakes in companies in which we typically do not have control. These investments may involve risks, including the risk that the controlling stakeholder or our 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 stakeholder, our joint venture partner or the entity itself may result in liability for us or harm to our reputation or adversely affect the value of our investment in the entity.
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. Competition for qualified, motivated, and highly skilled executives, professionals and other key personnel in the investment management industry remains significant. Our success depends to a substantial degree upon our ability to find, attract, retain and motivate qualified individuals, including through competitive compensation packages, and upon the continued contributions of these people. Laws and regulations, including those contained in or relating to the EU’s Capital Requirements Directive, those adopted under AIFMD and UCITS and those required to be adopted under the Dodd-Frank Act, could impose restrictions on compensation paid by financial institutions, which could restrict our ability to compete effectively for qualified professionals. As our business develops, we are likely to need to increase the 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 revenues. In addition, due to the global nature of our business, our key personnel may from time to time have reasons to travel to regions susceptible to higher risk of civil unrest, organized crime or terrorism, and we may be unable to ensure the safety of our personnel traveling to such regions. There is no assurance that we will be successful in finding, attracting and retaining qualified individuals, and the departure of key investment personnel, in particular, if not replaced, could cause us to lose clients, which could have a material adverse effect on our financial condition, results of operations and business prospects.
Strong competition from numerous and sometimes larger companies with competing offerings and products could limit or reduce sales of our products, potentially resulting in a decline in our market share, revenues and income. We compete with numerous investment management companies, securities brokerage and investment banking firms, insurance companies, banks and other financial institutions. Our products also compete with products offered by these competitors, as well as with real estate

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investment trusts, hedge funds and other products. The periodic establishment of new investment management companies and other competitors increases the competition that we face. 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. Further, although we may offer certain types of exchange-traded funds, to the extent that there is a trend among existing or potential clients in favor of lower fee index and other exchange-traded funds, it may favor our competitors who may offer such products that are more established or on a larger scale than we do. Additionally, competing securities broker-dealers, whom we rely upon to distribute and sell certain of our funds and other products, may also sell their own proprietary funds and products, which could limit the distribution of our products. To the extent that existing or potential clients, 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 income could decline. Our ability to attract and retain AUM is also dependent on the relative investment performance of our products, offering a mix of products and strategies that meets investor demands, and our ability to maintain our investment management fees and pricing structure at competitive levels.
Changes in the third-party distribution and sales channels on which we depend could reduce our income and hinder our growth. We derive nearly all of our fund sales through third-party broker-dealers, banks, investment advisers and other financial intermediaries. Increasing competition for these distribution channels and 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. The SEC has proposed changes to Rule 12b-1 promulgated under the Investment Company Act which, if adopted, could limit our ability to recover expenses relating to the distribution of our U.S.-registered funds. Higher distribution costs lower our income; consolidations in the broker-dealer industry could also adversely impact our income. Moreover, if several 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 income. Pursuant to the Dodd-Frank Act, the SEC may establish different standards for broker-dealers in their interaction with retail customers, which could have an impact on sales and/or distribution costs. In April 2018, the SEC proposed rules that would apply to all retail investors and would, among other things: require broker-dealers to act in the best interest of their retail customers when recommending securities and provide additional disclosure about the scope and terms of the relationship; clarify the fiduciary duty that an investment adviser owes to its clients; and require a new short-form disclosure document to inform clients of the nature of their relationships with investment professionals and investment advisers, including differences in the principal types of services offered, the legal standards of conduct that apply to each, the fees a client might pay, and conflicts of interest that may exist. In addition, the U.K., the Netherlands and the EU in MiFID II have adopted regimes which ban, or may limit, the payment of commissions and other inducements to intermediaries in relation to certain sales to retail customers in those jurisdictions, and similar regimes are under consideration in several other jurisdictions. Depending on their exact terms, such regimes may result in existing flows of business moving to less profitable channels or even to competitors providing substitutable products outside the regime. Arrangements with non-independent advisers will also be affected as narrower rules related to the requirement that commissions reflect an enhancement of the service to customers come into effect, along with a prescriptive list of permissible non-monetary benefits. The interpretation of the inducements rules has also resulted in major changes to how fund managers finance investment research with many firms, including ours, opting to pay for third-party investment research for client accounts covered by MiFID II. There is no assurance we will continue to have access to the third-party broker-dealers, banks, investment advisers and other financial intermediaries 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 such distributors may also impair our distribution and sales operations. Because we use broker-dealers, banks, investment advisers and other financial intermediaries 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 AUM, income and overall business and financial condition.
Our increasing focus on international markets as a source of investments and sales of our products subjects us to increased exchange rate and market-specific political, economic or other risks that may adversely impact our revenues and income generated overseas. While we maintain a significant portion of our operations in the U.S., we also provide services and earn revenues in Europe, Middle East and Africa, Asia-Pacific, Canada, The Bahamas and Latin America. As a result, we are subject to foreign currency exchange risk through our non-U.S. operations. Fluctuations in the exchange rates to the U.S. dollar have affected and may in the future affect our financial results from one period to the next. 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 U.S. Appreciation of the U.S. dollar has and could in the future moderate revenues from managing our products internationally, or could affect relative investment performance of certain of our products invested in non-U.S. securities. In addition, we have risk associated with the foreign exchange revaluation of U.S. dollar balances held by certain non-U.S. subsidiaries for which the local currency is the functional currency. Separately, management fees that we earn tend to be higher in connection with non-U.S. AUM than with U.S. AUM. Consequently, downturns in international markets have in the past and could in the future have a significant effect on our revenues and income. Moreover, our emerging market portfolios and revenues derived from managing these portfolios are subject to significant risks of loss from financial,

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economic, political and diplomatic developments, currency fluctuations, social instability, changes in governmental policies, expropriation, nationalization, asset confiscation and changes in legislation related to non-U.S. 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. As our business continues to grow in non-U.S. markets, any ongoing and future business, economic, political or social 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 AUM and the corresponding revenues and income that we generate from them may be negatively affected.
Harm to our reputation or poor investment performance of our products could reduce the level of our AUM or affect our sales, and negatively impact our revenues and income. Our reputation is critical to the success of our business. We believe that our brand names have been, and continue to be, well received both in our industry and with our clients, reflecting the fact that our brands, like our business, are based in part on trust and confidence. If our reputation is harmed, existing clients may reduce amounts held in, or withdraw entirely from, our products or our products may terminate their management agreements with us, which could reduce the amount of our AUM and cause us to suffer a corresponding loss in our revenues and income. Our investment performance, along with achieving and maintaining superior distribution and client service, is also critical to the success of our business. Strong investment performance often stimulates sales of our products. Poor investment performance as compared to third-party benchmarks or competitive products has in the past and could in the future lead to a decrease in sales of our products and stimulate redemptions from existing products, generally lowering the overall level of AUM and reducing the management fees we earn. There is no assurance that past or present investment performance in our products will be indicative of future performance. Any poor investment performance may negatively impact our revenues and income. Reputational harm or poor investment performance may cause us to lose current clients and we may be unable to continue to attract new clients or develop new business. If we fail to address, or appear to fail to address, successfully and promptly the underlying causes of any reputational harm or poor investment performance, we may be unsuccessful in repairing any existing harm to our reputation or performance 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 operating expenses in response to market conditions or regulations; variations in the level of total compensation expense due to, among other things, bonuses, merit increases and severance costs, changes in our employee count and mix, and competitive factors; and/or 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 manage and grow our business can be impeded by systems and other technological limitations. Our continued success in effectively managing and growing our business depends on our ability to integrate the varied accounting, financial, information, and operational systems on a global basis. Moreover, adapting or developing the existing technology systems we use to meet our internal needs, as well as client needs, industry demands and new regulatory requirements, is also critical for our business. The 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, shareholder servicing 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 the technology systems we use, which could negatively impact our results of operations.
Our inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability. Should we experience a local or regional disaster or other business continuity problem, such as an earthquake, tsunami, terrorist attack, pandemic or other natural or man-made disaster, our continued success will depend, in part, on the safety and availability of our personnel, our office facilities and infrastructure, and the proper functioning of our technology, computer, telecommunication and other systems and operations that are critical to our business. While our operational size, the diversity of locations from which we operate, and our various back-up systems provide us with an advantage should we experience a local or regional disaster or other business continuity event, we could still experience 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 aspects of our operations, such as key executive officers or personnel in our technology group. Moreover, as we grow our operations in new geographic regions, the potential for particular types of natural or man-made disasters; political, economic or infrastructure instabilities; information, technology or security limitations or breaches; 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,

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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.
Regulatory and governmental examinations and/or investigations, litigation and the legal risks associated with our business, could adversely impact our AUM, increase costs and negatively impact our profitability and/or our future financial results. From time to time we receive and respond to governmental or regulatory requests for documents or other information, subpoenas, examinations and investigations in connection with our business activities. In addition, governmental or regulatory examinations or investigations that have been inactive could become active. In addition, from time to time, we are named as a party in litigation. We may be obligated, and under our certificate of incorporation, by-laws and standard form of director indemnification agreement we are obligated under certain conditions, 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. Even if claims made against us are without merit, 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. Eventual exposures from and expenses incurred relating to any litigation, investigations, examinations and settlements could adversely impact our AUM, increase costs and/or negatively impact our profitability and financial results. Allegations, findings or judgments of wrongdoing by regulatory or governmental authorities or in litigation against us, or settlements with respect thereto, could affect our reputation, increase our costs of doing business and/or negatively impact our revenues, any of which could have a material negative impact on our financial results.
Our ability to meet cash needs depends upon certain factors, including the market value of our assets, operating cash flows and our perceived creditworthiness. Our ability to meet anticipated cash needs depends upon factors such as the market value of our assets, our operating cash flows and our creditworthiness as perceived by lenders. If we are unable to obtain cash, financing or access to the capital markets in a timely manner, we may be forced to incur unanticipated costs or revise our business plans, and our business could be adversely impacted. Further, our access to the capital markets depends significantly on our credit ratings. A reduction in our long- or short-term credit ratings could increase our borrowing costs and limit our access to the capital markets. Volatility in the global financing markets may also impact our ability to access the capital markets should we seek to do so, and may have an adverse effect on investors’ willingness to purchase our securities, interest rates, credit spreads and/or the valuation levels of equity markets.
We are dependent on the earnings of our subsidiaries. Substantially all of our operations are conducted through our subsidiaries. As a result, our cash flow and our ability to fund operations are dependent upon the earnings of our subsidiaries and the distribution of earnings, loans or other payments by our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation to fund our payment obligations, whether by dividends, distributions, loans or other payments. Any payments to us by our subsidiaries could be subject to statutory or contractual restrictions and are contingent upon our subsidiaries’ earnings and business considerations. Certain of our subsidiaries are subject to regulatory restrictions which may limit their ability to transfer assets to their parent companies. Our financial condition could be adversely affected if certain of our subsidiaries are unable to distribute assets to us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
During the three months ended December 31, 2018 , there were no material changes from the market risk disclosures in our Form 10‑K for the fiscal year ended September 30, 2018 .
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 (the “Exchange Act”)) as of December 31, 2018 . 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, 2018 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, 2018 , that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
For a description of our legal proceedings, please see the description set forth in the “Legal Proceedings” section in Note  10 – Commitments and Contingencies in the notes to the consolidated financial statements in Item 1 of Part I of this Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors.
Our Form 10‑K for the fiscal year ended September 30, 2018 filed with the SEC includes a discussion of the risk factors identified by us, which are also set forth under the heading “Risk Factors” in Item 2 of Part I of this Form 10-Q. There were no material changes from the Risk Factors as previously disclosed in our Form 10‑K for the fiscal year ended September 30, 2018 .
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information with respect to the shares of our common stock that we repurchased during the three months ended December 31, 2018 .
Month
 
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 2018
 
6,529,497

 
$
29.67

 
6,529,497

 
65,205,380

November 2018
 
3,007,274

 
32.05

 
3,007,274

 
62,198,106

December 2018
 
1,207,422

 
30.45

 
1,207,422

 
60,990,684

Total
 
10,744,193

 
 
 
10,744,193

 
 
Under our stock repurchase program, which is not subject to an expiration date, we can repurchase shares of our 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. In order to pay taxes due in connection with the vesting of employee and executive officer stock and stock unit awards, we may repurchase shares under our program using a net stock issuance method. In April 2018, we announced that our Board of Directors authorized the repurchase of up to 80.0 million additional shares of our common stock under the stock repurchase program.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index to this Form 10-Q are incorporated herein by reference.


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EXHIBIT INDEX
 
Exhibit No.
 
Description
 
 
 
3(i)(a)

 
 
 
 
3(i)(b)

 
 
 
 
3(i)(c)

 
 
 
 
3(i)(d)

 
 
 
 
3(i)(e)

 
 
 
 
3(ii)

 
 
 
 
10.1

 
 
 
 
10.2

 
 
 
 
10.3

 
 
 
 
31.1

 
 
 
 
31.2

 
 
 
 
32.1

 
 
 
 
32.2

 
 
 
 
101

 
The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2018, formatted in Extensible Business Reporting Language (XBRL), include: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, and (v) related notes (filed herewith)
__________________  
*      Compensatory Plan, Contract or Arrangement


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SIGNATURE
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.
 
 
 
 
 
Date:
January 30, 2019
 
By:
/ S / K ENNETH  A. L EWIS
 
 
 
 
Kenneth A. Lewis
 
 
 
 
Chief Financial Officer and Executive Vice President
 
 
 
 
(Duly Authorized Officer and Principal Financial Officer)

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EXHIBIT 10.1

FRANKLIN RESOURCES, INC.
2002 UNIVERSAL STOCK INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK AWARD

    
Name:
 
Address:
 


In accordance with the Franklin Resources, Inc. 2002 Universal Stock Incentive Plan (the “2002 Plan”), as an incentive for increased efforts and successful achievements, Franklin Resources, Inc. (the “Company”), has awarded Participant shares of common stock of the Company subject to the terms and conditions of the accompanying Restricted Stock Award Agreement (the “Award Agreement”), this Notice of Restricted Stock Award (the “Notice of Award” and together with the Award Agreement, the “Award”) and the 2002 Plan, as follows (capitalized terms used but not defined in this Notice of Award have the same meaning as set forth in the 2002 Plan):

Award Number:
 
Award Date:
 
Total Number of Shares (the “Shares”) Awarded:
 
Grant Date Value of Award (USD):
 
Restrictive Covenants Apply:
[Insert “Yes” or “No”]

Subject to Participant’s Continuous Status as an Employee and other limitations set forth in the Award and the 2002 Plan, the Shares shall vest in the amounts and on the dates (each, a “Vesting Date”) set forth in the Vesting Schedule below:
Vesting Dates                          Number of Shares

[Vesting schedule terms subject to approval of the Compensation Committee of the Board of Directors of the Company.]

Participant acknowledges and agrees that the Shares subject to this Award shall vest only by Participant’s Continuous Status as an Employee and that such status is at the will of the Company or the applicable Subsidiary (not through the act of being hired, being granted this Award or acquiring Shares hereunder). Participant further acknowledges and agrees that nothing in this Award nor in the 2002 Plan, which is incorporated herein by this reference, affects the Company’s, or a Subsidiary’s, right to terminate, or to change the terms of, Participant’s employment at any time, with or without cause.
Participant acknowledges that, from time to time, the Company may be in a “Blackout Period” and/or subject to applicable securities laws that could subject Participant to liability for engaging in any transaction involving the sale of the Company’s Shares. Participant further acknowledges and agrees that, prior to the sale of any Shares acquired under this Award, it is Participant’s responsibility to determine whether or not such sale of Shares will subject Participant to liability under insider trading rules or other applicable securities laws.
Participant hereby: (i) consents to access the 2002 Plan prospectus in connection with the Form S-8 registration statement for the 2002 Plan, any updates thereto, the 2002 Plan, the Award Agreement and this Notice of Award (collectively, the “ 2002 Plan Documents ”) in electronic form either through the Company’s Intranet or another form of electronic communication (e.g. e-mail); (ii) represents that Participant has access to the Company’s Intranet and the Internet; (iii) acknowledges receipt of electronic copies, or that Participant is already in possession of paper copies,



of the 2002 Plan Documents and the Company’s most recent annual report to stockholders; and (iv) acknowledges that Participant is familiar with and has accepted the Award subject to the terms and provisions of the 2002 Plan Documents.
Participant may receive, without charge, upon written or oral request, paper copies of any or all of the 2002 Plan Documents, documents incorporated by reference in the Form S-8 registration statement for the 2002 Plan, and the Company’s most recent annual report to stockholders by requesting them from Stock Administration at the Company, One Franklin Parkway, San Mateo, CA 94403-1906. Telephone (650) 312-2000. Email [___________________]. Participant may also withdraw Participant’s consent to receive any or all documents electronically by notifying Stock Administration at the above address in writing.
By accepting the Award, whether in electronic form or otherwise, Participant agrees that the Award is granted under and governed by the terms and conditions of the 2002 Plan, this Notice of Award and the Award Agreement.



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FRANKLIN RESOURCES, INC.
2002 UNIVERSAL STOCK INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT


This Restricted Stock Award Agreement, together with any Exhibits or Appendix(es) attached hereto (hereinafter, collectively, the “ Agreement ”), is made as of the Award Date set forth in the Notice of Restricted Stock Award (the “ Notice of Award ”) between Franklin Resources, Inc. (the “ Company ”) and Participant named therein (“ Participant ”).

WITNESSETH:

WHEREAS, the Board and stockholders of the Company have adopted the Franklin Resources, Inc. 2002 Universal Stock Incentive Plan (the “ 2002 Plan ”), authorizing the grant of common stock of the Company (“ Stock ”) to eligible individuals as an incentive in connection with the performance of services for the Company and its Subsidiaries, as defined in the 2002 Plan, which is incorporated herein by this reference (capitalized terms used but not defined in this Agreement have the same meaning as set forth in the 2002 Plan or the Notice of Award, as applicable); and

WHEREAS, the Company recognizes the efforts of Participant on behalf of the Company and its Subsidiaries and desires to motivate Participant in Participant’s work and provide an inducement to remain in the service of the Company and its Subsidiaries; and

WHEREAS, the Company has determined that it would be to the advantage and in the interest of the Company and its stockholders to award the Stock provided for in this Agreement and the Notice of Award to Participant, subject to certain restrictions, as an incentive for increased efforts and successful achievements;
    
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants herein contained, the parties hereto hereby agree as follows:

1.     Restricted Stock Award .

(a)    The Company is issuing to Participant Shares as set forth in the Notice of Award, subject to the rights of and limitations on Participant as owner thereof as set forth in this Agreement. Such Shares are being issued in book entry form and maintained on the books of Computershare, the Company’s transfer agent, or any successor thereto. All Shares issued hereunder shall be deemed issued to Participant as fully paid and non-assessable shares, and, subject to the restrictions set forth in the 2002 Plan and this Agreement, Participant shall have all rights of a stockholder with respect thereto, including the right to vote, to receive dividends (including stock dividends), to participate in stock splits or other recapitalizations, and to exchange such Shares in a tender offer, merger, consolidation or other reorganization. The Company shall pay any applicable stock transfer taxes. Participant hereby acknowledges that Participant is acquiring the Stock issued hereunder for investment and not with a view to the distribution thereof, and that Participant does not intend to subdivide Participant’s interest in the Stock with any other person.

(b)    If so indicated on the Notice of Award, the restrictive covenants set forth on Exhibit A, attached hereto, shall apply and shall form a part of the Agreement.

2. Transfer Restriction . No Stock issued to Participant hereunder shall be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by Participant prior to the date on which it becomes vested under Section 3, except by will or the laws of descent and distribution. This Section shall not preclude Participant from exchanging the Stock awarded hereunder pursuant to a cash or stock tender offer, merger, reorganization or consolidation. Notwithstanding the foregoing, any securities (including stock dividends and stock splits) received with respect to shares of Stock which are not yet vested under Section 3 shall be subject to the provisions of this Agreement in the same manner and shall become fully vested at the same time as the Stock with respect to which such additional securities were issued.

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3.     Vesting .

(a)    Participant’s interest in the Stock awarded under Section 1 shall become vested and nonforfeitable in accordance with the Vesting Schedule in the Notice of Award so long as Participant maintains a Continuous Status as an Employee, subject to Section 13 below. Upon vesting, the Company shall, within thirty (30) days of such vesting, deliver to Participant the certificates evidencing the nonforfeitable shares (free of restrictive legends on such stock certificates), provided the withholding requirements of Section 4 have been satisfied. Alternatively, provided the withholding requirements of Section 4 have been satisfied, the Committee may permit or require that such nonforfeitable shares of Stock (free of the restrictive notations on shares of Stock issued in book-entry form) be deposited directly with a brokerage firm or transfer agent determined acceptable to the Company for such purpose or to a designated agent of the Company, and the Committee may utilize electronic or automated methods of share transfer.

(b)    If Participant ceases to maintain a Continuous Status as an Employee for any reason other than death or disability (as described in Section 3(c)), all shares of Stock to the extent not yet vested under Section 3(a) on the date Participant ceases to maintain a Continuous Status as an Employee shall be forfeited by Participant without payment of any consideration to Participant therefor. Any shares of Stock so forfeited shall be canceled and returned to the status of authorized but unissued shares, to be held for future distributions under the Company’s 2002 Plan.

(c)    If Participant dies or in the event of termination of Participant’s Continuous Status as an Employee as a result of disability (as determined by an executive officer of the Company in accordance with the policies of the Company) while an employee of the Company or any of its Subsidiaries, Participant’s interest in all shares of Stock awarded hereunder shall become fully vested and nonforfeitable as of the date of death or termination of employment on account of such disability.  Unless changed by the Board, “disability” means that Participant ceases to be an employee on account of disability as a result of which Participant is determined to be disabled by the determining authority under the long-term or total permanent disability policy, or government social security or other similar benefit program, of the country or location in which Participant is employed and in the absence of such determining authority, as determined by the Board in accordance with the policies of the Company.

4.     Withholding of Taxes .

(a) General . Participant is ultimately liable and responsible for all taxes owed by Participant in connection with the Stock awarded, regardless of any action the Company or any of its Subsidiaries takes with respect to any tax withholding obligations that arise in connection with the Stock awarded. Neither the Company nor any of its Subsidiaries makes any representation or undertaking regarding the treatment of any tax withholding in connection with the grant or vesting of the Stock awarded or the subsequent sale of any of the Stock. The Company and its Subsidiaries do not commit and are under no obligation to structure the Award to reduce or eliminate Participant’s tax liability.

(b) Payment of Withholding Taxes . Prior to any event in connection with the Stock awarded ( e.g. , vesting) that the Company determines may result in any tax withholding obligation, whether United States federal, state or local taxes or any applicable foreign taxes and including any employment tax obligation (the “ Tax Withholding Obligation ”), Participant must agree to the satisfaction of such Tax Withholding Obligation in a manner acceptable to the Company, including by means of one of the following methods:

(i) By Share Withholding. Unless the Company permits Participant to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, Participant authorizes the Company (in the exercise of its sole discretion) to withhold from those unrestricted shares of Stock to be delivered to Participant upon vesting under Section 3 above the whole number of shares sufficient to satisfy the Tax Withholding Obligation. Share withholding will result in the delivery of a lower number of unrestricted shares of Stock to Participant. Share withholding will generally be used to satisfy the tax liability of individuals subject to the short-swing profit restrictions of Section 16(b) of the Securities Exchange Act of 1934, as amended.


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(ii) By Sale of Shares . Unless the Company permits Participant to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, and provided that the terms of this clause (ii) do not violate Section 13(k) of the Securities Exchange Act of 1934, as amended, Participant’s acceptance of the Stock awarded constitutes Participant’s instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to sell on Participant’s behalf a whole number of shares from those unrestricted shares of Stock to be delivered to Participant upon vesting under Section 3 above as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the applicable Tax Withholding Obligation. Such shares will be sold on the day such Tax Withholding Obligation arises ( e.g. , a vesting date) or as soon thereafter as practicable. Participant will be responsible for all brokers’ fees and other costs of sale, and Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed the Tax Withholding Obligation, the Company agrees to pay such excess in cash to Participant. Participant acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the Tax Withholding Obligation. Accordingly, Participant agrees to pay to the Company or any of its Subsidiaries as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of shares described above.

(iii) By Check, Wire Transfer or Other Means . At any time not less than five (5) business days (or such fewer number of days as determined by the Committee or its designee) before any Tax Withholding Obligation arises ( e.g. , a vesting date), Participant may request permission to satisfy the Tax Withholding Obligation by check, wire transfer or other means, by submitting such request, in writing, to the Company. Alternatively, the Company may require that Participant satisfy any Tax Withholding Obligation in any such manner. If the Company approves Participant’s request, or so requires, within five (5) business days of a vesting date (or such fewer number of days as determined by the Committee or its designee) Participant must deliver to the Company the amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation by (x) wire transfer to such account as the Company may direct, (y) delivery of a certified check payable to the Company, or (z) such other means as specified from time to time by the Committee or its designee.

5.     Successors . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. Nothing contained in the 2002 Plan, the Notice of Award or this Agreement shall be interpreted as imposing any liability on the Company or the Committee in favor of Participant or any purchaser or other transferee of Stock with respect to any loss, cost or expense which Participant, purchaser or other transferee may incur in connection with, or arising out of any transaction involving, any Stock subject to the 2002 Plan, the Notice of Award or this Agreement.

6.     Integration . The terms of the 2002 Plan, the Notice of Award and this Agreement are intended by the Company and Participant to be the final expression of their agreement with respect to the shares of Stock and may not be contradicted by evidence of any prior or contemporaneous agreement. The Company and Participant further intend that the 2002 Plan, the Notice of Award and this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any arbitration, judicial, administrative or other legal proceeding involving the 2002 Plan, the Notice of Award or this Agreement. Accordingly, the 2002 Plan, the Notice of Award and this Agreement contain the entire understanding between the parties and supersede all prior oral, written and implied agreements, understandings, commitments and practices among the parties.

7.     Waivers . Any failure to enforce any terms or conditions of the 2002 Plan, the Notice of Award or this Agreement by the Company or by Participant shall not be deemed a waiver of that term or condition, nor shall any waiver or relinquishment of any right or power for all or any other times.

8.     Severability of Provisions . If any provision of the 2002 Plan, the Notice of Award or this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision thereof; and the 2002 Plan, the Notice of Award and this Agreement shall be construed and enforced as if none of them included such provision.


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9.     Committee Decisions Conclusive . All decisions of the Committee arising under the 2002 Plan, the Notice of Award or this Agreement shall be conclusive.

10.     Mandatory Direct Discussion, Mediation, and Arbitration . To the extent permitted by law, any claim, disagreement, or dispute arising out of or relating to the 2002 Plan, the Notice of Award, and/or this Agreement, including the meaning or interpretation thereof (a “ Dispute ”), shall be resolved solely and exclusively by direct discussion and mandatory mediation followed, if necessary, by final and binding arbitration in accordance with the terms and procedures specified in this Section 10. These terms and procedures apply solely to the resolution of a Dispute as defined in this Agreement. Any other claim, issue, or complaint raised by Participant who is subject to the Franklin Templeton Investments Alternative Dispute Resolution Policy and Agreement (the “ ADR Agreement ”), which claims, issues or complaints are not covered by this Agreement will be resolved according to the terms and procedures of the ADR Agreement. With regard to any Dispute as defined in this Agreement, if there is a difference between the terms or procedures defined in the ADR Agreement, and the terms and procedures defined in this Agreement, this Agreement’s terms and procedures shall control. Participant and the Company specifically agree to waive the right to pursue any Dispute before a court or jury.
(a)     Direct Discussion . Upon written notice of any Dispute, Participant and the Company (each referred to as a “ party ” and together as the “ parties ”) shall first attempt to resolve the Dispute by direct discussion.

(b)     Mediation . If a Dispute is not resolved by direct discussion then either party may request mediation of the Dispute by sending a written notice requesting mediation to the other party. The parties will mutually agree to the selection of a mediator, whose compensation will be borne by the Company.

(c) Arbitration . If a Dispute is not resolved by direct discussion and mandatory mediation, then either party may request final and binding arbitration of the Dispute by sending a written notice requesting arbitration to the other party. The Dispute will be heard by a single arbitrator unless, within 45 days of receiving the initial written demand for arbitration, either party elects by written notice to the other party for the arbitration to be heard by a panel of three arbitrators. If a single arbitrator is used, the parties will mutually agree to the selection of the arbitrator. If either party elects for the arbitration to be heard by a panel of three arbitrators, each party will select one arbitrator, and the arbitrators selected by the parties will, within a reasonable period of time, then appoint a third arbitrator to serve as chair of the panel.

The arbitration will be conducted in accordance with the Employment Arbitration Rules and Mediation Procedures of the AAA as amended and effective November 1, 2009 (the “ AAA Rules ”) but without necessarily retaining AAA or any other third party to administer the arbitration. The parties will determine whether a third party administration service is necessary and, if jointly deemed necessary, agree to a mutually acceptable arbitration administration service, whether AAA or otherwise, within 45 days of receipt of the initial written demand for arbitration. If the parties do not agree about whether a third party is needed to administer the arbitration, or if the parties cannot reach agreement as to which administration service to use within 45 days, any arbitration will be administered by AAA. The location for the arbitration shall be in the county or comparable jurisdiction of Participant’s employment. Judgment on the award rendered may be entered in any court having jurisdiction.

The Company will pay all of the costs of arbitration that are attributable to the employer pursuant to the AAA Rules, unless applicable law requires the Company to pay a greater share or all of the costs. In addition, if a single arbitrator is used, or if the Company elects for the arbitration to be heard by a panel of three arbitrators, the compensation and expenses of the arbitrator(s) will be paid by the Company. If Participant elects for the arbitration to be heard by a panel of three arbitrators, Participant will be responsible for paying one-half of the arbitrators’ compensation and expenses.

All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding under this Section. To the extent permitted by law, Participant waives the right to participate in a class, representative or collective action, as a class representative, class member, as an opt-in party, or private attorney general or join or consolidate claims with claims of any other person or entity, with respect to any Dispute, whether before a court or

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jury or in arbitration. Nothing in this Agreement, however, is intended or understood to limit, contradict, or preclude the rights reserved by law for Participant to initiate any administrative claim, or to excuse Participant from bringing an administrative claim before any agency in order to fulfill any obligation by Participant to exhaust administrative remedies. The provisions of this Section are intended by Participant and the Company to be exclusive for all purposes and applicable to any and all Disputes.

Except as otherwise provided in this Agreement, or as otherwise mutually agreed by the parties, the arbitrator(s) will conduct the arbitration pursuant to the AAA Rules, the U.S. Federal Arbitration Act, 9 U.S.C. section 1, et seq., and the U.S. Federal Rules of Evidence. The arbitrator(s) shall have jurisdiction and authority only to award Participant an amount equal to or less than the amount of the Award challenged in the Dispute, subject to the same terms and conditions as the Notice of Award in Dispute, and shall not have jurisdiction or authority to make any other award of any type, including, without limitation, punitive damages, unforeseeable economic damages, damages for pain, suffering or emotional distress, or any other kind or form of damages (the “ Arbitrator Authority ”). Thus, the arbitrator(s) shall not have jurisdiction or authority to grant preliminary or final injunctive relief or specific performance. The remedy, if any, awarded by the arbitrator(s) with the Arbitrator Authority shall be the sole and exclusive remedy for any Dispute that is subject to arbitration under this Section.

If Participant is an Associated Person employed by a Member Firm (as each such term is defined by the rules of the Financial Industry Regulatory Authority (“ FINRA ”)), nothing in this Agreement prohibits or restricts Participant or the Member Firm from filing an arbitration claim involving a Dispute in the FINRA arbitration forum as specified in FINRA rules. In such a case, the parties each reserve the right to elect to have the arbitration heard by a panel of three arbitrators regardless of the dollar amount of the claim. The parties further agree that the authority of the arbitrator(s) in any FINRA arbitration of a Dispute is limited to the Arbitrator Authority defined above. Unless otherwise mutually agreed by the parties, the arbitrator(s) will conduct the arbitration pursuant to the FINRA Code of Arbitration Procedure for Industry Disputes (the “ FINRA Code ”) and the Federal Rules of Evidence. All fees, costs, and expenses of FINRA arbitration, whether a single arbitrator or a panel of arbitrators is selected, including any hearing session fees, arbitration fees, surcharges, and filing fees, will be allocated as specified in the FINRA Code.

11.     Delaware Law . The 2002 Plan, the Notice of Award and this Agreement are governed by, and all Disputes arising under or in connection with the 2002 Plan, the Notice of Award and this Agreement shall be resolved in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules, to the extent not preempted by the federal laws of the United States of America.

12. Country Appendices . If Participant relocates to a country outside the United States: (i) any special terms and conditions that may apply to Restricted Stock Awards granted to Participants in such country under Appendices to this Agreement will apply to Participant; or (ii) if Restricted Stock Awards have not been granted to Employees in such country under this Agreement, any other special terms and conditions will apply to Participant, in each case to the extent the Company determines that the application of such terms and conditions is necessary or advisable to comply with local law or facilitate the administration of the 2002 Plan, and provided the imposition of the term or condition will not result in any adverse accounting expense with respect to the Restricted Stock Award (unless the Company specifically determines to incur such expense).

13. Forfeiture .

(a)     Forfeiture Pursuant to Restatement of Financial Results. Notwithstanding anything in the Award to the contrary, in the event that (i) the Company issues a restatement of financial results to correct a material error; (ii) the Committee determines, in good faith, that fraud or willful misconduct by Participant was a significant contributing factor to the need to issue such restatement; and (iii) some or all of the shares of Stock that were granted and/or other property earned prior to such restatement by Participant would not have been granted and/or earned, as applicable, based upon the restated financial results, Participant shall immediately return to the Company those shares of Stock, property received with respect to those shares of Stock, including any cash dividends paid with respect to those shares of Stock, any pre-tax income derived from ownership and any gross proceeds from disposition of such Stock and property, that would not have been granted and/or earned based upon the restated financial results (the “ Repayment

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Obligation ”), and all such shares of Stock (whether or not vested) shall immediately be forfeited. The Company shall be able to enforce the Repayment Obligation by all legal means available, including, without limitation, by withholding such amount from other sums and property owed by the Company to Participant.

(b)     Forfeiture Pursuant to Fraud or Breach of Securities Law. Notwithstanding anything in the Award to the contrary, in the event that Participant:

(i)    is convicted by any court for fraud;

(ii)    is finally adjudicated by any court or is otherwise finally determined by a Regulatory Agency to be in violation of any Securities Law where the violation related to a period of time during which Participant was an Employee; or

(iii)    enters into a settlement agreement with a Regulatory Agency, with or without admission of any liability, in relation to or in connection with an allegation concerning a violation of any Securities Law by Participant where the violation or alleged violation related to a period of time during which Participant was an Employee, and the terms of the settlement agreement result in (x) Participant making, or being required to make, payment of any penalty or a payment in lieu of any penalty or redress in respect of such violation, or alleged violation; (y) the publication of any statement of reprimand or censure; or (z) Participant suffering any other penalty including (without limitation) suspension or termination of his status for the purposes of any Securities Law, all of Participant’s shares of Stock granted pursuant to this Agreement that have not vested shall immediately be forfeited without any payment to Participant therefor and Participant will immediately cease to have any further rights over or interest in such shares of Stock.

Notwithstanding the foregoing, the Committee may determine, in its sole discretion, that only a portion of Participant’s shares of Stock specified by the Committee (or no such shares of Stock) shall be forfeited.

For the purposes of this Section 13(b), the following words shall have the following meanings:

“ Regulatory Agency ” shall mean in any jurisdiction any department of government, independent agency, authority appointed by statute or by government in connection with the supervision and/or enforcement of any Securities Law including, but not limited to, the U.S. Securities and Exchange Commission;

“ Securities Law ” shall mean any enactment, law, statute, rule, requirement or regulation in any jurisdiction relating to Securities that is or was applicable to the Company or that is or was applicable to Participant; and
 
“ Securities ” shall mean any shares, bonds, derivatives or other financial instruments or financial assets or any interest therein.

(c)    Other Repayment/Forfeiture.    Any benefits Participant may receive hereunder shall be subject to repayment or forfeiture as may be required to comply with (i) any applicable listing standards of a national securities exchange adopted in accordance with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any implementing rules and regulations of the U.S. Securities and Exchange Commission adopted thereunder, (ii) similar laws, and implementing rules and regulations, of the European Union (as implemented by its member states and by the European Securities and Markets Authority) and of any other jurisdiction and (iii) any policies adopted by the Company to implement such requirements, all to the extent determined by the Company in its discretion to be applicable to Participant.


END OF AGREEMENT


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EXHIBIT A
TO
FRANKLIN RESOURCES, INC.
2002 UNIVERSAL STOCK INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT

1. Restrictive Covenants . This Section 1 of this Exhibit A to the Award Agreement shall apply if so indicated on the Notice of Award.

(a) Confidentiality .

(i) Confidential Information Obligations and Restrictions . Participant shall keep confidential and, except as the Company may otherwise consent to in writing, shall not divulge, communicate, disclose, or use to the detriment of the Company Group or for the benefit of any other person or persons, misuse in any way, or make any use of, except for the benefit of the Company Group, at any time either between the Award Date and the applicable Vesting Date or at any time thereafter, any Confidential Information (as defined below). Participant shall not disclose, deliver, reproduce, or in any way allow any such Confidential Information to be disclosed, delivered to or used by any third parties without the specific direction or consent of a duly authorized representative of the Company, except in connection with the discharge of Participant’s duties. Any Confidential Information now or hereafter acquired by Participant with respect to the business of the Company Group shall be deemed a valuable, special and unique asset of the Company Group that is received by Participant in confidence and as a fiduciary, and Participant shall remain a fiduciary to the Company with respect to all of such information. Notwithstanding anything to the contrary herein, Participant shall not have any obligation to keep confidential any information (and the term “Confidential Information” shall not be deemed to include any information) that (A) is generally available to the public through no fault or wrongful act of Participant in breach of the terms hereof, (B) is disseminated by the Company Group publicly without requiring confidentiality, (C) is required by law or regulation to be disclosed by Participant, or (D) is required to be disclosed by Participant to any government agency or person to whom disclosure is required by judicial or administrative process.

(ii) Permissible Disclosure of Confidential Information .

(A) Employee Rights Protected . Nothing in this Agreement shall limit or interfere with Participant’s right to file a charge or complaint with any Government Agency (as defined below) or ability, without notice to or authorization from the Company, to communicate with any Government Agency for the purpose of reporting a reasonable belief that a possible violation of law has occurred or may occur, or to participate, cooperate, provide information (including documents) or testify in any inquiry, investigation, proceeding or action that may be conducted by any Government Agency.  Participant will not be held criminally or civilly liable under any U.S. federal or state trade secret law for the disclosure of any Confidential Information or other trade secret that is made in confidence to a Government Agency or to an attorney solely for the purpose of reporting or investigating a suspected violation of law.  Participant will also not be held criminally or civilly liable under any U.S. federal or state trade secret law for the disclosure of any Confidential Information or other trade secret that is made in a complaint or other document filed in a legal proceeding, if such filing is made under seal.  If Participant files a claim against the Company or any member of the Company Group alleging that the Company (or any member of the Company Group) retaliated against Participant for reporting a suspected violation of law, Participant may disclose the Confidential Information or other trade secret to Participant’s attorney and use the Confidential Information or other trade secret information in the legal proceeding provided Participant (i) files any document containing the Confidential Information or other trade secret under seal and (ii) does not otherwise disclose the Confidential Information or other trade secret, except pursuant to an order issued by the tribunal with jurisdiction over Participant’s claim. 

(B) Responding to Legal Process . Separately, to the extent Participant receives any subpoena, court order, or other legal process issued in any private litigation or arbitration regarding any matter or action involving the Company Group, then to the extent permitted by law or regulation, Participant shall, before

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providing any Confidential Information, give prompt prior written notice to the Company’s General Counsel in order to provide the Company with a reasonable opportunity to take appropriate steps to protect its Confidential Information to the fullest extent possible.

(b) Return of Confidential Material . Upon the completion or other termination of Participant’s services for the Company Group, Participant shall promptly surrender and deliver to the Company all records, materials, equipment, drawings, documents, notes and books and data of any nature pertaining to any Confidential Information of the Company Group or to Participant’s services, and Participant will not take any description containing or pertaining to any Confidential Information or data of the Company Group which Participant may produce or obtain during the course of Participant’s services.

(c) Non-Solicit; Non-Interference; Non-Compete . Participant agrees that the Company Group has invested substantial time, effort and expense in compiling its Confidential Information, in assembling its present staff of personnel and in attracting and/or contracting with its current clients and customers and its prospective clients and customers. In order to protect the confidentiality of Confidential Information and its connections with staff, clients and customers and prospective clients and customers, Participant agrees that, subject to any applicable jurisdiction specific limitations set forth in Section 1(c)(iv)(A)-(C) below, during Participant’s employment and during the Restricted Period, Participant shall not:

(i) either on Participant’s own account or in conjunction with or on behalf of any other person, directly or indirectly, solicit, approach, counsel, entice away or attempt to entice away any individual who during the Relevant Period is or was a Senior Employee of the Company Group to leave the employ of the Company Group, including by means of the supply of names or expressing views on suitability or otherwise;

(ii) either on Participant’s own account or in conjunction with or on behalf of any other person, solicit, approach, contact, communicate with, or have business dealings, directly or indirectly, with any person who was an investor or business partner, a client or customer or prospective client or customer of the Company Group during the Relevant Period and with whom Participant had material business dealings during the Relevant Period; provided , that nothing contained in this Section 1(c)(ii) shall be deemed to prohibit Participant from seeking or doing any business which is not in direct or indirect competition with the business carried on by the Company Group; or

(iii) except with the prior written consent of the Company, directly or indirectly be employed, engaged, concerned or interested in any business which supplies or proposes to supply Competitive Services or any services of a substantially similar nature within the Restricted Area (a “ Competitor ”). Notwithstanding the foregoing, nothing in this Section 1(c)(iii) prevents Participant, during or after the termination of Participant’s employment, from holding or being interested in: (i) bona fide investments representing less than 1% of the issued shares, loan capital or stock in any company whose shares are listed, dealt in or admitted to trading on any national securities exchange or a recognized investment exchange (as defined in the UK Financial Services and Markets Act 2000, as amended (“ FSMA ”)) (and as a passive investment with no right, whether by board representation or otherwise, to direct the management or business of the relevant issuer); (ii) any of the issued shares, loan capital or stock in any company whose shares are listed, dealt in or admitted to trading on any national securities exchange or recognized investment exchange, where such interest is subject to bona fide discretionary management arrangements; or (iii) less than 1% of the voting securities of any Competitor.

(iv) Certain Limitations . If a court determines that a restriction set forth in Section 1(c)(i),(ii) or (iii) cannot be enforced as written because it is overbroad in part (such as time, scope of activity, or geography), the parties agree that a court shall enforce the restrictions to such lesser extent as is allowed by law and/or reform the overbroad part of the restriction to make it enforceable. If, despite the foregoing, any provision contained in this Section 1 is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect. In addition, the following provisions shall apply to limit, in whole or in part, the application of Sections 1(c)(ii) and (iii) of this Exhibit A :


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(A) California .  For so long as Participant resides in California and California law controls, Section 1(c)(iii) shall not apply, and Section 1(c)(ii) shall only be applicable to solicitation to the extent that Participant’s solicitation involves use or disclosure of the Company’s trade secrets.

(B) Massachusetts.    For so long as Participant resides in Massachusetts and Massachusetts law controls, Section 1(c)(iii) shall only apply to the extent the Company elects to provide “garden leave” pay as defined in Chapter 149, Section 24L(b)(vii) of the Massachusetts General Laws, as amended.

(C) New York .   For so long as Participant resides in New York and New York law controls, Section 1(c)(ii) shall be deemed modified so that client or customer means a client or customer (person or entity) that Participant has relevant business-related dealings with or access to Confidential Information for the first time during employment with the Company Group.

(d) Participant accepts that the restrictions contained in this Section 1 are reasonable and necessary for the protection of the legitimate interests of the Company Group.

(e) Definitions . For purposes of this Section 1, the capitalized terms below shall have the following meanings:
(i) “ Company Group ” means the Company and its Subsidiaries, partnerships, joint ventures and related and affiliated business entities.

(ii) “ Competitive Services” means goods or services competitive with those which during or at the expiry of the Relevant Period, the Company Group was supplying or negotiating or actively and directly seeking to supply to any client or customer or prospective client or customer in any area of business of the Company Group: (A) in which Participant (or any of his or her direct reports) was materially involved at any time during the Relevant Period; or (B) in respect of which Participant had access to Confidential Information during the Relevant Period.

(iii) “ Confidential Information ” means information disclosed to Participant or known by Participant as a consequence of or through the unique position of Participant’s employment with the Company or any of its Subsidiaries (including information conceived, originated, discovered or developed by Participant) prior to or after the Award Date, and not generally or publicly known, about the Company or its business, including, without limitation, data, information or other compilation of information of the Company Group relating to the products, processes, technical data, research and development, formulas, programs, test data, customer lists, investor lists, business plans, marketing plans, investment plans and strategies, pricing strategies or other subject matter pertaining to any business of the Company Group or any of its clients, customers, consultants, licensees or affiliates which Participant may produce, obtain or otherwise learn of during the course of Participant’s performance of services, including information expressly deemed to be confidential by the Company Group.

(iv) “ Government Agency ” includes any U.S. or non-U.S. national, federal, provincial, regional, state, or local governmental agency, commission or legislative body, or self-regulatory organization, including, by way of representative example only, any securities and financial regulators or employment and labor regulators.

(v) “ Restricted Area ” means those territories within any country or state in which any member of the Company Group operates and where Participant was engaged to provide services or materially involved or the geographic regions or territories for which Participant is or was responsible during the last two years of employment with the Company Group.

(vi) “ Relevant Period ” means the 12-month period up to and including the date of Participant’s termination of employment with the Company Group (or, where Participant is placed on garden leave, the 12-month period up to and including the date of the commencement of such period of garden leave).


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(vii) “ Restricted Period ” means, in respect of Sections 1(c)(i) and 1(c)(ii), the 12-month period after the date of Participant’s termination of employment with the Company Group, and in respect of Section 1(c)(iii), the 6-month period after the date of Participant’s termination of employment with the Company Group. The Restricted Period shall be reduced by any period spent on garden leave.

(viii) “ Senior Employee ” means any employee with whom Participant had material business dealings during the Relevant Period and who: (a) has direct business contact with clients or customers or prospective clients or customers as part of such employee’s day-to-day work; or (b) operates at a senior professional level or holds a management/executive role.

(f) Survival . This Section 1 shall survive the expiration or termination of Participant’s employment and shall survive the expiration or termination of the Award Agreement.


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APPENDIX A
TO
FRANKLIN RESOURCES, INC.
2002 UNIVERSAL STOCK INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT
FOR NON-U.S. RESIDENT PARTICIPANTS
Notwithstanding the terms of the Restricted Stock Award Agreement (the “ Base Agreement ”) to which this Appendix A is attached, if Participant is not resident in the United States at the time of grant of the Award or at any time between the time of grant and vesting of the Award, the following terms and provisions shall amend and supersede the terms and provisions set forth in the Base Agreement to the extent set forth herein. In the event of any conflict between the Base Agreement and this Appendix A, the terms of this Appendix A shall prevail.

A.     Vesting .

Section 3(b) of the Base Agreement is amended to read in full as follows:

(b)    In the event of termination of Participant’s Continuous Status as an Employee (whether or not in breach of local labor laws and whether or not later found to be invalid) for any reason other than death or disability (as described in Section 3(c)), Participant’s rights under the 2002 Plan, including but not limited to the right to receive shares of Stock, if any, and the vesting thereof will terminate effective as of the date that Participant is no longer an active employee of the Company or one of its Subsidiaries and will not be extended by any notice period, whether mandated under local law or agreed upon between the Company or a Subsidiary and Participant ( e.g ., active employment would not include a period of “garden leave” or similar period required pursuant to local law or the terms of any agreement between the Company or a Subsidiary and Participant). For avoidance of doubt, the foregoing provision expressly applies to any case where Participant’s employment is terminated by Participant for any reason, by the Company or a Subsidiary with or without cause for any reason, or in the event of any other termination of Participant’s employment caused directly or indirectly by the Company or a Subsidiary. All shares of Stock to the extent not yet vested under Section 3(a) on the date Participant ceases to be an active employee shall be forfeited by Participant without payment of any consideration to Participant therefor. Any shares of Stock so forfeited shall be canceled and returned to the status of authorized but unissued shares, to be held for future distributions under the Company’s 2002 Plan. The Committee shall have the exclusive discretion to determine when Participant is no longer an active employee for purposes of the grant of the shares of Stock.

B.     Withholding of Taxes .

Section 4 of the Base Agreement is amended to read in full as follows:

(a)     General . Regardless of any action the Company or any of its Subsidiaries, including Participant’s actual employer (the “ Employer ”), takes with respect to any or all income tax (including federal, state and local taxes), social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by Participant is and remains Participant’s responsibility and may exceed the amount withheld by the Company or the Employer. Participant further acknowledges that the Company and/or the Employer: (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the shares of Stock, including the grant and issuance of the shares of Stock, the vesting of the shares of Stock, the subsequent sale of any of the unrestricted shares of Stock acquired pursuant to the vesting thereof and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the shares of Stock to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if Participant has become subject to tax in more than one jurisdiction between the date of grant and the date of any relevant taxable event, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

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(b)     Payment of Withholding Taxes . Prior to any event in connection with the shares of Stock awarded ( e.g. , vesting) that the Company determines may result in any obligation to withhold or account for Tax-Related Items, Participant shall pay, or make adequate arrangements satisfactory to the Company and/or to the Employer (in their sole discretion) to satisfy, all withholding and payment on account obligations of the Company and/or the Employer (the “ Tax Withholding Obligation ”). In this regard, Participant authorizes the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by Participant from Participant’s wages or other cash compensation payable to Participant by the Company or the Employer. Alternatively, or in addition, if permissible under local law, the Company or the Employer, or their respective agents, may, in their sole discretion, satisfy the Tax Withholding Obligation by means of one of the following methods:
(i)     By Share Withholding. Unless the Company permits Participant to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, Participant authorizes the Company (in the exercise of its sole discretion) to withhold from those unrestricted shares of Stock to be delivered to Participant upon vesting under Section 3 above the whole number of shares sufficient to satisfy the Tax Withholding Obligation. If the obligation of Tax-Related Items is satisfied by Share withholding ( i.e ., reducing the number of unrestricted shares of Stock delivered upon vesting of the Units) as set forth herein, for tax purposes, Participant is deemed to have been issued the full number of shares subject to the shares awarded, notwithstanding that a number of the shares is held back solely for the purpose of satisfying the Tax Withholding Obligation. Share withholding will generally be used to satisfy the tax liability of individuals subject to the short-swing profit restrictions of Section 16(b) of the Securities Exchange Act of 1934, as amended.
(ii)     By Sale of Shares . Unless the Company permits Participant to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, and provided that the terms of this clause (ii) do not violate Section 13(k) of the Securities Exchange Act of 1934, as amended, Participant’s acceptance of the Stock awarded constitutes Participant’s instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to sell or arrange for the sale of unrestricted Share of Stock to be delivered to Participant upon the vesting under Section 3 above to satisfy the Tax Withholding Obligation. Such shares will be sold on the day such Tax Withholding Obligation arises ( e.g. , a vesting date) or as soon thereafter as practicable. Participant will be responsible for all brokers’ fees and other costs of sale, and Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. If the Tax Withholding Obligation is satisfied by sale of shares, the Company and the Employer will endeavor to sell only the number of shares required to satisfy Participant’s and/or the Employer’s obligation for Tax-Related Items; however, Participant agrees that the Company and/or the Employer may sell more shares than necessary to cover the Tax-Related Items and that, in such event, the Company will reimburse Participant for the excess amount withheld, in cash and without interest. Participant acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy Participant’s obligation for Tax-Related Items. Accordingly, Participant agrees to pay to the Company or any of its Subsidiaries as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of shares described above.
(iii)     By Check, Wire Transfer or Other Means . At any time not less than five (5) business days (or such fewer number of days as determined by the Committee or its designee) before any Tax Withholding Obligation arises ( e.g. , a vesting date), Participant may request permission to satisfy the Tax Withholding Obligation by check, wire transfer or other means, by submitting such request, in writing, to the Company. If the Company approves Participant’s request, within five (5) business days of a vesting date (or such fewer number of days as determined by the Committee or its designee) Participant must deliver to the Company the amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation by (x) wire transfer to such account as the Company may direct, (y) delivery of a certified check in U.S. dollars payable to the Company, or (z) such other means as specified from time to time by the Committee or its designee.

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Participant shall pay to the Company or to the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of Participant’s participation in the 2002 Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver unrestricted shares of Stock or the proceeds of the sale of shares of Stock to Participant if Participant fails to comply with Participant’s obligation in connection with the Tax-Related Items.

C.     Forfeiture .

Section 13 of the Base Agreement is supplemented by the following provision:

In its sole discretion, the Committee may amend or waive the provisions of Section 13 of the Base Agreement, in whole or in part, to the extent necessary or advisable to comply with applicable laws, as determined by the Committee.

D.     Additional Provisions .

The Base Agreement is further amended by adding the following after the text of Section 13:

14.     Requirements of Law . The granting of the Award under the 2002 Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. No shares of Stock will be issued or delivered to Participant under the 2002 Plan unless and until there has been compliance with such applicable laws, as determined by the Company.

15.     Nature of the Grant . In accepting the Award, Participant acknowledges that:

(a) the 2002 Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time;

(b) the grant of the Award is voluntary and occasional and does not create any contractual or other right to receive future awards of shares of Stock, or benefits in lieu of shares of Stock even if shares of Stock or other services have been awarded repeatedly in the past;

(c) all decisions with respect to future grants of shares of Stock, if any, will be at the sole discretion of the Company;

(d) Participant’s participation in the 2002 Plan is voluntary;

(e) the Award and the shares of Stock subject to the Award are not intended to replace any pension rights or compensation;

(f) notwithstanding any language in the Agreement or the Notice of Award to the contrary, awards under the 2002 Plan, including the Award, and the shares of Stock subject to the Award, are an extraordinary item that do not constitute compensation of any kind for services of any kind rendered to the Company or to the Employer, and the Award is outside the scope of Participant’s employment contract, if any;

(g) notwithstanding any language in the Agreement or the Notice of Award to the contrary, awards under the 2002 Plan, including the Award, and the shares of Stock subject to the Award, are not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculation of any overtime, severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company the Employer, or any Subsidiary or affiliate of the Company;

(h) the grant of the Award will not be interpreted to form an employment contract or relationship with the Company, the Employer or any Subsidiary or affiliate of the Company;

(i) the future value of the shares of Stock is unknown and cannot be predicted with certainty;

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(j) no claim or entitlement to compensation or damages arises from the forfeiture of the Award resulting from termination of Participant’s Continuous Status as an Employee of the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws and whether or not later found to be invalid), and in consideration of the grant of the Award to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company or the Employer, waives Participant’s ability, if any, to bring such claim, and releases the Company or any Subsidiary or affiliate from any claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the 2002 Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agreed to execute any and all documents to request dismissal or withdrawal of such claims; and

(k) further, no claim or entitlement to compensation or damages arises if, in satisfying Participant’s (and/or the Employer’s) obligation for Tax-Related Items pursuant to Section 4 of the Base Agreement (as modified by this Appendix A), the Company and/or the Employer withholds an amount in excess of the amount legally required to be withheld, and in consideration of the grant of the Award to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company or the Employer, waives Participant’s ability, if any, to bring such claim, and releases the Company or any Subsidiary or affiliate from any claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the 2002 Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agreed to execute any and all documents to request dismissal or withdrawal of such claims.

16.     No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the 2002 Plan or acquisition or sale of shares of Stock. Participant is hereby advised to consult with Participant’s own personal tax, legal and financial advisors regarding his or her participation in the 2002 Plan before taking any action related to the 2002 Plan.

17.     Data Protection .

The Company’s External Privacy and Cookies Notice (the “External Privacy Notice”) is available online at: http://www.franklintempletonglobal.com/franklintempletonglobal/privacy (and “GDPR Frequently Asked Questions” can be found at the same URL).

The information in this Section 17 is provided to Participants by the Company for the exclusive purpose of processing Personal Data (as defined in the External Privacy Notice) in the context of implementing, administering and managing the 2002 Plan. For the purposes of this Section 17, the Company is the controller. Where local data protection laws require the appointment of a local representative, such representative will be the Company’s Data Protection Officer. A glossary of terms used in this Section 17 is provided below.

This Section 17 applies in addition to the Company’s Employee Privacy Notice which can be accessed via Passport.

Participant is responsible for: (i) providing the Employer and the Company with accurate and up-to-date Personal Data; and (ii) updating those Personal Data in the event of any material changes.

For any questions related to this Section 17 or relating to the Company’s processing of Personal Data, please contact the Data Protection Officer at [________________________________].

Glossary
 
‘controller’ means the entity that decides how and why Personal Data are processed.

‘process’, ‘processing’ or ‘processed’ means anything that is done with Personal Data, including collecting, storing, accessing, using, editing, disclosing or deleting those data.


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18.     Language . If Participant has received the Agreement or any other document related to the 2002 Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

19.     Imposition of Other Requirements . The Company reserves the right to impose other requirements on Participant’s participation in the 2002 Plan, on the Award and on any Shares acquired under the 2002 Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the 2002 Plan, and to require Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.



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EXHIBIT 10.2
FRANKLIN RESOURCES, INC.
2002 UNIVERSAL STOCK INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK UNIT AWARD


Name:
 
Address:
 


In accordance with the Franklin Resources, Inc. 2002 Universal Stock Incentive Plan (the “ 2002 Plan ”), as an incentive for increased efforts and successful achievements, Franklin Resources, Inc. (the “ Company ”) has awarded Participant Restricted Stock Units (“ Units ”) over common stock of the Company subject to the terms and conditions of the accompanying Restricted Stock Unit Award Agreement (the “ Award Agreement ”), this Notice of Restricted Stock Unit Award (the “ Notice of Award ” and together with the Award Agreement, the “ Award ”) and the 2002 Plan, as follows (capitalized terms used but not defined in this Notice of Award have the same meaning as set forth in the 2002 Plan):


Award Number:
 
Award Date:
 
Total Number of Units Awarded:
 
Grant Date Value of Award (USD):
 
Restrictive Covenants Apply:
[Insert “Yes” or “No”]


Vesting Schedule:

[Vesting schedule performance terms subject to approval of the Compensation Committee of the Board of Directors of the Company.]

For purposes of this Notice of Award and the Award Agreement, the term “vest” shall mean, with respect to any Units, that such Units are no longer subject to forfeiture to the Company (other than pursuant to Section 16 of the Award Agreement).
Participant acknowledges and agrees that nothing in this Award nor in the 2002 Plan, which is incorporated herein by this reference, affects the Company’s, or a Subsidiary’s, right to terminate, or to change the terms of, Participant’s employment at any time, with or without cause.
Participant acknowledges that, from time to time, the Company may be in a “Blackout Period” and/or subject to applicable securities laws that could subject Participant to liability for engaging in any transaction involving the sale of the Shares. Participant further acknowledges and agrees that, prior to the sale of any Shares acquired under this Award, it is Participant’s responsibility to determine whether or not such sale of Shares will subject Participant to liability under insider trading rules or other applicable securities laws.
Participant hereby: (i) consents to access the 2002 Plan prospectus in connection with the Form S-8 registration statement for the 2002 Plan, any updates thereto, the 2002 Plan, the Award Agreement and this Notice of Award (collectively, the “ 2002 Plan Documents ”) in electronic form either through the Company’s Intranet or another form of electronic communication (e.g. e-mail); (ii) represents that Participant has access to the Company’s Intranet and the Internet; (iii) acknowledges receipt of electronic copies, or that Participant is already in possession of paper copies, of the 2002 Plan Documents and the Company’s most recent annual report to stockholders; and (iv) acknowledges



that Participant is familiar with and has accepted the Award subject to the terms and provisions of the 2002 Plan Documents.
Participant may receive, without charge, upon written or oral request, paper copies of any or all of the 2002 Plan Documents, documents incorporated by reference in the Form S-8 registration statement for the 2002 Plan, and the Company’s most recent annual report to stockholders by requesting them from Stock Administration at the Company, One Franklin Parkway, San Mateo, CA 94403-1906. Telephone (650) 312-2000. Email [______________________]. Participant may also withdraw Participant’s consent to receive any or all documents electronically by notifying Stock Administration at the above address in writing.
By accepting the Award, whether in electronic form or otherwise, Participant agrees that the Award is granted under and governed by the terms and conditions of the 2002 Plan, this Notice of Award and the Award Agreement.


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FRANKLIN RESOURCES, INC.
2002 UNIVERSAL STOCK INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT

This Restricted Stock Unit Award Agreement, together with any Exhibits or Appendix(es) attached hereto (hereinafter, collectively, the “ Agreement ”), is made as of the Award Date set forth in the Notice of Restricted Stock Unit Award (the “ Notice of Award ”) between Franklin Resources, Inc. (the “ Company ”) and Participant named therein (“ Participant ”).

WITNESSETH:

WHEREAS, the Board of Directors and stockholders of the Company have adopted the Franklin Resources, Inc. 2002 Universal Stock Incentive Plan (the “ 2002 Plan ”), authorizing the grant of Restricted Stock Units (“ Units ”) to eligible individuals as an incentive in connection with the performance of services for the Company and its Subsidiaries, as defined in the 2002 Plan, which is incorporated herein by this reference (capitalized terms used but not defined in this Agreement have the same meaning as set forth in the 2002 Plan or the Notice of Award, as applicable); and

WHEREAS, the Company recognizes the efforts of Participant on behalf of the Company and its Subsidiaries and desires to motivate Participant in Participant’s work and provide an inducement to remain in the service of the Company and its Subsidiaries; and

WHEREAS, the Company has determined that it would be to the advantage and in the interest of the Company and its stockholders to award Units provided for in this Agreement and the Notice of Award to Participant, subject to certain restrictions, as an incentive for increased efforts and successful achievements;

NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants herein contained, the parties hereto hereby agree as follows:

1.     Restricted Stock Unit Award . The Company is awarding to Participant Units as set forth in the Notice of Award, subject to the rights of and limitations on Participant as owner thereof as set forth in this Agreement. If so indicated on the Notice of Award, the restrictive covenants set forth on Exhibit A , attached hereto, shall apply and shall form a part of the Agreement.

2. Transfer Restriction . Units may not be transferred by Participant in any manner other than by will or by the laws of descent and distribution. Pursuant to Section 7 of this Agreement, the terms of this Agreement shall be binding upon the executors, administrators, heirs, successors and transferees of Participant.

3.     Vesting .

(a)    Units shall become vested in accordance with the Vesting Schedule in the Notice of Award so long as Participant maintains a Continuous Status as an Employee, subject to Section 16 below.

(b)    If Participant ceases to maintain a Continuous Status as an Employee for any reason, all Units to the extent not yet vested under Section 3(a) on the date Participant ceases to maintain a Continuous Status as an Employee shall be forfeited by Participant without payment of any consideration to Participant therefor. Any Units so forfeited shall be canceled and any Shares considered issuable pursuant to such Units, if applicable, shall be returned to the status of authorized but unissued Shares, to be held for future distributions under the Company’s 2002 Plan. Notwithstanding the above, an executive officer of the Company, in his or her sole discretion, may determine whether a portion or all of the unvested Units awarded hereunder become vested as of the date of death or termination of employment on account of disability (as determined by an executive officer of the Company in accordance with the policies of the Company), in which case such date shall be deemed the Vesting Date. Unless changed by the Board,

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“disability” means that Participant ceases to be an employee on account of disability as a result of which Participant is determined to be disabled by the determining authority under the long-term or total permanent disability policy, or government social security or other similar benefit program, of the country or location in which Participant is employed and in the absence of such determining authority by the Board in accordance with the policies of the Company.

4.     Vesting of Units and Issuance of Shares . Upon the Vesting Date, (i) one Share and (ii) an amount in cash equal to the cash dividends, if any, paid with respect to such share between the Award Date and the Vesting Date shall be issuable for each Unit that vests on such date, subject to the terms and provisions of the 2002 Plan, the Notice of Award and this Agreement. Upon satisfaction of any required tax or other withholding obligations as set forth in Section 6 of this Agreement, the Shares and cash amount (if any) will be issued to Participant (as evidenced by the appropriate entry in the books of the Company or a duly authorized transfer agent of the Company) as soon as practicable after the Vesting Date, but in any event, within the period ending on the later to occur of the date that is two and a half (2½) months from the end of (i) Participant’s tax year that includes the applicable Vesting Date, or (ii) the Company’s tax year that includes the applicable Vesting Date (such period, the “short-term deferral period”). Any fractional Unit remaining after all Units under this Award are fully vested shall be discarded and neither a fractional Share nor any dividends issued with respect to such fractional share shall be issued at vesting of the fractional Unit. Notwithstanding the above, the Company may, in its discretion, pay to Participant all or a portion of any vested Units in cash in an amount equal to the Fair Market Value of the relevant number of Shares on the applicable Vesting Date, or on such other date or dates within the short-term deferral period which the Company may at its absolute discretion prescribe, less any tax or other withholding obligations set forth in Section 6 of this Agreement.

5.     Right to Shares . Except as otherwise determined by the Committee, in its discretion, and as provided in Section 4, Participant shall not have any right in, to or with respect to any of the Shares (including any voting rights or rights with respect to dividends paid on the Shares, including rights to dividend equivalent payments) issuable for a Unit under the Award until the Award is settled by the issuance of such Shares to Participant.

6.     Withholding of Taxes .

(a) General . Participant is ultimately liable and responsible for all taxes owed by Participant in connection with the 2002 Plan including, without limitation, the award of Units, vesting of units, issue and sale of Shares regardless of any action the Company or any of its Subsidiaries takes with respect to any tax withholding obligations that arise in connection with the 2002 Plan. Neither the Company nor any of its Subsidiaries makes any representation or undertaking regarding the treatment of any tax withholding in connection with the grant or vesting of Units awarded or the subsequent sale of any of the Shares. The Company and its Subsidiaries do not commit and are under no obligation to structure the Award to reduce or eliminate Participant’s tax liability.

(b) Payment of Withholding Taxes . Prior to any event in connection with Units awarded ( e.g. , vesting) that the Company determines may result in any tax withholding obligation, whether United States federal, state or local taxes or applicable foreign taxes and including any employment tax obligation (the “ Tax Withholding Obligation ”), Participant must agree to the satisfaction of such Tax Withholding Obligation in a manner acceptable to the Company, including by means of one of the following methods:

(i) By Share Withholding. Unless the Company permits Participant to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, Participant authorizes the Company (in the exercise of its sole discretion) to withhold from those Shares issuable to Participant the whole number of Shares sufficient to satisfy the Tax Withholding Obligation. Share withholding will generally be used to satisfy the tax liability of individuals subject to the short-swing profit restrictions of Section 16(b) of the Securities Exchange Act of 1934, as amended.

(ii) By Sale of Shares . Unless the Company permits Participant to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, and provided that the terms of this clause (ii) do not violate Section 13(k) of the Securities Exchange Act of 1934, as amended, Participant’s acceptance of the Award constitutes Participant’s instruction and authorization to the Company and any brokerage firm determined acceptable

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to the Company for such purpose to sell on Participant’s behalf a whole number of Shares from those Shares issuable to Participant as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the applicable Tax Withholding Obligation. Such Shares will be sold on the day such Tax Withholding Obligation arises ( e.g. , a Vesting Date) or as soon thereafter as practicable. Participant will be responsible for all brokers’ fees and other costs of sale, and Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed the Tax Withholding Obligation the Company agrees to pay such excess in cash to Participant. Participant acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the Tax Withholding Obligation. Accordingly, Participant agrees to pay to the Company or any of its Subsidiaries as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of Shares described above.

(iii) By Check, Wire Transfer or Other Means . At any time not less than five (5) business days (or such fewer number of days as determined by the Committee or its designee) before any Tax Withholding Obligation arises ( e.g. , a Vesting Date), Participant may request permission to satisfy the Tax Withholding Obligation by check, wire transfer or other means, by submitting such request, in writing, to the Company. Alternatively, the Company may require that Participant satisfy any Tax Withholding Obligation in any such manner. If the Company approves Participant’s request, or so requires, within five (5) business days of the Vesting Date (or such fewer number of days as determined by the Committee or its designee) Participant must deliver to the Company the amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation by (x) wire transfer to such account as the Company may direct, (y) delivery of a certified check payable to the Company, or (z) such other means as specified from time to time by the Committee or its designee.

7.     Successors . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. Nothing contained in the 2002 Plan, the Notice of Award or this Agreement shall be interpreted as imposing any liability on the Company or the Committee in favor of Participant or any purchaser or other transferee of Units or Shares with respect to any loss, cost or expense which such Participant, purchaser or other transferee may incur in connection with, or arising out of any transaction involving, any Units or Shares subject to the 2002 Plan, the Notice of Award or this Agreement.

8.     No Compensation Deferrals . This Agreement, the Notice of Award and the 2002 Plan are intended to be exempt from or comply with Section 409A (“ Section 409A ”) of the United States Internal Revenue Code of 1986, as amended, and shall be administered and construed in accordance with such intent. The Company reserves the right, to the extent the Company deems necessary or advisable in its sole discretion, to unilaterally amend or modify, or to take any other actions, as the Committee determines are necessary or appropriate with respect to, the 2002 Plan, the Notice of Award and/or this Agreement to ensure that no awards (including, without limitation, the Units) become subject to the requirements of Section 409A, provided, however, that the Company makes no representation that the Units are not subject to Section 409A nor makes any undertaking to preclude Section 409A from applying to the Units. In furtherance, and not in limitation of the foregoing: (a) in no event may Participant designate, directly or indirectly, the calendar year of any payment to be made hereunder; and (b) notwithstanding any other provisions of this Agreement to the contrary, a termination of employment hereunder shall mean and be interpreted consistent with a “separation from service” within the meaning of Section 409A with respect to any payment hereunder that constitute a “deferral of compensation” under Section 409A that becomes due on account of such separation from service.

9.     Integration . The terms of the 2002 Plan, the Notice of Award and this Agreement are intended by the Company and Participant to be the final expression of their agreement with respect to Units and may not be contradicted by evidence of any prior or contemporaneous agreement. The Company and Participant further intend that the 2002 Plan, the Notice of Award and this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any arbitration, judicial, administrative or other legal proceeding involving the 2002 Plan, the Notice of Award or this Agreement. Accordingly, the 2002 Plan, the Notice of Award and this Agreement contain the entire understanding between the parties and supersede all prior oral, written and implied agreements, understandings, commitments and practices among the parties.


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10.     Waivers . Any failure to enforce any terms or conditions of the 2002 Plan, the Notice of Award or this Agreement by the Company or by Participant shall not be deemed a waiver of that term or condition, nor shall any waiver or relinquishment of any right or power for all or any other times.

11.     Severability of Provisions . If any provision of the 2002 Plan, the Notice of Award or this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision thereof; and the 2002 Plan, the Notice of Award and this Agreement shall be construed and enforced as if none of them included such provision.

12.     Committee Decisions Conclusive . All decisions of the Committee arising under the 2002 Plan, the Notice of Award or this Agreement shall be conclusive.

13.     Mandatory Direct Discussion, Mediation, and Arbitration . To the extent permitted by law, any claim, disagreement, or dispute arising out of or relating to the 2002 Plan, the Notice of Award, and/or this Agreement, including the meaning or interpretation thereof (a “ Dispute ”), shall be resolved solely and exclusively by direct discussion and mandatory mediation followed, if necessary, by final and binding arbitration in accordance with the terms and procedures specified in this Section 13. These terms and procedures apply solely to the resolution of a Dispute as defined in this Agreement. Any other claim, issue, or complaint raised by Participant who is subject to the Franklin Templeton Investments Alternative Dispute Resolution Policy and Agreement (the “ ADR Agreement ”), which claims, issues or complaints are not covered by this Agreement will be resolved according to the terms and procedures of the ADR Agreement. With regard to any Dispute as defined in this Agreement, if there is a difference between the terms or procedures defined in the ADR Agreement, and the terms and procedures defined in this Agreement, this Agreement’s terms and procedures shall control. Participant and the Company specifically agree to waive the right to pursue any Dispute before a court or jury.
(a)     Direct Discussion . Upon written notice of any Dispute, Participant and the Company (each referred to as a “ party ” and together as the “ parties ”) shall first attempt to resolve the Dispute by direct discussion.

(b) Mediation . If a Dispute is not resolved by direct discussion then either party may request mediation of the Dispute by sending a written notice requesting mediation to the other party. The parties will mutually agree to the selection of a mediator, whose compensation will be borne by the Company.

(c) Arbitration . If a Dispute is not resolved by direct discussion and mandatory mediation, then either party may request final and binding arbitration of the Dispute by sending a written notice requesting arbitration to the other party. The Dispute will be heard by a single arbitrator unless, within 45 days of receiving the initial written demand for arbitration, either party elects by written notice to the other party for the arbitration to be heard by a panel of three arbitrators. If a single arbitrator is used, the parties will mutually agree to the selection of the arbitrator. If either party elects for the arbitration to be heard by a panel of three arbitrators, each party will select one arbitrator, and the arbitrators selected by the parties will, within a reasonable period of time, then appoint a third arbitrator to serve as chair of the panel.

The arbitration will be conducted in accordance with the Employment Arbitration Rules and Mediation Procedures of the AAA as amended and effective November 1, 2009 (the “ AAA Rules ”) but without necessarily retaining AAA or any other third party to administer the arbitration. The parties will determine whether a third party administration service is necessary and, if jointly deemed necessary, agree to a mutually acceptable arbitration administration service, whether AAA or otherwise, within 45 days of receipt of the initial written demand for arbitration. If the parties do not agree about whether a third party is needed to administer the arbitration, or if the parties cannot reach agreement as to which administration service to use within 45 days, any arbitration will be administered by AAA. The location for the arbitration shall be in the county or comparable jurisdiction of Participant’s employment. Judgment on the award rendered may be entered in any court having jurisdiction.


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The Company will pay all of the costs of arbitration that are attributable to the employer pursuant to the AAA Rules, unless applicable law requires the Company to pay a greater share or all of the costs. In addition, if a single arbitrator is used, or if the Company elects for the arbitration to be heard by a panel of three arbitrators, the compensation and expenses of the arbitrator(s) will be paid by the Company. If Participant elects for the arbitration to be heard by a panel of three arbitrators, Participant will be responsible for paying one-half of the arbitrators’ compensation and expenses.

All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding under this Section. To the extent permitted by law, Participant waives the right to participate in a class, representative or collective action, as a class representative, class member, as an opt-in party, or private attorney general or join or consolidate claims with claims of any other person or entity, with respect to any Dispute, whether before a court or jury or in arbitration. Nothing in this Agreement, however, is intended or understood to limit, contradict, or preclude the rights reserved by law for Participant to initiate any administrative claim, or to excuse Participant from bringing an administrative claim before any agency in order to fulfill any obligation by Participant to exhaust administrative remedies. The provisions of this Section are intended by Participant and the Company to be exclusive for all purposes and applicable to any and all Disputes.

Except as otherwise provided in this Agreement, or as otherwise mutually agreed by the parties, the arbitrator(s) will conduct the arbitration pursuant to the AAA Rules, the U.S. Federal Arbitration Act, 9 U.S.C. section 1, et seq., and the U.S. Federal Rules of Evidence. The arbitrator(s) shall have jurisdiction and authority only to award Participant an amount equal to or less than the amount of the Award challenged in the Dispute, subject to the same terms and conditions as the Notice of Award in Dispute, and shall not have jurisdiction or authority to make any other award of any type, including, without limitation, punitive damages, unforeseeable economic damages, damages for pain, suffering or emotional distress, or any other kind or form of damages (the “ Arbitrator Authority ”). Thus, the arbitrator(s) shall not have jurisdiction or authority to grant preliminary or final injunctive relief or specific performance. The remedy, if any, awarded by the arbitrator(s) with the Arbitrator Authority shall be the sole and exclusive remedy for any Dispute that is subject to arbitration under this Section.

If Participant is an Associated Person employed by a Member Firm (as each such term is defined by the rules of the Financial Industry Regulatory Authority (“ FINRA ”)), nothing in this Agreement prohibits or restricts Participant or the Member Firm from filing an arbitration claim involving a Dispute in the FINRA arbitration forum as specified in FINRA rules. In such a case, the parties each reserve the right to elect to have the arbitration heard by a panel of three arbitrators regardless of the dollar amount of the claim. The parties further agree that the authority of the arbitrator(s) in any FINRA arbitration of a Dispute is limited to the Arbitrator Authority defined above. Unless otherwise mutually agreed by the parties, the arbitrator(s) will conduct the arbitration pursuant to the FINRA Code of Arbitration Procedure for Industry Disputes (the “ FINRA Code ”) and the Federal Rules of Evidence. All fees, costs, and expenses of FINRA arbitration, whether a single arbitrator or a panel of arbitrators is selected, including any hearing session fees, arbitration fees, surcharges, and filing fees, will be allocated as specified in the FINRA Code.

14.     Delaware Law . The 2002 Plan, the Notice of Award and this Agreement are governed by, and all Disputes arising under or in connection with the 2002 Plan, the Notice of Award and this Agreement shall be resolved in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules, to the extent not preempted by the federal laws of the United States of America.

15.     Country Appendices . If Participant relocates to a country outside the United States: (i) any special terms and conditions that may apply to Units granted to Participants in such country under Appendices to this Agreement will apply to Participant; or (ii) if Units have not been granted to Employees in such country under this Agreement, any other special terms and conditions, will apply to Participant, in each case to the extent the Company determines that the application of such terms and conditions is necessary or advisable to comply with local law or facilitate the administration of the 2002 Plan, and provided the imposition of the term or condition will not result in any adverse accounting expense with respect to the Units (unless the Company specifically determines to incur such expense).


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16.
Forfeiture .

(a)    Forfeiture Pursuant to Restatement of Financial Results. Notwithstanding anything in the Award to the contrary, in the event that (i) the Company issues a restatement of financial results to correct a material error; (ii) the Committee determines, in good faith, that fraud or willful misconduct by Participant was a significant contributing factor to the need to issue such restatement; and (iii) some or all of the Units that were granted and/or Shares and/or other property earned prior to such restatement by Participant would not have been granted and/or earned, as applicable, based upon the restated financial results, Participant shall immediately return to the Company all Shares and other property received with respect to those Units, including any cash dividends paid with respect to the Units or such Shares, any pre-tax income derived from ownership and any gross proceeds from disposition of such Shares and property, that would not have been granted and/or earned based upon the restated financial results (the “ Repayment Obligation ”), and all such Units (whether or not vested) shall immediately be forfeited. The Company shall be able to enforce the Repayment Obligation by all legal means available, including, without limitation, by withholding such amount from other sums and property owed by the Company to Participant.

(b)    Forfeiture Pursuant to Fraud or Breach of Securities Law. Notwithstanding anything in the Award to the contrary, in the event that Participant:

(i)    is convicted by any court for fraud;

(ii)    is finally adjudicated by any court or is otherwise finally determined by a Regulatory Agency to be in violation of any Securities Law where the violation related to a period of time during which Participant was an Employee; or

(iii)    enters into a settlement agreement with a Regulatory Agency, with or without admission of any liability, in relation to or in connection with an allegation concerning a violation of any Securities Law by Participant where the violation or alleged violation related to a period of time during which Participant was an Employee, and the terms of the settlement agreement result in (x) Participant making, or being required to make, payment of any penalty or a payment in lieu of any penalty or redress in respect of such violation, or alleged violation; (y) the publication of any statement of reprimand or censure; or (z) Participant suffering any other penalty including (without limitation) suspension or termination of his status for the purposes of any Securities Law, all of Participant’s Units that have not vested shall immediately be forfeited without any payment to Participant therefor. Any Units so forfeited shall be cancelled.

Notwithstanding the foregoing, the Committee may determine, in its sole discretion, that only a portion of Participant’s Units specified by the Committee (or no Units) shall be forfeited.

For the purposes of this Section 16(b), the following words shall have the following meanings:

“ Regulatory Agency ” shall mean in any jurisdiction any department of government, independent agency, authority appointed by statute or by government in connection with the supervision and or enforcement of any Securities Law including, but not limited to, the U.S. Securities and Exchange Commission;

“ Securities Law ” shall mean any enactment, law, statute, rule, requirement or regulation in any jurisdiction relating to Securities that is or was applicable to the Company or that is or was applicable to Participant; and

“ Securities ” shall mean any shares, bonds, derivatives or other financial instruments or financial assets or any interest therein.

(c)     Other Repayment/Forfeiture . Any benefits Participant may receive hereunder shall be subject to repayment or forfeiture as may be required to comply with (i) any applicable listing standards of a national securities exchange adopted in accordance with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any implementing rules and regulations of the

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U.S. Securities and Exchange Commission adopted thereunder, (ii) similar laws, and implementing rules and regulations, of the European Union (as implemented by its member states and by the European Securities and Markets Authority) and of any other jurisdiction and (iii) any policies adopted by the Company to implement such requirements, all to the extent determined by the Company in its discretion to be applicable to Participant.

END OF AGREEMENT


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EXHIBIT A
TO
FRANKLIN RESOURCES, INC.
2002 UNIVERSAL STOCK INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT

1. Restrictive Covenants . This Section 1 of this Exhibit A to the Award Agreement shall apply if so indicated on the Notice of Award.

(a) Confidentiality .

(i) Confidential Information Obligations and Restrictions . Participant shall keep confidential and, except as the Company may otherwise consent to in writing, shall not divulge, communicate, disclose, or use to the detriment of the Company Group or for the benefit of any other person or persons, misuse in any way, or make any use of, except for the benefit of the Company Group, at any time either between the Award Date and the applicable Vesting Date or at any time thereafter, any Confidential Information (as defined below). Participant shall not disclose, deliver, reproduce, or in any way allow any such Confidential Information to be disclosed, delivered to or used by any third parties without the specific direction or consent of a duly authorized representative of the Company, except in connection with the discharge of Participant’s duties. Any Confidential Information now or hereafter acquired by Participant with respect to the business of the Company Group shall be deemed a valuable, special and unique asset of the Company Group that is received by Participant in confidence and as a fiduciary, and Participant shall remain a fiduciary to the Company with respect to all of such information. Notwithstanding anything to the contrary herein, Participant shall not have any obligation to keep confidential any information (and the term “Confidential Information” shall not be deemed to include any information) that (A) is generally available to the public through no fault or wrongful act of Participant in breach of the terms hereof, (B) is disseminated by the Company Group publicly without requiring confidentiality, (C) is required by law or regulation to be disclosed by Participant, or (D) is required to be disclosed by Participant to any government agency or person to whom disclosure is required by judicial or administrative process.

(ii) Permissible Disclosure of Confidential Information .

(A) Employee Rights Protected . Nothing in this Agreement shall limit or interfere with Participant’s right to file a charge or complaint with any Government Agency (as defined below) or ability, without notice to or authorization from the Company, to communicate with any Government Agency for the purpose of reporting a reasonable belief that a possible violation of law has occurred or may occur, or to participate, cooperate, provide information (including documents) or testify in any inquiry, investigation, proceeding or action that may be conducted by any Government Agency.  Participant will not be held criminally or civilly liable under any U.S. federal or state trade secret law for the disclosure of any Confidential Information or other trade secret that is made in confidence to a Government Agency or to an attorney solely for the purpose of reporting or investigating a suspected violation of law.  Participant will also not be held criminally or civilly liable under any U.S. federal or state trade secret law for the disclosure of any Confidential Information or other trade secret that is made in a complaint or other document filed in a legal proceeding, if such filing is made under seal.  If Participant files a claim against the Company or any member of the Company Group alleging that the Company (or any member of the Company Group) retaliated against Participant for reporting a suspected violation of law, Participant may disclose the Confidential Information or other trade secret to Participant’s attorney and use the Confidential Information or other trade secret information in the legal proceeding provided Participant (i) files any document containing the Confidential Information or other trade secret under seal and (ii) does not otherwise disclose the Confidential Information or other trade secret, except pursuant to an order issued by the tribunal with jurisdiction over Participant’s claim. 


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(B) Responding to Legal Process . Separately, to the extent Participant receives any subpoena, court order, or other legal process issued in any private litigation or arbitration regarding any matter or action involving the Company Group, then to the extent permitted by law or regulation, Participant shall, before providing any Confidential Information, give prompt prior written notice to the Company’s General Counsel in order to provide the Company with a reasonable opportunity to take appropriate steps to protect its Confidential Information to the fullest extent possible.

(b) Return of Confidential Material . Upon the completion or other termination of Participant’s services for the Company Group, Participant shall promptly surrender and deliver to the Company all records, materials, equipment, drawings, documents, notes and books and data of any nature pertaining to any Confidential Information of the Company Group or to Participant’s services, and Participant will not take any description containing or pertaining to any Confidential Information or data of the Company Group which Participant may produce or obtain during the course of Participant’s services.

(c) Non-Solicit; Non-Interference; Non-Compete . Participant agrees that the Company Group has invested substantial time, effort and expense in compiling its Confidential Information, in assembling its present staff of personnel and in attracting and/or contracting with its current clients and customers and its prospective clients and customers. In order to protect the confidentiality of Confidential Information and its connections with staff, clients and customers and prospective clients and customers, Participant agrees that, subject to any applicable jurisdiction specific limitations set forth in Section 1(c)(iv)(A)-(C) below, during Participant’s employment and during the Restricted Period, Participant shall not:

(i) either on Participant’s own account or in conjunction with or on behalf of any other person, directly or indirectly, solicit, approach, counsel, entice away or attempt to entice away any individual who during the Relevant Period is or was a Senior Employee of the Company Group to leave the employ of the Company Group, including by means of the supply of names or expressing views on suitability or otherwise;

(ii) either on Participant’s own account or in conjunction with or on behalf of any other person, solicit, approach, contact, communicate with, or have business dealings, directly or indirectly, with any person who was an investor or business partner, a client or customer or prospective client or customer of the Company Group during the Relevant Period and with whom Participant had material business dealings during the Relevant Period; provided , that nothing contained in this Section 1(c)(ii) shall be deemed to prohibit Participant from seeking or doing any business which is not in direct or indirect competition with the business carried on by the Company Group; or

(iii) except with the prior written consent of the Company, directly or indirectly be employed, engaged, concerned or interested in any business which supplies or proposes to supply Competitive Services or any services of a substantially similar nature within the Restricted Area (a “ Competitor ”). Notwithstanding the foregoing, nothing in this Section 1(c)(iii) prevents Participant, during or after the termination of Participant’s employment, from holding or being interested in: (i) bona fide investments representing less than 1% of the issued shares, loan capital or stock in any company whose shares are listed, dealt in or admitted to trading on any national securities exchange or a recognized investment exchange (as defined in the UK Financial Services and Markets Act 2000, as amended (“ FSMA ”)) (and as a passive investment with no right, whether by board representation or otherwise, to direct the management or business of the relevant issuer); (ii) any of the issued shares, loan capital or stock in any company whose shares are listed, dealt in or admitted to trading on any national securities exchange or recognized investment exchange, where such interest is subject to bona fide discretionary management arrangements; or (iii) less than 1% of the voting securities of any Competitor.

(iv) Certain Limitations . If a court determines that a restriction set forth in Section 1(c)(i),(ii) or (iii) cannot be enforced as written because it is overbroad in part (such as time, scope of activity, or geography), the parties agree that a court shall enforce the restrictions to such lesser extent as is allowed by law and/or reform the overbroad part of the restriction to make it enforceable. If, despite the foregoing, any provision contained in this Section 1 is determined to be void, illegal or unenforceable, in whole or in part, then the other

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provisions contained herein shall remain in full force and effect. In addition, the following provisions shall apply to limit, in whole or in part, the application of Sections 1(c)(ii) and (iii) of this Exhibit A :

(A) California .  For so long as Participant resides in California and California law controls, Section 1(c)(iii) shall not apply, and Section 1(c)(ii) shall only be applicable to solicitation to the extent that Participant’s solicitation involves use or disclosure of the Company’s trade secrets.

(B) Massachusetts.    For so long as Participant resides in Massachusetts and Massachusetts law controls, Section 1(c)(iii) shall only apply to the extent the Company elects to provide “garden leave” pay as defined in Chapter 149, Section 24L(b)(vii) of the Massachusetts General Laws, as amended.

(C) New York .   For so long as Participant resides in New York and New York law controls, Section 1(c)(ii) shall be deemed modified so that client or customer means a client or customer (person or entity) that Participant has relevant business-related dealings with or access to Confidential Information for the first time during employment with the Company Group.

(d) Participant accepts that the restrictions contained in this Section 1 are reasonable and necessary for the protection of the legitimate interests of the Company Group.

(e) Definitions . For purposes of this Section 1, the capitalized terms below shall have the following meanings:
(i) “ Company Group ” means the Company and its Subsidiaries, partnerships, joint ventures and related and affiliated business entities.

(ii) “ Competitive Services” means goods or services competitive with those which during or at the expiry of the Relevant Period, the Company Group was supplying or negotiating or actively and directly seeking to supply to any client or customer or prospective client or customer in any area of business of the Company Group: (A) in which Participant (or any of his or her direct reports) was materially involved at any time during the Relevant Period; or (B) in respect of which Participant had access to Confidential Information during the Relevant Period.

(iii) “ Confidential Information ” means information disclosed to Participant or known by Participant as a consequence of or through the unique position of Participant’s employment with the Company or any of its Subsidiaries (including information conceived, originated, discovered or developed by Participant) prior to or after the Award Date, and not generally or publicly known, about the Company or its business, including, without limitation, data, information or other compilation of information of the Company Group relating to the products, processes, technical data, research and development, formulas, programs, test data, customer lists, investor lists, business plans, marketing plans, investment plans and strategies, pricing strategies or other subject matter pertaining to any business of the Company Group or any of its clients, customers, consultants, licensees or affiliates which Participant may produce, obtain or otherwise learn of during the course of Participant’s performance of services, including information expressly deemed to be confidential by the Company Group.

(iv) “ Government Agency ” includes any U.S. or non-U.S. national, federal, provincial, regional, state, or local governmental agency, commission or legislative body, or self-regulatory organization, including, by way of representative example only, any securities and financial regulators or employment and labor regulators.

(v) “ Restricted Area ” means those territories within any country or state in which any member of the Company Group operates and where Participant was engaged to provide services or materially involved or the geographic regions or territories for which Participant is or was responsible during the last two years of employment with the Company Group.


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(vi) “ Relevant Period ” means the 12-month period up to and including the date of Participant’s termination of employment with the Company Group (or, where Participant is placed on garden leave, the 12-month period up to and including the date of the commencement of such period of garden leave).

(vii) “ Restricted Period ” means, in respect of Sections 1(c)(i) and 1(c)(ii), the 12-month period after the date of Participant’s termination of employment with the Company Group, and in respect of Section 1(c)(iii), the 6-month period after the date of Participant’s termination of employment with the Company Group. The Restricted Period shall be reduced by any period spent on garden leave.

(viii) “ Senior Employee ” means any employee with whom Participant had material business dealings during the Relevant Period and who: (a) has direct business contact with clients or customers or prospective clients or customers as part of such employee’s day-to-day work; or (b) operates at a senior professional level or holds a management/executive role.

(f)     Survival . This Section 1 shall survive the expiration or termination of Participant’s employment and shall survive the expiration or termination of the Award Agreement.


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APPENDIX A
TO
FRANKLIN RESOURCES, INC.
2002 UNIVERSAL STOCK INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR NON-U.S. RESIDENT PARTICIPANTS
Notwithstanding the terms of the Restricted Stock Unit Award Agreement (the “ Base Agreement ”) to which this Appendix A is attached, if Participant is not resident in the United States at the time of grant of the Award or at any time between the time of grant and vesting, the following terms and provisions shall amend and supersede the terms and provisions set forth in the Base Agreement to the extent set forth herein. In the event of any conflict between the Base Agreement and this Appendix A, the terms of this Appendix A shall prevail.

A.      Vesting .

Section 3(b) of the Base Agreement is amended to read in full as follows:

(b)      In the event of termination of Participant’s Continuous Status as an Employee (whether or not in breach of local labor laws and whether or not later found to be invalid) for any reason, Participant’s rights under the 2002 Plan, including but not limited to the right to receive the Units, if any, the vesting thereof and the right to dividend equivalent payments, if any, will terminate effective as of the date that Participant is no longer an active employee of the Company or one of its Subsidiaries and will not be extended by any notice period, whether mandated under local law or agreed upon between the Company or a Subsidiary and Participant (e.g., active employment would not include a period of “garden leave” or similar period required pursuant to local law or the terms of any agreement between the Company or a Subsidiary and Participant). For avoidance of doubt, the foregoing provision expressly applies to any case where Participant’s employment is terminated by Participant for any reason, by the Company or a Subsidiary with or without cause for any reason, or in the event of any other termination of Participant’s employment caused directly or indirectly by the Company or a Subsidiary. All Units to the extent not yet vested under Section 3(a) on the date Participant ceases to be an active employee shall be forfeited by Participant without payment of any consideration to Participant therefor. Any Units so forfeited shall be canceled and any Shares considered issuable pursuant to such Units, if applicable, shall be returned to the status of authorized but unissued Shares, to be held for future distributions under the Company’s 2002 Plan. The Committee shall have the exclusive discretion to determine when Participant is no longer an active employee for purposes of the grant of the Units.

B.      Withholding of Taxes.

Section 6 of the Base Agreement is amended to read in full as follows:

(a)      General . Regardless of any action the Company or any of its Subsidiaries, including Participant’s actual employer (the “ Employer ”), takes with respect to any or all income tax (including federal, state and local taxes), social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by Participant is and remains Participant’s responsibility and may exceed the amount withheld by the Company or the Employer. Participant further acknowledges that the Company and/or the Employer: (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Units, including the grant of the Units, the vesting of the Units and the issuance of Shares or the receipt of an equivalent cash payment, the subsequent sale of any Shares acquired at vesting and the receipt of any dividends or dividend equivalent payments; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Units to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if Participant has become subject to tax in more than one jurisdiction between the date of grant and the date of any relevant taxable event, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.


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(b)      Payment of Withholding Taxes . Prior to any event in connection with Units awarded ( e.g. , vesting) that the Company determines may result in any obligation to withhold or account for Tax-Related Items, Participant shall pay, or make adequate arrangements satisfactory to the Company and/or to the Employer (in their sole discretion) to satisfy, all withholding and payment on account obligations of the Company and/or the Employer (the “ Tax Withholding Obligation ”). In this regard, Participant authorizes the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by Participant from Participant’s wages or other cash compensation payable to Participant by the Company or the Employer or from any equivalent cash payment received upon vesting of the Units. Alternatively, or in addition, if permissible under local law, the Company or the Employer, or their respective agents, may, in their sole discretion, satisfy the Tax Withholding Obligation by means of one of the following methods:

(i) By Share Withholding. Unless the Company permits Participant to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, Participant authorizes the Company (in the exercise of its sole discretion) to withhold from those Shares issuable to Participant the whole number of Shares sufficient to satisfy the Tax Withholding Obligation. If the obligation of Tax-Related Items is satisfied by Share withholding ( i.e ., reducing the number of Shares issued upon vesting of the Units) as set forth herein, for tax purposes, Participant is deemed to have been issued the full number of Shares subject to the Units, notwithstanding that a number of the Shares is held back solely for the purpose of satisfying the Tax Withholding Obligation. Share withholding will generally be used to satisfy the obligation for Tax-Related Items of individuals subject to the short-swing profit restrictions of Section 16(b) of the Securities Exchange Act of 1934, as amended.

(ii) By Sale of Shares . Unless the Company permits Participant to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, and provided that the terms of this clause (ii) do not violate Section 13(k) of the Securities Exchange Act of 1934, as amended, Participant’s acceptance of the Award constitutes Participant’s instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to sell or arrange for the sale of Shares to be issued on the vesting of the Units to satisfy the Tax Withholding Obligation. Such Shares will be sold on the day such Tax Withholding Obligation arises ( e.g. , a Vesting Date) or as soon thereafter as practicable. Participant will be responsible for all brokers’ fees and other costs of sale, and Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. If the Tax Withholding Obligation is satisfied by sale of Shares, the Company and the Employer will endeavor to sell only the number of Shares required to satisfy Participant’s and/or the Employer’s obligation for Tax-Related Items; however, Participant agrees that the Company and/or the Employer may sell more Shares than necessary to cover the Tax-Related Items and that, in such event, the Company will reimburse Participant for the excess amount withheld, in cash and without interest. Participant acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy Participant’s obligation for Tax-Related Items. Accordingly, Participant agrees to pay to the Company or any of its Subsidiaries as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of Shares described above.

(iii) By Check, Wire Transfer or Other Means . At any time not less than five (5) business days (or such fewer number of days as determined by the Committee or its designee) before any Tax Withholding Obligation arises ( e.g. , a Vesting Date), Participant may request permission to satisfy the Tax Withholding Obligation by check, wire transfer or other means, by submitting such request, in writing, to the Company. If the Company approves Participant’s request, within five (5) business days of the Vesting Date (or such fewer number of days as determined by the Committee or its designee) Participant must deliver to the Company the amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation by (x) wire transfer to such account as the Company may direct, (y) delivery of a certified check payable to the Company, or (z) such other means as specified from time to time by the Committee or its designee.

Participant shall pay to the Company or to the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of Participant’s participation in the 2002 Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver Shares or the proceeds of the sale of Shares to Participant if Participant fails to comply with Participant’s obligation in connection with the Tax-Related Items.

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C.      Forfeiture.

Section 16 of the Base Agreement is supplemented by the following provision:

In its sole discretion, the Committee may amend or waive the provisions of Section 16 of the Base Agreement, in whole or in part, to the extent necessary or advisable to comply with applicable laws, as determined by the Committee.

D.      Additional Provisions.

The Base Agreement is further amended by adding the following after the text of Section 16:

17.      Requirements of Law. The granting of Units under the 2002 Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. No Shares will be issued or delivered to Participant under the 2002 Plan unless and until there has been compliance with such applicable laws, as determined by the Company.

18.      Nature of the Grant . In accepting the Units, Participant acknowledges that:

(a) the 2002 Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time;

(b) the grant of Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Units, or benefits in lieu of Units even if Units have been awarded repeatedly in the past;

(c) all decisions with respect to future grants of Units, if any, will be at the sole discretion of the Company;

(d) Participant’s participation in the 2002 Plan is voluntary;

(e) the Units and the Shares subject to the Units are not intended to replace any pension rights or compensation;

(f) notwithstanding any language in the Agreement or the Notice of Award to the contrary, the Units and the Shares subject to the Units are an extraordinary item that do not constitute compensation of any kind for services of any kind rendered to the Company or to the Employer, and the Units are outside the scope of Participant’s employment contract, if any;

(g) notwithstanding any language in the Agreement or the Notice of Award to the contrary, the Units and the Shares subject to the Units are not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculation of any overtime, severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company, the Employer or any Subsidiary or affiliate of the Company;

(h) the grant of Units will not be interpreted to form an employment contract or relationship with the Company, the Employer or any Subsidiary or affiliate of the Company;

(i) the future value of the underlying Shares is unknown and cannot be predicted with certainty;

(j) no claim or entitlement to compensation or damages arises from the forfeiture of the Units resulting from termination of Participant’s Continuous Status as an Employee (for any reason whatsoever and whether or not in breach of local labor laws and whether or not later found to be invalid), and in consideration of the grant of the Units to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company or the Employer, waives Participant’s ability, if any, to bring such claim, and releases the Company or any

14


Subsidiary or affiliate from any claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the 2002 Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agreed to execute any and all documents to request dismissal or withdrawal of such claims; and

(k) further, no claim or entitlement to compensation or damages arises if, in satisfying Participant’s (and/or the Employer’s) obligation for Tax-Related Items pursuant to Section 6 of the Agreement, as modified by this Appendix A, the Company and/or the Employer withholds an amount in excess of the amount legally required to be withheld, and in consideration of the grant of the Units to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company or the Employer, waives Participant’s ability, if any, to bring such claim, and releases the Company or any Subsidiary or affiliate from any claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the 2002 Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agreed to execute any and all documents to request dismissal or withdrawal of such claims.

19.      No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the 2002 Plan or acquisition or sale of Shares. Participant is hereby advised to consult with Participant’s own personal tax, legal and financial advisors regarding his or her participation in the 2002 Plan before taking any action related to the 2002 Plan.

20.      Data Protection .

The Company’s External Privacy and Cookies Notice (the “External Privacy Notice”) is available online at: http://www.franklintempletonglobal.com/franklintempletonglobal/privacy (and “GDPR Frequently Asked Questions” can be found at the same URL).

The information in this Section 20 is provided to Participants by the Company for the exclusive purpose of processing Personal Data (as defined in the External Privacy Notice) in the context of implementing, administering and managing the 2002 Plan. For the purposes of this Section 20, the Company is the controller. Where local data protection laws require the appointment of a local representative, such representative will be the Company’s Data Protection Officer. A glossary of terms used in this Section 20 is provided below.

This Section 20 applies in addition to the Company’s Employee Privacy Notice which can be accessed via Passport.

Participant is responsible for: (i) providing the Employer and the Company with accurate and up-to-date Personal Data; and (ii) updating those Personal Data in the event of any material changes.

For any questions related to this Section 20 or relating to the Company’s processing of Personal Data, please contact the Data Protection Officer at [_________________________________].

Glossary
 
‘controller’ means the entity that decides how and why Personal Data are processed.

‘process’, ‘processing’ or ‘processed’ means anything that is done with Personal Data, including collecting, storing, accessing, using, editing, disclosing or deleting those data.

21.      Language . If Participant has received the Agreement or any other document related to the 2002 Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.


15


22.      Country Appendices . Notwithstanding any provision in the Base Agreement or this Appendix A to the contrary, the Units shall be subject to the special terms and provisions set forth in Appendices B through O to this Agreement for Participant’s country of residence, if any. If Participant relocates to one of the countries included in Appendices B through O the special terms and conditions for such country will apply to such Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable to comply with local law or facilitate the administration of the 2002 Plan and provided the imposition of the term or condition will not result in any adverse accounting expense with respect to the Units (unless the Company specifically determines to incur such expense). In the event of any conflict between this Appendix A and any applicable country Appendix (B through O), the terms of the applicable country Appendix shall prevail.

23.      Imposition of Other Requirements . The Company reserves the right to impose other requirements on Participant’s participation in the 2002 Plan, on the Units and on any Shares acquired under the 2002 Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the 2002 Plan, and to require Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.


16


EXHIBIT 10.3
NAMED EXECUTIVE OFFICER COMPENSATION
The following table sets forth the base salaries of the Named Executive Officers 1 (the “NEOs”) of Franklin Resources, Inc. (the “Company”) as of September 30, 2018.
Name and Principal Positions  
Base Salary
Gregory E. Johnson
Chairman of the Board and Chief Executive Officer
$
780,132

Kenneth A. Lewis
Executive Vice President and Chief Financial Officer
$
525,000

Jennifer M. Johnson
President and Chief Operating Officer
$
600,000

Craig S. Tyle
Executive Vice President and General Counsel
$
525,000

Jed A. Plafker
Senior Vice President
$
500,000

The Named Executive Officers are also eligible to:

Incentive Compensation

(a)
receive an annual cash incentive award pursuant to the Company’s 2014 Key Executive Incentive Compensation Plan and/or the Company’s Amended and Restated Annual Incentive Compensation Plan, each as amended and restated;

(b)
participate in the Company’s equity incentive program under which they may be granted restricted stock awards and/or restricted stock unit awards (including both time and performance based awards) pursuant to the Company’s 2002 Universal Stock Incentive Plan, as amended and restated; and

(c)
receive additional cash or equity awards for special recognition of significant contributions or for retention purposes (which may include time and performance based awards).

Benefit Plans and Other Arrangements

(a)
participate in the Company’s broad-based benefit programs generally available to its salaried employees, including health, disability and life insurance programs, the Franklin Templeton 401(k) Retirement Plan and the Company’s 1998 Employee Stock Investment Plan, as amended and restated (the “ESIP”); provided that Mr. G. Johnson and Ms. J. Johnson are not eligible to participate in the ESIP; and

(b)
receive certain perquisites offered by the Company, including club memberships, and, in certain limited cases, use of the Company’s aircraft for personal use.

__________________________
1  
The Named Executive Officers listed herein are the Company’s principal executive officer, principal financial officer, and the three most highly compensated executive officers of the Company as of September 30, 2018.





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:
January 30, 2019
 
  /s/    G REGORY  E. J OHNSON
 
 
 
Gregory E. Johnson
 
 
 
Chairman of the Board and Chief Executive Officer





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:
January 30, 2019
 
/s/    K ENNETH  A. L EWIS
 
 
 
Kenneth A. Lewis
 
 
 
Chief Financial Officer and Executive Vice President




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, Chairman of the Board 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, 2018 (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.
 
Date:
January 30, 2019
 
/s/    G REGORY  E. J OHNSON
 
 
 
Gregory E. Johnson
 
 
 
Chairman of the Board and Chief Executive Officer





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, Chief Financial Officer and Executive Vice President 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, 2018 (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.
 
Date:
January 30, 2019
 
/s/    K ENNETH  A. L EWIS
 
 
 
Kenneth A. Lewis
 
 
 
Chief Financial Officer and Executive Vice President