Summary of FRANKLIN RESOURCES INC

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. 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. We caution you therefore against relying on any of these forward-looking statements. 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 revisions to our forward-looking statements, unless required by law. The following discussion should be read in conjunction with our Form 10-K for the fiscal year ended September 30, 2011 ("fiscal year 2011") filed with the U.S. Securities and Exchange Commission (the "SEC"), and the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q.
Overview
We are a global investment management organization and derive substantially all of our operating revenues and net income from providing investment management and related services to investors in jurisdictions worldwide through products that include registered open-end and closed-end funds, unregistered funds, and institutional, high net-worth and separately-managed accounts (collectively, our "sponsored investment products"). Our services include fund administration, shareholder services, transfer agency, sales, distribution, custodial, trustee and other fiduciary services. Our sponsored investment products and investment management and related services are distributed or marketed to the public globally under six distinct brand names: Franklin, Templeton, Mutual Series, Bissett, Fiduciary and Darby. We offer a broad range of sponsored investment products through equity, hybrid, fixed-income and cash management funds and accounts, including alternative investment products, that meet a wide variety of specific investment needs of individual and institutional investors. We also manage certain sub-advised investment products which may be sold to the public under one of our brand names or that of other companies.
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 and the number of mutual fund shareholder accounts. The fees charged for our services are based on contracts with our sponsored investment products or our clients. These arrangements could change in the future.
Our secondary business is banking/finance. Our banking/finance group offers select private banking and consumer lending services through our banking and finance subsidiaries. Our consumer lending activities primarily consist of real estate equity lines and home equity/mortgage lending.
During the first half of fiscal year 2012, financial markets provided positive returns as they recovered from the volatility and negative sentiment experienced during the fourth quarter of fiscal year 2011. The returns were evidenced by three- and six-month increases of 12% and 20% in the MSCI World Index and 13% and 26% in the S&P 500 Index for the periods ended March 31, 2012. Despite these positive market results, concerns remain about the European sovereign debt crisis and the global economy, and volatility is likely to continue. Our total AUM at March 31, 2012 was $725.7 billion, 10% higher than at September 30, 2011, and 3% higher than at March 31, 2011. Simple monthly average AUM ("average AUM") for the three and six months ended March 31, 2012 increased 3% from the same periods in the prior fiscal year, driven by market appreciation of $50.9 billion and $78.1 billion in the current

year periods. Net new flows were $5.6 billion for the three-month period, as long-term sales decreased 13% to $48.5 billion and redemptions decreased 8% to $42.7 billion. Net flows were negative for the six-month period, as net outflows of $10.0 billion reflect a 22% decrease in long-term sales to $86.7 billion and a 4% decrease in redemptions to $95.7 billion. Ongoing investor concerns related to the European sovereign debt crisis and the strength of the global economic recovery contributed to the lower sales in the current year and the level of long-term redemptions, most notably in our global/international fixed-income and equity products.
The business and regulatory environments in which we operate remain uncertain and subject to change. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Reform Act") imposes additional restrictions and limitations on our business, and we expect that the Foreign Account Tax Compliance Act ("FATCA") will cause us to incur significant administrative and compliance costs. We will continue to review and evaluate the Reform Act and FATCA and the extent of their impact on our business as the various rules and regulations required for implementation continue to be adopted. We are also subject to various regulations by non-U.S. regulators that add further complexity to our ongoing global compliance operations.
Uncertainties regarding economic stabilization and improvement remain in 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 sponsored investment products and on providing high quality customer service to our clients. While we are 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 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                          Six Months Ended
                                     March 31,                                  March 31,
(dollar amounts in
millions, except per                                        Percent                                   Percent
share data)                     2012           2011         Change         2012          2011         Change
Operating Income            $    617.1      $   629.5         (2 )%     $ 1,249.5     $ 1,288.7         (3 )%
Net Income Attributable
to Franklin Resources,
Inc.                             503.2          503.1          0  %         984.0       1,004.3         (2 )%
Earnings per Share
Basic                       $     2.33      $    2.26          3  %     $    4.54     $    4.49          1  %
Diluted                           2.32           2.25          3  %          4.53          4.47          1  %
Operating Margin1                 34.3 %         36.0 %                      35.7 %        37.4 %


 _________________

1 Defined as operating income divided by total operating revenues.
Operating income decreased $12.4 million and $39.2 million for the three and six months ended March 31, 2012, as compared to the same periods in the prior fiscal year. The decreases were primarily due to prior year reductions to operating expenses from net insurance recoveries for previous years' losses of $12.0 million and $38.5 million. Net income attributable to Franklin Resources, Inc. was essentially unchanged for the three-month period and decreased $20.3 million for the six-month period.
Diluted earnings per share increased in both periods consistent with 3% decreases in diluted average common shares outstanding primarily resulting from repurchases of shares of our common stock. The increase for the six-month period was largely offset by the decrease in net income.

Assets Under Management
AUM by investment objective was as follows:

                                                      March 31,       March 31,       Percent
(dollar amounts in billions)                            2012            2011          Change
Equity
Global/international                                $     216.2     $     225.4          (4 )%
United States                                              83.7            83.5           0  %
Total equity                                              299.9           308.9          (3 )%
Hybrid                                                    103.5           113.4          (9 )%
Fixed-Income
Tax-free                                                   77.3            67.5          15  %
Taxable
Global/international                                      187.8           160.6          17  %
United States                                              51.5            47.1           9  %
Total fixed-income                                        316.6           275.2          15  %
Cash Management                                             5.7             6.0          (5 )%
Total                                               $     725.7     $     703.5           3  %
Simple Monthly Average for the Three-Month Period   $     706.9     $     687.2           3  %
Simple Monthly Average for the Six-Month Period     $     693.9     $     671.5           3  %

AUM at March 31, 2012 increased 3% from March 31, 2011, primarily due to $14.8 billion of net new flows and $10.9 billion from acquisitions during the twelve-month period. The net new flows were driven by inflows in global/international fixed-income products, partially offset by outflows in hybrid and global/international equity products.
Average AUM, which is generally more indicative of trends in revenue for providing investment management and fund administration services than the year-over-year change in ending AUM, increased 3% during the three and six months ended March 31, 2012, as compared to the same periods in the prior fiscal year.
The average mix of AUM by investment objective is shown below. The change in mix towards global/international fixed-income products for the three and six months ended March 31, 2012, as compared to the same periods in the prior fiscal year, reflects investor preference for globally diversified fixed-income investments and valuation decreases that occurred in global/international equity products during the last quarter of fiscal year 2011.

                         Three Months Ended       Six Months Ended
                             March 31,                March 31,
                         2012         2011        2012         2011
Equity
Global/international       30 %         32 %        30 %         32 %
United States              11 %         12 %        11 %         12 %
Total equity               41 %         44 %        41 %         44 %
Hybrid                     14 %         16 %        14 %         16 %
Fixed-Income
Tax-free                   11 %         10 %        11 %         11 %
Taxable
Global/international       26 %         22 %        26 %         21 %
United States               7 %          7 %         7 %          7 %
Total fixed-income         44 %         39 %        44 %         39 %
Cash Management             1 %          1 %         1 %          1 %
Total                     100 %        100 %       100 %        100 %

Components of the change in our AUM were as follows:

                                  Three Months Ended                        Six Months Ended
                                       March 31,            Percent            March 31,            Percent
(dollar amounts in billions)       2012          2011        Change        2012          2011        Change
Beginning AUM                  $   670.3      $  670.7           0  %   $   659.9     $  644.9           2  %
Long-term sales                     48.5          55.6         (13 )%        86.7        110.5         (22 )%
Long-term redemptions              (42.7 )       (46.4 )        (8 )%       (95.7 )      (99.2 )        (4 )%
Net cash management                 (0.2 )        (0.8 )       (75 )%        (1.0 )        0.3          NM
Net new flows                        5.6           8.4         (33 )%       (10.0 )       11.6          NM
Reinvested distributions             3.2           2.7          19  %        10.5          8.5          24  %
Net flows                            8.8          11.1         (21 )%         0.5         20.1         (98 )%
Distributions                       (4.3 )        (3.3 )        30  %       (12.8 )      (10.6 )        21  %
Acquisitions                           -           1.6        (100 )%           -          1.6        (100 )%
Appreciation and other              50.9          23.4         118  %        78.1         47.5          64  %
Ending AUM                     $   725.7      $  703.5           3  %   $   725.7     $  703.5           3  %

Components of the change in our AUM by investment objective were as follows:

(in billions)                    Equity                                         Fixed-Income
for the three months                                                               Taxable        Taxable
ended                      Global/        United                                   Global/         United         Cash
March 31, 2012          International     States      Hybrid      Tax-Free      International      States      Management       Total
AUM at January 1,
2012                   $       194.5     $  75.7     $  96.4     $    74.1     $       174.7     $   48.9     $      6.0      $ 670.3
Long-term sales                 11.6         4.9         5.5           3.8              18.2          4.5              -         48.5
Long-term
redemptions                    (11.2 )      (4.9 )      (3.5 )        (2.3 )           (17.6 )       (3.2 )            -        (42.7 )
Net exchanges                   (0.2 )       0.2         0.2             -              (0.1 )        0.1           (0.2 )          -
Net cash management                -           -           -             -                 -            -           (0.2 )       (0.2 )
Net new flows                    0.2         0.2         2.2           1.5               0.5          1.4           (0.4 )        5.6
Reinvested
distributions                    0.1           -         1.0           0.6               1.1          0.4              -          3.2
Net flows                        0.3         0.2         3.2           2.1               1.6          1.8           (0.4 )        8.8
Distributions                      -           -        (1.1 )        (0.8 )            (1.9 )       (0.5 )            -         (4.3 )
Appreciation and
other                           21.4         7.8         5.0           1.9              13.4          1.3            0.1         50.9
AUM at March 31,
2012                   $       216.2     $  83.7     $ 103.5     $    77.3     $       187.8     $   51.5     $      5.7      $ 725.7


(in billions)                    Equity                                         Fixed-Income
for the three months                                                               Taxable        Taxable
ended                      Global/        United                                   Global/         United         Cash
March 31, 2011          International     States      Hybrid      Tax-Free      International      States      Management       Total
AUM at January 1,
2011                   $       219.1     $  77.0     $ 106.1     $    71.4     $       144.7     $   45.9     $      6.5      $ 670.7
Long-term sales                 14.6         6.5         5.9           2.1              22.0          4.5              -         55.6
Long-term
redemptions                    (19.1 )      (4.6 )      (4.0 )        (4.6 )           (10.6 )       (3.5 )            -        (46.4 )
Net exchanges                   (0.2 )       0.5         0.6          (1.0 )             0.3         (0.4 )          0.2            -
Net cash management                -           -           -             -                 -            -           (0.8 )       (0.8 )
Net new flows                   (4.7 )       2.4         2.5          (3.5 )            11.7          0.6           (0.6 )        8.4
Reinvested
distributions                    0.2           -         0.8           0.5               0.9          0.3              -          2.7
Net flows                       (4.5 )       2.4         3.3          (3.0 )            12.6          0.9           (0.6 )       11.1
Distributions                   (0.1 )         -        (1.1 )        (0.8 )            (0.9 )       (0.4 )            -         (3.3 )
Acquisitions                     1.6           -           -             -                 -            -              -          1.6
Appreciation
(depreciation) and
other                            9.3         4.1         5.1          (0.1 )             4.2          0.7            0.1         23.4
AUM at March 31,
2011                   $       225.4     $  83.5     $ 113.4     $    67.5     $       160.6     $   47.1     $      6.0      $ 703.5

AUM increased $55.4 billion or 8% during the quarter ended March 31, 2012, driven by market appreciation of $50.9 billion and net new flows of $5.6 billion. Overall positive returns in global markets during the quarter, evidenced by increases in the MSCI World Index of 12% and the S&P 500 Index of 13%, resulted in market appreciation for all investment objectives. The net

new flows were driven primarily by U.S. fixed-income and hybrid products. Long-term sales decreased 13% to $48.5 billion and long-term redemptions decreased 8% to $42.7 billion as compared to the prior-year period. Ongoing investor concerns related to the European sovereign debt crisis and the strength of the global economic recovery contributed to the lower sales and the level of long-term redemptions, most notably in our global/international fixed-income and equity products.
AUM increased $32.8 billion or 5% during the quarter ended March 31, 2011, driven by market appreciation of $23.4 billion and net new flows of $8.4 billion. Overall positive returns in global markets during the quarter, evidenced by increases in the MSCI World Index of 5% and the S&P 500 Index of 6%, resulted in market appreciation for all investment objectives with the exception of tax-free fixed income. Net new flows were driven by long-term sales of $55.6 billion, primarily of global/international fixed-income and equity products, largely offset by long-term redemptions of $46.4 billion. The redemptions reflected market volatility and investor concerns about default risk with municipal bonds, and included losses of a few global equity institutional accounts during the quarter. The global/international equity objective added $1.6 billion of AUM from acquisitions during the quarter.

(in billions)                        Equity                                         Fixed-Income
                                                                                       Taxable        Taxable
for the six months ended       Global/        United                                   Global/         United         Cash
March 31, 2012              International     States      Hybrid      Tax-Free      International      States      Management       Total
AUM at October 1, 2011     $       185.8     $  68.4     $ 101.3     $    72.0     $       178.8     $   46.9     $      6.7      $ 659.9
Long-term sales                     21.4         8.6         9.6           6.6              32.4          8.1              -         86.7
Long-term redemptions              (21.6 )      (9.2 )     (18.6 )        (4.5 )           (35.3 )       (6.5 )            -        (95.7 )
Net exchanges                       (0.9 )       0.3         0.3           0.2              (0.6 )        0.8           (0.1 )          -
Net cash management                    -           -           -             -                 -            -           (1.0 )       (1.0 )
Net new flows                       (1.1 )      (0.3 )      (8.7 )         2.3              (3.5 )        2.4           (1.1 )      (10.0 )
Reinvested distributions             1.6         1.3         2.2           1.2               3.4          0.8              -         10.5
Net flows                            0.5         1.0        (6.5 )         3.5              (0.1 )        3.2           (1.1 )        0.5
Distributions                       (1.8 )      (1.4 )      (2.5 )        (1.6 )            (4.5 )       (1.0 )            -        (12.8 )
Appreciation and other              31.7        15.7        11.2           3.4              13.6          2.4            0.1         78.1
AUM at March 31, 2012      $       216.2     $  83.7     $ 103.5     $    77.3     $       187.8     $   51.5     $      5.7      $ 725.7


(in billions)                    Equity                                         Fixed-Income
for the six months                                                                 Taxable        Taxable
ended                      Global/        United                                   Global/         United         Cash
March 31, 2011          International     States      Hybrid      Tax-Free      International      States      Management       Total
AUM at October 1,
2010                   $       204.2     $  69.5     $ 110.8     $    77.7     $       130.7     $   45.4     $      6.6      $ 644.9
Long-term sales                 30.2        10.8        11.0           5.2              45.5          7.8              -        110.5
Long-term
redemptions                    (33.7 )      (8.4 )     (19.8 )        (8.8 )           (22.1 )       (6.4 )            -        (99.2 )
Net exchanges                    0.2         0.7         0.9          (1.9 )             1.8         (0.6 )         (1.1 )          -
Net cash management                -           -           -             -                 -            -            0.3          0.3
Net new flows                   (3.3 )       3.1        (7.9 )        (5.5 )            25.2          0.8           (0.8 )       11.6
Reinvested
distributions                    1.8         1.1         1.9           1.0               2.1          0.6              -          8.5
Net flows                       (1.5 )       4.2        (6.0 )        (4.5 )            27.3          1.4           (0.8 )       20.1
Distributions                   (2.3 )      (1.1 )      (2.5 )        (1.6 )            (2.3 )       (0.8 )            -        (10.6 )
Acquisitions                     1.6           -           -             -                 -            -              -          1.6
Appreciation
(depreciation) and
other                           23.4        10.9        11.1          (4.1 )             4.9          1.1            0.2         47.5
AUM at March 31,
2011                   $       225.4     $  83.5     $ 113.4     $    67.5     $       160.6     $   47.1     $      6.0      $ 703.5

AUM increased $65.8 billion or 10% during the six months ended March 31, 2012 due to market appreciation of $78.1 billion, partially offset by net new outflows of $10.0 billion. Strong positive returns in global markets during the six months, evidenced by increases in the MSCI World Index of 20% and the S&P 500 Index of 26%, resulted in market appreciation for all investment objectives. Long-term sales totaled $86.7 billion, a 22% decrease from the prior year, primarily due to decreases in global/international fixed-income and equity products. Long-term redemptions decreased 4% to $95.7 billion, with decreases in global/international equity and tax-free fixed income products, partially offset by an increase in global/international fixed-income products as a result of ongoing investor concerns related to the European sovereign debt crisis. Redemptions also included $11.1 billion from an institutional advisory account in the hybrid objective.

AUM increased $58.6 billion, or 9%, during the six months ended March 31, 2011 due to market appreciation of $47.5 billion and net new flows of $11.6 billion. Overall positive returns in global markets during the six months, evidenced by increases in the MSCI World Index of 14% and the S&P 500 Index of 17%, resulted in market appreciation for all investment objectives with the exception of tax-free fixed income. The net new flows were driven by strong sales of global/international fixed-income products, partially offset by a high level of redemptions that reflected market volatility and investor concerns about default risk with municipal bonds. Redemptions also included $12.0 billion from an institutional advisory account in the hybrid objective and losses of a few global equity institutional accounts.
The average mix of AUM by sales region is shown below.

                                    Three Months Ended                            Six Months Ended
                                         March 31,               Percent              March 31,             Percent
(dollar amounts in billions)         2012            2011         Change          2012          2011        Change
United States                  $    460.0         $  458.3           0  %     $    450.9     $  450.8          0  %
International
Europe, the Middle East and
Africa                              113.1            106.7           6  %          111.0        101.8          9  %
Asia-Pacific                         74.7             63.5          18  %           73.9         61.9         19  %
Canada                               32.5             34.5          (6 )%           31.7         33.7         (6 )%
. . .