Greg Johnson - Chief Executive Officer Ken Lewis - Chief Financial Officer

Hello. And thank you for listening to our fourth quarter and fiscal year earnings commentary.

I'm Greg Johnson, CEO; and, I'm joined by Ken Lewis, our CFO. Importantly, overall long-term relative investment performance of U.S.

and cross-border funds remained strong across equity, hybrid, and fixed income strategies. Stronger net new flows into fixed income products and ongoing organic growth of hybrid and income funds were essentially offset by outflows from some of our equity products.

Financial results ended the fiscal year on a high note, with quarterly and fiscal year record highs for revenue, operating income, and net income. On the capital management front, cumulative share repurchases and dividends for the fiscal year were just shy of $1 billion.

During the quarter, we also completed a multi-year effort to deregister as a bank holding company with the Federal Reserve, while preserving limited trust and fiduciary activities for our high net worth clients. As slide six illustrates, long-term relative investment performance of our U.S.

retail and cross-border funds remained strong. Hybrid and global fixed income strategies in particular have done well with top quartile performance across most funds and time periods.

In fact, both the Templeton Global Bond and Templeton Global Total Return Funds were recently awarded a Five Star rating by Morningstar in the U.S. Assets under management ended the quarter at $898 billion, down 2% from June, 30, reflecting the market pullback that happened at quarter end.

Average AUM on the other hand increased 1% to $912 billion. This quarter, there was a slight shift towards fixed income in the U.S.

sales region, but we remained well-diversified by investment objectives, sales region, and client type. This quarter, we experienced lower long-term sales, not unlike the general industry trend and a slight increase in long-term redemptions, resulting in long-term net new outflows $800 million, inclusive of a discrete high net worth redemption that I will touch on.

A significant portion of these outflows were offset by exchanges and flows into cash management products, leading to nearly a breakeven net new flows for the quarter. Market depreciation and the impact of foreign exchange revaluation on non-USD-based products decreased AUM by $21 billion this quarter.

Retail flows turned negative again this quarter due to lower sales activity, which is consistent with industry trends to the positive retail redemptions continued to improve U.S. retail, which was impacted by equity outflows slipped into slight outflows overall despite improved global and tax-free fixed income flows.

International retail outflows increased modestly as continued improvement in Europe was offset by lower sales and increased redemptions from Asia. Institutional had a solid quarter driven by an increase in international flows, particularly from Europe where we had a $1 billion mandate fund this quarter, which helped to offset a couple of lumpy redemptions from international clients, also totaling $1 billion.

On last quarter’s call, I mentioned that we anticipated three mandates of approximately $1 billion to fund over the second half of the calendar year. Of those three, only one mandate actually funded over the past quarter.

Overall, our institutional business had a strong year with much of the success due to the growth of the institutional pooled vehicles 3(c)(7) and 3(c)(11), which was a strategy we continue to broaden. These vehicles allow clients to not qualify for their own separate accounts to obtain institutional pricing for smaller accounts.

Not illustrated on slide 11 are flows from high net worth clients, which experienced about $800 million of outflows this quarter. Roughly $500 million of that was redeemed from a tax-free fixed income portfolio by a client for state planning purposes.

Moving to flows by investment objective, global fixed income continued to improve attracting $2.5 billion of net new flows. Top quartile performance in our efforts to promote the unconstrained nature of our flagship global bond funds are beginning to pay off with the U.S.

and cross-border versions of the Templeton Global Bond Fund and Total Return funds returning to inflows for the first time in over a year. Global equity flows on the other hand were weaker this quarter.

The most of the delta can be attributed to three large institutional redemptions, totaling $1.3 billion. On the retail side, global equity was impacted by redemptions across funds with either a focus or heavy weighting in Europe, as investors were concerned about the European economy.

On the positive side, the cross-border Franklin India Fund had another solid quarter due to inflows from the Chilean pension system, which also reinvested into the cross-border Templeton Asian Growth Fund this quarter. The Asian Growth Fund has historically been a significant driver of global equity flows from our international clients and returned to inflows this quarter after four consecutive quarters in redemptions.

Although the majority of these sales continue to come from South America, flows have also been coming from more developed market such as France, Poland, and Germany, showing the effectiveness of our international campaign focused on emerging market strategies. U.S.

equity outflows also increased on lower sales and higher redemptions. We did see solid inflows into our small cap fund as well as positive flows, the popular rising dividends fund, but did experience over $900 million in outflows from our cross-border biotech fund.

They contributed to much of the outflows this quarter. Hybrid flows remained solid with the U.S.

and cross-border versions of the Franklin income fund accounting for about $1.8 billion of net new flows this quarter. The cross-border version generated particular interest in Taiwan, Hong Kong, and Italy sales regions, and the global income fund continued to attract very strong inflows.

In fact, our various hybrid strategies attracted $10 billion of net new flows during the past fiscal year. Overall, tax-free fixed income remained in outflow this quarter, as investor preference remains focused on short and intermediate duration in higher yield strategies.

However, net new outflows from our funds improved again this quarter when adjusted for the high net worth redemption noted earlier. U.S.

taxable fixed income continued to generate slightly positive net inflows, with the U.S. and cross-border versions of the unconstrained Franklin strategic income fund representing our top sellers this quarter.

We did see decreased interest in our floating rate funds as investors became vary of reduced spreads on high-yield bonds. Before I turn it over to Ken, I’d like to discuss a few developments on our international growth.

Sweden, United Kingdom, Australia, and India combined, generated about $6 billion in net flows this year. In South Africa, our Shariah and Sukuk funds have been approved by the local regulator and are designated to launch in November.

I’d now like to turn it over to Ken to discuss financial results.

Thanks, Greg. I’m pleased to report to you a record revenue, operating, and net income.

Fiscal year operating income topped $3 billion for the first time and was up 10% over the prior year, while net income increased 11%. Diluted earnings per share of $3.79, increased 12% from last year, outpacing net income due to our continued repurchase activity, which has continued to exceed grant issuance and steadily decrease shares outstanding.

We also had record revenue, operating income, and net income for the quarter. Diluted earning per share was $1.02 and net income was $641 million, both up 11% from the prior quarter.

Now, taking a look at revenues for the quarter, Investment management fees increased 3% which was above the growth in average assets under management due to an additional day in the quarter, and $12.4 million in performance fees. Sales and distribution fees were $627 million, a decline from last quarter due to several moving parts, the most significant being lower sales and a decrease in the sales-based fees.

The asset base component increased due to the longer quarter and higher assets. However, much of that was offset by an accounting classification of rebates from sales and distribution expense to investment management fees and sales and distribution fees.

This decreased investment and management fees by $2.7 million and sales and distribution fees by $5 million. For more information, the appendix on slide 27 breaks down asset and sales-based distribution fees on both the net and absolute basis as the 10-K will not be available until mid November.

Moving on, shareholder servicing fees were $68.3 million, a slight decrease and consistent with the typical seasonal patterns following the purge of U.S. closed accounts in July, that I discussed last quarter.

And other net revenue was $29 million this quarter. Total expenses for the quarter decreased 2%, which is better than what we’re expecting even after normalizing for some accounting adjustments and one-time items that I will explain.

Sales distribution and marketing expense decreased 4% this quarter, which was a slightly larger decrease in the associated revenue due to an adjustment to an accrual recognized in the prior quarter and the reclassification of rebates that I mentioned. Combined fourth quarter sales and distribution expense was lower by about $14 million from these accounting items.

Compensation and benefits expense decreased this quarter to $366 million, due to lower fixed and variable compensation. Information systems and technology expense increased 12% over the prior quarter due to a seasonal increase in technology, typical of the fourth quarter that was larger than we expected.

Occupancy expense was $36.7 million this quarter, an 8% increase due primarily to expenses related to the required restoration of two leased global office spaces that we are vacating. General, administrative and other expense was $101 million this quarter and although this line can exhibit a bit of seasonality in the fourth quarter, there also tends to be lumpier one-time expenses such as those we experienced this quarter.

During the quarter, one of Darby’s private equity funds, which we consolidate, recognized a gain of $16.9 million on the sale of a portfolio investment, which triggered carried interest payments of $22.8 million. Now because of funds consolidated that carried interest is not included in reported revenue, however, we did recognize about $13 million of related expense as 50% of the carried interest we shared with the team and the fund also had to expense $1.7 million of legal and professional fees associated with the transaction.

So this resulted in an increased compensation and benefit expense of $3.8 million, and G&A expense of $9.3 million. Although the consolidation accounting for this event created some noise and decreased GAAP operating income and the margin, the net impact which included a realized gain of $16.9 million in other income carried interest expense and a non-controlling interest component increased net income by about $12 million.

Turning to slide 20, the operating margin this fiscal year was almost 38%, which reflects the growth and profitability we saw this year. Importantly, as we continue to effectively build scale in key markets, revenue has grown faster than expenses.

In fact, we now have 18 countries and regions with over $5 billion in assets under management. The fiscal year tax rate was 29.3%, which was a little lower than what I had previously guided due to an increase in income attributable to non-controlling interests as well as a decrease in various state taxes.

Other income, net of non-controlling interest was $58 million this quarter. Slide 21 does a good job of illustrating the key components, but I will touch on a few .

Gains on available-for-sale investments were $19.2 million. As you may recall, we hold a significant amount of offshore cash in U.S.

dollars. Due to the strengthening dollar in the quarter, we had about $44 million of unrealized foreign exchange gains from entities with the functional currency other than the U.S.

dollar. This is offset on the balance sheet via other comprehensive income.

And finally, consolidated sponsored investment product losses of $4.8 million were net of the $16.9 million Darby Private Equity investment gain I already highlighted. Looking now at capital management, we continue to buyback share systematically, but once again, there were few opportunities for more opportunistic repurchases this quarter.

In total, we repurchased 3.2 million shares at a cost of $178 million, almost a 40% increase from last quarter. And for the fiscal year, we repurchased 11.5 billion shares at a cost of $622 million which decreased average shares outstanding by 8.9 million shares.

The total payout for the quarter including dividends was $253 million. The fiscal year payout was $923 million and the company has paid out about $7 billion since the first quarter of 2009, reflecting our commitment to long-term shareholder return.

Net cash and investments grew to $9.2 billion this quarter and is predominantly non-U.S. cash and investments.

Net cash and investments in the U.S. also increased this year due to the lower level of opportunistic share repurchases that I just mentioned, higher domestic seed capital requirements, and building liquidity in anticipation of an upcoming debt maturity.

So that ends our prepared remarks and we look forward to the live call later today.