Gregory Eugene Johnson - Chief Executive Officer, President, Director and Member of Special Equity Awards Committee Christopher James Molumphy - Chief Executive Officer of Investment Management and President of Investment Management Kenneth Allan Lewis - Chief Financial Officer, Principal Accounting officer and Executive Vice President

Welcome to Franklin Resources Earnings Commentary for the Quarter Ended March 31, 2013. Statements made in this commentary regarding Franklin Resources Inc., which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. This commentary was prerecorded.

Hello, and welcome to our second quarter earnings commentary. I'm Greg Johnson, CEO, and I'm joined by Ken Lewis, our CFO; and Chris Molumphy, Chief Investment Officer of the Franklin Templeton Fixed Income Group. We're pleased to report another quarter of strong results. There are a number of positive developments in the quarter, particularly the strongly rebound in flows. Long-term sales increased 29% due in large part to a record-setting month in January for U.S. sales, as well as a strong rebound in international sales that represented their best quarter ever. Meanwhile, redemptions eased 9%, resulting in a significant increase in long term net new flows to $18.6 billion. Importantly, investment performance remains strong across the company with the majority of assets ranked in the top half of their peer group over all major time periods. Equity performance also improved, particularly Templeton and Mutual Series. It was another strong quarter for operating results as well, led by new highs for operating income, net income and earnings per share. Turning to Slide 6 of the presentation, relative investment performance of our U.S. retail fund range is strong across all time periods. Templeton and Mutual Series equity performance had the biggest improvement in performance since last quarter, which is important given the increase in demand for global equities from investors. Tax-free fixed income was the only category that experienced a material decline in relative performance this quarter. While certain riskier sectors in the muni bond market as a whole outperformed, particularly leveraged and high-yield bonds, our muni funds have limited exposure to these sectors. The overall strategy, which tends to be more conservative, avoids these types of assets. Our funds do rank highly in terms of income return, which is typically what our investors are looking for. Assets under management ended the…

Absolutely. Our fixed income portfolio is not typical by any means, particularly with respect to U.S. interest rate risk. Specifically, a little over half of our fixed income assets are in global and international bond strategies, with the vast majority of these being in our flagship Global Bond Funds. Now looking at the global bond strategy, the overall duration is roughly 1.5 years. So this is considerably lower than the traditional global indices. Both the Global Bar Cap Agg, as well as a the WGBI have durations, to give you an idea, in excess of 6 years. Now furthermore, the global bond strategy has 0 exposure to U.S. Treasuries. And in fact, effectively no U.S. duration weighting at all. So with respect to rising U.S. interest rates, the global bond assets are extremely well positioned. Now looking at our domestic fixed income assets, roughly half of these assets are in various funds, in strategies that are primarily balanced in multi-sector portfolios, with a large weighting in high-yield corporate bonds, but as well, an overweight in floating rate bank loans and adjustable rate mortgage-backed securities. Now this combined with a significant underweight in U.S. Treasuries puts our average duration for this block of assets against significantly lower than both peer group as well asked traditional indices. In this case, the Bar Cap Agg, to give you an idea, has an average duration of slightly over 5 years. Lastly, the remaining piece of our fixed income asset mix is made up of municipals. Now this asset class does have U.S. interest rate exposure, given the longer maturity nature of the asset class. Our average fund duration is a little over 5 years, and that's roughly in line with the peer group. Now it's worth noting that investors here tend to be income oriented, viewing the tax advantage nature of that income as quite important, and somewhat less total return focused. So in summary, due to our asset mix, with a heavy skew toward global and international bonds, combined with our positioning, our exposure to U.S. interest rates is significantly less than both peer group as well as the overall market.

Thanks for that update, Chris. Another element of the company that may be underappreciated is the diversity of our historical growth. Slide 13 is relatively new, but it illustrates a few key points that I'd like to touch on quickly. Over the past 16-plus years, we have experienced far more once-in-a-lifetime market shocks than one might have imagined. Over that same period, we've had cumulative net new flows of more than $200 billion and an average annual premarket organic growth rate of 3.5%, which compares favorably to the industry average. As our business has evolved and our diversification strengthened, we experienced less than a 1.5% premarket organic net asset attrition in fiscal 2008, during the depths of the global financial crisis. You may recall, just prior to that, our AUM was 60% equity. So having a strong fixed income business, which was underappreciated by most observers up to that point, has been a key strength to our success in recent years. Also shown on this slide are the top-selling funds each year, shaded by investment objective. As you can see, flow rotation is not a new phenomenon. Over the years, investor preference has shifted and our diverse offerings have resonated. Whether it was our tech-oriented Small Cap Growth Fund at the turn of the millennium or our more conservative styles after the TMT bubble burst, our diversified investment options have been a key strength of the organization. Now I'd like to turn it to Ken for operating results.

Thanks, Greg, and good morning. Quarterly operating results continue to improve due to the strong growth in assets under management that Greg highlighted. Operating income was $729 million, up 6% for the quarter as revenue growth outpaced expense growth despite the seasonal headwinds during the quarter. Net income increased 11% to $573 million and earnings per share was $2.69. Now investment management fees were almost $1.3 billion, an increase of 6% from last quarter, due to the higher average assets under management, a full quarter of consolidating K2 and a positive mix shift in assets to higher fee products. That was partially offset by 2 less days in the quarter and a slightly lower performance fees of only $2 million. Sales and distribution fees also increased 6% due to the strong global sales and the growth in assets; and similar to management fees, the shorter quarter also impacted the asset base component of these fees. Shareholder servicing fees were up 3% at $76.6 million, due to the increase in the number of billable accounts and the mix shift in open and closed accounts. And other net revenue was $26.8 million, about $22 million was from interest and dividend income of consolidated investment products. On Slide 17, sales distribution and marketing expense was $781 million for the quarter, over half of the increase is due to the asset base expense growth, which typically outpaces revenue growth during the March quarter. And this is due to the relationship between the revenue and expense, as revenue was primarily dependent on the number of days in the quarter, while expenses accrue on a monthly basis. More details are available in our Form 10-Q that was filed this morning. Compensation and benefits expense increased by 6% due mostly to increased salary and wages, including a…