~~Regulatory Considerations~~

REGULATORY CONSIDERATIONS

We are subject to extensive regulation. Virtually all aspects of our business are subject to various federal, state, and international regulation and supervision ~~which~~that continue to change and evolve over time. Consequently, there is uncertainty associated with the regulatory environments in which we operate.

~~U.S. Regulation~~

In the U.S., we are currently subject to regulation and supervision by, among others, the SEC, FINRA, the Board of Governors of the Federal Reserve System (the “FRB”), the FDIC, the Office of the Comptroller of the Currency (“OCC”), the CFTC, the National Futures Association and the New York State Department of Financial Services (“NYDFS”).

The regulatory environments in which we operate remain uncertain and subject to change. The Dodd-Frank Act, as well as other legislative and regulatory changes, impose additional restrictions and limitations on us and will likely result in increased scrutiny and oversight of our financial services and products. Due to the complexity and broad scope

1412

Table of Contents

~~of the Dodd-Frank Act~~U.S. Regulation

We are subject to federal and state laws that include U.S. federal securities laws, state securities and corporate laws, and the ~~time required for ongoing~~rules and regulations promulgated by certain regulatory ~~implementation,~~and self-regulatory organizations such as the SEC and the NYSE. As a U.S. reporting company, we are ~~not able~~subject to predict at this time all of the specific requirements that will be adopted by regulatory agencies having authority over us pursuant to the Dodd-Frank Act, or the impact that further changes in regulation would have on our business. Under the Dodd-Frank Act, which imposes a number of new regulations governing over-the-counter swapsvarious securities, compliance, corporate governance and derivative transactions, certain swaps will be required to be submitted for clearing by a regulated clearing organization, and the posting of margin will be required for uncleared swaps. 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. The so-called “Volcker Rule” provisions of the Dodd-Frank Act restrict the ability of affiliates of insured depository institutions, such as Franklin, to sponsor or invest in private funds or to engage in certain types of proprietary trading. While the Volcker Rule became effective on July 21, 2012, final rules for its implementation have not yet been adopted. On April 19, 2012, the FRB issued a Statement of Policy that confirmed that banking institutions will have two years from the effective date to conform their activities to the requirements of the Volcker Rule. In addition to the rulemaking mandated by the Dodd-Frank Act,disclosure rules adopted by the ~~CFTC in 2012 removed or limited previously available exemptions~~SEC. We are also subject to various other federal and ~~exclusions from registration~~state laws, including those affecting corporate governance and ~~regulation~~disclosure, such as the U.S Securities Act of 1933, the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and the USA Patriot Act of 2001. As a ~~commodity pool operator and commodity trading advisor on which~~NYSE-listed company, we ~~had relied, resulting in~~are also subject to the ~~imposition of additional registration, disclosure, recordkeeping and reporting requirements for operators of~~NYSE listing standards.

As a global investment management organization, certain of our ~~registered mutual funds~~subsidiaries are also subject to the rules and regulations promulgated by the SEC, FINRA, the U.S. Commodity Futures Trading Commission (“CFTC”), the National Futures Association, the U.S. Department of Treasury and the U.S. Department of Labor (“DOL”), and to various securities, compliance, corporate governance, disclosure, privacy, anti-money laundering, anti-terrorist financing, and economic, trade and sanctions laws and regulations, both domestically and internationally. Given our global operations, we are also subject to securities laws and other ~~pooled vehicles that use or trade in futures, swaps~~laws of various non-U.S. jurisdictions and ~~other derivatives considered commodity interests and regulated~~to regulation by the CFTC. On August 13, 2013, the CFTC adopted rules for operators of registered mutual funds that are subject to registration as commodity pool operators, in which the CFTC generally will accept such commodity pool’s compliance with SEC disclosure, reporting and recordkeeping rules as substituted compliance for substantially all of the CFTC’s related requirements. However, these CFTC rules do not relieve registered commodity pool operators from compliance with certain performance reporting and recordkeeping requirements, which will increase administrative burdens for the affected registered mutual funds and commodity pool operators.non-U.S. regulators. In ~~addition, the SEC has developed proposals for stricter regulation of money market funds that could significantly change the structure and~~some cases, our non-U.S. operations ~~of those funds.~~

Wemay also expect that FATCA will cause us to incur significant administrative and compliance costs. FATCA, which is intended to address tax compliance issues related to U.S. taxpayers holding non-U.S. accounts, will impose customer due diligence, reporting and withholding requirements on certain non-U.S. financial institutions. In order to implement FATCA globally, the U.S. Treasury has entered into various intergovernmental agreements (“IGAs”) with foreign governments, and is expected to enter into further IGAs. These IGAs take~~alternative approaches to implement FATCA that also may impact our business. Full implementation of FATCA and related IGAs will~~ be ~~phased in over a multi-year period, and additional guidance is expected over time.~~

~~To the extent that our operations or trading in our securities take place outside the U.S., we are~~ subject to regulation by ~~non-U.S. regulations and regulators, as well as certain~~ U.S. ~~regulations and~~ regulators, such as the Department of Justice, the CFTC and the SEC (for example with respect to the Foreign Corrupt Practices Act of ~~1977. It is likely that~~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 where our investment management services and products are offered. Further, we are also subject to the laws and regulations of states and other ~~U.S. regulations, notably those~~jurisdictions regarding the reporting and escheatment of unclaimed or abandoned property.

Certain of our subsidiaries are registered with the SEC under the Advisers Act, the CFTC ~~and~~and/or licensed by various non-U.S. regulators. In addition, many of our funds are registered with the SEC under the ~~Dodd-Frank~~Investment Company Act ~~discussed above, will also affect some of our~~or other non-U.S. ~~operations.~~

laws. These registrations, licenses and authorizations impose numerous obligations, as well as detailed operational requirements, on such subsidiaries and such funds. The Advisers Act imposes numerous obligations on ~~certain of~~ our ~~subsidiaries~~ registered ~~with the SEC as~~ investment ~~advisers,~~adviser subsidiaries, including record keeping, operating and marketing requirements, disclosure obligations and prohibitions on fraudulent activities. The Investment Company Act imposes similar obligations on the registered investment companies ~~that are~~ advised by our subsidiaries. The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act and the Investment Company Act, ranging from fines and censure to termination of an investment adviser’s registration.

~~The Company and many of the investment companies advised by our various~~ Our subsidiaries are subject to federal securities laws and state securities and corporate laws, including those affecting corporate governance, such as the Sarbanes-Oxley Act of 2002 and rules adopted by the SEC. As a NYSE-listed company, we aremust also ~~subject to the rules of the NYSE, including its corporate governance standards. The federal securities laws have also been augmented by other measures, including the USA Patriot Act of 2001.~~comply with complex tax regimes.

FINRA Conduct Rules limit the amount of aggregate sales charges that may be paid in connection with the purchase and holding of investment company shares sold through ~~broker/dealers.~~broker-dealers. The effect of the rule is to limit the amount of fees that could be paid pursuant to a fund’s Rule 12b-1 Plan to FTDI, our principal sales and distribution

~~Table of Contents~~

subsidiary in the U.S., which earns distribution fees on the distribution of fund shares in the U.S. In 2010, the SEC proposed changes to Rule 12b-1 which, if adopted, could limit our ability to recover expenses relating to the distribution of our funds.

In ~~addition,~~April 2016, the DOL issued a new fiduciary rule that will subject financial professionals who provide investment advice to certain U.S. retirement clients to a new fiduciary duty intended to address conflicts of interests. We believe that the rule could significantly impact the ability of financial professionals to provide investment advice and recommendations for retirement accounts about funds for which they receive a fee from the fund or its affiliates. This rule may impact the compensation paid to the financial intermediaries who sell our funds to their retirement clients and may negatively impact our business. Implementation of the rule will be phased in ~~connection with our banking services, we~~beginning in April 2017, and will generally become fully effective in January 2018.

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 ~~a bank holding company and a financial holding company~~ subject to ~~the~~ supervision and regulation by the Board of Governors of the ~~FRB~~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 restrictions, limitations and prohibitions of the BHC Act, as amended by the GLB Act. Significant aspects of the Dodd-Frank Act relate to changes in the regulation of banks, thrifts, holding companies and related institutions, and the imposition of various restrictions and limitations on certain activities of such entities. The Dodd-Frank Act includes a number of measures that will increase capital and liquidity requirements, impose limits on leverage, subject dividend payments, stock buybacks and other reductions of capital to heightened regulatory limitations and scrutiny, and enhance supervisory authority and regulatory oversight of non-banking entities, which may apply to our business.

FRB policy historically has required bank holding companies to act as a source of strength to their banking subsidiaries and to commit capital and financial resources to support those subsidiaries. The Dodd-Frank Act codified this policy as a statutory requirement. Such support may be required by the FRB at times when we might otherwise determine not to provide it if such support were not required by law. In addition, under FRB policy bank holding companies should pay cash dividends on common stock only out of income available from the previous fiscal year and only if prospective earnings retention is consistent with anticipated future needs and financial condition.

The federal banking agencies apply risk-based and leverage capital rules to evaluate the capital adequacy of bank holding companies, such as Franklin, and insured depository institutions, such as our banking subsidiaries Fiduciary Trust and FTB&T. The FRB’s capital adequacy rules applicable to Franklin, the FDIC’s capital adequacy rules applicable to Fiduciary Trust, and the OCC’s capital adequacy rules applicable to FTB&T are substantially the same. The banking agencies’ existing capital rules require Franklin and each of its banking subsidiaries to meet specific capital adequacy requirements that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

~~Under the existing rules, Franklin and each of its banking subsidiaries must maintain minimum Tier 1 leverage and risk-based capital ratios of~~ 4% ~~and a minimum total risk-based capital ratio of~~ 8%. An insured depository institution is undercapitalized if it fails to meet the required minimum level for any relevant capital measure. Insured depository institutions such as our banking subsidiaries generally are prohibited from making capital distributions, including paying dividends, or paying management fees to a holding company if the institution would thereafter be undercapitalized. Moreover, undercapitalized institutions may not accept, renew or roll over brokered deposits. Bank regulators are required to take prompt corrective action to resolve any problems associated with insured depository institutions if they become undercapitalized. The GLB Act, however, generally prohibits the FRB from imposing similar capital requirements on regulated non-bank subsidiaries of a financial holding company.

To be considered “well capitalized” under the Federal Reserve’s existing rules applicable to bank holding companies, a bank holding company must maintain a minimum Tier 1 risk-based capital ratio of 6% and a minimum total risk-based capital ratio of 10%. To be considered “well capitalized” under the federal banking agencies’ current prompt corrective action rules applicable to depository institutions, Fiduciary Trust and FTB&T must each maintain the same minimum Tier 1 risk-based capital ratio of 6% and minimum total risk-based capital ratio of 10%,FSB, as well as ~~a minimum Tier 1 leverage ratio~~other global regulators, are considering what threats to U.S. and global financial stability, if any, arise from asset management companies and/or the funds that they 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 ~~5%.~~

In July 2013, the federal banking agencies adopted new capital rules to implement the Basel Committee's capital framework, known as “Basel III”, for U.S. bank holding companies and banks. When fully effective, Basel III will impose a number of other changes to existing capital rules, including replacing the risk-weightings under the existing general risk-based capital rules with new risk-weightings (referred to in the new capital rules as the “standardized approach”). The new capital rules will become effective for Franklin, Fiduciary Trust and FTB&T on January 1, 2015 (subject to certain phase-in periods through January 1, 2019).

~~As of~~ ~~September 30, 2013, under existing rules, Franklin's Tier 1 leverage and risk-based capital ratios and its total risk-based capital ratio all were~~ ~~58%. In addition, both Fiduciary Trust and FTB&T were well capitalized as of~~ ~~September 30, 2013. We believe that our capital ratios calculated in accordance with the new capital rules on a fully phased-in basis substantially exceed the minimum required ratios as of September 30, 2013.~~

1613

Table of Contents

Franklin has elected to be a financial holding company under the GLB Act. Pursuant to the GLB Act, a qualifying bank holding company may elect to become a financial holding company to engage in a broader range of activities thatour funds are financial in nature, including securities underwriting, dealing and market making, securitizing assets, sponsoring mutual funds and investment companies, engaging in insurance underwriting and brokerage activities and investing (without providing routine management) in companies engaged in non-financial activities. To qualifydesignated as a ~~financial holding company, each of a bank holding company’s U.S. subsidiary banks~~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 ~~other depository institution subsidiaries must be well capitalized and well managed.~~ certain risk management requirements, could impact our business.

The Dodd-Frank Act, ~~added~~as well as other legislative and regulatory changes, impose other restrictions and limitations on us, resulting in increased scrutiny and oversight of our financial services and products. We continue to analyze the ~~condition that~~impact of the ~~bank holding company itself must~~Dodd-Frank Act as further implementing rules are adopted and become effective. Under the Dodd-Frank Act, which imposes a number of new regulations governing derivative transactions, certain categories of swaps are currently required, and further categories of swaps are likely to be ~~well capitalized~~required, to be submitted for clearing by a regulated clearing organization and ~~well managed.~~reported on a swap execution facility, and the posting of collateral will be required for uncleared swaps. 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 ~~each such subsidiary must~~to the rulemaking mandated by the Dodd-Frank Act, rules adopted by the CFTC have ~~achieved at least~~removed or limited previously available exemptions and exclusions from registration and regulation as a ~~“satisfactory” rating under the Community Reinvestment Act (“CRA”)~~commodity pool operator and commodity trading advisor on which we had relied, resulting in the ~~evaluation immediately preceding~~imposition of either additional registration, disclosure, reporting and recordkeeping requirements or more stringent requirements to comply with the ~~financial holding company election. While FTB&T is~~remaining exemptions or exclusions for operators of certain of our registered investment funds and other pooled vehicles that use or trade in futures, swaps and other derivatives considered commodity interests and subject to ~~CRA requirements, Fiduciary Trust remains exempt from such requirements because it qualifies as a special purpose bank. Under our regulatory framework and~~regulation by the ~~environment in which we operate, we are subject to significant constraints that may adversely affect our ability to implement our business plans and strategies.~~

~~The BHC Act generally requires that a bank holding company obtain prior approval of the FRB before acquiring control of any bank.~~CFTC. In addition, the ~~FRB may~~SEC has adopted rules that have changed the structure and operation for certain types of money market funds, and has also proposed other rules that (i) would require certain U.S. Funds to adopt liquidity management programs, and (ii) would impose ~~limitations,~~ restrictions ~~or prohibitions~~ on the ~~activities or acquisitions~~use of ~~a financial holding company if the FRB believes~~derivatives by registered funds. We expect that the ~~financial holding company does not have appropriate financial~~complex regulatory requirements and ~~managerial resources. The FRB has broad authority~~developments applicable to ~~prohibit activities of bank holding companies~~us will cause us to incur additional administrative and their non-banking subsidiaries that represent unsafe and unsound banking practices or that constitute violations of law or regulation. Civil money penalties may be imposed against bank holding companies, their non-bank affiliates and officers and directors of such entities for, among other things, certain activities conducted on a knowing or reckless basis if those activities cause a substantial loss to the bank holding company.

Each of our banking subsidiaries is subject to restrictions under federal law that limit transactions between such banking subsidiaries and Franklin and/or its non-bank subsidiaries, including loans and other extensions of credit, investments, or asset purchases. These and various other transactions, including any payment of money to Franklin and its non-bank subsidiaries, must be on terms and conditions that are, or in good faith would be, offered to companies that are not affiliated with these entities. In addition, these laws and related regulations may limit the Company’s ability to obtain funds from subsidiary banks or affiliates.

The operations and activities of Fiduciary Trust and its subsidiaries are subject to extensive regulation, supervision and examination by the FDIC and the NYDFS. Certain of the subsidiaries may also be subject to oversight by various other state regulators depending upon the specific business that is conducted by the particular subsidiary. FTB&T is subject to regulation, supervision and examination by the OCC. The laws and regulations of these regulators generally impose restrictions and requirements, with which we must comply, on capital adequacy, anti-money laundering, management practices, liquidity, branching, earnings, loans, dividends, investments, reserves against deposits and the provision of services.

The federal banking agencies and the NYDFS have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties and appoint a conservator or receiver. Failure to comply with applicable laws, regulations and supervisory agreements could subject Franklin, our thrift and banking subsidiaries, as well as officers, directors and other so-called “institution-affiliated parties” of these organizations to administrative sanctions and potentially substantial civil money penalties. In addition, the appropriate state or federal chartering agency may appoint the FDIC as conservator or receiver for a banking institution, or the FDIC may appoint itself if certain circumstances exist.compliance costs.

Non-U.S. Regulation

Our operations outside the U.S. are subject to the laws and regulations of ~~certain~~various non-U.S. jurisdictions and non-U.S. regulatory agencies and bodies. As we continue to expand our international presence, a number of our subsidiaries and international operations have become subject to regulatory systems, in various jurisdictions, comparable to those covering our operations in the U.S. Regulators in these non-U.S. jurisdictions may have broad authority with respect to the regulation of financial services including, among other things, the authority to grant or cancel required licenses or registrations. In addition, these regulators may subject certain of our subsidiaries to net capital and other financial or operational requirements.

~~Table of Contents~~

~~The~~In the U.K., the Financial Conduct Authority (the “FCA”) and the Prudential Regulation Authorities (the “PRA”) currently regulate certain of our ~~subsidiaries in the U.K.~~subsidiaries. Authorization by the FCA and the PRA is required to conduct any financial services related business in the U.K. pursuant to the Financial Services and Markets Act 2000. The FCA’s and ~~PRA's~~PRA’s rules under that act govern a firm’s capital resources requirements, senior management arrangements, conduct of business, interaction with clients, and systems and controls. Breaches of these rules could result in a wide range of disciplinary actions against our U.K.-regulated subsidiaries.

In Luxembourg, the Commission de Surveillance du Secteur Financier (“CSSF”) currently regulates our substantial activities in Luxembourg, including our subsidiary Franklin Templeton International Services S.à r.l. (“FTIS Lux”). FTIS Lux is licensed as a management company for both the Undertakings for Collective Investment in Transferable Securities Directive (“UCITS”) and alternative investment funds (“AIFs”) and, as such, it manages our Luxembourg-domiciled UCITS and our European Union (“EU”)-domiciled AIFs. The CSSF’s rules include capital resource, governance and risk management requirements, conduct of business rules and oversight of systems and controls. Breaches of these rules could result in a wide range of disciplinary actions against FTIS Lux.

In addition to the above, our U.K.-regulated subsidiaries and certain other European subsidiaries and branches, must comply with the pan-European regime established by the ~~EU’s~~EU Markets in Financial Instruments Directive (“MiFID”), which ~~became effective in November 2007 and~~ regulates the provision of investment services and conduct of investment activities throughout the European Economic Area (“EEA”)~~, as well as the EU’s Capital Requirements Directive (“CRD”)~~. The CRD, as amended, provides capital requirements and regulates variable remuneration (such as bonuses) paid by banks and certain investment firms. CRD 4, effective January 2014, adds a cap on variable remuneration. It is not yet clear whether such cap will apply to any of our EU-based operations.

MiFID sets out detailed requirements governing the organization and conduct of business of investment firms and regulated markets. It also includes pre- and post-trade transparency requirements for equity markets and extensive transaction reporting requirements.

The U.K. has adopted the MiFID rules into national legislation ~~and~~via the FCA rules, as have those other EU member states in which we have a presence.

A review of MiFID by the European Commission (the “Commission”) has led to the ~~publication~~creation of a ~~draft~~ replacement directive ~~(“MiFID 2”)~~ and a new ~~draft~~ regulation ~~(“MiFIR”~~(together “MiFID II”) to become effective in January 2018 and which ~~are currently~~extends the ~~subject~~scope of ~~debate among~~ the ~~EU’s Parliament, Commission and Council designed~~original MiFID in response to ~~reach a final text. Implementation is not expected before~~issues raised by the ~~end of 2015, at the earliest. The proposals, if implemented, are likely to result in changes~~financial crisis. Changes will be made to pre- and post-trade reporting obligations

Table of Contents

and there will be an expansion of the types of instruments subject to these requirements, such as bonds, ~~and~~ structured products and derivatives. A new concept of trading venue has been created and algorithmic trading will be subject to these requirements. They may affect the buying and selling of derivatives by moving most derivative trading onto regulated trading venues and may control the activities of algorithmic trading. The proposals mayspecific regulations. There will also ~~result in~~be changes to conduct of business requirements, including selling practices, intermediary inducements and client categorization, as well as the provision of investment advice and management within the EU by non-EU advisers, including ours. ~~The proposals~~Powers will also ~~envision giving powers~~be given to EU national regulators to ban certain products and services and to the European Securities and Markets Authority to temporarily to restrict certain financial activities within the EU.

~~In addition,~~One of the ~~FCA has adopted~~most significant developments in MiFID II is the ban on commission and other payments (“inducements”) to independent advisers and discretionary managers, which will result in a major change in the commercial relationships between fund providers and distributors. Arrangements with non-independent advisers will also be affected as narrower rules ~~following its retail distribution review (“RDR” rules). These~~around the requirement that any commission reflects an enhancement of the service to customers come into effect, along with a prescriptive list of permissible non-monetary benefits. The final interpretation of the inducements rules ~~which became effective on January 1, 2013, changed~~could also result in major changes to how ~~retail clients~~fund managers pay for investment ~~advice given~~research, though this is subject to further consultation and interpretation at the level of national authorities. This could result in respect of all retail investment products, including open-end and closed-end funds, structured products and insurance-based savings products. In response to the RDR rules, we launched new share classes for our funds offereda reduction in the ~~U.K.,~~range and ~~we amended affected distribution agreements. A few other EU member states have either adopted, or are considering,~~quality of available research, increased costs for fund managers, and a ~~regime similar~~need for revised commercial terms with both brokers and clients to ~~the RDR rules.~~reflect these changes.

During ~~2013,~~2016, rules implementing the ~~first stages of~~central clearing obligation in relation to specified derivatives under the European Market Infrastructure Regulation ~~were implemented, imposing requirements~~came into effect for the very largest trading counterparties, with the clearing obligation for other large derivatives users (including some of our clients) coming into force in December 2016. A proposal is under consultation to delay later phases of implementation, for the smallest counterparties, for a further two years. Importantly, significant progress was made in achieving mutual recognition of central counterparties between the U.S. and EU regulatory authorities. In addition, rules relating to ~~risk mitigation~~margin requirements for uncleared over-the-counter derivatives will shortly be finalized, expected to take effect from January or February 2017 for the largest trading counterparties and ~~reporting of certain data regarding uncleared OTC derivatives transactions. Further requirements are scheduled~~from March 2017 for ~~next year,~~all other counterparties, including transaction reporting in relation to exchange-traded and OTC derivatives transactions, the central clearing of OTC derivatives and, importantly, rules on equivalence with other derivatives reporting and clearing regimes.our clients. Given the international scale of our trading activity, if regulatory coordination is not successful, the various regulatory regimes to which we are subject could potentially result in duplication of administration and increased transaction ~~costs.~~costs, but the U.S./EU accord will cover the majority of our relevant trading for central clearing purposes.

The EU’s Alternative Investment Fund Managers Directive (“AIFMD”)~~, which became effective on~~ came into effect in July ~~21, 2011, was implemented as required by many~~2014 and most EU member states ~~by July 22, 2013.~~have implemented its provisions on a national level. AIFMD regulates managers of, and service providers to, ~~investment funds (“AIFs”) not authorized as UCITS retail funds~~AIFs that are domiciled and offered in the ~~EU.~~EU and that are not authorized as retail funds under UCITS. The AIFMD also regulates the marketing within the EU of all AIFs, including those domiciled outside the EU. In general, AIFMD has a staged implementation ~~between mid-2013 and~~up to 2018. Compliance with the AIFMD’s requirements may restrict AIF marketing and ~~will place additional~~imposes compliance obligations in the form of remuneration policies, ~~(that could extend to non-EU entities that manage EU AIFs),~~ capital requirements, reporting requirements, leverage oversight, valuation, stakes in EU companies, the domicile, duties and liability of custodians and liquidity management.

~~Table of Contents~~

The ~~European Commission has also published proposals to replace the~~EU’s Market Abuse ~~Directive~~Regulation (“MAR”) came into effect in July 2016 with a ~~regulation~~primary aim to increase market integrity and investor protection, enhancing the attractiveness of securities markets for raising capital. Under MAR, EU market abuse rules will become extra-territorial as long as the instrument has a listing on ~~insider dealing and market manipulation and with~~ an ~~accompanying directive on criminal sanctions. There are also ongoing plans to reform the framework to which~~EEA regulated ~~firms are subject, including in relation to regulatory capital and the protection of client assets, which will have a direct effect on some of our European operations.~~market.

The most recent iteration of the Undertakings for Collective Investment in Transferable Securities Directive (“UCITS ~~IV”~~V”), which governs authorized EU-domiciled retail funds that qualify for cross-border sale (“UCITS”), was required to be adopted into the national law of each EU member state by July 1, 2011. EU member states including the U.K., Luxembourg and Ireland have adopted UCITS IV requirements into their national legislation and regulation. However, several other EU member states are still became effective in ~~various stages~~March 2016. The main objectives of the adoption process. UCITS IV introduced new requirements including a requirement to provide a key investor information document (“KIID”) prior to any UCITS sale. The KIID is a two-page summary of the key aspects of each share class of a fund. There are also European Commission consultations in process that are intended to enhance retail investor protection, including UCITS V ~~which is intended~~are to ~~address, among other items, custodial liability~~expand the responsibilities and potential liabilities of depositaries, to regulate remuneration ~~policies.~~policies, and to harmonize the sanctions available to regulatory authorities.

~~Recent proposals~~Proposals on packaged retail investment and insurance products (“~~PRIPs”~~PRIIPs”) are to be implemented through the strengthening of MiFID standards for non-insurance ~~PRIPs,~~PRIIPs, revisions to the Insurance Mediation Directive’s selling standard for all insurance-based ~~PRIPs~~PRIIPs and new investor disclosure requirements for all ~~PRIPs~~PRIIPs through the PRIIPs Key Information Document (“KID”) regulation, which was approved by the European Parliament in April 2014. It requires PRIIP manufacturers to draw up a ~~separate EU legislative process.~~KID which can be no longer than three pages in length and must be written in simple language. The ~~PRIPs proposals~~regulation allows UCITS providers, who are already required to produce the UCITS Key Investor Information Document, a transitional period of five years from enactment during which they will be exempt from its terms. In September 2016, the European Parliament rejected the Commission’s proposal for key Level 2 Regulatory Technical Standards governing the detailed implementation of PRIIPs, which may ~~also require us~~result in a delay to ~~amend or change our KIIDs.~~the PRIIPs effective date scheduled for December 2016.

In addition, ~~in September 2011,~~ the ~~European~~ Commission ~~proposed~~’s proposal for a financial transaction tax (“~~FTT proposal”~~FTT”) in the EU, which would, if approved by all EU member states, apply to all financial transactions where at least one party is established in an EU member state and either that party or another party to the transaction is a financial ~~institution.~~institution was a controversial topic for all the EU member

Table of Contents

states to agree upon and after discussions failed to establish unanimous support. Subsequently the Commission has put forward a revised proposal to implement the tax in the eleven EU member states which wished to participate. While the specific terms of the revised FTT proposal remain subject to negotiation, any tax on securities transactions could likely have a negative impact on the liquidity of the derivatives and securities markets in Europe and could adversely impact our European clients’ assets and our non-European clients to the extent that they are or want to be invested in European assets.

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 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.

In June 2016, a narrow majority of voters in a U.K. referendum voted to exit the EU (“Brexit”), but it is still unclear exactly what will be the U.K.’s status in relation to the EU when it ultimately leaves (and the negotiation process does not begin until the U.K. formally notifies the EU of its intent pursuant to Article 50 of the EU treaty, which has not yet occurred). While these are unprecedented times for the U.K., and we are monitoring the consequences very closely for our clients from an investment perspective, we believe that Brexit will not have a major impact on the way our firm operates in the U.K. Our long-standing U.K. businesses are expected to continue to provide their services to U.K. customers. Furthermore, we have other regulated subsidiaries across continental Europe such that, in the event of a future restriction on cross-border trade in financial products and services between the U.K. and the new EU, it would be likely to have a limited effect on our business. Moreover, our cross-border SICAV investment fund range, which is the mostly widely-distributed such range in the world, is based in Luxembourg. We have a separate, U.K.-domiciled fund range that is, and will continue to be, distributed only in the U.K.

In Canada, our subsidiaries are subject to provincial and territorial laws and are registered with and regulated by provincial and territorial securities regulatory authorities. The mandate of Canadian securities regulatory authorities is generally to protect investors and to foster fair and efficient capital markets. Securities regulatory authorities impose certain requirements on registrants, including a standard of conduct, capital and insurance, record keeping, regulatory financial reporting, conflict of interest management, compliance systems and ~~securityholder~~security holder reporting. Failure to comply with applicable securities laws, regulations and rules could result in, among other things, reprimands, suspension of or restrictions on an ~~individual's~~individual’s or ~~firm's~~firm’s registration, prohibitions from becoming or acting as a registrant, administrative penalties or disgorgement. In addition, as a federally licensed trust company, FTCC is subject to regulation and supervision by the Office of the Superintendent of Financial Institutions Canada and another subsidiary, FTC Investor Services Inc., is a member of and regulated by the Mutual Fund Dealers Association of Canada. These regulatory bodies have similar requirements to those of the securities regulatory authorities with a view to ensuring the capital adequacy and sound business practices of the subsidiaries and the appropriate treatment of their clients.

In March 2013, the Canadian Securities Administrators, the umbrella organization of provincial and territorial securities regulatory authorities, released final amendments to its rules regarding registrant obligations that ~~will~~ require additional disclosure by registrants to their clients, including enhanced disclosure at account opening of all operating charges and fees a client may be required to pay, pre-trade disclosure of any charges a client may be required to pay, enhanced reporting on client statements that includes charges paid by the client and all compensation received by registrants in respect of a ~~client's~~client’s account and new reporting regarding the performance of investments held in the account. These new rules, which ~~will be~~were phased in over a ~~three year~~three-year period, ~~will require~~have required us to make changes to our systems to comply with these new disclosure and reporting standards.

In Singapore, our subsidiaries are subject to, among others, the Securities and Futures Act (“SFA”), the Financial Advisers Act (“FAA”) and the subsidiary legislation promulgated pursuant to these Acts, which are administered by the Monetary Authority of Singapore (“MAS”). Our asset management subsidiary and its employees conducting regulated activities specified in the SFA and/or the FAA are required to be licensed with the MAS. Failure to comply

~~Table of Contents~~

with applicable laws, regulations, codes, directives, notices and guidelines issued by the MAS may result in penalties including fines, censures and the suspension or revocation of licenses granted by the MAS.

In Australia, our subsidiaries are subject to various Australian federal and state laws and are regulated by the Australian Securities and Investments Commission (“ASIC”). ASIC regulates companies, financial markets and financial services in

Table of Contents

Australia. ASIC imposes certain conditions on licensed financial services organizations that apply to our subsidiaries, including requirements relating to capital resources, operational capability and controls. Failure to comply with applicable law, regulations or conditions could result in various sanctions being imposed including cancellation, suspension or variation of the licenses held by our Australian subsidiaries.

In Hong Kong, our subsidiary is subject to the Securities and Futures Ordinance (the “SFO”) and its subsidiary legislation, which governs the securities and futures markets and regulates, among others, offers of investments to the public and provides for the licensing of ~~trading~~dealing in securities and asset management activities and intermediaries. This legislation is administered by the Securities and Futures Commission (the “SFC”). The SFC is also empowered under the SFO to establish standards for compliance as well as codes and guidelines. Our subsidiary and its employees conducting any of the regulated activities specified in the SFO are required to be licensed with the SFC, and are subject to the rules, codes and guidelines issued by the SFC from time to time. Failure to comply with the applicable laws, regulations, codes and guidelines could result in various sanctions being imposed, including fines, reprimands and the suspension or revocation of the licenses granted by the SFC.

In India, certain of our subsidiaries are primarily subject to relevant regulations promulgated by the Securities and Exchange Board of India (“SEBI”). The Reserve Bank of India (“RBI”), the Ministry of Corporate Affairs (“MCA”) and the Foreign Investment Promotion Board (“FIPB”) are the other major regulatory authorities that are capable of issuing directions of a binding nature to our subsidiaries. A failure to comply with the applicable laws, regulations, codes, notices, directives, guidelines, orders, circulars and schemes issued by SEBI, RBI, MCA or FIPB may result in penalties including fines, censures and/or suspension or revocation of licenses, approvals or registration status.

In Japan, our ~~subsidiary is~~subsidiaries are subject to the Financial Instruments and Exchange Act (the “FIEL”) and the Act on Investment Trusts and Investment Corporations. These laws are administered and enforced by the Japanese Financial Services Agency (the “JFSA”), which establishes standards for compliance, including capital adequacy and financial soundness requirements, customer protection requirements and conduct of business rules. The JFSA is empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease and desist orders or the suspension or revocation of registrations and licenses granted under the FIEL.

There are similar legal and regulatory arrangements in ~~force~~effect in many other non-U.S. jurisdictions where our subsidiaries, branches and representative offices, as well as certain joint ventures or companies in which we own minority stakes, are authorized to conduct business. We are also subject to regulation and supervision by, among others, the Securities Commission of The Bahamas; the Comissão de Valores Mobiliários in Brazil; the Cayman Islands Monetary Authority; the China Securities Regulatory Commission in the People’s Republic of China; the Autorité des Marchés Financiers in France; the Federal Financial Supervisory Authority in Germany; the Central Bank of Ireland; the Commissione Nazionale per le Società e la Borsa in Italy; the Financial Services Commission and the Financial Supervisory Service in South Korea; ~~the Commission de Surveillance du Secteur Financier in Luxembourg;~~ the Securities Commission in Malaysia; the Comision Nacional Bancaria y de Valores in Mexico; the Autoriteit Financiële Markten in ~~The~~the Netherlands; the Polish Securities and Exchange Commission; the Romanian Financial Services Authority; the Comisión Nacional del Mercado de Valores in Spain; the Finansinspektionen in Sweden; the Swiss Federal Banking Commission; the Financial Supervisory Commission in the Republic of China; the Dubai Financial Services Authority in the United Arab Emirates; and the State Securities Commission of Vietnam.

~~Competition~~COMPETITION

The financial services industry is a highly competitive global industry. AsAccording to data sourced from the Investment Company Institute as of ~~September~~June 30, ~~2013,~~2016, there were approximately ~~7,600~~11,200 registered open-end ~~mutual~~ funds ~~of varying sizes, and with varying investment policies and objectives,~~ whose shares ~~are~~were offered to the public in the U.S., and ~~there were~~ approximately ~~66,900~~107,900 registered open-end ~~mutual~~ funds whose shares ~~are~~were offered to the public outside the U.S. ~~(in~~, in each case ~~excluding exchange-traded funds).~~

~~Table~~including mutual funds, ETFs and funds of ~~Contents~~funds.

We face strong competition from numerous investment management companies, securities brokerage and investment banking firms, insurance companies, banks and other financial institutions, which offer a wide range of financial and investment management services to the same institutional accounts, separate accounts, retail investors and high net-worth clients that we are seeking to attract. 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.

Due to our international presence and varied product mix, it is difficult to assess our market position relative to other investment managers on a worldwide basis, but we believe that we are one of the more widely diversified asset managers based in the U.S. We believe that our equity and ~~fixed-income~~fixed income asset mix coupled with our global presence will serve our competitive needs well over the long term. We continue to focus on the long-term performance of our investment products,

Table of Contents

service to clients and extensive marketing activities through our strong ~~broker/dealer~~broker-dealer and other financial institution distribution network as well as with high net-worth and institutional clients. We believe that performance, diversity of products and customer service, along with fees and costs, are the primary drivers of competition in the financial services industry.

The periodic establishment of new investment management firms and investment products increases the competition that we face. Many of our competitors have long-standing and established relationships with ~~broker/dealers,~~broker-dealers, investment advisers and their clients. Others have focused on, offer and market specific product lines, which provide strong competition to certain of our asset classes. In addition, consolidation in the financial services industry has created stronger competitors, some with greater financial resources and broader distribution channels than our own.

We rely largely on third-party ~~broker/dealers~~broker-dealers and other similar independent financial intermediaries to distribute and sell our fund shares. We have pursued and continue to pursue sales relationships with all types of financial intermediaries to broaden our distribution network. We have experienced increased costs related to maintaining our distribution channels and we anticipate that this trend will continue. A failure to maintain strong business relationships with the major intermediaries who currently distribute our products may also impair our distribution and sales operations. Additionally, competing ~~broker/dealers~~broker-dealers whom we rely upon to distribute and sell our ~~mutual funds~~SIPs may also sell their own proprietary funds and investment products, which could further limit the distribution of our investment products. Any inability to access and successfully sell our ~~products~~SIPs to clients through third-party distribution channels could have a negative effect on our level of AUM, related revenues and overall business and financial condition.

We maintain a technology platform to compete with the rapidly developing and evolving marketplace. However, technology is subject to rapid change and we cannot guarantee that our competitors may not implement more advanced platforms for their products, which could affect our business.

We believe that we are well positioned to deal with changes in marketing trends as a result of our ~~already extensive~~ advertising activities and broad based marketplace recognition. In conjunction with our subsidiaries, we conduct advertising and promotional campaigns through various media sources to promote brand recognition, and advertise in major financial publications, as well as on television and the Internet, to promote brand name recognition and to assist our distribution network. Such activities include purchasing network and cable programming, sponsorship of sporting events, newspaper and magazine advertising, online and paid search advertising and social media marketing.

~~Intellectual Property~~INTELLECTUAL PROPERTY

We have used, registered, and/or applied to register certain trademarks, service marks and trade names to distinguish our sponsored investment products and services from those of our competitors in the U.S. and in other countries and jurisdictions, including, but not limited to, ~~Franklin®~~Franklin^®, ~~Templeton®~~Templeton^®, Franklin Mutual ~~Series®~~Series^®, ~~Bissett®~~Franklin Bissett^®, Fiduciary Trust™, ~~Darby®~~Darby^®, Balanced Equity ~~Management®~~Management^®, K2^® and ~~K2®~~LibertyShares™. Our trademarks, service marks and trade names are important to us and, accordingly, we enforce our trademark, service mark and trade name rights. The Franklin Templeton Investments^® brand has been, and continues to be, extremely well received both in our industry and with our clients, reflecting the fact that our brand, like our business, is based in part on trust and confidence. If our brand is harmed, our future business prospects may be adversely affected.

~~Table of Contents~~

~~Employees~~EMPLOYEES

As of September 30, ~~2013~~2016, we employed approximately ~~9,000~~9,100 employees and operated offices in 35 countries. We consider our relations with our employees to be satisfactory.

~~Available Information~~AVAILABLE INFORMATION

Franklin files reports with the SEC, including current and periodic reports, proxy statements and other information filed with or furnished to the SEC from time to time. The public may read and copy any of these filings at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including Franklin, that file electronically with the SEC, at www.sec.gov. Additional information about the Company’s filings can also be obtained at our website at www.franklinresources.com under “Investor Relations.” We make available free of charge on our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports

Table of Contents

on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the ~~Securities~~ Exchange Act, ~~of 1934,~~ as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Corporate Governance Guidelines. The Company has adopted Corporate Governance Guidelines. The Corporate Governance Guidelines are posted on the Company’s website under “Corporate Governance” and are available in print to any stockholder who requests a copy.

Committee Charters. The Company’s Board of Directors has an Audit Committee, Compensation Committee and Corporate Governance Committee. The Board of Directors has adopted written charters for each such committee, which are posted on the Company’s website under “Corporate Governance” and are available in print to any stockholder who requests a copy.


Item 1A.	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 continue to 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 ~~performance.~~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.~~services to investors globally through products that include investment funds and institutional, high net-worth and separately-managed accounts (collectively, our “sponsored investment products” or “SIPs”). 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 of the ~~account or product~~SIPs managed. 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 ~~an increased~~significant risk of asset volatility from changes in the global financial, equity, debt and ~~debt~~commodity markets. Individual financial, equity, debt and ~~debt~~commodity markets may be adversely affected by financial, economic, political, ~~financial~~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 ~~debt~~commodity marketplaces, ~~unanticipated~~ changes in currency exchange rates, interest rates, inflation rates, the yield curve, defaults by ~~derivative~~trading counterparties, bond ~~default~~defaults, revaluation and bond market liquidity risks, geopolitical risks, the ~~sovereign debt crisis in Europe~~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 revenues. Changing market conditions could also cause an impairment to the value of our goodwill and other intangible assets. The funds we manage may be subject to liquidity risks or an unanticipated large number of redemptions as a result of ~~such~~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 ~~also,~~ in the future, at our discretion, provide financial

~~Table of Contents~~

support to ~~a fund~~funds we manage to enable itthem to maintain sufficient liquidity in any such event. Changes in investor preferences regarding our more popular investment 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~~fixed income products and away from equity and hybrid products, and a related decline in our revenues and income, as we generally derive higher fee revenues and income from equity and certain hybrid products than from ~~fixed-income~~fixed income products we manage. ~~On the other hand,~~Further, increases in interest rates, in particular if rapid, ~~or high interest rates,~~ as well as any uncertainty in the future direction of interest rates, may have a negative impact on our ~~fixed-income~~fixed income products. Although the shorter duration of the bond investments in many of these products asmay help mitigate the

Table of Contents

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, ~~and~~ complex, overlapping and frequently changing rules, regulations and legal interpretations. There is uncertainty associated with the regulatory ~~environment~~environments in which we operate. ~~Our~~As described below, our business is subject to extensive and complex, overlapping and/or conflicting, and frequently changing and increasing number of rules, regulations, policies and legal interpretations in the countries in which we operate, including ~~among others,~~those with respect to securities ~~banking,~~and other financial instruments, investment and advisory matters, accounting, tax, compensation, ethics, data protection, privacy, sanctions programs, and ~~privacy~~escheatment laws and regulations.

~~The Dodd-Frank Wall Street Reform~~As a U.S. reporting company, we are subject to U.S. federal securities laws, state laws regarding securities fraud, other federal and ~~Consumer Protection Act of 2010 (the “Dodd-Frank Act”), as well as other legislative~~state laws and ~~regulatory changes, impose additional restrictions and limitations on us and will likely result in increased scrutiny and oversight of our financial services and products as the various~~ rules and regulations ~~required for implementation continue to be adopted. Due~~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 ~~complexity~~rules and broad scope of the Dodd-Frank Act and the time required for regulatory implementation, we are not able to predict at this time all of the specific requirements that will be adopted by regulatory agencies having authority over us pursuant to the Dodd-Frank Act, or the impact that further changes in regulation would have on our business. Under the Dodd-Frank Act, which imposes a number of new regulations governing over-the-counter swaps and derivative transactions, certain swaps will be required to be submitted for clearing by a regulated clearing organization, and the posting of margin will be required for uncleared swaps. 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. The so-called “Volcker Rule” provisions of the Dodd-Frank Act restrict the ability of affiliates of insured depository institutions, such as Franklin, to sponsor or invest in private funds or to engage in certain types of proprietary trading. While the Volcker Rule became effective on July 21, 2012, final rules for its implementation have not yet been adopted. On April 19, 2012, the Board of Governors of the Federal Reserve System (the “FRB”) issued a Statement of Policy that confirmed that banking institutions will have two years from the effective date to conform their activities to the requirements of the Volcker Rule. In addition to the rulemaking mandatedpromulgated by the ~~Dodd-Frank Act, rules adopted by~~SEC, the Financial Industry Regulatory Authority, the U.S. Commodity Futures Trading Commission (“CFTC”) ~~in 2012 removed~~, the National Futures Association, the U.S. Department of Treasury and the U.S. Department of Labor (“DOL”). Given our global operations, we are also subject to securities laws and other laws of various non-U.S. jurisdictions and to regulation by non-U.S. regulators including, among others, the United Kingdom (“U.K.”) Financial Conduct Authority, the Luxembourg Commission de Surveillance du Secteur Financier, the Canadian Securities Administrators, 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. In some cases, our non-U.S. operations may also be subject to regulation by U.S. regulators, such as the Department of Justice, the CFTC and the SEC (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 where our investment management services and products are offered. Further, we are also subject to the laws and regulations of states and other jurisdictions regarding the reporting and escheatment of unclaimed or limited previously available exemptions and exclusions from registration and regulation as a commodity pool operator and commodity trading advisor on which we had relied, resulting in the imposition of additional registration, disclosure and reporting requirements for operators of certainabandoned property.

Certain of our subsidiaries are registered ~~mutual~~with the SEC under the Investment Advisers Act of 1940, the CFTC and/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 ~~pooled vehicles that use~~non-U.S. regulators pursuant to the European Union's (“EU”) Undertakings for Collective Investment in Transferable Securities (“UCITS”) Directive, or ~~trade~~authorized under other non-U.S. laws in ~~futures, swaps~~Europe, the Middle East and ~~other derivatives considered commodity interests~~Africa, Asia-Pacific, Canada and ~~regulated by the CFTC. Further, the Foreign Account Tax Compliance Act (“FATCA”), which is intended to address tax compliance issues related to U.S. taxpayers holding non-U.S. accounts, will~~Latin America. These registrations, licenses and authorizations impose ~~customer due diligence, reporting and withholding~~numerous obligations, as well as detailed operational requirements, on ~~certain non-U.S. financial institutions. Full implementation of FATCA~~such subsidiaries and ~~related intergovernmental agreements~~such funds. Our subsidiaries must also comply with foreign governments, which will impact our implementation of FATCA, will be phased in over a multi-year period, and additional guidance is expected over time. Also, the SEC has developed proposals for stricter regulation of money market funds that could significantly change the structure and operations of those funds. We expect that such regulatory requirements and developments will cause us to incur additional administrative and compliance costs.complex tax regimes.

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. While management has focused attention and resources on our compliance policies, procedures and practices, non-compliance with applicable laws, or rules, or regulations, conflicts of interest requirements or fiduciary principles, or our inability to keep up with, or adapt to, an

~~Table of Contents~~

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.

WeThe 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 ~~U.S. federal securities laws, state laws regarding securities fraud, other federal~~supervision and ~~state laws and rules and regulations~~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 ~~and self-regulatory organizations, including those rules and regulations promulgated~~requirements triggered by ~~among others, the SEC, the Financial Industry Regulatory Authority~~any such designation are not yet established. The FSOC and the ~~New York Stock Exchange. Because~~FSB, as well as other global regulators, are considering what threats to U.S. and global financial stability, if any, arise from asset management companies and/or the funds that they manage, and whether such threats can be mitigated by treating such entities as SIFIs or

Table of ~~our non-U.S. operations~~Contents

G-SIFIs and/or ~~trading in our sponsored investment products (“SIPs”)~~subjecting them to additional regulation. To the extent that ~~take place outside the U.S.,~~ we are also subject to regulation by non-U.S. regulators and U.S. regulators such as the Department of Justice and the SEC with respect to the Foreign Corrupt Practices Act of 1977. Certain of our subsidiaries are registered with the SEC under the Investment Advisers Act of 1940 and manyor any of our funds are ~~registered with the SEC under the Investment Company~~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, ~~both of which impose numerous obligations,~~ as well as ~~detailed operational requirements,~~other legislative and regulatory changes, impose other restrictions and limitations on us, resulting in increased scrutiny and oversight of our ~~subsidiaries that are investment advisers to registered investment companies. Our subsidiaries must comply with a myriad of complex~~financial services and ~~changing U.S. and/or non-U.S. rules and regulations, some of which may conflict, as well as complex tax regimes. Additionally, as we~~products. We continue to ~~expand our operations, sometimes rapidly, into additional non-U.S. jurisdictions,~~analyze the ~~rules and regulations of these non-U.S. jurisdictions become applicable, sometimes with short compliance deadlines, and add further regulatory complexity to our ongoing global compliance operations.~~

We are also a bank holding company and a financial holding company subject to the supervision and regulation of the FRB and are subject to the restrictions, limitations and prohibitions of the Bank Holding Company Act of 1956 (the “BHC Act”) and the Gramm-Leach-Bliley Act. In addition, significant aspectsimpact of the Dodd-Frank Act ~~relate to changes in~~as implementing rules are adopted and become effective. Under the regulation of banks, thrifts, holding companies and related institutions, including with respect to regulation and supervision in the banking industry, and the imposition of various restrictions and limitations on certain activities of such entities. The Dodd-Frank Act, ~~together with other regulatory initiatives, includes~~which imposes a number of ~~measures~~new 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, and the posting of collateral will be required for uncleared swaps. 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 has also proposed other rules that (i) would require certain registered funds to adopt liquidity management programs, and (ii) would impose restrictions on the use of derivatives by registered funds. We expect that the complex regulatory requirements and developments applicable to us will ~~increase capital~~cause us to incur additional administrative and liquidity requirements, impose limits on leverage, and enhance supervisory authority and regulatory oversight of non-banking entities which may apply to our business. In July 2013, the U.S. federal banking agencies adopted new capital rules to implement the Basel Committee's capital framework, known as “Basel III”, for U.S. bank holding companies and banks. Basel III will impose more stringent capital requirements on Franklin and its banking subsidiaries. The new capital rules will become effective for Franklin,compliance costs.

Our subsidiary Fiduciary Trust Company International (“Fiduciary Trust”) and Franklin Templeton Bank & Trust, F.S.B. (“FTB&T”) on January 1, 2015 (subject to certain phase-in periods through January 1, 2019). The FRB may impose additional limitations or restrictions on our activities, including if the FRB believes that we do not have the appropriate financial and managerial resources to commence or conduct an activity or make an acquisition. Further, our bankingits subsidiaries ~~Fiduciary Trust and FTB&T are~~remain subject to ~~extensive~~additional regulation, supervision and examination by their respective ~~banking regulators, which include the Federal Deposit Insurance Corporation~~regulators. Certain federal and state anti-takeover laws generally provide that no person may acquire control of Franklin Resources, Inc. (“~~FDIC”~~Franklin”) ~~for both, the New York State Department~~, and gain indirect control of ~~Financial Services for~~ Fiduciary Trust or its subsidiaries, without prior regulatory approval. Such federal and ~~the Office~~state laws may discourage potential acquisition proposals and may delay, deter or prevent a change of ~~the Comptroller~~control of ~~the Currency (“OCC”) for FTB&T.~~Franklin, including through transactions that some shareholders might consider desirable.

The laws and regulations ~~imposed by~~applicable to our ~~banking regulators~~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~~Know Your Customer requirements, and economic, trade and other sanctions, both domestically and internationally, ~~and the Bank Secrecy Act~~ has taken on heightened importance ~~with regulators~~ as a result of efforts to, among other things, limit ~~terrorism.~~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 ~~set by regulators,~~ may subject us to sanctions or other restrictions by ~~the~~governments and/or regulators that could adversely impact our broader business objectives. ~~Moreover, being subject to banking regulation may put us at a disadvantage compared to our competitors which are not subject to such requirements.~~

~~Regulatory~~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 ~~AUM, increase costs~~financial condition and ~~negatively impact our profitability and future financial results.~~results of operations. ~~Since 2001, the~~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~~2001. Similarly, the securities and related laws outside the ~~Dodd-Frank Act.~~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”). Further, in June 2016, a narrow majority of voters in a U.K. referendum voted to exit the EU (“Brexit”), but it is still unclear exactly what will be the U.K.’s status in relation to the EU when it ultimately leaves. Ongoing changes in the EU’s regulatory framework applicable to our business, including 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 ~~regulations~~standards and changes in the interpretation or enforcement of existing laws, regulations or ~~regulations~~standards have directly affected, and ~~may~~will continue to affect, our business. With new

~~Table of Contents~~

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, ~~many~~certain provisions of the Dodd-Frank Act and MiFID II still require the adoption of ~~rules to implement the Dodd-Frank Act and mandate multiple studies, which could result in additional legislative or regulatory action.~~implementing rules. We may be required to invest significant additional management time and resources to address the ~~various provisions of~~new regulations being adopted pursuant to the Dodd-Frank Act, MiFID II and the numerous regulations that are issued under it. In addition, 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 funds.other laws. Outlays associated with meeting regulatory complexities have also increased as we expand our business into new jurisdictions.

Table of Contents

country pay required taxes. In many cases, intergovernmental agreements between the participating countries will govern implementation of the new 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 ~~meet~~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. ~~Moreover,~~Finally, any potential accounting or reporting error, whether financial or otherwise, if material, could damage our reputation, adversely affect our ability to conduct business, and decrease revenues and income. Finally, anyfurther regulatory and legislative actions and reforms affecting the ~~mutual fund~~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 ~~non-U.S.~~ 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 ~~non-U.S.~~ jurisdictions where we conduct our business or where ~~the funds and products we manage~~our SIPs 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 ~~non-U.S.~~ 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 ~~non-U.S.~~ regulatory environments in which we operate have seen significant increased and evolving ~~regulation,~~regulations, which ~~has~~have imposed and may continue to impose additional compliance and operational requirements and costs on us in the applicable jurisdictions. 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 offer our investment products and services 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, ~~in both the U.S. and various non-U.S. jurisdictions~~ and are subject to ongoing tax audits, in ~~the U.S. and~~ various ~~non-U.S. jurisdictions.~~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 ~~of these audits~~ could have a material impact on our net income or financial condition. Changes in tax laws or tax rulings could materially impact our effective tax rate. For example, proposals for fundamental U.S. corporate tax reform, if enacted, could change the amount of taxes we are required to pay and could have a significant impact on our future results of operations, profitability and financial condition.

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 ~~constrain~~disrupt our ~~operations.~~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, policies, procedures and capabilities to protect our computer and telecommunications systems and the data that reside on or are transmitted through ~~them.~~them and contracted third-party systems. We use ~~our~~ technology to, among other things, support our business continuity and operations, store and maintain data, obtain securities pricing information, process client transactions, and provide reports and other customer services to the clients of the ~~funds~~products we manage. Any disruptions, inaccuracies, delays, systems failures, data or privacy breaches, or other security breaches (including any cyber security breaches) in these and other processes could subject us to client dissatisfaction and ~~losses.~~losses and damage our reputation. Although we take protective measures, including measures to effectively secure information through system security technology, ~~our~~the technology systems we use may still be vulnerable to unauthorized access, computer viruses or other events that have a security impact, such as an external hacker attack

~~Table of Contents~~

by one or more cyber criminals (including phishing attacks attempting to obtain confidential information) or an authorized employee or vendor inadvertently causing us to release confidential information, which could materially ~~damage~~harm our operations and reputation. Potential system disruptions, failures or breaches of the technology systems we use, and the costs necessary to address them, could result inin: material financial loss or costs; the unauthorized disclosure or modification of sensitive or confidential ~~information. Breach of our technology systems could result in the~~information; loss of valuable ~~information,~~information; breach of client ~~contracts,~~contracts; liability for stolen assets, information or ~~identity,~~identity; remediation costs to repair

Table of Contents

damage caused by the ~~breach,~~failure or breach; additional security costs to mitigate against future ~~incidents,~~incidents; reputational harm; regulatory ~~actions~~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 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 ~~hardware,~~devices, if such ~~hardware is~~devices are stolen, misplaced or left unattended, itthey may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by us.

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.~~interruption that could adversely impact our business. In addition, ~~our~~the failure to properly manage and operate ~~our~~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 ~~change~~advancements and ~~we cannot guarantee that~~changes and our competitors may ~~not~~from time to time implement more advanced technology platforms for their products, which could adversely affect our business. Potential system failures or breaches, or advancements in technology, and the cost necessary to address them, could result in material financial loss or costs, regulatory actions, breach of client contracts, reputational harm or legal claims and liability, which in turn could negatively impact our revenues and income.

Our business operations are complex and a failure to properly perform operational tasks or the misrepresentation of our products and services, 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 our ~~SIPs, that consist of investment funds and institutional, high net-worth and separately-managed accounts.~~SIPs. In addition to investment management, our services include fund administration, sales, distribution, marketing, shareholder ~~services, transfer agency, trustee, custodial~~servicing, and other fiduciary ~~services, as well as select private banking~~ services. 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. In addition, the intentional or unintentional misrepresentation of our products and services in advertising materials, public relations information, social media or other external communications could adversely affect our reputation and business prospects. Our investment management fees, which represent athe majority of our revenues, are dependent on fees earned under investment management agreements that we have with ~~the SIPs we advise.~~our SIPs. 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'~~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 ~~mutual funds~~our SIPs and offer 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 ~~as may the~~in terms of scope, adequacy and ~~sophistication of each.~~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.~~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

~~Table of Contents~~

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 ~~register~~authorize investment 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. ~~Recently, certain~~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

Table of Contents

enter into international joint ventures or take minority stakes in companies in which we ~~may~~typically do not have control. These investments may involve risks, including the risk that the controlling ~~shareholder~~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 ~~shareholder or~~stakeholder, our joint venture partner or the ~~company~~entity itself may result in liability for us or harm to our reputation or adversely affect the value of our investment in the ~~company.~~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, ~~of the European Union (“EU”),~~ those ~~recently~~ adopted under the ~~EU's Alternative Investment Fund Manager Directive,~~AIFMD, those required to be adopted under the Dodd-Frank Act and certain ~~regulations proposed under~~provisions of the ~~EU's draft Undertakings for Collective Investment in Transferable Securities~~EU’s UCITS V Directive, ~~and Markets in Financial Instruments Directive II,~~ could impose restrictions on compensation paid by financial institutions, which could restrict our ability to compete effectively for qualified professionals. As our business grows, we are likely to need to increase correspondingly the overall 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. ~~We cannot assure you~~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 investment products also compete with products offered by these competitors, as well as with real estate investment trusts, hedge funds and ~~others.~~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 strategic beta and actively managed exchange-traded funds, to the extent that there is a trend among existing or potential clients in favor of lower-fee passive products such as index and other types of exchange-traded funds, it may favor our competitors who provide those products over active managers like us. Additionally, competing securities ~~broker/dealers~~broker-dealers, whom we rely upon to distribute and sell certain of our ~~mutual~~ funds and other investment products, may also sell their own proprietary funds and investment products, which could limit the distribution of our ~~investment~~ products. To the extent that existing or potential clients, including securities ~~broker/dealers,~~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 ~~funds and other managed investment portfolios,~~SIPs, offering a mix of SIPs that meets investor demand 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 and other similar~~broker-dealers, banks, investment advisers and other financial intermediaries. Increasing competition for these distribution channels and regulatory initiatives

~~Table of Contents~~

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. Pursuant to the Dodd-Frank Act, the SEC may establish different standards for ~~broker/dealers~~broker-dealers in their interaction with retail customers, which could have an impact on sales and/or distribution costs. In addition, 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~~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. In ~~addition,~~April 2016, the DOL issued a new fiduciary rule that will subject financial professionals who provide investment advice to certain U.S. retirement clients to a new fiduciary duty intended to address conflicts of interests. We believe that the rule could significantly impact the ability of financial professionals to provide investment advice and recommendations for retirement accounts about funds for which they receive a fee from the fund or its affiliates. This rule may impact the compensation paid to the financial intermediaries who sell our funds to their retirement

Table of Contents

clients and may negatively impact our business. Implementation of the rule will be phased in beginning in April 2017, and will generally become fully effective in January ~~2013,~~2018. In addition, the U.K., the Netherlands, Sweden and the EU in MiFID II have adopted ~~new~~regimes which ban, or may limit, the payment of commissions and other inducements to intermediaries in relation to certain sales to retail ~~distribution review rules (“RDR” rules) that, depending on the exact terms of, and market reactions to, the RDR rules~~customers in those jurisdictions, and similar regimes ~~that may be adopted by~~are under consideration in several other ~~EU member states,~~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. There is no assurance we will continue to have access to the third-party ~~broker/dealers~~broker-dealers, banks, investment advisers and ~~similar investment advisers~~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 ~~the major investment advisers who currently distribute our products~~such distributors may also impair our distribution and sales operations. Because we use ~~broker/dealers~~broker-dealers, banks, investment advisers and other ~~similar investment advisers~~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 investment products subjects us to increased exchange rate and market-specific political, economic or other risks ~~in connection with~~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 ~~The Bahamas, Asia-Pacific,~~ Europe, ~~Canada, Latin America,~~ the Middle East and ~~Africa.~~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 continue to moderate revenues from managing investment products internationally, or could affect relative investment performance of certain ~~funds~~of our SIPs 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 ~~international~~non-U.S. AUM than with U.S. AUM. Consequently, ~~a downturn~~downturns in international markets have in the past and could in the future have a significant effect on our revenues and income. Moreover, asour emerging market portfolios and revenues derived from managing these portfolios are subject to significant risks of loss from financial, 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, ~~social~~political or ~~political~~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, ~~potentially~~and negatively ~~impacting~~impact our revenues and income. Our reputation is critical to the success of our business. We believe that our ~~Franklin Templeton Investments~~ brand ~~has~~names have been, and ~~continues~~continue to be, well received both in our industry and with our clients, reflecting the fact that our ~~brand,~~brands, like our business, isare based in part on trust and confidence. If our reputation is harmed, existing clients may reduce amounts held in, or withdraw entirely from, ~~funds that we advise~~our SIPs or ~~funds~~our SIPs 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 ~~services,~~service, is also critical to the success of our business. Strong investment performance often stimulates sales of our investment 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 investment products we manage and stimulate redemptions from existing products, generally lowering the overall level of AUM and reducing the management fees we earn. ~~We cannot assure you~~There is no assurance that past or present investment performance in the investment products we manage 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,

~~Table of Contents~~

we may be unsuccessful in repairing any existing harm to our reputation or performance and our future business prospects would likely be affected.

Table of Contents

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; 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 ~~integrate widely varied~~manage and grow our business ~~lines~~ 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 ~~of our various businesses~~ on a global basis. Moreover, adapting or developing ~~our~~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 ~~constant~~ 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 ~~our~~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.~~operations that are critical to our business. While our operational size, the diversity of locations from which we operate, and our redundant back-up systems provide us with ~~a strong~~an advantage should we experience a local or regional disaster or other business continuity event, we could still experience ~~near-term~~ 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,~~disasters; political, economic or infrastructure ~~instabilities,~~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, 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.

Certain of the portfolios we manage, including our emerging market portfolios, are vulnerable to significant market-specific political, economic or other risks, any of which may negatively impact our revenues and~~income.~~ Our emerging market portfolios and revenues derived from managing these portfolios are subject to significant risks of loss from political, economic, 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.

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 may receive requests for documents or other information from governmental authorities or regulatory ~~bodies or we~~bodies. We may also ~~may~~ become the subject of governmental or regulatory investigations and/

~~Table of Contents~~

or examinations, ~~and~~or governmental or regulatory investigations and/or examinations that have been inactive could become active. In addition, we may be named as a party in litigation. We may be obligated, and under our certificate of incorporation, ~~and~~ by-laws and ~~our~~ standard form of director indemnification agreement ~~with certain directors in some instances,~~ 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~~and/or negatively impact our profitability ~~and/or our~~and financial results. Judgments, findings or allegations 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.

Table of Contents

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 ~~funds and~~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.~~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'~~investors’ willingness to purchase our securities, interest rates, credit spreads ~~and~~and/or the valuation levels of equity markets. If we are unable to obtain funds and financing, or access 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.

~~Our business could be negatively affected if we or our banking subsidiaries fail to satisfy regulatory and supervisory standards~~. Franklin and its banking subsidiaries are subject to significant regulation, supervision and examination by their respective banking regulators, which includes minimum regulatory capital standards. Franklin is subject to minimum capital and other regulatory and supervisory standards because it is a bank holding company and financial holding company registered with and supervised by the FRB under the BHC Act, and Franklin’s banking subsidiaries are subject to substantially similar minimum capital rules and to other regulatory and supervisory standards administered by the FDIC and the OCC. Our business could be negatively affected if Franklin or its banking subsidiaries fail to meet these standards. Loss of financial holding company status could require that we either cease activities that are only permissible for us to engage in as a financial holding company or divest our banking subsidiaries if we desire to continue such activities. The banking regulators are authorized (and sometimes required) to impose a wide range of requirements, conditions, and restrictions on banks, thrifts, and bank holding companies that fail to maintain adequate capital levels. The U.S federal banking agencies’ new capital rules implementing the Basel III capital framework in the U.S. will impose more stringent capital requirements on Franklin and its banking subsidiaries. In addition, liquidity needs could affect our banking services, which may be subject to an unanticipated large number of withdrawals as a result of a number of factors, such as changed or unstable economic conditions, adverse trends or events, interest rates paid by competitors, general interest rate levels, and returns available to clients on alternative investments. Our banking subsidiaries may be required from time to time to rely on secondary sources of liquidity, such as the sale of investment securities and federal funds lines to enable them to meet such withdrawal demands. These secondary sources may not be sufficient to meet liquidity needs.

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 ~~provide us with funds for~~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'~~subsidiaries’ earnings and business considerations. Certain of our subsidiaries are subject to regulatory restrictions which may limit their ability to transfer ~~funds~~assets to their parent companies and/or our ability to repatriate ~~funds~~assets to the U.S. Our financial condition could be adversely affected if certain of our subsidiaries are unable to distribute ~~funds~~assets to us.

~~Table of Contents~~


Item 1B.	Unresolved Staff Comments.

None.


Item 2.	Properties.

We conduct our worldwide operations using a combination of leased and owned facilities. While we believe we have sufficient facilities to conduct our business at present, we will continue to lease, acquire and dispose of facilities throughout the world as necessary.

We lease space in various states in the U.S., including California, Connecticut, Delaware, Florida, Massachusetts, New Jersey, New York, Utah and ~~the District of Columbia,~~Washington, D.C., and in various non-U.S. locations, including Australia, Austria, Belgium, Brazil, Canada, the People’s Republic of China (including Hong Kong), Colombia, France, Germany, Hungary, India, Isle of Man, Italy, Japan, ~~Korea,~~ Luxembourg, Malaysia, Mexico, ~~The~~the Netherlands, Poland, Romania, Russia, Singapore, Slovakia, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, United Arab Emirates, the U.K. (including England and Scotland) and Vietnam. As of September 30, ~~2013~~2016, we leased and occupied approximately ~~1,169,000~~1,155,000 square feet of space. We have also leased and subsequently subleased to third parties approximately ~~71,000~~22,000 square feet of excess leased space.

In addition, we own ~~four~~ buildings in San Mateo, ~~California; five buildings in~~ Rancho Cordova ~~California; two buildings in~~and Stockton, California; ~~five buildings in~~ St. Petersburg ~~Florida; one building in~~and Ft. Lauderdale, Florida; ~~three buildings in~~ Hyderabad, India; and ~~two buildings in~~ Nassau, The Bahamas, as well as space in office buildings in Argentina, India and Singapore. The buildings we own consist of approximately ~~2,112,000~~2,118,000 square feet of space. We have leased to third parties approximately ~~298,000~~389,000 square feet of excess owned space.


Item 3.	Legal Proceedings.

The information set forth in response to this Item 3 of Regulation S-K under “Legal Proceedings” is incorporated by reference from the “Legal Proceedings” section in Note 1511 – Commitments and Contingencies in the notes to consolidated financial statements in Item 8 of Part II of this Form 10-K, which is incorporated herein by reference.


Item 4.	Mine Safety Disclosures.

Not applicable.

~~Executive Officers of the Registrant~~

EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G(3) to Form 10-K, the following description of our executive officers is included as an unnumbered item in Part I of this report in lieu of being included in our definitive proxy statement for our annual meeting of stockholders. Set forth below are the name, age, present title, and certain other information for each of our executive officers

Table of Contents

as of November ~~12, 2013~~14, 2016. Each executive officer is appointed by Franklin’s Board of Directors and holds his/her office until the earlier of his/her death, resignation, retirement, disqualification or removal.

Vijay C. Advani

Age 5255

Co-President of Franklin since October 2015; formerly, Executive Vice ~~President -~~ President–Global Advisory Services of Franklin ~~since~~from March ~~2011; formerly,~~2011 to September 2015, Executive Vice ~~President-Global~~President–Global Distribution of Franklin from June 2008 to March 2011, and Executive Vice President–Global Advisor Services of Franklin from December 2005 to June 2008; officer and/or director of ~~various~~certain subsidiaries of ~~Franklin; employed by Franklin or its subsidiaries in various other capacities for more than the past five years.~~Franklin.

Gregory E. Johnson

Age 5255

Chairman of the Board of Franklin since June 2013 ~~President of Franklin since December 1999~~ and Chief Executive Officer of Franklin since January 2004; formerly, President of Franklin from December 1999 to September 2015; officer and/or director of ~~various~~certain subsidiaries of Franklin; director or trustee of 44 registered investment companies managed or advised by subsidiaries of Franklin.

~~Table of Contents~~

Jennifer M. Johnson

Age 4952

Co-President of Franklin since October 2015; formerly, Executive Vice President and Chief Operating Officer of Franklin ~~since~~from March ~~2010; formerly,~~2010 to September 2015, Executive Vice President–Operations and Technology of Franklin from December 2005 to March 2010, and Senior Vice President and Chief Information Officer of Franklin from May 2003 to December 2005; officer ~~of Franklin for more than the past five years; officer~~ and/or director of ~~various~~certain subsidiaries of Franklin; director or trustee of certain registered investment companies managed or advised by subsidiaries of Franklin. ~~Director, Keynote Systems, Inc. since April 2004.~~

Rupert H. Johnson, Jr.

Age 7376

Vice Chairman of Franklin since December 1999 and director of Franklin since 1969; officer and/or director of ~~various~~certain subsidiaries of Franklin; ~~officer and/or~~ director or trustee of ~~various~~40 registered investment companies managed or advised by subsidiaries of Franklin.

Kenneth A. Lewis

Age 5255

Executive Vice President of Franklin since October 2007 and Chief Financial Officer of Franklin since October 2006; formerly, Senior Vice President and Treasurer of Franklin from October 2006 to October 2007, Vice President–Enterprise Risk Management of Franklin from April 2006 to October 2006 and Vice President and Treasurer of Franklin from June 2002 to April 2006; officer and/or director of ~~various~~certain subsidiaries of ~~Franklin for more than the past five years.~~

~~John M. Lusk~~

~~Age 55~~Franklin.

~~Executive Vice President - Investment Management of Franklin since March 2011; formerly,~~Executive Vice President–Portfolio Operations of Franklin from December 2005 to March 2011, and Vice President of Franklin from January 2004 to December 2005; officer and/or director of various subsidiaries of Franklin; employed by Franklin or its subsidiaries in various other capacities for more than the past five years.

Craig S. Tyle

Age 5356

Executive Vice President and General Counsel of Franklin since August 2005; formerly, a partner at Shearman & Sterling LLP (a law firm) from March 2004 to July 2005 and General Counsel for the Investment Company Institute (a trade group for the U.S. fund industry) from September 1997 through March 2004; officer and/or director of ~~various~~certain subsidiaries of Franklin; officer of certain registered investment companies managed or advised by subsidiaries of Franklin.

~~William Y. Yun~~

~~Age 54~~

Executive Vice President–Alternative Strategies of Franklin since June 2008, and formerly Executive Vice President– Institutional of Franklin from December 2005 to June 2008; President of Fiduciary Trust, a subsidiary of Franklin, from 2000 to December 2005; officer and/or director of other subsidiaries of Franklin; employed by Franklin or its subsidiaries in various other capacities since the acquisition of Fiduciary Trust in April 2001.

Family Relationships

Gregory E. Johnson is ~~the son of Charles B. Johnson (a portfolio manager for the Franklin Income Fund and former Chairman of the Board and director of Franklin),~~ the nephew of Rupert H. Johnson, Jr. and the brother of Charles E. Johnson (a director of Franklin) and Jennifer M. Johnson. Charles ~~B. Johnson and Rupert H. Johnson Jr. are brothers. Charles~~ E. Johnson is ~~the son of Charles B. Johnson,~~ the nephew of Rupert H. Johnson, Jr. and the brother of Gregory E. Johnson and Jennifer M. Johnson. Jennifer M. Johnson is the ~~daughter of Charles B. Johnson, the~~ niece of Rupert H. Johnson, Jr. and the sister of Gregory E. Johnson and Charles E. Johnson.

3228

Table of Contents

PART II


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is traded on the NYSE under the ticker symbol “BEN.” On September 30, ~~2013~~2016, the closing price of our common stock on the NYSE was $~~50.55~~35.57 per share. At October 31, ~~2013~~2016, there were ~~4,675~~3,287 stockholders of record of our common stock.

~~In July~~ ~~2013~~, a three-for-one split of our common stock was distributed to common stockholders in the form of a stock dividend. All share and per share data have been adjusted retroactively to reflect the stock split.

The following table sets forth the high and low sales prices for our common stock on the NYSE for each ~~full~~ quarterly period of the two most recently completed fiscal years:


Quarter	2013 Fiscal Year				2012 Fiscal Year				Fiscal Year 2016				Fiscal Year 2015
Quarter	High		Low		High		Low		High		Low		High		Low
October-December	$	44.64	$	41.34	$	37.46	$	29.24	$	42.23	$	34.62	$	59.43	$	49.12
January-March	$	50.35	$	42.67	$	42.16	$	31.46	$	39.94	$	31.00	$	55.91	$	50.49
April-June	$	56.54	$	44.22	$	42.61	$	33.64	$	41.24	$	30.56	$	52.76	$	48.69
July-September	$	54.36	$	45.06	$	42.73	$	35.33	$	36.99	$	31.59	$	49.96	$	36.15

We declared regular cash dividends of ~~$0.39~~$0.72 per share ($~~0.097~~0.18 per share ~~in each of the first three quarters and~~ ~~$0.10~~per ~~share in the fourth~~ quarter) ~~and a special cash dividend of~~ ~~$1.00~~ ~~per share~~ in the fiscal year ended September 30, ~~2013~~2016 (“fiscal year ~~2013~~2016”). We declared regular cash dividends of ~~$0.36~~$0.60 per share ($~~0.09~~0.15 per share per quarter) and a special cash dividend of ~~$0.667~~$0.50 per share in the fiscal year ended September 30, ~~2012~~2015 (“fiscal year ~~2012~~2015”). We currently expect to continue paying comparable regular cash dividends on a quarterly basis to holders of our common stock depending upon earnings and other relevant factors.

The equity compensation plan information called for by Item 201(d) of Regulation S-K is set forth in Item 12 of Part III of this Form 10-K under the heading “Equity Compensation Plan Information.”

The following table provides information with respect to the shares of our common stock that we repurchased during the three months ended September 30, ~~2013~~2016.

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
July 2013 672,200
$ 46.52
672,200
16,123,831
August 2013 2,939,030
$ 47.21
2,939,030
13,184,801
September 2013 1,924,532
$ 49.11
1,924,532
11,260,269
Total 5,535,762
5,535,762



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
July 2016	979,592	$	33.98	979,592	56,903,314
August 2016	3,137,858	$	36.21	3,137,858	53,765,456
September 2016	3,080,527	$	35.49	3,080,527	50,684,929
Total	7,197,977			7,197,977

Under our stock repurchase program, 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. ~~On December 19, 2011,~~In June 2016 and October 2015, we announced that our Board of Directors authorized the repurchase of up to 50.0 million and 30.0 million additional shares of our common stock under ~~our~~the stock repurchase program. At September 30, ~~2013~~, ~~11.3~~2016, 50.7 million shares remained available for repurchase under the program, which is not subject to an expiration date. There were no unregistered sales of equity securities during fiscal years ~~2013~~2016 and ~~2012.~~2015.

3329

Table of Contents


Item 6.	Selected Financial Data.

FINANCIAL HIGHLIGHTS


as of and for the fiscal years ended September 30,	2013			2012			2011			2010			2009			2016			2015			2014			2013			2012
Summary of Operations (in millions)
Operating revenues	$	7,985.0		$	7,101.0		$	7,140.0		$	5,853.0		$	4,194.1		$	6,618.0		$	7,948.7		$	8,491.4		$	7,985.0		$	7,101.0
Operating income	2,921.3			2,515.2			2,659.8			1,958.7			1,202.6			2,365.7			3,027.6			3,221.2			2,921.3			2,515.2
Operating margin	36.6		%	35.4		%	37.3		%	33.5		%	28.7		%	35.7		%	38.1		%	37.9		%	36.6		%	35.4		%
Net income attributable to Franklin Resources, Inc.	2,150.2			1,931.4			1,923.6			1,445.7			896.8			1,726.7			2,035.3			2,384.3			2,150.2			1,931.4
Financial Data (in millions)
Total assets	$	15,390.3		$	14,751.5		$	13,775.8		$	10,708.1		$	9,468.5		$	16,098.8		$	16,335.7		$	16,357.1		$	15,390.3		$	14,751.5
Debt	1,197.7			1,566.1			998.2			979.9			121.2			1,401.2			1,348.0			1,198.2			1,197.7			1,566.1
Debt of consolidated variable interest entities and sponsored investment products	1,097.4			1,211.1			1,170.3			—			—
Debt of consolidated sponsored investment products and variable interest entities																682.2			807.3			950.8			1,097.4			1,211.1
Franklin Resources, Inc. stockholders’ equity	10,073.1			9,201.3			8,524.7			7,727.0			7,632.2			11,935.8			11,841.0			11,584.1			10,073.1			9,201.3
Operating cash flows	2,035.7			1,066.2			1,621.8			1,651.0			641.4			1,727.7			2,252.0			2,138.0			2,035.7			1,066.2
Investing cash flows	232.9			873.4			435.9			(32.7		)	289.9			192.2			248.9			390.6			232.9			873.4
Financing cash flows	(2,018.1		)	(1,084.9		)	(968.2		)	(594.9		)	(340.6		)	(1,800.7		)	(1,612.2		)	(1,195.3		)	(2,018.1		)	(1,084.9		)
Assets Under Management (in billions)
Ending	$	844.7		$	749.9		$	659.9		$	644.9		$	523.4		$	733.3		$	770.9		$	898.0		$	844.7		$	749.9
Average¹	808.2			705.7			694.4			571.1			442.2			749.3			869.5			887.9			808.2			705.7
Per Common Share²
Earnings
Basic	$	3.37		$	2.99		$	2.89		$	2.12		$	1.29		$	2.94		$	3.29		$	3.79		$	3.37		$	2.99
Diluted	3.37			2.98			2.87			2.11			1.28			2.94			3.29			3.79			3.37			2.98
Cash dividends	1.39			1.03			0.33			1.29			0.28
Cash dividends declared																0.72			1.10			0.48			1.39			1.03
Book value	15.97			14.45			13.05			11.50			11.09			20.93			19.62			18.60			15.97			14.45
Employee Headcount	9,002			8,558			8,453			7,927			7,745			9,059			9,489			9,266			9,002			8,558



Delaware		13-2670991
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One Franklin Parkway, San Mateo, California		94403
(Address of principal executive offices)		(Zip Code)



Title of each class		Name of each exchange on which registered
Common Stock, par value $.10 per share		New York Stock Exchange



Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o



FORM 10-K ITEM			PAGE NUMBER
PART I
	ITEM 1.	BUSINESS	3
		~~Overview~~	3
		~~Company History and Acquisitions~~	4
		~~Investment Management and Related Services~~	5
		~~Financial Information About Segment and Geographic Areas~~	14
		~~Regulatory Considerations~~	14
		~~Competition~~	20
		~~Intellectual Property~~	21
		~~Employees~~	22
		~~Available Information~~	22
	ITEM 1A.	RISK FACTORS	22	19
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	31	27
	ITEM 2.	PROPERTIES	31	27
	ITEM 3.	LEGAL PROCEEDINGS	31	27
	ITEM 4.	MINE SAFETY DISCLOSURES	31	27
			~~Executive Officers~~EXECUTIVE OFFICERS OF THE REGISTRANT ~~of the Registrant~~	31	27
PART II
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	33	29
	ITEM 6.	SELECTED FINANCIAL DATA	34	30
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34	31
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	59	55
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	62	57
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	~~109~~	94
	ITEM 9A.	CONTROLS AND PROCEDURES	~~109~~	94
	ITEM 9B.	OTHER INFORMATION	~~109~~	94
PART III
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	~~110~~	94
	ITEM 11.	EXECUTIVE COMPENSATION	~~110~~	94
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	~~110~~	95
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	~~111~~	95
	ITEM 14.	PRINCIPAL ~~ACCOUNTING~~ACCOUNTANT FEES AND SERVICES	~~111~~	95
PART IV
	ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	~~112~~	96
	SIGNATURES		~~115~~	98
EXHIBIT INDEX				99


Investment Category	Value in Billions		Percentage of Total AUM
Investment Objective					Value in Billions		Percentage of Total AUM
Equity
Growth potential, income potential, value or various combinations thereof	$	341.1	40	%	$	303.7	41	%
Hybrid
Asset allocation, balanced, flexible and income-mixed funds	137.5		16	%
Fixed-Income
Both long-term and short-term	359.5		43	%
Asset allocation, balanced, flexible, alternative and income-mixed funds					137.4		19	%
Fixed Income
Global/international, U.S. tax-free and U.S. taxable					286.1		39	%
Cash Management
Short-term liquid assets	6.6		1	%	6.1		1	%
Total	$	844.7	100	%	$	733.3	100	%



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



(in billions) CATEGORY	INVESTMENT CLASSIFICATION	U.S. Funds		Cross-Border Funds		Local/Regional Funds		Other Managed Accounts, Alternative Investment Products and Trusts		Total
Equity
Asia-Pacific	Invests primarily in equity securities of companies located in the Asia-Pacific region	$	1.2	$	18.2	$	2.9	$	22.8	$	45.1
Canada	Invests primarily in equity securities of companies located in Canada	—		—		4.4		5.5		9.9
Europe, the Middle East and Africa	Invests primarily in equity securities of companies located in Europe, the Middle East and Africa	2.7		7.2		6.5		0.5		16.9
U.S.	Invests primarily in equity securities of companies located in the U.S.	80.2		7.8		1.5		7.7		97.2
Emerging Markets	Invests primarily in equity securities of companies located in developing regions of the world	6.1		7.2		3.8		6.9		24.0
Global/International	Invests primarily in equity securities of companies doing business either worldwide or only outside of the U.S.	70.6		13.8		5.8		57.8		148.0
Total Equity		160.8		54.2		24.9		101.2		341.1
Hybrid
Asia-Pacific	Invests primarily in equity and fixed-income securities of companies located in the Asia-Pacific region	—		—		0.8		5.1		5.9
Canada	Invests primarily in equity and fixed-income securities of companies located in Canada	—		—		2.2		3.1		5.3
Europe, the Middle East and Africa	Invests primarily in equity and fixed-income securities of companies located in Europe, the Middle East and Africa	—		1.2		—		0.3		1.5
U.S.	Invests primarily in equity and fixed-income securities of companies located in the U.S.	93.4		2.4		—		24.1		119.9
Global/International	Invests primarily in equity and fixed-income securities of companies doing business either worldwide or only outside of the U.S.	2.1		1.9		0.4		0.5		4.9
Total Hybrid		95.5		5.5		3.4		33.1		137.5



(in billions) INVESTMENT OBJECTIVE	U.S. Funds		Cross-Border Funds		Local/Regional Funds		Other Managed Accounts, Alternative Investment Products and Trusts		Total
Equity
Asia-Pacific	$	0.8	$	10.7	$	6.4	$	19.2	$	37.1
Canada	—		—		4.0		5.2		9.2
Europe, the Middle East and Africa	2.5		4.2		5.7		0.3		12.7
U.S.	89.1		8.3		1.7		4.2		103.3
Emerging markets¹	3.3		4.3		2.9		4.1		14.6
Global/international²	62.3		12.3		4.2		48.0		126.8
Total equity	158.0		39.8		24.9		81.0		303.7
Hybrid
Asia-Pacific	—		—		0.4		4.0		4.4
Canada	—		—		0.7		0.9		1.6
Europe, the Middle East and Africa	—		2.2		—		0.4		2.6
U.S.	94.4		2.4		0.1		22.1		119.0
Global/international²	3.3		3.6		1.4		1.5		9.8
Total hybrid	97.7		8.2		2.6		28.9		137.4
Fixed Income
Asia-Pacific	—		0.8		4.9		0.6		6.3
Canada	—		—		2.9		2.2		5.1
Europe, the Middle East and Africa	—		1.9		—		1.1		3.0
U.S. tax-free	71.8		—		0.2		4.5		76.5
U.S. taxable	34.0		9.8		2.4		7.2		53.4
Emerging markets¹	1.1		5.4		0.1		10.9		17.5
Global/international²	51.6		40.8		3.1		28.8		124.3
Total fixed income	158.5		58.7		13.6		55.3		286.1
Cash Management	4.9		0.5		0.7		—		6.1
Total	$	419.1	$	107.2	$	41.8	$	165.2	$	733.3


²	Global/international includes entities doing business either worldwide or only outside of the U.S.


²	All per share amounts for the fiscal year ending September 30, 2012 have been adjusted retroactively to reflect ~~the~~a three-for-one split of common stock ~~described~~distributed to common stockholders in ~~Item 5 (“Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases~~the form of ~~Equity Securities”).~~a stock dividend in July 2013.


(dollar amounts in millions, except per share data)										2013 vs. 2012		2012 vs. 2011
(in millions, except per share data)												2012 vs. 2011											2016 vs. 2015			2015 vs. 2014
for the fiscal years ended September 30,	2013			2012			2011			2013 vs. 2012	2013 vs. 2012		2012 vs. 2011		2016			2015			2014
Operating revenues	$	7,985.0		$	7,101.0		$	7,140.0			2013 vs. 2012		2012 vs. 2011	$	6,618.0		$	7,948.7		$	8,491.4		2016 vs. 2015		(17	2015 vs. 2014	%)		(6	%)
Operating income	2,921.3			2,515.2			2,659.8			16	%	(5	)%	2,365.7			3,027.6			3,221.2				(22	%)		(6	%)
Net income attributable to Franklin Resources, Inc.	2,150.2			1,931.4			1,923.6			11	%	0	%	1,726.7			2,035.3			2,384.3				(15	%)		(15	%)
Diluted earnings per share	$	3.37		$	2.98		$	2.87		13	%	4	%	$	2.94		$	3.29		$	3.79			(11	%)		(13	%)
Operating margin¹	36.6		%	35.4		%	37.3		%					35.7		%	38.1		%	37.9		%


(dollar amounts in billions)							2013 vs. 2012		2012 vs. 2011
(in billions)									2012 vs. 2011								2016 vs. 2015			2015 vs. 2014
as of September 30,	2013		2012		2011		2013 vs. 2012	2013 vs. 2012		2012 vs. 2011		2016		2015		2014
Equity								2013 vs. 2012		2012 vs. 2011							2016 vs. 2015
Global/international	$	243.9	$	214.9	$	185.8	13	%	16	%	$	200.4	$	212.1	$	261.5		(6	%)	2015 vs. 2014		(19	%)
United States	97.2		82.2		68.4		18	%	20	%	103.3		100.8		109.5			2	%		(8	%)
Total equity	341.1		297.1		254.2		15	%	17	%	303.7		312.9		371.0			(3	%)		(16	%)
Hybrid	137.5		110.1		101.3		25	%	9	%	137.4		138.3		159.0			(1	%)		(13	%)
Fixed-Income
Fixed Income
Tax-free	72.4		83.2		72.0		(13	)%	16	%	76.5		71.7		72.1			7	%		(1	%)
Taxable
Global/international	228.8		196.4		178.8		16	%	10	%	156.2		182.7		225.1			(15	%)		(19	%)
United States	58.3		56.7		46.9		3	%	21	%	53.4		58.5		63.8			(9	%)		(8	%)
Total fixed-income	359.5		336.3		297.7		7	%	13	%
Total fixed income											286.1		312.9		361.0			(9	%)		(13	%)
Cash Management	6.6		6.4		6.7		3	%	(4	)%	6.1		6.8		7.0			(10	%)		(3	%)
Total	$	844.7	$	749.9	$	659.9	13	%	14	%	$	733.3	$	770.9	$	898.0		(5	%)		(14	%)
Average for the Year	$	808.2	$	705.7	$	694.4	15	%	2	%	$	749.3	$	869.5	$	887.9		(14	%)		(2	%)


(dollar amounts in billions)	Average AUM						2013 vs. 2012		2012 vs. 2011
(in billions)									2012 vs. 2011		Average AUM							2016 vs. 2015			2015 vs. 2014
for the fiscal years ended September 30,	2013		2012		2011		2013 vs. 2012	2013 vs. 2012		2012 vs. 2011			2016		2015		2014
Equity								2013 vs. 2012		2012 vs. 2011								2016 vs. 2015			2015 vs. 2014
Global/international	$	228.1	$	204.3	$	217.7	12	%	(6	)%		$	205.1	$	247.5	$	262.1		(17	%)		(6	%)
United States	87.8		78.7		78.0		12	%	1	%		101.1		112.4		107.6			(10	%)		4	%
Total equity	315.9		283.0		295.7		12	%	(4	)%		306.2		359.9		369.7			(15	%)		(3	%)
Hybrid	126.2		101.9		110.5		24	%	(8	)%		135.5		155.3		152.7			(13	%)		2	%
Fixed-Income
Fixed Income
Tax-free	81.7		77.5		71.3		5	%	9	%		74.0		73.1		71.0			1	%		3	%
Taxable
Global/international	220.5		185.4		163.2		19	%	14	%		172.6		211.7		227.7			(18	%)		(7	%)
United States	57.9		51.6		46.9		12	%	10	%		54.5		62.4		60.2			(13	%)		4	%
Total fixed-income	360.1		314.5		281.4		14	%	12	%
Total fixed income												301.1		347.2		358.9			(13	%)		(3	%)
Cash Management	6.0		6.3		6.8		(5	)%	(7	)%		6.5		7.1		6.6			(8	%)		8	%
Total	$	808.2	$	705.7	$	694.4	15	%	2	%		$	749.3	$	869.5	$	887.9		(14	%)		(2	%)


	Mix of Average AUM						Mix of Average AUM
for the fiscal years ended September 30,	2013		2012		2011		2016		2015		2014
Equity
Global/international	28	%	29	%	32	%	27	%	28	%	30	%
United States	11	%	11	%	11	%	14	%	13	%	12	%
Total equity	39	%	40	%	43	%	41	%	41	%	42	%
Hybrid	16	%	14	%	16	%	18	%	18	%	17	%
Fixed-Income
Fixed Income
Tax-free	10	%	11	%	10	%	10	%	9	%	8	%
Taxable
Global/international	27	%	26	%	23	%	23	%	24	%	25	%
United States	7	%	8	%	7	%	7	%	7	%	7	%
Total fixed-income	44	%	45	%	40	%
Total fixed income							40	%	40	%	40	%
Cash Management	1	%	1	%	1	%	1	%	1	%	1	%
Total	100	%	100	%	100	%	100	%	100	%	100	%


¹	Represents simple monthly average AUM.


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.


¹	Includes ~~impact of~~ foreign exchange revaluation.


¹	Includes ~~impact~~foreign exchange revaluation.


(dollar amounts in billions)			% of Total						% of Total						% of Total
(in billions)															% of Total									2016 vs. 2015			2015 vs. 2014
for the fiscal years ended September 30,	2013		% of Total		% of Total			2012				% of Total		2011				% of Total		2016			2015				2015 vs. 2014		2014
United States	$	523.8		$	% of Total		461.3			$	459.4	% of Total				$	507.4	% of Total			$	577.9		2016 vs. 2015		$	578.8			(12	%)		0	%
International									% of Total
Europe, the Middle East and Africa	137.4		17	%		112.1			16	%		109.3			16	%		108.9			137.9			149.5				(21	%)		(8	%)
Asia-Pacific	83.5		10	%		74.3			10	%		66.5			9	%		82.7			90.0			91.6				(8	%)		(2	%)
Canada	35.2		4	%		32.1			5	%		33.8			5	%		31.3			36.2			39.0				(14	%)		(7	%)
Latin America¹	28.3		4	%		25.9			4	%		25.4			4	%		19.0			27.5			29.0				(31	%)		(5	%)
Total international	$	284.4	35	%		$	244.4		35	%		$	235.0		34	%		$	241.9		$	291.6		$	309.1			(17	%)		(6	%)
Total	$	808.2	100	%		$	705.7		100	%		$	694.4		100	%		$	749.3		$	869.5		$	887.9			(14	%)		(2	%)


	Benchmark Comparison								Peer Group Comparison								Benchmark Comparison^{1, 2}								Peer Group Comparison^{1, 3}
	% of AUM Exceeding Benchmark								% of AUM in Top Two Peer Group Quartiles								% of AUM Exceeding Benchmark								% of AUM in Top Two Peer Group Quartiles
as of September 30, 2013	1-Year		3-Year		5-Year		10-Year		1-Year		3-Year		5-Year		10-Year
as of September 30, 2016																	1-Year		3-Year		5-Year		10-Year		1-Year		3-Year		5-Year		10-Year
Equity
Global/international	67	%	65	%	65	%	64	%	61	%	59	%	79	%	68	%	25	%	13	%	25	%	47	%	40	%	30	%	55	%	52	%
United States	68	%	12	%	28	%	46	%	43	%	51	%	50	%	41	%	38	%	20	%	6	%	32	%	77	%	61	%	52	%	71	%
Total equity	67	%	48	%	53	%	57	%	55	%	57	%	70	%	58	%	30	%	15	%	18	%	41	%	55	%	42	%	54	%	60	%
Hybrid	88	%	86	%	95	%	95	%	88	%	94	%	100	%	98	%	81	%	8	%	9	%	8	%	90	%	9	%	87	%	94	%
Fixed-Income
Fixed Income
Tax-free	7	%	40	%	31	%	34	%	16	%	42	%	78	%	99	%	44	%	63	%	55	%	39	%	44	%	60	%	48	%	88	%
Taxable
Global/international	94	%	90	%	96	%	96	%	98	%	97	%	99	%	99	%	5	%	8	%	84	%	88	%	6	%	3	%	90	%	93	%
United States	43	%	65	%	64	%	59	%	81	%	82	%	55	%	76	%	52	%	32	%	68	%	55	%	39	%	14	%	27	%	54	%
Total fixed-income	68	%	75	%	77	%	75	%	77	%	83	%	87	%	95	%
Total fixed income																	24	%	29	%	72	%	66	%	24	%	24	%	64	%	84	%


¹	AUM measured in the benchmark and peer group rankings represents 89% and 81% of our total AUM as of September 30, 2016.


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.


(dollar amounts in millions)							2013 vs. 2012		2012 vs. 2011
(in millions)									2012 vs. 2011								2016 vs. 2015			2015 vs. 2014
for the fiscal years ended September 30,	2013		2012		2011		2013 vs. 2012	2013 vs. 2012		2012 vs. 2011		2016		2015		2014
Investment management fees	$	5,071.4	$	4,458.7	$	4,531.4		2013 vs. 2012		2012 vs. 2011	$	4,471.7	$	5,327.8	$	5,565.7	2016 vs. 2015		(16	2015 vs. 2014	%)		(4	%)
Sales and distribution fees	2,516.0		2,259.3		2,263.5		11	%	0	%	1,806.4		2,252.4		2,546.4			(20	%)		(12	%)
Shareholder servicing fees	303.7		302.5		300.8		0	%	1	%	243.6		262.8		281.1			(7	%)		(7	%)
Other, net	93.9		80.5		44.3		17	%	82	%
Other											96.3		105.7		98.2			(9	%)		8	%
Total Operating Revenues	$	7,985.0	$	7,101.0	$	7,140.0	12	%	(1	)%	$	6,618.0	$	7,948.7	$	8,491.4		(17	%)		(6	%)


(in basis points)	Industry Average			Industry Average
for the fiscal years ended September 30,	2013	2012	2011	2016	2015	2014
Equity
Global/international	60	61	63	53	55	58
United States	44	45	47	37	39	41
Hybrid	39	39	40	50	52	53
Fixed-Income
Fixed Income
Tax-free	36	37	37	35	35	35
Taxable
Global/international	57	58	56
Global/international²				43	46	55
United States	38	37	38	33	35	37
Cash Management	13	13	16	10	9	11


²	The decreases in the average rate in fiscal years 2016 and 2015 reflect lower weightings of two large higher fee funds and higher weightings of a large low fee fund.


(dollar amounts in millions)	Total Portfolio		Percent of Total Portfolio		Trading Securities Included in Portfolio		Percent of Total Trading Securities		Assets of Consolidated VIEs and SIPs Included in Total Portfolio		Percent of Total
(in millions)													Total Portfolio		Percent of Total Portfolio		Trading Securities Included in Portfolio		Percent of Total Trading Securities		Assets of Consolidated SIPs and VIEs Included in Total Portfolio		Percent of Total
Cash and Cash Equivalents	$	6,323.1	58	%	$	—	0	%	$	137.1	6	%	$	8,483.3	68	%	$	—	0	%	$	236.2	14	%
Investment Securities
Equity
Global/international	542.0		5	%	—		0	%	423.2		19	%	692.4		6	%	6.1		0	%	657.4		37	%
United States	23.7		0	%	—		0	%	—		0	%	4.3		0	%	0.3		0	%	2.7		0	%
Total equity	565.7		5	%	—		0	%	423.2		19	%	696.7		6	%	6.4		0	%	660.1		37	%
Hybrid	240.2		2	%	—		0	%	159.9		7	%	224.2		2	%	75.3		7	%	81.5		5	%
Fixed-Income
Fixed Income
Tax-free	23.1		0	%	—		0	%	—		0	%	1.6		0	%	—		0	%	—		0	%
Taxable
Global/international	997.0		9	%	95.1		8	%	620.1		27	%	1,022.3		8	%	578.9		52	%	264.7		15	%
United States	2,197.2		21	%	1,101.6		92	%	941.1		41	%	991.9		8	%	461.3		41	%	507.1		29	%
Total fixed-income	3,217.3		30	%	1,196.7		100	%	1,561.2		68	%
Total Investment Securities	4,023.2		37	%	1,196.7		100	%	2,144.3		94	%
Total fixed income													2,015.8		16	%	1,040.2		93	%	771.8		44	%
Total investment securities													2,936.7		24	%	1,121.9		100	%	1,513.4		86	%
Other Investments	560.3		5	%	—		0	%	—		0	%	993.3		8	%	—		0	%	—		0	%
Total Cash and Cash Equivalents and Investments	$	10,906.6	100	%	$	1,196.7	100	%	$	2,281.4	100	%	$	12,413.3	100	%	$	1,121.9	100	%	$	1,749.6	100	%


(in millions)	Payments Due by Period										Payments Due by Fiscal Year
as of September 30, 2013	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Time deposits¹	$	26.5	$	0.7	$	11.1	$	2.6	$	12.1
as of September 30, 2016											2017		2018		2019		2020		2021		There-after		Total
Debt
Principal	1,197.7		—		249.9		298.7		649.1
Principal¹											$	352.4	$	—	$	—	$	349.9	$	—	$	698.9	$	1,401.2
Interest	221.0		36.5		65.2		53.3		66.0		42.9		36.0		36.0		36.0		19.8		48.3		219.0
Operating leases	190.3		51.1		83.4		36.0		19.8		44.7		43.1		39.0		31.6		28.0		190.2		376.6
Purchase obligations²	156.8		82.2		58.3		11.1		5.2		119.9		116.3		63.1		11.9		4.7		7.2		323.1
Total Contractual Obligations	1,792.3		170.5		467.9		401.7		752.2		559.9		195.4		138.1		429.4		52.5		944.6		2,319.9
Committed capital contributions³	43.0		43.0		—		—		—		35.2		—		—		—		—		—		35.2
Contingent consideration liabilities⁴	166.8		3.8		17.1		96.2		49.7
Total Contractual Obligations, Commitments and Contingent Liabilities	$	2,002.1	$	217.3	$	485.0	$	497.9	$	801.9
Contingent consideration liability⁴											38.1		37.9		40.2		—		—		—		116.2
Total Contractual Obligations, Commitments and Contingent Liability											$	633.2	$	233.3	$	178.3	$	429.4	$	52.5	$	944.6	$	2,471.3


¹	~~Time deposits include scheduled~~Debt principal ~~and interest payments.~~represents carrying amount.


²	Purchase obligations include contractual amounts that will be due to purchase goods and services to be used in our operations and may be canceled at earlier times than those indicated under certain conditions that may include termination fees.


³	Committed capital contributions relate to discretionary commitments to invest in SIPs and other investment products. Generally, the timing of the funding of these commitments is unknown as they are callable on demand at any time prior to the expiration of the commitment periods.


⁴	Contingent consideration ~~liabilities primarily relate~~liability relates to the ~~Company's~~Company’s commitment to acquire the remaining interests in ~~K2 Advisors Holdings, LLC.~~K2.



Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2	Observable inputs other than Level 1 quoted prices, such as non-binding quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or corroborated by observable market data. Level 2 quoted prices are generally obtained from two independent third-party brokers or dealers, including prices derived from model-based valuation techniques for which the significant assumptions are observable in the market or corroborated by observable market data. Quoted prices are validated through price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of third-party vendors.

Level 3	Unobservable inputs that are supported by little or no market activity. These inputs require significant management judgment and reflect our estimation of assumptions that market participants would use in pricing the asset or liability.


(in millions, except per share data)
Quarter ended	December 31			March 31		June 30		September 30		December 31			March 31		June 30		September 30
Fiscal year 2013
Fiscal year 2016
Operating revenues	$	1,901.8		$	2,013.6	$	2,084.8	$	1,984.8	$	1,758.0		$	1,613.9	$	1,634.3	$	1,611.8
Operating income	685.1			729.4		771.7		735.1		653.6			537.3		595.4		579.4
Net income attributable to Franklin Resources, Inc.	516.1			572.8		552.3		509.0		447.8			360.4		446.4		472.1
Earnings per share
Basic	$	0.81		$	0.90	$	0.87	$	0.80	$	0.74		$	0.61	$	0.77	$	0.82
Diluted	0.81			0.90		0.86		0.80		0.74			0.61		0.77		0.82
Dividends per share	$	1.097	¹	$	0.097	$	0.097	$	0.100
Dividends declared per share										$	0.18		$	0.18	$	0.18	$	0.18
Common stock price per share
High	$	44.64		$	50.35	$	56.54	$	54.36	$	42.23		$	39.94	$	41.24	$	36.99
Low	41.34			42.67		44.22		45.06		34.62			31.00		30.56		31.59
AUM (in billions)
Ending	$	781.8		$	823.7	$	815.0	$	844.7	$	763.9		$	742.6	$	732.1	$	733.3
Average	763.6			807.3		833.2		827.8		781.5			737.1		739.8		736.4

Fiscal year 2012
Fiscal year 2015
Operating revenues	$	1,701.9		$	1,799.3	$	1,783.6	$	1,816.2	$	2,064.3		$	2,009.8	$	2,000.8	$	1,873.8
Operating income	632.4			617.1		643.0		622.7		782.0			757.7		769.8		718.1
Net income attributable to Franklin Resources, Inc.	480.8			503.2		455.3		492.1		566.4			606.5		504.2		358.2
Earnings per share
Basic	$	0.74		$	0.78	$	0.71	$	0.77	$	0.91		$	0.98	$	0.82	$	0.59
Diluted	0.73			0.77		0.71		0.77		0.91			0.98		0.82		0.59
Dividends per share	$	0.757	¹	$	0.090	$	0.090	$	0.090
Dividends declared per share										$	0.65	¹	$	0.15	$	0.15	$	0.15
Common stock price per share
High	$	37.46		$	42.16	$	42.61	$	42.73	$	59.43		$	55.91	$	52.76	$	49.96
Low	29.24			31.46		33.64		35.33		49.12			50.49		48.69		36.15
AUM (in billions)
Ending	$	670.3		$	725.7	$	707.1	$	749.9	$	880.1		$	880.6	$	866.5	$	770.9
Average	675.0			706.9		710.7		726.7		894.1			881.6		882.6		824.5


¹	Includes a special cash dividend of ~~$1.00~~ ~~and~~ ~~$0.667~~$0.50 per ~~share for fiscal years~~ ~~2013~~ ~~and~~ ~~2012~~. share.


(in millions)	Carrying Value		Carrying Value Assuming a 10% Increase		Carrying Value Assuming a 10% Decrease		Carrying Value		Carrying Value Assuming a 10% Increase		Carrying Value Assuming a 10% Decrease
Investment securities, trading	$	1,196.7	$	1,316.4	$	1,077.0	$	1,121.9	$	1,234.1	$	1,009.7
Investment securities, available-for-sale	682.2		750.4		614.0		301.4		331.5		271.3
Direct investments in consolidated VIEs and consolidated SIPs	468.0		514.8		421.2
Direct investments in consolidated SIPs and consolidated VIEs							413.7		455.1		372.3
Total	$	2,346.9	$	2,581.6	$	2,112.2	$	1,837.0	$	2,020.7	$	1,653.3



CONTENTS	Page
Management’s Report on Internal Control Over Financial Reporting	63	58
Report of Independent Registered Public Accounting Firm	64	59
Consolidated Financial Statements of Franklin Resources, Inc. and its consolidated subsidiaries:
Consolidated Statements of Income for the fiscal years ended September 30, ~~2013, 2012~~2016, 2015 and ~~2011~~2014	65	60
Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, ~~2013, 2012~~2016, 2015 and ~~2011~~2014	66	61
Consolidated Balance Sheets as of September 30, ~~2013~~2016 and ~~2012~~2015	67	62
Consolidated Statements of Stockholders’ Equity ~~and Redeemable Noncontrolling Interests~~ as of and for the fiscal years ended September 30, ~~2013, 2012~~2016, 2015 and ~~2011~~2014	69	63
Consolidated Statements of Cash Flows for the fiscal years ended September 30, ~~2013, 2012~~2016, 2015 and ~~2011~~2014	71	65
Notes to Consolidated Financial Statements	73	67


(dollars in millions)
(in millions, except share and per share data)
as of September 30,	2013		2012		2016			2015
Assets
Cash and cash equivalents	$	6,186.0	$	5,784.3	$	8,247.1		$	8,184.9
Receivables	1,038.9		850.2		794.3			838.0
Investments (including $1,892.7 and $2,012.7 at fair value at September 30, 2013 and 2012)	2,439.2		2,583.8
Loans receivable, net	229.7		254.4
Investments (including $1,437.6 and $1,712.3 at fair value at September 30, 2016 and 2015)					2,416.6			2,459.2
Assets of consolidated sponsored investment products
Cash and cash equivalents	93.1		42.8		89.8			108.5
Investments, at fair value	1,203.2		1,046.6		1,025.6			977.4
Assets of consolidated variable interest entities
Cash and cash equivalents	44.0		224.3		146.4			74.7
Investments, at fair value	941.1		984.1		487.8			672.5
Deferred taxes	112.4		94.9
Property and equipment, net	564.1		582.7		523.2			510.1
Goodwill and other intangible assets, net	2,359.2		2,141.9		2,211.3			2,257.0
Other	179.4		161.5		156.7			253.4
Total Assets	$	15,390.3	$	14,751.5	$	16,098.8		$	16,335.7
Liabilities
Compensation and benefits	$	444.5	$	400.5	$	357.4		$	433.2
Accounts payable and accrued expenses	262.8		241.6		233.3			232.1
Dividends					104.6			92.6
Commissions	437.7		383.9		302.0			359.9
Deposits	586.8		671.7
Debt	1,197.7		1,566.1		1,401.2			1,348.0
Debt of consolidated sponsored investment products	108.9		110.2		75.0			81.2
Liabilities of consolidated variable interest entities
Debt, at fair value	988.5		1,100.9
Other, at fair value	10.9		61.9
Debt of consolidated variable interest entities					607.2			726.1
Deferred taxes	272.5		276.3		161.5			241.4
Other	272.7		151.2		267.3			265.8
Total liabilities	4,583.0		4,964.3		3,509.5			3,780.3
Commitments and Contingencies (Note 15)
Commitments and Contingencies (Note 11)
Redeemable Noncontrolling Interests	121.8		26.7		61.1			59.6
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; 570,345,156 and 603,517,181 shares issued and outstanding at September 30, 2016 and 2015					57.0			60.4
Retained earnings					12,226.2			12,094.8
Accumulated other comprehensive loss					(347.4		)	(314.2		)
Total Franklin Resources, Inc. stockholders’ equity					11,935.8			11,841.0
Nonredeemable noncontrolling interests					592.4			654.8
Total stockholders’ equity					12,528.2			12,495.8
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity					$	16,098.8		$	16,335.7



	Franklin Resources, Inc.																				Nonredeemable Noncontrolling Interests			Total Stockholders’ Equity
(in millions)	Common Stock					Capital in Excess of Par Value			Retained Earnings			Appropriated Retained Earnings of Consolidated Variable Interest Entities			Accumulated Other Compre- hensive Income (Loss)			Stockholders’ Equity
as of and for the fiscal years ended September 30, 2016, 2015 and 2014	Shares		Amount			Capital in Excess of Par Value			Retained Earnings						Accumulated Other Compre- hensive Income (Loss)			Stockholders’ Equity
Balance at October 1, 2013	630.9		$	63.1		$	—		$	9,991.2		$	12.7		$	6.1		$	10,073.1		$	612.4		$	10,685.5
Net income									2,384.3									2,384.3			6.8			2,391.1
Net income reclassified to appropriated retained earnings												1.2						1.2			(1.2		)
Other comprehensive loss															(123.8		)	(123.8		)				(123.8		)
Cash dividends declared on common stock									(301.7		)							(301.7		)				(301.7		)
Repurchase of common stock	(11.5	)	(1.1		)	(172.9		)	(448.2		)							(622.2		)				(622.2		)
Issuance of common stock	3.5		0.3			148.9												149.2						149.2
Tax benefit from stock-based compensation						13.3												13.3						13.3
Stock-based compensation						10.7												10.7						10.7
Net subscriptions																					10.3			10.3
Balance at September 30, 2014	622.9		$	62.3		$	—		$	11,625.6		$	13.9		$	(117.7	)	$	11,584.1		$	628.3		$	12,212.4
Adjustment for adoption of new accounting guidance									(0.3		)	(13.9		)				(14.2		)				(14.2		)
Net income									2,035.3									2,035.3			75.5			2,110.8
Other comprehensive loss															(196.5		)	(196.5		)				(196.5		)
Cash dividends declared on common stock									(682.1		)							(682.1		)				(682.1		)
Repurchase of common stock	(22.5	)	(2.2		)	(173.9		)	(883.7		)							(1,059.8		)				(1,059.8		)
Issuance of common stock	3.1		0.3			154.5												154.8						154.8
Tax benefit from stock-based compensation						10.9												10.9						10.9
Stock-based compensation						8.5												8.5						8.5
Net distributions																					(49.0		)	(49.0		)
Balance at September 30, 2015	603.5		$	60.4		$	—		$	12,094.8		$	—		$	(314.2	)	$	11,841.0		$	654.8		$	12,495.8