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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

FRANKLIN RESOURCES, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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FRANKLIN RESOURCES, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

DEAR STOCKHOLDER:

The Board of Directors of Franklin Resources, Inc. (the “Company”) invites you to attend the 2007 annual meeting of stockholders (the “Annual Meeting”) to be held on Thursday, January 25, 2007 at 10:00 a.m., Pacific Standard Time, in the H. L. Jamieson Auditorium, at One Franklin Parkway, Building 920, San Mateo, California, for the following purposes:

The Company’s Board of Directors has fixed the close of business on November 30, 2006 as the record date for the determination of stockholders entitled to receive notice of, and to vote on, all matters presented at the Annual Meeting or any adjournments thereof. Your vote is very important. Even if you think that you will attend the Annual Meeting, we ask you to please return your proxy card. You also can vote your shares by telephone or over the Internet.

By order of the Board of Directors,

BARBARA J. GREEN

SECRETARY

DECEMBER 29, 2006

SAN MATEO, CALIFORNIA

Please vote by telephone or by using the Internet as instructed on the enclosed proxy card or complete, sign and return the proxy card in the enclosed envelope.

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FRANKLIN RESOURCES, INC.

One Franklin Parkway

San Mateo, California 94403-1906

PROXY STATEMENT

December 29, 2006

This Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders are furnished in connection with the solicitation by the Board of Directors of Franklin Resources, Inc., a Delaware corporation (the “Company”), of the accompanying proxy to be voted at the 2007 annual meeting of stockholders (the “Annual Meeting”), which will be held on Thursday, January 25, 2007, at 10:00 a.m., Pacific Standard Time, in the H. L. Jamieson Auditorium, One Franklin Parkway, Building 920, San Mateo, California, the Company’s principal executive offices. We expect that this Proxy Statement and the enclosed proxy will be mailed on or about December 29, 2006 to each stockholder entitled to vote.

All materials filed by the Company with the Securities and Exchange Commission (the “SEC”) can be obtained at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or through the SEC’s website at www.sec.gov. You may obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330.

VOTING INFORMATION

WHO CAN VOTE?

Holders of the Company’s common stock, par value $0.10 per share, at the close of business on November 30, 2006 (the “Record Date”) are entitled to one vote for each share owned on that date on each matter presented at the Annual Meeting. As of the Record Date, the Company had 253,537,899 shares of common stock outstanding. If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of shares held in street name. The Notice of Annual Meeting of Stockholders, this Proxy Statement, the proxy card and the 2006 Annual Report have been forwarded to you by your broker, bank or other holder of record who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other holder of record on how to vote your shares by using the voting instruction form included in the mailing or by following their instructions for voting by telephone or on the Internet.

WHAT MATTERS ARE TO BE CONSIDERED AT THE MEETING?

At the Annual Meeting, stockholders will be asked to consider and vote upon: (1) the election of 13 directors to the Company’s Board of Directors (the “Board of Directors” or “Board”) to hold office until the next annual meeting of stockholders or until that person’s successor is elected and qualified or until his or her death, resignation, retirement, disqualification or removal; (2) the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2007; and (3) the approval of an amendment and restatement of the Franklin Resources, Inc. 1998 Employee Stock Investment Plan, including an increase of 4,000,000 shares authorized for issuance under the plan. The Board of Directors does not know of any other matter to be brought before the Annual Meeting. If any other matters properly come before the meeting, the persons named in the enclosed form of proxy or their substitutes will vote in accordance with their best judgment on such matters.

HOW MANY VOTES ARE NEEDED TO HOLD THE MEETING?

In order to take any action at the Annual Meeting, a majority of the Company’s outstanding shares as of the Record Date must be present in person or by proxy and entitled to vote at the meeting. This is called a quorum.

WHO COUNTS THE VOTES?

The final voting results will be tallied by Automatic Data Processing, Inc. and the Inspector of Elections, and published in our quarterly report on Form 10-Q for the quarter ending March 31, 2007.

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WHAT IS A PROXY?

A “proxy” allows someone else (the “proxy holder”) to vote your shares on your behalf. The Board of Directors is asking you to allow any of the persons named on the proxy card (Charles B. Johnson, Chairman of the Board; Gregory E. Johnson, President and Chief Executive Officer; and Barbara J. Green, Vice President, Deputy General Counsel and Secretary) to vote your shares at the Annual Meeting.

HOW DO I VOTE?

Whether you hold shares directly as a stockholder of record or beneficially in street name, you may vote your shares without attending the Annual Meeting. You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your stockbroker or nominee. You will also be able to vote by telephone, using the Internet or by mail. The deadline for voting by telephone or by using the Internet is 11:59 p.m., Eastern Standard Time, on Wednesday, January 24, 2007. Please see your proxy card or the information your bank, broker, or other holder of record provided to you for more information on these options. The persons named as your proxy holders on the proxy card will vote the shares represented by your proxy in accordance with the specifications you make. Unless you indicate otherwise on your proxy card, the persons named as your proxy holders on the proxy card will vote the shares represented by the proxy FOR all nominees to the Board of Directors, FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm (the “independent auditors”) for the fiscal year ending September 30, 2007 (“fiscal year 2007”) and FOR the amendment and restatement of the Franklin Resources, Inc. 1998 Employee Stock Investment Plan. Additionally, unless you specify otherwise on your proxy card, if any other matters come before the Annual Meeting to be voted on, the persons named as your proxy holders on the proxy card will vote, act and consent on those matters in their discretion.

For participants in the Franklin Templeton Profit Sharing 401(k) Plan (the “Profit Sharing Plan”), your shares will be voted as you specify on your proxy card. If your proxy card is not returned, the trustee will vote your shares in the same proportion as the shares for which instructions were received from all other holders of Company stock in the Profit Sharing Plan. If you wish to abstain from voting on any matter, you must indicate this on your proxy card. You cannot vote your Profit Sharing Plan shares in person at the meeting. To allow sufficient time for voting, the trustee must receive your vote by no later than 5:00 p.m. Pacific Standard Time (“PST”) on Monday, January 22, 2007.

CAN I CHANGE OR REVOKE MY VOTE AFTER I RETURN MY PROXY CARD?

Yes. You can change or revoke your proxy by submitting another proxy with a later date at any time prior to the beginning of the Annual Meeting. You may also revoke your proxy by attending the Annual Meeting and voting in person. Participants in the Profit Sharing Plan may revoke their proxy by no later than 5:00 p.m. PST on Monday, January 22, 2007.

CAN I VOTE IN PERSON AT THE ANNUAL MEETING INSTEAD OF VOTING BY PROXY?

Yes. However, we encourage you to complete and return the enclosed proxy card to ensure that your shares are represented and voted. Participants in the Profit Sharing Plan must vote by returning the enclosed proxy card no later than 5:00 p.m. PST on Monday, January 22, 2007.

HOW ARE VOTES COUNTED?

To be counted as “represented”, a proxy card must have been returned for those shares, the stockholder must have voted the shares by telephone or over the Internet, or the stockholder must be present at the meeting. Under current New York Stock Exchange (“NYSE”) rules, the proposals to elect directors (Proposal No. 1) and to ratify the appointment of the independent auditors (Proposal No. 2) are considered routine items. This means that brokers may vote in their discretion on these matters on behalf of clients who have not furnished voting instructions. Brokers will not vote in their discretion on the approval of the amendment and restatement of the

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Franklin Resources, Inc. 1998 Employee Stock Investment Plan. Votes will be tabulated by the inspector of election appointed for the meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes.

WHAT IS THE VOTING REQUIREMENT TO APPROVE EACH OF THE PROPOSALS?

Shares that are voted “FOR”, “AGAINST” or “WITHHOLD” in a matter are treated as being present at the meeting for purposes of establishing a quorum, and will be included in determining the number of shares represented and voted at the Annual Meeting with respect to such matter. Broker non-votes will be counted for purposes of determining the presence or absence of a quorum for the transaction of business, but will not be counted for purposes of determining the number of shares represented and voted with respect to a proposal and will have no effect on the outcome of the vote on a proposal. Abstentions will be counted for purposes of determining the presence or absence of a quorum for the transaction of business, but will have the effect of votes “AGAINST” a proposal, and will have no effect on the voting for the election of directors (Proposal No. 1). If the persons present or represented by proxy at the Annual Meeting constitute the holders of less than a majority of the outstanding shares of common stock as of the record date, the Annual Meeting may be adjourned to a subsequent date for the purpose of obtaining a quorum.

WHO PAYS FOR THIS PROXY SOLICITATION?

Your proxy is being solicited by the Board on behalf of the Company. The Company pays the cost of soliciting your proxy and reimburses brokerage costs and other fees for forwarding proxy materials to you.

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PROPOSAL NO. 1

ELECTION OF DIRECTORS

GENERAL

The Corporate Governance Committee of the Board recommended and nominated, and the Board approved, the nominees named below for election as members of the Board. Except for Gregory E. Johnson, the Company’s President and Chief Executive Officer, who was recommended to the Board by the Corporate Governance Committee and who is standing for election for the first time, each of the director nominees were elected by the Company’s stockholders at the Company’s last annual meeting of stockholders and, accordingly, are standing for re-election. If elected, each director will serve until the next annual meeting of stockholders and until that person’s successor is elected and qualified or until his/her earlier resignation, retirement, death, disqualification or removal.

In accordance with the Company’s Director Independence Standards, as amended, described more fully below, and the rules of the NYSE, the Board has affirmatively determined that it is currently composed of a majority of independent directors, and that the following directors are independent and do not have a material relationship with the Company: Samuel H. Armacost; Charles Crocker; Joseph R. Hardiman; Robert D. Joffe; Thomas H. Kean; Chutta Ratnathicam; Laura Stein; and Louis E. Woodworth.

RECOMMENDATION OF THE BOARD

The Board recommends a vote “FOR” the election to the Board of each of the nominees listed below. The voting requirements for this proposal are described in the “Voting Information” section. Unless you mark “For All Except” or “Withhold All” on your proxy card to withhold authority to vote for one, some or all of the director nominees, the persons named as proxy holders intend to vote for all of these nominees.

NOMINEES

Listed below are the names, ages as of November 30, 2006 and principal occupations for the past five years of the director nominees.

Samuel H. Armacost

Age 67

Director Since 2004

Chairman of the Board of Directors of SRI International (formerly Stanford Research Institute), an independent nonprofit technology research and development organization, for more than the past five years. Managing Director, Weiss, Peck & Greer LLC from 1990 until 1998 and Merrill Lynch Capital Markets from 1987 until 1990. President, Director and Chief Executive Officer, BankAmerica Corporation from 1981 until 1986. Director, Chevron Corporation, Del Monte Foods Company, Exponent, Inc. and Callaway Golf Company.

Charles Crocker

Age 67

Director Since 2003

Chairman and Chief Executive Officer of Crocker Capital; formerly Chairman, Chief Executive Officer and a director from October 1997 to March 2006 of BEI Technologies, Inc., a manufacturer of electronic sensors and motion control products and a subsidiary of Schneider Electric SA; President of BEI Technologies, Inc. from October 1997 to May 2000. Director, Teledyne Technologies Incorporated and Fiduciary Trust Company International, a subsidiary of the Company.

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Joseph R. Hardiman

Age 69

Director Since 2005

Formerly, the President and Chief Executive Officer of the National Association of Securities Dealers, Inc. and its wholly owned subsidiary, The Nasdaq Stock Market, Inc., from September 1987 through January 1997; from 1975 through September 1987, held various positions at Alex. Brown & Sons, including Managing Director and Chief Operating Officer; previously, served on the boards of the Deutsche Scudder Funds and the Depository Trust Company. Director, Broadwing Corporation and Brown Investment Advisory & Trust Company.

Robert D. Joffe

Age 63

Director Since 2003

Partner of Cravath, Swaine & Moore LLP, a law firm, since 1975, Presiding Partner from 1999 to 2006. Director of Fiduciary Trust Company International, a subsidiary of the Company.

Charles B. Johnson

Age 73

Director Since 1969

Chairman of the Board, Member—Office of the Chairman of the Company since December 1999; formerly, Chief Executive Officer of the Company; officer and/or director of certain subsidiaries of the Company; officer and/or director or trustee of 41 investment companies managed or advised by subsidiaries of the Company.

Gregory E. Johnson

Age 45

President of the Company since December 1999 and Chief Executive Officer of the Company since January 2004; officer and/or director of certain subsidiaries of the Company.

Rupert H. Johnson, Jr.

Age 66

Director Since 1969

Vice Chairman, Member—Office of the Chairman of the Company since December 1999; officer and/or director of certain subsidiaries of the Company; officer and/or director or trustee of 44 investment companies managed or advised by subsidiaries of the Company.

Thomas H. Kean

Age 71

Director Since 2003

Chairman, The Robert Wood Johnson Foundation, a health and healthcare philanthropic foundation, since April 2005 and a member of the board of trustees of the foundation since July 1990; formerly, President of Drew University from February 1990 to June 2005; formerly, Governor of the State of New Jersey from 1982 to 1990. Director, Aramark Corporation, Hess Corporation, CIT Group Inc., Fiduciary Trust Company International, a subsidiary of the Company, The Pepsi Bottling Group, Inc. and UnitedHealth Group Incorporated.

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Chutta Ratnathicam

Age 59

Director Since 2003

Retired Senior Vice President and Chief Financial Officer of CNF Inc., a freight transportation, logistics, supply chain management and trailer manufacturing company, from 1997 to March 2005; formerly, Chief Executive Officer of the Emery Worldwide reporting segment of CNF from September 2000 to December 2001. Former Chartered Accountant (Sri Lanka). Retired Member, American Institute of Certified Management Accountants.

Peter M. Sacerdote

Age 69

Director Since 1993

Chairman, Whale Rock Capital Management, LLC. Formerly, Advisory Director and Chairman of the Investment Committee of the Principal Investment Area of Goldman, Sachs & Co., a global investment banking, securities and investment management firm, from May 1999 to 2006, and a general partner and then a limited partner of The Goldman Sachs Group, L.P. Director, Qualcomm Incorporated.

Laura Stein

Age 45

Director Since 2005

Senior Vice President—General Counsel and Secretary of The Clorox Company, a leading manufacturer and marketer of consumer products, since January 2005; formerly, Senior Vice President and General Counsel of the H.J. Heinz Company, a global marketer and manufacturer of branded food products, from January 2000 to January 2005.

Anne M. Tatlock

Age 67

Director Since December 21, 2004; Previously, Director from 2001 to Early December 2004

Vice Chairman, Member—Office of the Chairman of the Company since 2001; Chairman of the Board and Chief Executive Officer from 2000 to 2006, and a director of Fiduciary Trust Company International, a subsidiary of the Company; formerly, President of Fiduciary Trust Company International; officer and/or director of other subsidiaries of the Company. Director, Fortune Brands, Inc. and Merck & Co., Inc.

Louis E. Woodworth

Age 73

Director Since 1981

Private investor. President, Alpine Corporation, a private investment firm, for more than the past five years.

Family Relations. Charles B. Johnson, the Chairman of the Board and a director of the Company, and Rupert H. Johnson, Jr., a Vice Chairman and a director of the Company, are brothers. Peter M. Sacerdote, a director of the Company, is a brother-in-law of Charles B. Johnson and Rupert H. Johnson, Jr. Gregory E. Johnson, the President and Chief Executive Officer and nominee for director of the Company, is the son of Charles B. Johnson, the nephew of Rupert H. Johnson, Jr. and Peter M. Sacerdote and the brother of Jennifer J. Bolt, the Executive Vice President—Operations and Technology of the Company. Jennifer J. Bolt is the daughter of Charles B. Johnson, the niece of Rupert H. Johnson, Jr. and Peter M. Sacerdote and the sister of Gregory E. Johnson.

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CORPORATE GOVERNANCE

The Company regularly monitors regulatory developments and reviews its policies, processes and procedures in the area of corporate governance to respond to such developments. As part of those efforts, we review federal laws affecting corporate governance, such as the Sarbanes-Oxley Act of 2002, as well as corporate governance-related rules adopted by the SEC and the NYSE.

Corporate Governance Guidelines. The Board has adopted Corporate Governance Guidelines, which are attached as Appendix D and posted in the corporate governance section of the Company’s website at www.franklintempleton.com (the “Company’s website”). They also are available in print to stockholders who request a copy from the Company’s Secretary at the Company’s principal executive offices. The Corporate Governance Guidelines set forth the practices the Board follows with respect to, among other things, the composition of the Board, director responsibilities, Board committees, director access to officers, employees and independent advisors, director compensation, director orientation and continuing education, management succession and performance evaluation of the Board.

Code of Ethics and Business Conduct. The Board has adopted a Code of Ethics and Business Conduct which is applicable to all employees, directors and officers of the Company and its subsidiaries and affiliates. The Code of Ethics and Business Conduct is posted in the corporate governance section of the Company’s website and is available in print upon request from the Company’s Secretary at the Company’s principal executive offices. The Company also has a Compliance and Ethics Hotline, where employees can report a violation of the Code of Ethics and Business Conduct or anonymously submit a complaint concerning auditing or accounting matters. We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver of, a provision of the Code of Ethics and Business Conduct for the Company’s principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions, by posting such information on the Company’s website.

Director Independence Standards. The Board has adopted guidelines for determining whether a director is independent. The Board will monitor and review as necessary, but at least once annually, commercial, charitable, family and other relationships that directors have with the Company to determine whether the Company’s directors are independent.

For a director to be considered independent, the Board must determine affirmatively that the director does not have material relationships with the Company either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. Such determination will be made and disclosed pursuant to applicable NYSE or other applicable rules. A material relationship can include, but is not limited to, commercial, industrial, banking, consulting, legal, accounting, charitable and family relationships. The Board has established the following guidelines to assist it in determining whether a director does not have material relationships and thereby qualifies as independent:

(b) an immediate family member¹ of the director was employed by the Company as an executive officer² of the Company;

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(b) the director is currently employed by the Company’s internal auditor or external independent auditor;

(c) an immediate family member of the director is currently employed by the Company’s internal auditor or external independent auditor and participates in the auditor’s audit, assurance or tax compliance (but not tax planning) practice; or

(d) the director or an immediate family member of the director was formerly employed by or a partner of the Company’s internal auditor or external independent auditor and personally worked on the Company’s audit;

(b) an immediate family member of the director is an executive officer of a company that made payments to or received payments from the Company for property or services, in any single fiscal year, of more than the greater of $1 million or 2% of the Company’s consolidated gross revenues; or

(c) the director or an immediate family member of the director serves as an officer, director or trustee of a tax exempt organization, and the Company’s contributions to the organization, in any single fiscal year, are more than the greater of $3 million or 5% of that organization’s consolidated gross revenues.

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Stock Ownership Guidelines. In December 2005, the Board adopted guidelines in connection with the ownership of common stock of the Company by directors and certain senior officers of the Company. As a significant ownership interest by directors in the Company tends to align the interests of members of the Board with the interests of the Company’s stockholders, all directors on the Board are expected to own, within five years of either December 16, 2005 or, if later, first joining the Board, shares of common stock of the Company with a value of at least $250,000. Similarly, as a significant ownership interest by certain senior officers in the Company tends to align the interests of members of management of the Company with the Company’s stockholders and to strengthen the link between long-term Company performance and executive compensation, the following senior officers of the Company are expected to own shares of common stock of the Company with a value equal to a specific multiple of such senior officer’s base salary, as indicated in the table below, by the later of December 31, 2010 or five years from when he or she first assumed the particular senior officer position for which stock ownership is expected:

In implementing these guidelines for directors and such senior officers of the Company, both direct and certain indirect forms of ownership are recognized in achieving these guidelines, including shares owned outright, restricted stock, restricted stock units and 401(k) funds invested in shares of the Company’s stock. Shares of common stock held by immediate family members (which includes a director’s or senior officer’s spouse, children and parents) or entities controlled by a director or senior officer may be considered holdings of the director or senior officer for purposes of the guidelines only and not as an admission of beneficial ownership for any other purpose.

Policy regarding Multiple Board Memberships. The Board has adopted, upon the recommendation of the Corporate Governance Committee, a policy regarding memberships on multiple boards of directors or equivalent governance bodies of unaffiliated publicly traded companies or other entities. If a member of the Board also serves as the principal executive officer, such as the Chief Executive Officer or President, of a publicly traded company, it is the policy of the Board that such Board member shall not accept membership on a board of directors or equivalent governance body of another publicly traded company, without first informing and obtaining the consent of the Company’s Corporate Governance Committee, if such new membership would result in the member serving contemporaneously on four or more boards of directors or equivalent governance bodies

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of unaffiliated publicly traded companies, including the Company’s Board. If a member of the Board does not serve as a principal executive officer, such as a Chief Executive Officer or President, of a publicly traded company, it is the policy of the Board that such Board member shall not accept membership on a board of directors or equivalent governance body of another publicly traded company, without first informing and obtaining the consent of the Company’s Corporate Governance Committee, if such new membership would result in the member serving contemporaneously on six or more boards of directors or equivalent governance bodies of publicly traded companies, including the Company’s Board.

Policy regarding Change in Principal Employment of Director. When a director’s principal employment or business association changes significantly during his or her tenure as a director, that director shall offer his or her resignation for consideration by the Board of Directors. The Corporate Governance Committee, on behalf of the Board of Directors, will evaluate the change in circumstances and will recommend to the Board the action, if any, to be taken. The Corporate Governance Committee will review each situation on an individual basis and take into consideration such matters as the Committee deems appropriate, such as the background and expertise of the director and the contribution the director is expected to make to the Board given the change in circumstances. The Board, in its sole discretion, shall determine whether or not to accept the director’s offer of resignation.

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INFORMATION ABOUT THE BOARD AND ITS COMMITTEES

BOARD MEETINGS AND ANNUAL MEETING OF STOCKHOLDERS

During the fiscal year ended September 30, 2006 (“fiscal year 2006”), the Board held seven meetings (not including committee meetings). For fiscal year 2006, each director attended at least eighty-six percent (86%) of the aggregate of the total number of meetings held by the Board and the total number of meetings held by all committees of the Board on which he or she served, except that the late Harmon E. Burns attended seventy-one percent (71%) of such meetings. The Board has an Audit Committee, a Compensation Committee and a Corporate Governance Committee. To promote open discussion among the non-management directors (those directors who are not officers or employees of the Company), the non-management directors generally meet in executive session after regularly scheduled Board meetings without management. The independent directors meet in executive session at least two times per year and generally meet in executive session after regularly scheduled Board meetings. Charles Crocker, an independent director, has been appointed to preside at the executive sessions of the non-management directors and the independent directors. The Board encourages directors to attend the annual meeting of stockholders. Nine of thirteen directors then standing for election attended last year’s annual meeting, in person or telephonically.

COMMITTEE MEMBERSHIP AND MEETINGS

The current standing committees of the Board are the Audit Committee, the Compensation Committee and the Corporate Governance Committee. The table below provides current membership and meeting information.

M—Member

C—Chairman

Below is a description of each standing committee of the Board. The Board has affirmatively determined that each standing committee consists entirely of independent directors pursuant to rules established by the NYSE, rules promulgated under the Securities Exchange Act of 1934, as amended, and the Director Independence Standards established by the Board. See “Director Independence Standards” above. The Board has also determined that each member of the Audit Committee is independent under the criteria established by the NYSE and the SEC for audit committee members.

THE AUDIT COMMITTEE

Established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, the Audit Committee currently consists of Messrs. Ratnathicam (Chairman), Crocker and Woodworth and Ms. Stein. The primary purpose of the Audit Committee is to assist the Board in fulfilling its responsibility to oversee: (1) the Company’s financial reporting, auditing and internal control activities, including the integrity of the Company’s financial statements; (2) the Company’s compliance with legal and regulatory requirements; (3) the independent auditors’ qualifications and independence; and (4) the performance of the Company’s internal audit

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function and independent auditors. The Audit Committee also prepares the report the Audit Committee is required to include in the Company’s annual proxy statement. In addition, the Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the independent auditors, including approval of all services and fees of the independent auditors. The Audit Committee meets with the Company’s independent auditors and reviews the scope of their audit, the related reports and any recommendations they may make. The Audit Committee also reviews the annual audited financial statements for the Company.

The Audit Committee operates under a written charter adopted by the Board. The Audit Committee reviews and reassesses the adequacy of its charter annually and recommends any proposed changes to the Board for approval. The Audit Committee met seventeen times during fiscal year 2006. The Audit Committee Charter is attached as Appendix A and posted in the corporate governance section of the Company’s website. A written copy of the charter may also be obtained by making a written request to the Company’s Secretary at the Company’s principal executive offices. The Board has determined that all Audit Committee members are financially literate under the NYSE listing standards and that Mr. Chutta Ratnathicam is an audit committee financial expert within the meaning of the rules of the SEC.

THE COMPENSATION COMMITTEE

The Compensation Committee currently consists of Messrs. Crocker (Chairman), Armacost, Hardiman and Kean. The Compensation Committee oversees the establishment of goals and objectives related to Chief Executive Officer compensation, determines the compensation level of the Chief Executive Officer, assists the Board in fulfilling its responsibility relating to the compensation (and related benefits) of the executive officers of the Company, discharges the responsibilities of the Board relating to compensation of the Company’s executives and prepares the annual report on executive officer compensation for the Company’s proxy statement. The Compensation Committee also administers the Company’s Amended and Restated Annual Incentive Compensation Plan, the 2004 Key Executive Incentive Compensation Plan, the 2002 Universal Stock Incentive Plan (the “2002 Stock Plan”), which is the successor to the Amended and Restated 1998 Universal Stock Incentive Plan, and the 1998 Employee Stock Investment Plan. The Compensation Committee’s charter reflects these various responsibilities, and the Compensation Committee and the Board of Directors periodically review and revise the charter, as necessary or appropriate. The Compensation Committee met five times during fiscal year 2006. The Compensation Committee Charter is attached as Appendix B and posted in the corporate governance section of the Company’s website. A written copy of the charter may also be obtained by making a written request to the Company’s Secretary at the Company’s principal executive offices.

THE CORPORATE GOVERNANCE COMMITTEE

The Corporate Governance Committee currently consists of Messrs. Joffe (Chairman), Kean and Woodworth. The Corporate Governance Committee has the responsibilities set forth in its charter and provides counsel to the Board of Directors with respect to the organization, function and composition of the Board and committees and oversees the evaluation of the Board and management of the Company. The Corporate Governance Committee is also responsible for developing and recommending to the Board corporate governance policies and procedures applicable to the Company and reviewing the anti-money laundering policies, procedures and operations of the Company on a periodic basis. The Corporate Governance Committee met five times during fiscal year 2006. The Corporate Governance Committee Charter is attached as Appendix C and posted in the corporate governance section of the Company’s website. A written copy of the charter may also be obtained by making a written request to the Company’s Secretary at the Company’s principal executive offices.

The Corporate Governance Committee is responsible for identifying and recommending to the Board potential director candidates for nomination and election to the Board at the annual meeting of stockholders. It uses a variety of means as it determines are necessary or appropriate, including recommendations of stockholders, to do so. The Corporate Governance Committee has adopted a policy regarding nominations and qualifications of directors, which has been approved by the Board. Under such policy, the Corporate Governance

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Committee may solicit recommendations from current and former directors, management or others who may be familiar with qualified candidates, and may consider current directors for re-nomination. The Corporate Governance Committee may, in its sole discretion, retain and terminate any search firm (and approve such search firm’s fees and other retention terms) to assist in the identification of candidates.

The Corporate Governance Committee believes there are certain minimum skills and qualifications that each director nominee must possess or satisfy, including:

The Corporate Governance Committee also believes there are other skills and qualifications that at least one or more directors must possess or satisfy, including:

In considering candidates for director nominee, the Corporate Governance Committee generally assembles all information regarding a candidate’s background and qualifications, evaluates a candidate’s mix of skills and qualifications and determines the contribution the candidate could be expected to make to the overall functioning of the Board, giving due consideration to the overall Board balance of diversity of perspectives, backgrounds and experiences. With respect to current directors, the Corporate Governance Committee considers past attendance at meetings and assesses participation in and contributions to the activities of the Board. The Corporate Governance Committee, in its discretion, may designate one or more of its members to interview any candidate. In addition, the Corporate Governance Committee may seek input from the Company’s management or the Board, who may interview any candidate. The Corporate Governance Committee recommends director nominees to the Board based on its assessment of overall suitability to serve on the Board in accordance with the Company’s policy regarding nominations and qualifications of directors.

The Corporate Governance Committee will consider candidates recommended for nomination to the Board by stockholders of the Company. Stockholders may make such a recommendation by submitting a completed

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Director Nomination Form, which is posted in the corporate governance section of the Company’s website, at least 120 days prior to the one-year anniversary of the date of the proxy statement for the preceding annual meeting. Completed Director Nomination Forms shall be sent to: Corporate Governance Committee, Franklin Resources, Inc., c/o Barbara J. Green, Secretary, One Franklin Parkway, San Mateo, CA 94403. This year our proxy statement is dated December 29, 2006; therefore we must receive any notice of recommendation by August 31, 2007.

The manner in which the Corporate Governance Committee evaluates candidates recommended by stockholders is generally the same as any other candidate. However, the Corporate Governance Committee will also seek and consider information concerning any relationship between a stockholder recommending a candidate and the candidate to determine if the candidate can represent the interests of all of the stockholders. The Corporate Governance Committee will not evaluate a candidate recommended by a stockholder unless the Director Nomination Form provides that the potential candidate has indicated a willingness to serve as a director, to comply with the expectations and requirements for Board service as publicly disclosed by the Company and to provide all of the information necessary to conduct an evaluation.

NON-EMPLOYEE DIRECTOR FEES

Payments to Directors. Effective January 1, 2006, directors who were not employees of the Company were paid a retainer fee of $17,500 per quarter. They also receive $3,000 per Board meeting attended. Furthermore, each of these directors received a stock grant valued at $75,000 on January 26, 2006 (rounded up to the nearest whole share) and will receive an annual stock grant valued at $75,000 (rounded up to the nearest whole share) on the date of each annual organizational meeting of the Board in subsequent fiscal years. Non-employee directors who serve on Board committees are paid $1,500 per committee meeting attended. Additionally, Chairpersons of the Compensation Committee and the Corporate Governance Committee receive $1,250 per quarter and the Chairperson of the Audit Committee receives $2,500 per quarter. In December 2005, the Board approved an increase of the quarterly retainer fee paid to non-employee directors from $12,500 per quarter to $17,500 per quarter, effective January 1, 2006. No other changes were made to the fee structure for the payment of non-employee directors of the Company. Separately, the Company has a policy of reimbursing certain health insurance coverage for a director who is retired from other employment and is not otherwise eligible for group health coverage under the Company’s group health plan or any other company’s health plan. The Company will reimburse the cost of health insurance coverage comparable to that provided to employees of the Company. During fiscal year 2006, Mr. Woodworth, a director, was reimbursed $5,886 for health insurance expenses. The Company also reimburses directors for certain expenses incurred in connection with attending Board and committee meetings as well as other Company-related events, including travel, hotel accommodations, meals and other incidental expenses for the director and his or her spouse accompanying the director in connection with such events. The Company may also, from time to time, provide directors and their spouses token gifts of nominal value.

In connection with their service as members of the Board of Directors of Fiduciary Trust Company International (“Fiduciary Trust”), a subsidiary of the Company, Messrs. Crocker, Joffe and Kean also received from Fiduciary Trust an annual retainer fee of $25,000 (paid quarterly) and an annual retainer fee for committee services of $5,000 (paid quarterly). Mr. Crocker also received $4,000 for his service as the Chairman of a committee. Mr. Kean also received $9,000 for his attendance at Fiduciary Trust Audit Committee meetings.

Deferred Director Fees. The Company and Fiduciary Trust also allow directors to defer payment of their directors’ fees and stock awards, and to treat the deferred amounts as hypothetical investments in common stock of the Company and/or in Franklin Templeton mutual funds, as applicable. Directors are then credited with the same earnings, gains or losses that they would have incurred if the deferred amounts had been invested in the specific investments, in the specific amounts and for the specific periods as directed by each particular director. Additionally, directors who defer their directors’ fees and stock awards are credited with notional dividends and other distributions at the same time, in the same form, and in equivalent amounts as dividends and other

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distributions that are payable from time to time with respect to investments selected by each particular director. On the payout date(s) elected by a director, the hypothetical investments are valued and the Company or Fiduciary Trust, as applicable, must pay the director or his/her beneficiary an amount equal to the value of the hypothetical investments. In response to the adoption of Section 409A of the Internal Revenue Code of 1986, as amended, the Company, in December 2005, adopted a new 2006 Directors Deferred Compensation Plan, effective as of December 15, 2005, pursuant to which directors may elect to have their directors’ fees and stock awards deferred. Payouts may be made in a lump sum or periodic payments. If a director changes his/her distribution election for amounts previously deferred, any such change does not take effect for one (1) year from the date of the new election and the distributions (or lump sum) will occur no earlier than five (5) years after the distributions (or lump sum) would have been paid under the prior distribution election (with a series of distributions treated as one payment for this purpose). Accelerated distributions are permitted in limited circumstances, and the plan may be terminated by the Company if certain conditions are met, in each case as set forth more fully in the plan. The plan is intended to comply with the provisions of Section 409A.

As of December 22, 2006, the following deferral elections have been made under the 2006 Directors Deferred Compensation Plan by directors with respect to the payment of their directors’ fees and stock awards.

Mr. Woodworth has elected to defer all of his director’s fees and stock awards. However, with regard to compensation earned and deferred prior to January 1, 2006, Mr. Woodworth has determined to have such deferred amounts distributed in forty (40) substantially equal quarterly installments beginning on October 20, 2005 and continuing on each January 20, April 20, July 20 and October 20 thereafter. Mr. Woodworth has further determined that, with regard to his director’s fees and stock awards earned after December 31, 2005, all such amounts shall be deferred in accordance with the 2006 Directors Deferred Compensation Plan.

Each of Messrs. Crocker, Joffe and Armacost has determined that, with regard to his director’s fees and/or stock awards earned prior to and after December 31, 2005, such amounts, to the extent provided below, shall be deferred in accordance with the 2006 Directors Deferred Compensation Plan. Accordingly, Mr. Crocker has elected to defer all of his director’s fees relating to his service as a director of Fiduciary Trust and fifty percent (50%) of his director’s fees and all of his stock awards related to his service as a director of the Company. Mr. Joffe has elected to defer fifty percent (50%) of his director’s fees and stock awards related to his service as a director of Fiduciary Trust and the Company. Mr. Armacost has elected to defer all of his stock awards but to receive all of his quarterly director fees and meeting fees associated with his service as a director of the Company in cash.

Mr. Kean has elected to defer all of his director’s fees and stock awards earned on or after January 1, 2006 under the 2006 Directors Deferred Compensation Plan. Ms. Stein elected to defer only her director’s fees, but not her stock awards, earned prior to January 1, 2007 under the plan and to defer fifty percent (50%) of her director’s fees and none of her stock awards earned after January 1, 2007. Mr. Sacerdote has elected to defer all of his director’s fees and stock awards earned on or after January 1, 2007 under the plan.

Directors may, no later than December 31, 2006, change their deferral elections with respect to the payment of their directors’ fees and stock awards earned on or after January 1, 2007 under the 2006 Directors Deferred Compensation Plan.

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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS

The following table sets forth the common stock beneficially owned as of November 30, 2006 by each stockholder known to us to beneficially own more than five percent of the Company’s outstanding common stock as of November 30, 2006. The percentage of ownership indicated in the following table is based on 253,537,899 shares of common stock outstanding on November 30, 2006.

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SECURITY OWNERSHIP OF MANAGEMENT

The following table lists the common stock beneficially owned as of November 30, 2006 by (1) each director and director nominee, (2) each executive officer named in the Summary Compensation Table and (3) all current directors, director nominees and executive officers as a group. The percentage of ownership indicated in the following table is based on 253,537,899 shares of the Company’s common stock outstanding on November 30, 2006.

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EXECUTIVE COMPENSATION

The following table provides compensation information for the Company’s Chief Executive Officer and each of the four highest compensated executive officers of the Company (collectively, the “Named Executive Officers”) for each of the fiscal years ended September 30, 2006, 2005 and 2004.

SUMMARY COMPENSATION TABLE

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Aggregate Holdings of Restricted Stock/Cash Dividends. The following table sets forth: (i) the aggregate number and value of restricted stock holdings as of September 30, 2006 and (ii) the aggregate amount of cash dividends on unvested restricted stock received during fiscal year 2006 (all of which was non-preferential), for each of the persons named in the Summary Compensation Table:

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The above amounts exclude any restricted stock grants on November 2, 2006 and November 21, 2006 as described hereafter. During fiscal year 2006, shares of restricted stock held by Named Executive Officers vested in the following amounts and values: Mr. G. Johnson, 38,641 shares valued at $3,968,886; Mr. Advani, 9,843 shares valued at $1,022,110; Ms. Tatlock, 4,175 shares valued at $441,506; Mr. Baio, 4,287 shares valued at $438,316; and Mr. Yun, 6,823 shares valued at $702,745. In addition, the vesting of 2,090 shares of Ms. Tatlock’s restricted stock scheduled to vest on September 28, 2007 was accelerated to the date immediately prior to the last day on which Ms. Tatlock is employed as an officer of the Company and/or any of its subsidiaries which is expected to be January 25, 2007.

With respect to the 15,379 shares of performance-based restricted stock granted on December 15, 2005, specific installments of restricted stock are subject to Company-related performance metrics in order to vest over a four-year period. In particular, the restricted stock vests upon the achievement of certain increases in pre-tax operating income for a fiscal year of the Company. Pre-tax operating income with respect to any fiscal year is defined as total operating revenue less total operating expenses determined on a consolidated basis as reported in the Company’s earnings release as operating income for an applicable fiscal year. One-quarter of the shares of restricted stock vest if pre-tax operating income for fiscal year 2006, 2007, 2008 or 2009 is at least 15% greater than pre-tax operating income for fiscal year 2005. Half of the shares of restricted stock vest if pre-tax operating income for fiscal year 2006, 2007, 2008 or 2009 is at least 32.25% greater than pre-tax operating income for fiscal year 2005. Three-quarters of the shares of restricted stock vest if pre-tax operating income for fiscal year 2006, 2007, 2008 or 2009 is at least 52.09% greater than pre-tax operating income for fiscal year 2005. All of the shares of restricted stock vest if pre-tax operating income for fiscal year 2006, 2007, 2008 or 2009 is at least 74.9% greater than pre-tax operating income for fiscal year 2005.

Because pre-tax operating income for fiscal year 2006 was at least 15% greater than pre-tax operating income for fiscal year 2005, 3,844 shares of common stock, representing the first one-quarter of Mr. G. Johnson’s 15,379 share restricted stock award, vested on November 6, 2006. The remaining three-quarters of Mr. G. Johnson’s restricted stock award vests as described above, if the pre-tax operating income targets are met. Should those performance metrics not be achieved, the unvested portion of the award will be forfeited at the end of the performance-vesting period.

The 40,141 shares of restricted common stock granted to Mr. G. Johnson on November 21, 2006 were also subject to the satisfaction of certain performance targets established by the Compensation Committee. As noted above in footnote (c), the Compensation Committee established in December 2005 a maximum individual target award for Mr. G. Johnson of $7,000,000 for fiscal year 2006, subject to the satisfaction of certain performance goals. If the Company’s profit margin as reported in the Company’s earnings release as operating margin was at least 26.35% for fiscal year 2006, then Mr. G. Johnson would receive $1,500,000 of the aggregate maximum individual target award. If such operating profit margin was less than the established threshold of 26.35%, then Mr. G. Johnson would forfeit any right to receive this $1,500,000 portion of the maximum individual target award. In addition, if the average (rounded to the nearest whole percent) of the percentage growth of earnings per share, as adjusted to factor out the effects of a one-time repatriation of foreign-based earnings, and pre-tax operating income (using the same definition as used for the performance-based restricted stock award above) for fiscal year 2006 was 25% or greater, then Mr. G. Johnson would receive $5,500,000 of the aggregate maximum individual target award. If such percentage was 20% to 24%, then the award would be $4,500,000; if the percentage was 15% to 19%, then the award would be $3,500,000; if the percentage was 10% to 14%, then the award would be $2,500,000; and if the percentage was 5% to 9%, then the award would be $1,500,000. If such percentage was less than 5%, then Mr. G. Johnson would forfeit any right to receive this $5,500,000 portion of the maximum individual target awards. Notwithstanding these potential target awards, the actual awards payable to Mr. G. Johnson were subject to the Compensation Committee’s authority to reduce the awards otherwise payable. The awards were payable in cash or Company stock at the discretion of the Compensation Committee.

Fiscal year 2006 profit margin was 32.3%, exceeding the 26.35% threshold for $1,500,000 of Mr. G. Johnson’s target award, and the average of the adjusted earnings per share and pre-tax operating income was 28.3%, exceeding the 25% threshold for $5,500,000 of Mr. G. Johnson’s target award. As a result, Mr. G. Johnson earned the maximum target award of $7,000,000, and on November 21, 2006, the Compensation Committee authorized payment in the form of cash

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and shares of restricted stock. Consistent with awards to other Named Executive Officers, the first $1 million was awarded 65% in cash and 35% in restricted stock; amounts in excess of $1 million up to $5 million were awarded 50% in cash and 50% in restricted stock, and amounts over $5 million were awarded 100% in restricted stock. The 40,141 shares of restricted common stock vest in approximately three equal increments on August 31, 2007, August 29, 2008 and August 31, 2009.

Also includes restricted stock awards granted on November 15, 2004 by the Compensation Committee under the 2002 Stock Plan, which awards were earned in fiscal year 2004 and awarded in fiscal year 2005. The following were the number of shares granted to each recipient: Mr. Advani, 5,000 shares; Mr. Baio, 4,000 shares and Mr. Yun, 5,000 shares. One-third of these shares met the accelerated vesting requirements at the end of fiscal year 2005 because Operating Income (as defined below) for fiscal year 2005 was at least 15% greater than Operating Income for fiscal year 2004. An additional one-third of these shares met the accelerated vesting requirements at the end of fiscal year 2006 because Operating income for fiscal year 2006 was at least 32.25% greater than Operating Income for fiscal year 2004. The remaining one-third of the shares of restricted stock granted to these executive officers vests in full on September 28, 2007. “Operating Income” with respect to any fiscal year is defined as total operating revenues less total operating expenses determined on a consolidated basis reported in the annual financial statements included in the Company’s Annual Report on Form 10-K for such fiscal year.

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OPTION GRANTS IN LAST FISCAL YEAR

During the fiscal year ended September 30, 2006, no options were granted and no stock appreciation rights were awarded to the persons listed in the Summary Compensation Table.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR

AND FISCAL YEAR-END OPTION VALUES

The following table provides information on option exercises in fiscal year 2006 by the persons listed in the Summary Compensation Table and the value of their unexercised options at September 30, 2006. No stock appreciation rights were exercised or held by the persons listed in the Summary Compensation Table.

“Closing Price” means the official NYSE closing price per share of common stock of the Company on the last trading day before the ex-dividend date for the special cash dividend.

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EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS

In December 2000, Ms. Tatlock entered into an employment agreement with the Company and Fiduciary Trust. Under the employment agreement, Ms. Tatlock was entitled to employment for five years from the closing date of the Company’s acquisition of Fiduciary Trust on April 10, 2001 (the “Term”), after which she became an “at will” employee. In addition, she was entitled to a base salary equal to a minimum of $590,000 per year, subject to review by the Company’s Chief Executive Officer and Compensation Committee (which, in any event, shall not decrease such base salary). Ms. Tatlock was also entitled to, at a minimum, the following bonus and incentive compensation: (a) a bonus for each period (i) commencing January 1, 2001 and ending December 31, 2001 and (ii) commencing January 1, 2002 and ending September 30, 2002, on an annualized basis, of not less than $609,281, of which Ms. Tatlock was entitled to receive an annualized short-term bonus of $296,500 payable in cash and an annualized long-term bonus of $312,781 to be granted in the form of restricted stock vesting over three years; (b) after September 30, 2002, awards, grants or payments that may be awarded under the Company’s incentive compensation plan; (c) additional services compensation in the amount of $2,125,000 payable in equal annual cash payments of $425,000 over five years, subject to certain conditions relating to Ms. Tatlock’s continued employment; (d) stock options representing 38,836 shares of common stock of the Company, 50% of which were exercisable as of April 10, 2004 and 50% of which were exercisable as of April 10, 2005; (e) an allowance for financial and tax planning of up to $15,000 for fiscal year 2001 and $5,000 for each subsequent fiscal year during the term of the employment agreement; and (f) such luncheon club memberships and other memberships in accordance with Fiduciary Trust’s policy and practices.

In December 2000, Mr. Yun also entered into an employment agreement with the Company and Fiduciary Trust. Under the employment agreement, Mr. Yun was entitled to employment for the Term, after which he became an “at will” employee. In addition, he was entitled to a base salary equal to a minimum of $525,000 per year, subject to review by the Company’s Chief Executive Officer and Compensation Committee (which, in any event, shall not decrease such base salary). Mr. Yun was also entitled to, at a minimum, the following bonus and incentive compensation: (a) a bonus for each period (i) commencing January 1, 2001 and ending December 31, 2001 and (ii) commencing January 1, 2002 and ending September 30, 2002, on an annualized basis, of not less than $355,197, of which Mr. Yun was entitled to receive an annualized short-term bonus of $190,000 payable in cash and an annualized long-term bonus of $165,197 to be granted in the form of restricted stock vesting over three years; (b) after September 30, 2002, awards, grants or payments that may be awarded under the Company’s incentive compensation plan; (c) additional services compensation in the amount of $1,720,000 payable in equal annual cash payments of $344,000 over five years, subject to certain conditions relating to Mr. Yun’s continued employment; (d) stock options representing 31,322 shares of common stock of the Company, 50% of which were exercisable as of April 10, 2004 and 50% of which were exercisable as of April 10, 2005; (e) an allowance for financial and tax planning of up to $15,000 for fiscal year 2001 and $5,000 for each subsequent fiscal year during the term of the employment agreement; and (f) such luncheon club memberships and other memberships in accordance with Fiduciary Trust’s policy and practices.

Under both employment agreements, if the Company desired to terminate the employee’s employment without cause or if the employee terminated his or her employment for good reason, which included termination for any reason following a change-in-control of the Company, the employee would remain on the payroll of the Company and be entitled to receive: (1) all unpaid base salary and unpaid bonus amounts for the balance of the Term; (2) additional services cash compensation, and any additional services stock compensation would be exercisable in accordance with the provisions of such stock option grant; and (3) other benefits provided for in the employment agreement, which would continue to be paid or provided to the employee for the remainder of the Term, subject to such deductibles and co-payments as applicable under such plan or if, for any reason, the employee was no longer treated as an employee of the Company and such benefits were not so payable, the cash value of such benefits would be paid to the employee.

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Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate filings made by the Company under those statutes, the following report shall not be deemed to be “soliciting material,” or to be incorporated by reference into any prior filings or future filings made by the Company under those statutes.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors of Franklin Resources, Inc. (the “Company”) is composed entirely of non-employee directors who are “independent” in accordance with the corporate governance listing standards of the NYSE and any other applicable securities exchanges. In addition, each member qualifies as an “outside director” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, and as a “non-employee director” for purposes of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended. The role of the Compensation Committee is to oversee the establishment of goals and objectives related to Chief Executive Officer compensation, determine the compensation level of the Chief Executive Officer, assist the Board of Directors in fulfilling its responsibility relating to the compensation (and related benefits) of the executive officers of the Company, discharge the responsibilities of the Board of Directors relating to compensation of the Company’s executives and prepare this annual report on executive officer compensation for the Company’s Proxy Statement. The Compensation Committee also administers the Company’s Amended and Restated Annual Incentive Compensation Plan (the “Incentive Plan”), the 2004 Key Executive Incentive Compensation Plan (“Key Executive Incentive Plan”), the 2002 Universal Stock Incentive Plan (the “2002 Stock Plan”), which is the successor to the Amended and Restated 1998 Universal Stock Incentive Plan, and the 1998 Employee Stock Investment Plan. The Compensation Committee’s charter reflects these various responsibilities, and the Compensation Committee and the Board of Directors periodically review and revise the charter, as necessary or appropriate. The current Compensation Committee charter is posted in the corporate governance section of the Company’s website.

This report discusses the Compensation Committee’s overall objectives in designing the Company’s compensation programs. It also reviews the Compensation Committee’s compensation determinations in 2006 for the Company’s Chief Executive Officer and executive officers, including other executive officers named in the Summary Compensation Table in the Proxy Statement.

Compensation Philosophy and Policies

The Compensation Committee believes that total compensation should vary with the Company’s performance in achieving financial and non-financial objectives and that compensation of the Company’s executives should be aligned with the interests of the stockholders. The Compensation Committee further believes that at least a portion of compensation should encourage executive officers to focus on the Company’s long-range growth and development. The Company’s compensation program for executive officers (including the Chief Executive Officer) consists primarily of salary and annual cash and equity incentive bonuses based upon individual and Company performance.

In its review of executive officer compensation, and, in particular, in determining the amount and form of awards under the Incentive Plan, Key Executive Incentive Plan and 2002 Stock Plan, the Compensation Committee generally considers, among other things: the officer’s responsibilities and performance during the fiscal year ended September 30, 2006; the Company’s overall performance during the current and prior fiscal years as well as its future objectives and challenges; amounts paid to the executive officer in prior years as salary, bonus and other compensation; and relevant market survey information with respect to cash and long-term compensation for comparable companies.

The Company generally uses a combination of employee benefit plans to award bonuses to employees, including executive officers. The overall bonus pool is determined pursuant to the Incentive Plan, which allows

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for both cash and stock awards to Company employees, including executive officers. Bonuses awarded to the Chief Executive Officer are generally made under the Key Executive Incentive Plan, which was ratified and approved by stockholders in fiscal year 2004. A component of such award may be in the form of equity securities, as was the case in the last three fiscal years, which award is granted through the 2002 Stock Plan. As a general matter, the size of the award pool available for bonus payments under the Incentive Plan is a percentage of the Company’s net operating income, exclusive of passive income and calculated before non-operating interest, taxes, extraordinary and certain special items, and before the accrual of awards under both the Incentive Plan and the Key Executive Incentive Plan (referred to as “Pre-Tax Operating Income”—see the table below). In determining the percentage of pre-tax operating income that will go into the award pool, the Compensation Committee considers a variety of factors, including the performance of the Company’s stock compared to the indices set forth in the performance graph included in the Proxy Statement and the increase or decrease in market price of the Company’s common stock.

In 2006, the Compensation Committee renewed the 2005 engagement of a third-party compensation consultant to provide independent analyses of, and counsel on, the Company’s executive compensation program and practices. The role of the independent consultant is to assess objectively all elements of executive officer compensation, including market competitiveness of base and variable and long-term compensation. As part of this analysis, the consultant compared the Company’s Chief Executive Officer’s compensation to a group of seven publicly traded mutual fund management companies, taking into account the performance of the Company, the Chief Executive Officer’s role, responsibilities and performance, and the market data for the peer companies. The consultant determined that the Chief Executive Officer’s fiscal year 2006 compensation was reasonable and competitive, significantly performance-based and aligned with Company objectives.

The Compensation Committee continued the practice begun in 2005 of reviewing tally sheets setting forth the cash value of all components of each Named Executive Officer’s fiscal year 2006 compensation, including salary, bonus, equity and long-term compensation, benefits and perquisites, and projected value of equity holdings under various share value scenarios. The Compensation Committee deems this an important step in comprehensively assessing the reasonableness of compensation received by the executive officers of the Company. The Compensation Committee also reviews for each Named Executive Officer material consisting of their profiles and accomplishments as well as their individual performance plans for the year.

Salaries

The Compensation Committee believes that base salary increases to certain employees, including executive officers, should be limited, and that the majority of their annual pay should be in variable compensation tied to Company performance. Base salaries are evaluated annually for all executive officers, including the Chief Executive Officer. In connection with a Company-wide review of base salaries, the Compensation Committee determined that employees whose salary levels were in excess of a pre-determined amount would generally not be eligible to receive an increase to base salary for fiscal year 2006. Other than increases associated with promotions received by two individuals, none of the Named Executive Officers has received an increase in base salary during the last three fiscal years.

Incentive Compensation

The Compensation Committee determined that each of the Named Executive Officers, including the Chief Executive Officer, warranted incentive bonus awards in respect of fiscal year 2006 performance. Each bonus award was comprised of a combination of cash and restricted stock. In keeping with the Company’s practice established in fiscal year 2004, there were no stock options granted in fiscal year 2006. Consequently, stock options reported in the compensation tables included in the Proxy Statement reflect grants made in fiscal year 2004, for fiscal year 2003 contributions.

The Company reports the cash and restricted stock portion of any bonus award earned during a particular fiscal year by a Named Executive Officer on the Summary Compensation Table which appears in the Proxy Statement.

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In the course of reviewing and approving awards to the Named Executive Officers, the Compensation Committee considers, as discussed above, a number of different individual and Company performance factors. In particular, the Compensation Committee considered the following Company performance measures achieved in fiscal year 2006 in comparison to fiscal year 2005:

The foregoing performance factors were also taken into consideration in determining the funding of the award pool and size of awards granted to employees.

For fiscal year 2006, the Compensation Committee awarded other employees, including other executive officers, bonuses consisting of cash and restricted stock or restricted stock units. Consistent with the practice established in fiscal year 2000, bonuses awarded were generally comprised of 65% cash and 35% restricted stock or restricted stock units, in each case with deferred vesting, granted under the 2002 Stock Plan. One Named Executive Officer who is retiring in early 2007 was awarded a bonus consisting entirely of cash. Certain executive and non-executive officer employees, whose awards were in excess of $1.0 million, were awarded those amounts in excess of $1.0 million in the form of 50% cash and 50% of restricted stock or restricted stock units.

In addition, the Committee determined that in cases where special recognition of contributions was warranted, or for retention purposes, additional long term restricted stock or restricted stock unit awards be granted to employees, but not executive officers. These awards have two vesting treatments, both over three year periods, either in equal one-third increments on August 31, 2007, August 29, 2008 and August 31, 2009, or on a prospective basis, whereby the entire award will vest on August 31, 2009.

The Compensation Committee notes that Ms. Anne M. Tatlock and Mr. William Y. Yun, in addition to their incentive bonus awards, received the fifth and final annual cash payment, of $425,000 and $344,000, respectively, pursuant to the terms of their December 2000 employment agreements, in respect of previously agreed upon integration services cash bonuses.

Timing

Because the Company’s fiscal year ends on September 30^th and the press release containing the Company’s earnings for the year typically goes out in late October, our general practice is to make award decisions for the previous fiscal year and review salaries of the Company’s executive officers in November. This enables the Compensation Committee to review a full year of the executives’ performance as well as a full year of the Company’s performance.

Employment and Severance Agreements

Currently, the Company’s Named Executive Officers are employed (except for Mr. Baio who left the Company in October 2006) on an “at will” basis, without any written employment or severance agreements.

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Ms. Tatlock and Mr. Yun’s employment continued on an at will basis after the end of the term of their employment agreements in April 2006. Accordingly, the Company’s Named Executive Officers are not entitled to any particular severance benefit upon his or her involuntary termination of employment by the Company. The Company, however, may provide severance on a case by case basis in its discretion. In addition, the Company has not entered into any agreement with a Named Executive Officer that provides for additional payments solely on account of a change in control of the Company. However, the vesting or payment of outstanding stock options or incentive awards or benefits may accelerate upon a change in control of the Company.

Stock Ownership Requirements

As discussed in greater detail under the heading “Corporate Governance—Stock Ownership Guidelines” in the Proxy Statement, the Board of Directors has adopted guidelines for the directors and certain senior officers of the Company concerning their ownership of the Company’s common stock. The ownership guidelines specify the minimum amount of shares that the directors and such officers should own. They are intended to align further the interests of the directors and such officers with the interests of the Company’s other stockholders and to strengthen the link between long-term Company performance and executive compensation.

CEO Compensation

For fiscal year 2006, Mr. Gregory E. Johnson, the Company’s President and Chief Executive Officer, had a base salary of $780,132, which was not increased from the previous two fiscal years, in accordance with the Compensation Committee’s decisions discussed above under “Salaries.”

With respect to incentive compensation in fiscal year 2006, the Compensation Committee made two awards to Mr. G. Johnson as described below.

The Compensation Committee determined on December 15, 2005 to grant a performance-based restricted stock award of 15,379 shares to Mr. G. Johnson under the 2002 Stock Plan. This award differs in structure from those granted to other top contributing employees and officers of the Company, in that specific installments of restricted stock are subject to Company-related performance metrics in order to vest over a four-year period. In particular, the restricted stock vests upon the achievement of certain increases in pre-tax operating income for a fiscal year of the Company. Pre-tax operating income with respect to any fiscal year is defined as total operating revenue less total operating expenses determined on a consolidated basis as reported in the Company’s earnings release as operating income for an applicable fiscal year (referred to as “Operating Income” in the table above). One-quarter of the shares of restricted stock vest if pre-tax operating income for fiscal year 2006, 2007, 2008 or 2009 is at least 15% greater than pre-tax operating income for fiscal year 2005. Half of the shares of restricted stock vest if pre-tax operating income for fiscal year 2006, 2007, 2008 or 2009 is at least 32.25% greater than pre-tax operating income for fiscal year 2005. Three-quarters of the shares of restricted stock vest if pre-tax operating income for fiscal year 2006, 2007, 2008 or 2009 is at least 52.09% greater than pre-tax operating income for fiscal year 2005. All of the shares of restricted stock vest if pre-tax operating income for fiscal year 2006, 2007, 2008 or 2009 is at least 74.9% greater than pre-tax operating income for fiscal year 2005. Should those performance metrics not be achieved, the award will be forfeited either in whole or in part at the end of the performance-vesting period.

Because pre-tax operating income for fiscal year 2006 was at least 15% greater than pre-tax operating income for fiscal year 2005, 3,844 shares of common stock, representing the first one-quarter of Mr. G. Johnson’s 15,379 share restricted stock award, vested on November 6, 2006. The remaining three-quarters of Mr. G. Johnson’s restricted stock award vests as described above, if the pre-tax operating income targets are met.

On December 15, 2005, the Compensation Committee also established a maximum individual target award of $7,000,000 for fiscal year 2006 for Mr. G. Johnson, under the Company’s Key Executive Incentive Plan. If the Company’s profit margin (see “Operating Margin” in the table above) was at least 26.35% for fiscal year 2006,

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then Mr. G. Johnson would receive $1,500,000 of the aggregate maximum individual target awards. If such operating profit margin was less than the established threshold of 26.35%, then Mr. G. Johnson would forfeit any right to receive this $1,500,000 portion of the maximum individual target award. In addition, if the average (rounded to the nearest whole percent) of the percentage growth of earnings per share, as adjusted to factor out the effects of a one-time repatriation of foreign-based earnings, and pre-tax operating income (using the same definition as used for the performance-based restricted stock award above) for fiscal year 2006 was 25% or greater, then Mr. G. Johnson would receive $5,500,000 of the aggregate maximum individual target award. If such percentage was 20% to 24%, then the award would be $4,500,000; if the percentage was 15% to 19%, then the award would be $3,500,000; if the percentage was 10% to 14%, then the award would be $2,500,000; and if the percentage was 5% to 9%, then the award would be $1,500,000. If such percentage was less than 5%, then Mr. G. Johnson would forfeit any right to receive this $5,500,000 portion of the maximum individual target award. Notwithstanding these potential target award amounts, the actual awards payable to Mr. G. Johnson are subject to the Compensation Committee’s authority to reduce the awards otherwise payable to a participant. The awards are payable in cash or Company stock at the discretion of the Compensation Committee.

In determining incentive compensation for Mr. G. Johnson, the Compensation Committee considered a number of individual and Company performance factors, as described in the Key Executive Incentive Plan. Fiscal year 2006 profit margin was 32.3%, exceeding the 26.35% threshold for $1,500,000 of Mr. G. Johnson’s target award, and the average of the adjusted earnings per share and pre-tax operating income was 28.3%, exceeding the 25% threshold for $5,500,000 of Mr. G. Johnson’s target award. In light of the Company’s very strong performance for fiscal year 2006, Mr. G. Johnson earned the maximum target award of $7,000,000, and on November 21, 2006, the Compensation Committee authorized payment in the form of cash and shares of restricted stock. Consistent with awards to other Named Executive Officers, the first $1 million was awarded 65% in cash and 35% in restricted stock, amounts in excess of $1 million up to $5 million were awarded 50% in cash and 50% in restricted stock and amounts over $5 million were awarded 100% in restricted stock.

The Compensation Committee determined on December 20, 2006 to establish a maximum individual target award of $7,000,000 for fiscal year 2007 for Mr. G. Johnson. This maximum individual target award can be achieved based on two fiscal year 2007 components, operating profit margin (rounded to the nearest whole percent) and the average (rounded to the nearest whole percent) of the percentage growth of diluted earnings per share and pre-tax operating income.

If the Company’s operating profit margin is at least 35% for fiscal year 2007, then Mr. G. Johnson will be entitled to receive $2,100,000 of the aggregate maximum individual target award. If such operating profit margin is 32% to 34%, Mr. G. Johnson will be entitled to receive $1,890,000 of such award. If such operating profit margin is 28% to 31%, Mr. G. Johnson will be entitled to receive $1,680,000 of such award. If such operating profit margin is less than 28%, then Mr. G. Johnson will forfeit any right to receive this $2,100,000 portion of the target award.

If the average of the percentage growth of diluted earnings per share and pre-tax operating income for fiscal year 2007 as compared to fiscal year 2006 is 23% or greater, then Mr. G. Johnson will be entitled to receive $4,900,000 of the aggregate maximum individual target award. If such average percentage growth is 15% to 22%, he will be entitled to receive $3,920,000 of such award; if such average percentage growth is 10% to 14%, he will be entitled to receive $2,450,000 of such award; and if such average percentage growth is 5% to 9%, he will be entitled to receive $980,000 of such award. If such average percentage growth is less than 5%, Mr. G. Johnson will forfeit any right to receive this $4,900,000 portion of the target award.

Notwithstanding the potential amounts receivable pursuant to the target award, the actual award amounts payable to Mr. G. Johnson are subject to the Compensation Committee’s authority to reduce the award amounts otherwise payable to him. Additionally, the award is payable in cash or Company stock at the discretion of the Compensation Committee.

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This award package was reviewed by the independent compensation consultant, who advised the Compensation Committee that it was consistent with market practices, significantly performance based and aligned with Company objectives. The independent consultant also advised the Compensation Committee that the award package is consistent with the Compensation Committee’s stated philosophy for rewarding executives and is competitive with the market.

The Compensation Committee believes that the compensation package of Mr. G. Johnson for fiscal year 2007 is reasonable and appropriate and that it is aligned with the interests of the Company’s stockholders.

Other Benefits and Perquisites

All executive officers are entitled to receive medical, life and disability insurance coverage and other corporate benefits available to most employees of the Company. All executive officers are eligible to participate in the Franklin Resources, Inc. 1998 Employee Stock Investment Plan and participate in the Franklin Templeton Profit Sharing 401(k) Plan. The Company’s Board of Directors reviews and approves all corporate contributions to the 401(k) plan.

The Compensation Committee also reviewed other benefits, including personal use of Company aircraft, received by the Named Executive Officers as noted in the tables detailing Other Annual Compensation and All Other Compensation in the Proxy Statement, and determined that they were reasonable overall.

Tax Deductibility of Compensation

In evaluating compensation program alternatives, the Compensation Committee considers the potential impact on the Company of Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended. Section 162(m) limits to $1 million the amount that a publicly traded corporation, such as the Company, may deduct for compensation paid in any year to its chief executive officer or any other of its four most highly compensated executive officers. However, compensation which qualifies as “performance-based” is excluded from the $1 million per executive officer limit if, among other requirements, the compensation is payable only upon attainment of pre-established, objective performance goals under a plan approved by the Company’s stockholders.

The Compensation Committee endeavors to maximize deductibility of compensation under Section 162(m) to the extent practicable while maintaining competitive compensation. The Company expects that performance-based awards either in the form of cash or restricted stock should qualify for the performance-based compensation exception to Section 162(m). The Compensation Committee, however, believes that it is important for it to retain maximum flexibility in designing compensation programs that are in the best interests of the Company and its stockholders. Therefore, the Compensation Committee, while considering tax deductibility as a factor in determining compensation, will not limit compensation to those levels or types of compensation that will be deductible if it believes that the compensation is commensurate with the performance of the covered employee.

Respectfully Submitted:

Compensation Committee

Charles Crocker (Chairman)

Samuel H. Armacost

Joseph R. Hardiman

Thomas H. Kean

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal year 2006, the following directors served as members of the Compensation Committee: Messrs. Crocker, Armacost, Hardiman, and Kean. No member of the Compensation Committee was an officer or employee of the Company or any of its subsidiaries during fiscal year 2006, and no member of the Compensation Committee was formerly an officer of the Company or any of its subsidiaries or was a party to any disclosable related party transaction involving the Company. During fiscal year 2006, none of the executive officers of the Company has served on the board of directors or on the compensation committee of any other entity that has or had executive officers serving as a member of the Board of Directors or Compensation Committee of the Company.

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PERFORMANCE GRAPH

The following performance graph compares the performance of an investment in the Company’s common stock for the last five fiscal years to that of the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500 Index”), an index to which the Company was added in April 1998, and to the Standard & Poor’s 500 Financials Index (the “S&P 500 Financials Index”). The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index (stock price times number of shares outstanding), with each stock’s weight in the index proportionate to its market value. The S&P 500 Index is one of the most widely used benchmarks of U.S. equity performance. The S&P 500 Financials Index is a capitalization-weighted index of the stocks of approximately 70 companies that are in the S&P 500 Index and whose primary business is in a sub-sector of the financial industry. It is designed to measure the performance of the financial sector of the S&P 500 Index. The graph assumes that the value of the investment in the Company’s common stock and each index was $100 at the market close on September 28, 2001 (the last trading day before the beginning of the Company’s fifth preceding fiscal year) and that all dividends were reinvested.

COMPARISON OF FIVE YEAR CUMULATIVE RETURN

Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate filings made by us under those statutes, the preceding performance graph shall not be deemed to be “soliciting material,” or to be incorporated by reference into any prior filings or future filings made by the Company under those statutes.

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Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate filings made by us under those statutes, the following report shall not be deemed to be “soliciting material,” or to be incorporated by reference into any prior filings or future filings made by the Company under those statutes.

REPORT OF THE AUDIT COMMITTEE

MEMBERSHIP AND ROLE OF THE AUDIT COMMITTEE

The Audit Committee of the Board of Directors of Franklin Resources, Inc. (the “Company”) consists of Chutta Ratnathicam (Chairman), Charles Crocker, Laura Stein and Louis E. Woodworth. Each of the members of the Audit Committee is independent as defined under the New York Stock Exchange listing standards and applicable law. The primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its responsibility to oversee (i) the Company’s financial reporting, auditing and internal control activities, including the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the independent auditor’s qualifications and independence, and (iv) the performance of the Company’s internal audit function and independent auditor. The Audit Committee’s function is more fully described in the written charter, which is attached as Appendix A to the Proxy Statement and posted in the corporate governance section of the Company’s website.

REVIEW OF THE COMPANY’S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006

The Audit Committee has reviewed and discussed the audited financial statements of the Company for the fiscal year ended September 30, 2006 with the Company’s management.

The Audit Committee has discussed with PricewaterhouseCoopers LLP (“PwC”), the Company’s independent registered public accounting firm, the matters required to be discussed by the Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended.

The Audit Committee has also received the written disclosures and the letter from PwC required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed the independence of PwC with that firm.

Based on the Audit Committee’s review and discussions noted above, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006 for filing with the Securities and Exchange Commission.

Respectfully Submitted by the Members of the Audit Committee:

Chutta Ratnathicam (Chairman)

Charles Crocker

Laura Stein

Louis E. Woodworth

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FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board, with the ratification of the stockholders, engaged PricewaterhouseCoopers LLP (“PwC”) to perform an annual audit of the Company’s consolidated financial statements for fiscal year 2006.

The following table sets forth the approximate aggregate fees billed or expected to be billed to the Company by PwC for fiscal years 2006 and 2005 for the audit of the Company’s annual consolidated financial statements and for other services rendered by PwC.

Note: For fiscal year 2006, 1.2% of the total fees for services rendered by PwC were approved by the Audit Committee pursuant to the pre-approval waiver requirements under 17 CFR 210.2-01(c)(7)(i)(C), of which 0.5% represented Tax Fees and 0.7% represented All Other Fees.

PRE-APPROVAL PROCESS AND POLICY

The audit and non-audit services provided to the Company and its subsidiaries by PwC, the independent auditors, during fiscal year 2006 were pre-approved by the Audit Committee. The Audit Committee has adopted policies and procedures for pre-approving all audit and non-audit services provided by PwC. This policy describes the permitted audit, audit-related, tax and other services that the independent auditors may perform.

Any requests for audit, audit-related, tax and other services must initially be submitted to the Company’s Chief Financial Officer (the “CFO”). Any requests preliminarily approved by the CFO are then submitted to the Audit Committee for final pre-approval. Normally, pre-approval is considered at regularly scheduled meetings. However, the authority to grant specific pre-approval between meetings up to a designated approval amount, which amount for fiscal year 2007 is $50,000 (the “Chairman Approval Amount”), has been delegated to the Chairman of the Audit Committee. The decision of the Chairman to grant specific pre-approval of a service shall be presented to the Audit Committee at its scheduled meetings. If the estimated fees for proposed services exceed the Chairman Approval Amount, specific pre-approval by the entire Audit Committee is required.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During fiscal year 2006, Franklin Templeton Bank & Trust, F.S.B., and various bank related subsidiaries of Fiduciary Trust, a subsidiary of the Company, entered into various transactions in the ordinary course of their business with certain directors and executive officers of the Company and members of their immediate families. Additionally, Fiduciary Trust provided certain services to individual directors and/or members of their families. The transactions and services involved loans, deposits and sales of commercial paper, certificates of deposit and other money market instruments and certain other banking transactions as well as trustee and investment management services. As transactions and services made or entered into in the ordinary course of business, all such transactions and services were made or provided on substantially the same terms, including fees, interest rates and collateral, that prevailed at the time for comparable transactions or services with other third parties in arms-length relationships and did not involve more than the normal risk of collectability or present other unfavorable features.

In fiscal year 2006, Mr. C.B. Johnson, Chairman of the Board, Member—Office of the Chairman and a director of the Company, who, among other family relationships, is the father of Mr. G. Johnson, President and Chief Executive Officer and a director nominee of the Company, and Ms. Bolt, Executive Vice President—Operations and Technology for the Company, was paid $594,330 and did not receive a cash bonus. Mr. C.B. Johnson’s base salary for fiscal year 2007 is $594,330.

In fiscal year 2006, Mr. R. Johnson, Jr. a Vice Chairman, Member—Office of the Chairman and a director of the Company, who, among other family relationships, is the brother of Mr. C.B. Johnson, Chairman of the Board, was paid $532,396 and did not receive a cash bonus. Mr. R. Johnson’s base salary for fiscal year 2007 is $532,396.

In fiscal year 2006, Ms. Bolt, Executive Vice President—Operations and Technology for the Company, who, among other family relationships, is the daughter of Mr. C.B. Johnson, Chairman of the Board, and the sister of Mr. G. Johnson, President and Chief Executive Officer of the Company, was paid $1,200,000, which included a cash bonus of $750,000. Ms. Bolt also received 4,093 shares of restricted stock. Ms. Bolt’s base salary for fiscal year 2007 is $450,000.

In fiscal year 2006, Robert R. Dean, a Vice President and Portfolio Manager for Franklin Advisers, Inc., a subsidiary of the Company, and the son-in-law of the late Mr. Harmon E. Burns, who served as a Vice Chairman, Member—Office of the Chairman and a director of the Company during fiscal year 2006, was paid $619,000, which included a cash bonus of $455,000. Mr. Dean also received 1,115 shares of restricted stock and mutual fund shares with a value of $122,500. Mr. Dean’s base salary for fiscal year 2007 is $175,000.

In November 2005, Joel Burns, the brother of the late Mr. Harmon E. Burns, who served as a Vice Chairman, Member—Office of the Chairman and a director of the Company during fiscal year 2006, commenced employment as a wholesaler in the regional sales group of Franklin/Templeton Distributors, Inc., a subsidiary of the Company. In fiscal year 2006, Mr. J. Burns was paid $80,000, plus applicable commissions that may be earned. Mr. J. Burns also received 182 shares of restricted stock. Mr. J. Burns’ base salary for fiscal year 2007 is $80,000, plus applicable commissions that may be earned.

In fiscal year 2006, David A. Lewis, Sr., a senior trader for Franklin Templeton Services, LLC, a subsidiary of the Company, and the brother of Mr. Kenneth A. Lewis, a Senior Vice President, Chief Financial Officer and Treasurer of the Company, was paid $201,500, which included a cash bonus of $91,000. Mr. D. Lewis also received 446 shares of restricted stock. Mr. D. Lewis’s base salary for fiscal year 2007 is $115,800.

Messrs. C.B. Johnson, R. Johnson, R. Dean, J. Burns and D. Lewis and Ms. Bolt are entitled to receive medical, life and disability insurance coverage and other benefits available generally to employees of the Company and/or its subsidiaries.

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Under a stock repurchase program authorized by the Board, the Company can repurchase shares of its common stock from time to time on the open market and in private transactions in accordance with applicable securities laws. Pursuant to this stock repurchase program, the Company repurchased shares of the Company’s common stock from, among others, certain directors, executive officers and greater than five percent (5%) beneficial owners of the Company’s common stock, and certain members of the immediate family of the foregoing persons, during fiscal year 2006 and in the current fiscal year. In particular, Mr. C.B. Johnson, Chairman of the Board, Member—Office of the Chairman and a director of the Company, sold back to the Company through his IRA, 200,000 shares of common stock for an aggregate amount of $19,228,000 on December 21, 2005. On October 31, 2006, Mr. C. B. Johnson also sold back 100,000 shares of common stock for an aggregate amount of $11,422,500. The late Mr. Harmon E. Burns, who served as a Vice Chairman, Member—Office of the Chairman and a director of the Company during fiscal year 2006, sold back to the Company 152,177 shares of common stock for an aggregate amount of $14,952,151 on August 18, 2006. On the same date, the Burns Foundation, a private foundation of which Mr. Burns was a trustee, sold back to the Company 1,500 shares of common stock for an aggregate amount of $147,383. Separately on October 31, 2006, Mr. H. Burns also sold back 100,000 shares of common stock for an aggregate amount of $11,422,500. Similarly, on the same date, Mr. R. Johnson, a Vice Chairman, Member—Office of the Chairman and a director of the Company, sold back to the Company 100,000 shares of common stock from his IRA for an aggregate amount of $11,422,500. On October 31, 2006, Mr. L. E. Woodworth, director of the Company, sold back to the Company 25,000 shares of common stock from his IRA for an aggregate amount of $2,855,625. And finally, on November 2, 2005, Mr. James R. Baio, former Executive Vice President and Chief Financial Officer of the Company, sold back to the Company 22,478 shares of common stock for an aggregate amount of $2,010,432. The price per share paid by the Company for each repurchase was the average of the high and low price of the Company’s common stock on the NYSE on the repurchase date.

In order to pay taxes due in connection with the vesting of employee and executive officer restricted stock and restricted stock unit awards under the 2002 Stock Plan and matching grants under the 1998 Employee Stock Investment Plan, as amended, the Company uses a net stock issuance method, equivalent to a stock repurchase program, to pay such taxes. Accordingly, on December 29, 2005 at a price of $94.48 per share and in connection with the vesting of certain restricted stock awards, the Company in effect purchased 763 shares from Mr. V. Advani, 458 shares from Ms. P. Alexander, 611 shares from Mr. J. Baio, 611 shares from Mr. N. Frisbie, Jr., 239 shares from Ms. H. Gibson Brady, 108 shares from Ms. B. Green, 443 shares from Ms. D. Ikeda, 422 shares from Mr. L. Kratter, 306 shares from Mr. K. Lewis, 534 shares from Mr. J. Lusk, 382 shares from Mr. M. Simpson and 825 shares from Mr. W. Yun. On January 31, 2006 and in connection with the vesting of certain matching grants, the Company in effect purchased 16 shares from Mr. J. Baio, 58 shares from Mr. N. Frisbie, Jr., 91 shares from Ms. D. Ikeda, 7 shares from Mr. L. Kratter and 69 shares from Mr. J. Lusk, all at the price of $98.50 per share. On July 31, 2006 and in connection with the vesting of certain matching grants, the Company in effect purchased 110 shares from Mr. V. Advani, 75 shares from Mr. J. Baio, 61 shares from Mr. N. Frisbie, 64 shares from Ms. D. Ikeda, 79 shares from Mr. L. Kratter, 45 shares from Mr. J. Lusk and 98 shares from Mr. Yun, all at the price of $91.456 per share. On September 29, 2006 in connection with the vesting on that day of certain restricted stock awards, the Company in effect purchased 3,742 shares from Mr. V. Advani, 464 shares from Ms. P. Alexander, 1,056 shares from Mr. J. Baio, 954 shares from Mr. N. Frisbie, Jr., 245 shares from Ms. H. Gibson Brady, 607 shares from Ms. B. Green, 410 shares from Ms. D. Ikeda, 1,318 from Mr. L. Kratter, 661 shares from Mr. K. Lewis, 741 shares from Mr. J. Lusk, 836 shares from Mr. M. Simpson, 2,030 shares from Ms. A. Tatlock and 2,507 shares from Mr. W. Yun, all at the price of $91.45 per share. In connection with the vesting of certain restricted stock awards ten days following the date the Company’s fiscal year 2006 Annual Report on Form 10-K is filed with the SEC, shares held by a number of executive officers of the Company, including each of Messrs. Advani, Frisbie, Jr., Kratter, K. Lewis, Lusk, Simpson and Yun and Mss. Alexander, Gibson Brady, Green and Ikeda, among others, will be used to cover the payment of taxes upon such vesting. The price per share paid by the Company for each purchase of shares vesting or matching prior to October 1, 2005 was the average of the high and low price of the Company’s common stock on the NYSE on the vesting or matching grant date, as applicable. The price per share paid by the Company for each purchase of shares vesting on and after October 1, 2005 is the closing price of the Company’s common stock on the NYSE on the vesting date.

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A subsidiary of the Company has an agreement with AC Travel, LLC (“AC Travel”), an entity owned and controlled by Charles B. Johnson, Chairman of the Board, Member—Office of the Chairman and a director of the Company, to manage the operations of a Gulfstream III aircraft (the “Aircraft”) owned by AC Travel. Under the management agreement, the subsidiary: (a) provides consulting and management services for the operations of the Aircraft; (b) assists in the arrangement for the utilization of the Aircraft for charter activities; (c) provides flight crew personnel, including coordinating training of such personnel; (d) arranges for Aircraft maintenance; and (e) arranges for insurance and a hanger for Aircraft storage and also provides other administrative services. The initial term of the agreement was one year, with automatic one-year renewals thereafter, subject to cancellation by either party. Our subsidiary receives a monthly management fee of $10,000, and all expenses in connection with the Aircraft are either reimbursed or passed through to, and paid by, AC Travel.

From time to time, the Company has chartered the Aircraft from an independent charter company with whom AC Travel has an arrangement to provide charter services utilizing the Aircraft for use by the general public. Fees paid by the Company for such charter services are comparable to those paid by the general public. During the fiscal year ended September 30, 2006, $757,164 was paid for such services by the Company. The aggregate incremental cost of personal use of Company aircraft by Charles B. Johnson was $224,033 for fiscal year 2005 and $369,763 for fiscal year 2006, based upon rate per nautical mile of personal use as generally used by corporate aviation operators for cost and budget estimation purposes as published from time to time by Conklin & deDecker Associates, Inc. for each particular aircraft type utilized by the Company.

The Company previously provided an office to Tano Capital, LLC (“Tano”), a company owned by Charles E. Johnson, the son of Mr. C.B. Johnson, and entered into a written lease with Tano as of November 1, 2005. The written lease included the following terms: (i) the lease of approximately 2,317 square feet of office space owned by the Company in San Mateo, California; (ii) an initial term of two years with a right to extend for 3 additional one-year periods; (iii) a lease rate of $5,329.10 per month with lease rate increases of 3% during any period beyond the initial term; (iv) a guaranty by Mr. C.E. Johnson; and (v) work station furniture to be provided by the Company. The Company entered into a new lease with Tano as of September 10, 2006. The new lease replaces the November 1, 2005 lease and includes the following terms: (i) the lease of approximately 5,360 square feet of office space owned by the Company in San Mateo, California; (ii) an initial term ending October 31, 2009, with a right to extend for two additional one-year periods; (iii) a lease rate of $5,329.10 per month increasing to $12,697.84 per month following the completion of certain leasehold improvements on November 1, 2006, increasing by 3% as of the 25^th month and an additional 3% each year during extension beyond the initial term; (iv) a guaranty by Mr. C.E. Johnson; (v) office and work station furniture to be provided by the Company; and (vi), the Company will reimburse Tano a pro rata portion of its incurred build out costs if the lease is terminated prior to October 31, 2011. For each of the leases with Tano, the Company obtained information from independent real estate professionals setting forth market lease rates for comparable office space in San Mateo, California. The Company believes that the leases represent a fair market rental value for the space being leased.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires officers, directors and persons who beneficially own more than 10% of the Company’s common stock to file reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the SEC. The reporting officers, directors and 10% stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file.

Based solely on its review of copies of such reports received or written representations from such executive officers, directors and 10% stockholders, the Company believes that all Section 16(a) filing requirements applicable to its directors, executive officers and 10% stockholders were complied with during fiscal year 2006, except that (i) a gift made by Anne M. Tatlock in August 2005 was inadvertently not reported until August 2006 and (ii) a gift made by Gregory E. Johnson in March 2005 was inadvertently not reported until December 2006.

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PROPOSAL NO. 2

RATIFICATION OF THE APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

GENERAL

The Audit Committee of the Board has appointed PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the Company’s consolidated financial statements for the fiscal year ending September 30, 2007 and to audit the Company’s internal control over financial reporting as of September 30, 2007. During and for the fiscal year ended September 30, 2006, PricewaterhouseCoopers LLP audited and rendered opinions on the financial statements of the Company and certain of its subsidiaries, many of the open-end and closed-end investment companies managed and advised by the Company’s subsidiaries and the Franklin Resources, Inc. 1998 Employee Stock Investment Plan. PricewaterhouseCoopers LLP also rendered an opinion on the Company’s internal control over financial reporting as of September 30, 2006. In addition, PricewaterhouseCoopers LLP provides the Company with tax consulting and compliance services, accounting and financial reporting advice on transactions and regulatory filings and certain other consulting services not prohibited by applicable auditor independence requirements. See “Fees Paid to Independent Registered Public Accounting Firm” above. Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. It is also expected that they will be available to respond to appropriate questions.

RECOMMENDATION OF THE BOARD

The Board recommends a vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2007. The voting requirements for this proposal are described in the “Voting Information” section. If the appointment is not ratified, the Audit Committee may reconsider the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm.

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PROPOSAL NO. 3

APPROVAL OF THE AMENDMENT AND RESTATEMENT OF

THE FRANKLIN RESOURCES, INC. 1998 EMPLOYEE STOCK INVESTMENT PLAN

The Company’s stockholders are being asked to approve an amendment and restatement of the Franklin Resources, Inc. 1998 Employee Stock Investment Plan (the “Employee Stock Investment Plan”), which increases the maximum number of shares of common stock authorized for issuance over the term of the Employee Stock Investment Plan by four million (4,000,000) shares. In addition, the amended and restated Employee Stock Investment Plan reflects changes for which stockholder approval is not required, including (i) extending the term of the plan from December 31, 2007 to January 31, 2018 and (ii) removing the eligibility requirement that an employee’s customary employment be at least 20 hours per week.

The Employee Stock Investment Plan offers eligible employees the opportunity to acquire a stock ownership interest in the Company through periodic payroll deductions that will be applied towards the purchase of the Company’s common stock at a discount from the then current market price. The plan also permits the Company, at its election, to set the terms and make matching grants in a uniform and non-discriminatory manner to participants who satisfy specified holding period requirements. The primary purpose of the amendment and restatement of the plan is to ensure that the Company will have a sufficient reserve of common stock available under the Employee Stock Investment Plan to provide eligible employees of the Company and its participating subsidiaries with the continuing opportunity to acquire a proprietary interest in the Company through participation in a payroll deduction-based employee stock purchase plan.

The Employee Stock Investment Plan was originally adopted by the Board of Directors in December 1997 and approved by the Company’s stockholders in January 1998. Amendments to the plan were adopted by the Board of Directors in December 2000 and October 2002.

The following summary describes the material features of the Employee Stock Investment Plan, as amended and restated, but is not intended to be complete and is qualified in its entirety by reference to the Employee Stock Investment Plan, a copy of which is attached as Appendix E to this Proxy Statement. In Appendix E the locations of deletions are indicated by carets “^” and additions are indicated as bracketed. Capitalized terms not otherwise defined are used as set forth in the Employee Stock Investment Plan.

Administration

The Employee Stock Investment Plan is currently administered by the Compensation Committee of the Board of Directors. Such committee, acting as the Plan Administrator, has full authority to interpret and apply the terms of the Employee Stock Investment Plan, determine eligibility and adjudicate all disputed claims under the plan. All costs and expenses incurred in plan administration are paid by the Company without charge to participants.

Securities Subject to the Employee Stock Investment Plan

Including the four million (4,000,000) share increase for which stockholder approval is sought under this Proposal, eight million (8,000,000) shares of common stock have been reserved for issuance over the term of the Employee Stock Investment Plan. In the event of any increase or decrease in the Company’s outstanding common stock resulting from an event such as a stock split, stock dividend, combination or reclassification or similar event, appropriate adjustments will be made to the number of shares which have been authorized for issuance, and the number and purchase price payable for shares covered by outstanding purchase rights.

Purchase Periods and Purchase Dates

Shares of common stock are offered under the Employee Stock Investment Plan through a series of purchase periods. At present, shares are offered under the Employee Stock Investment Plan through a series of overlapping

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purchase periods, each with a duration of twenty-four (24) months. Purchase periods currently commence on February 1 and August 1 each year, and consist of a series of successive six (6) month purchase intervals. These intervals run from February 1 until July 31 each year and from August 1 until January 31 each year. Open purchase periods under the Employee Stock Investment Plan automatically terminate if the closing selling price per share of common stock at the beginning of a new purchase period is lower than that at the beginning of the open purchase period. In that event, participants are automatically enrolled in the new purchase period.

Eligibility and Participation

Any individual, including an officer or director, who is an employee of the Company or any participating subsidiary corporation for purposes of Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”) for at least ten (10) days prior to the first day of a purchase period is eligible to participate in the Employee Stock Investment Plan.

Eligible employees may join a purchase period at the start of that purchase period. At present, eligible employees may join on February 1 or August 1. Eligible employees may participate in only one purchase period at a time.

As of November 30, 2006, 3,593,281 shares of common stock had been issued under the Employee Stock Investment Plan, and 406,719 shares were available for future issuance. As of November 30, 2006, the Company estimates that approximately 8,000 employees, including 17 executive officers, were eligible to participate in the Employee Stock Investment Plan.

Purchase Price

The purchase price of the common stock acquired on each purchase date will be no less than 90% of the lower of (i) the closing selling price per share of common stock on the date the purchase period begins or (ii) the closing selling price per share of common stock at the end of the related six (6) month purchase interval.

The closing selling price of the common stock on any relevant date under the Employee Stock Investment Plan will be deemed to be equal to the closing selling price per share on such date on the New York Stock Exchange (“NYSE”). On November 30, 2006, the closing selling price per share of common stock determined on such basis was $106.74 per share.

Payroll Deductions and Stock Purchases

Each participant may authorize periodic payroll deductions in any multiple of 1% (up to a maximum of 10%) of his or her eligible earnings each purchase period. The accumulated deductions will automatically be applied on each purchase date to the purchase of whole shares of common stock at the purchase price in effect for that purchase date. Participants are permitted to make other approved contributions prior to a purchase date in certain non-U.S. jurisdictions where payroll deductions are prohibited by law. For purposes of the Employee Stock Investment Plan, eligible earnings include base salary and commissions, including paid time off and overtime pay.

Special Limitations

The Employee Stock Investment Plan imposes certain limitations upon a participant’s right to acquire common stock, including the following:

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Withdrawal; Termination of Purchase Rights

A participant may stop contributions to the Employee Stock Investment Plan at any time, and his or her accumulated payroll deductions will, at the participant’s election, either be refunded or applied to the purchase of common stock on the next scheduled purchase date. A participant may also withdraw all but not less than all of the payroll deductions credited to his or her account and not yet used to purchase shares. A participant’s purchase right will immediately terminate upon his or her cessation of employment for any reason, including death and permanent disability. Any payroll deductions that the participant may have made for the purchase period in which such cessation of employment occurs will be refunded and will not be applied to the purchase of common stock.

Stockholder Rights; Interest

No participant will have any stockholder rights with respect to the shares covered by his or her purchase rights until the shares are actually purchased on the participant’s behalf. No adjustment will be made for dividends, distributions or other rights for which the record date is prior to the purchase date. No interest accrues on participants’ payroll deductions.

Assignability

No purchase rights will be assignable or transferable by the participant, except by will or the laws of inheritance following a participant’s death.

Change in Control

In the event of (i) a merger in which the Company is not the surviving entity, (ii) a sale of all or substantially all of the Company’s assets in connection with the liquidation or dissolution of the Company, or (ii) a merger in which the Company is the surviving entity but in which more than fifty percent of the voting power is transferred to a person different from the holders prior to the merger, then each outstanding purchase right will be assumed unless the Plan Administrator determines to shorten the purchase period then in progress by setting a new purchase date immediately prior to the effective date of the change in control. In such case, the Plan Administrator will notify participants in writing at least ten (10) business days prior to the new purchase date that either: (A) the purchase right will be automatically exercised on the new purchase date; or (B) the Company will pay to the participants on the new exercise date an amount in cash equal to the excess, if any, of the fair market value of the shares subject to the purchase right over the purchase price due had the purchase right been exercised, and accumulated payroll deductions will be returned to participants.

Share Proration

Should the total number of shares of common stock to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares available for issuance under the Employee Stock Investment Plan at that time, then the Plan Administrator will make a pro rata allocation of the available shares in as uniform a manner as is practicable and as it determines to be equitable.

Amendment and Termination

As amended, the Employee Stock Investment Plan will terminate on January 31, 2018, unless sooner terminated by the Plan Administrator.

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The Plan Administrator may at any time terminate or amend the Employee Stock Investment Plan. However, the Plan Administrator may not, without participant consent, adversely affect options previously granted or the rights of any participant.

U.S. Federal Income Tax Consequences

Following is a summary of the principal United States Federal income taxation consequences to the Company and participants subject to U.S. taxation with respect to participation in the Employee Stock Investment Plan. This summary is not intended to be exhaustive and does not discuss the income tax laws of any city, state, or foreign jurisdiction in which a participant may reside.

The Employee Stock Investment Plan is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Under such an arrangement, no taxable income will be recognized by a participant, and no deductions will be allowable to the Company, upon either the grant or the exercise of the purchase rights. Taxable income will not be recognized until either there is a sale or other disposition of the shares acquired under the Employee Stock Investment Plan or in the event the participant should die while still owning the purchased shares.

If a participant sells or otherwise disposes of the purchased shares within two (2) years after his or her entry date into the purchase period in which such shares were acquired or within one (1) year after the actual purchase date of those shares, then the participant will recognize ordinary income in the year of sale or disposition equal to the amount by which the closing selling price of the shares on the purchase date exceeded the purchase price paid for those shares, and the Company will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal in amount to such excess. The participant also will recognize a capital gain to the extent the amount realized upon the sale of the shares exceeds the sum of the aggregate purchase price for those shares and the ordinary income recognized in connection with their acquisition.

If a participant sells or disposes of the purchased shares more than two (2) years after his or her entry date into the purchase period in which the shares were acquired and more than one (1) year after the actual purchase date of those shares, the participant will recognize ordinary income in the year of sale or disposition equal to the lower of (i) the amount by which the closing selling price of the shares on the sale or disposition date exceeded the purchase price paid for those shares or (ii) ten percent (10%) of the closing selling price of the shares on the participant’s entry date into that purchase period. Any additional gain upon the disposition will be taxed as a long-term capital gain. The Company will not be entitled to an income tax deduction with respect to such disposition.

If a participant still owns the purchased shares at the time of death, his or her estate will recognize ordinary income in the year of death equal to the lower of (i) the amount by which the closing selling price of the shares on the date of death exceeds the purchase price or (ii) ten percent (10%) of the closing selling price of the shares on his or her entry date into the purchase period in which those shares were acquired.

To the extent that the Company exercises its rights under the Employee Stock Investment Plan to make matching grants of shares of common stock to participants, the fair market value of the common stock on the date of such grants will be taxable to participants as ordinary compensation income and will be subject to withholding taxes. The Company generally will receive a tax deduction for federal income tax purposes in the amount of compensation income recognized by participants with respect to such matching grants.

Non-U.S. Income Tax Consequences

The income taxation consequences to participants and the Company (or its foreign subsidiaries) with respect to participation in the Employee Stock Investment Plan vary by country. Generally, participants are subject to taxation at the time of purchase. The employing foreign subsidiary may be entitled to a deduction in the tax year in which a participant recognizes taxable income, provided the subsidiary reimburses the Company for the cost of the benefit conferred under the Employee Stock Investment Plan.

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Plan Benefits

The table below shows, as to each of the Company’s executive officers named in the Summary Compensation Table of the Executive Compensation section of this Proxy Statement and the various indicated groups, the number of shares of common stock purchased under the Employee Stock Investment Plan during fiscal year 2006, together with the weighted average purchase price paid per share.

Employee Stock Investment Plan Transactions

New Plan Benefits

The benefits to be received by the Company’s executive officers, directors and employees as a result of the proposed amendment and restatement of the Employee Stock Investment Plan are not determinable, since the amounts of future purchases by participants are based on elective participant contributions. If the proposed increase in authorized shares is not approved by the stockholders, the shares available for issuance under the Employee Stock Investment Plan will not be sufficient to complete the purchase scheduled for July 31, 2007 and a pro rata allocation will be made to participants. See “Share Proration” above.

RECOMMENDATION OF THE BOARD

The affirmative vote of the holders of shares of common stock having a majority of the votes present in person or represented by proxy at the Annual Meeting of Stockholders and entitled to vote on the matter is required for approval of the four million (4,000,000) share increase. If you own shares through a broker, you must instruct your broker how to vote in order for your vote to be counted on this proposal. Should such stockholder approval not be obtained, then the four million (4,000,000) share increase will not be implemented and the plan will be amended with the other changes approved by the Board of Directors.

The Board of Directors believes that the amendment and restatement of the Employee Stock Investment Plan is necessary in order to provide employees with the continuing opportunity to acquire an equity interest in the Company as an incentive for them to remain in the Company’s service. For this reason, the Board of Directors recommends that the stockholders vote FOR the amendment and restatement of the Employee Stock Investment Plan.

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ADDITIONAL INFORMATION

STOCKHOLDER PROPOSALS

If a stockholder intends to present any proposal in accordance with Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, for consideration at the Company’s 2008 annual meeting of stockholders, the proposal must be received by the Secretary of the Company by August 31, 2007. Such proposal must also meet the other requirements of the rules of the SEC relating to stockholders’ proposals.

If a stockholder submits a proposal outside of Rule 14a-8 for the Company’s 2008 annual meeting of stockholders and if such proposal is not received by November 14, 2007, then the Company’s proxy may confer discretionary authority on persons being appointed as proxies on behalf of the Company to vote on such proposal.

All proposals should be addressed in writing to: Barbara J. Green, Secretary, Franklin Resources, Inc., One Franklin Parkway, San Mateo, CA 94403-1906.

CONTACT THE BOARD OF DIRECTORS

Stockholders or others may contact the Board, the non-management directors or any individual director by sending a written communication appropriately addressed to:

Board of Directors

Franklin Resources, Inc.

c/o Barbara J. Green, Secretary

One Franklin Parkway

San Mateo, CA 94403-1906

You may specify whether you would prefer to direct your communication to the full Board of Directors, only the non-management directors or particular individual directors. Stockholders making such communications are encouraged to state that they are stockholders and provide the exact name in which the shares are held and the number of shares held.

In addition, the Company has established separate procedures for its employees to submit concerns on an anonymous and confidential basis regarding questionable accounting, internal accounting controls or auditing matters and possible violations of the Company’s Code of Ethics and Business Conduct or law, which are available on the Company’s Intranet.

Non-employees may submit any complaint regarding accounting, internal accounting controls or auditing matters directly to the Audit Committee of the Board of the Directors by sending a written communication appropriately addressed to:

Audit Committee

Franklin Resources, Inc.

One Franklin Parkway

San Mateo, CA 94403-1906

THE ANNUAL REPORT

A copy of the Company’s Annual Report for fiscal year 2006, including financial statements, is being furnished concurrently herewith to all stockholders holding shares of common stock as of the Record Date. The Company’s Annual Report for fiscal year 2006 also is available for viewing on the Company’s website at “Annual Reports” under “Investor Relations”. Please read it carefully. However, the financial statements and the Annual Report do not legally form any part of this proxy soliciting material.

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HOUSEHOLDING OF PROXY MATERIALS

The SEC has adopted rules that permit companies and intermediaries (such as banks and brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.

A number of banks and brokers with account holders who are beneficial holders of the Company’s common stock will be householding the Company’s Proxy Statement and Annual Report for fiscal year 2006. Accordingly, a single copy of this Proxy Statement and the Company’s Annual Report for fiscal year 2006 will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your bank or broker that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement and/or annual report, please notify your bank or broker, or contact Investor Relations, Franklin Resources, Inc., One Franklin Parkway, San Mateo, CA 94403-1906, Telephone (650) 525-8900. The Company undertakes, upon oral or written request, to deliver promptly a separate copy of the Company’s annual report or proxy statement, as applicable, to a stockholder at a shared address to which a single copy of the applicable document was delivered. Stockholders who currently receive multiple copies of the proxy statement and/or annual report at their address and would like to request householding of their communications should contact their bank or broker or the Company’s Investor Relations at the contact address and telephone number provided above.

FORM 10-K

The Company filed with the SEC an annual report on Form 10-K for fiscal year ended September 30, 2006. Stockholders may obtain a copy of the annual report on Form 10-K, including financial statements and schedules included in the annual report on Form 10-K, without charge, by visiting the Company’s website at www.franklintempleton.com or by writing to the Company’s Secretary, Barbara J. Green, at the Company’s principal executive offices, Franklin Resources, Inc., One Franklin Parkway, San Mateo, CA 94403-1906. Upon written request to the Company’s Secretary, at the address of the Company’s principal executive offices, the exhibits set forth on the exhibit index of the Company’s annual report on Form 10-K may be made available at reasonable charge (which will be limited to our reasonable expenses in furnishing such exhibits).

By order of the Board of Directors,

Barbara J. Green

Vice President, Deputy General Counsel and Secretary

December 29, 2006

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APPENDIX A

FRANKLIN RESOURCES, INC.

AUDIT COMMITTEE CHARTER

This Audit Committee Charter (the “Charter”) has been adopted by the Board of Directors (the “Board”) of Franklin Resources, Inc. (the “Company”) in connection with its oversight of the Company’s management and the business affairs of the Company.

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Independent Auditor Oversight.

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Internal Auditor Oversight.

Financial Reporting Oversight.

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Audit Committee Report.

Legal and Regulatory Compliance Oversight.

Other.

Last adopted by the Board on December 13, 2006.

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APPENDIX B

FRANKLIN RESOURCES, INC.

COMPENSATION COMMITTEE CHARTER

This Compensation Committee Charter (the “Charter”) has been adopted by the Board of Directors (the “Board”) of Franklin Resources, Inc. (the “Company” or “Franklin”) in connection with its oversight of the Company’s management and the business affairs of the Company.

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CEO Evaluation and Compensation.

Other Compensation Related Responsibilities.

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Incentive Plans.

Executive Compensation Disclosures.

Other.

Last revised as of December 13, 2006.

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APPENDIX C

FRANKLIN RESOURCES, INC.

CORPORATE GOVERNANCE COMMITTEE CHARTER

This Corporate Governance Committee Charter (the “Charter”) has been adopted by the Board of Directors (the “Board”) of Franklin Resources, Inc. (the “Company”) in connection with its oversight of the Company’s management and the business affairs of the Company.