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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1 – Significant Accounting PoliciesBusiness. Franklin Resources, Inc. (“Franklin”) is a holding company that, together with its varioussubsidiaries (collectively, the “Company”) is referred to as Franklin Templeton Investments. The Companyderives substantially all of its operating revenues and net income from providing investment management,fund administration, shareholder services, transfer agency, underwriting, distribution, custodial, trustee andother fiduciary services (collectively, “investment management and related services”) to funds andinstitutional, high net-worth and separately-managed accounts (collectively, the “sponsored investmentproducts”). The Company also offers select retail banking, private banking and consumer lending servicesthrough its banking/finance segment. Services to the sponsored investment products are provided undercontracts that set forth the level and nature of the fees to be charged for these services. The majority of theCompany’s revenues relate to mutual fund products that are subject to contracts that are periodicallyreviewed and approved by each mutual fund’s board of directors/trustees and/or its shareholders.Basis of Presentation. The consolidated financial statements are prepared in accordance withaccounting principles generally accepted in the United States of America, which require the use ofestimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expenses during the periods presented.Management believes that the accounting estimates are appropriate and the resulting balances arereasonable; however, due to the inherent uncertainties in making estimates, actual amounts may differ fromthese estimates. Certain comparative amounts for prior fiscal years have been reclassified to conform to thefinancial statement presentation as of and for the fiscal year ended September 30, 2009 (“fiscal year 2009”).The Company has evaluated subsequent events through November 24, 2009, which is the date that thisAnnual Report on Form 10-K is filed with the U.S. Securities and Exchange Commission (the “SEC”).Consolidation. The consolidated financial statements include the accounts of Franklin and itssubsidiaries in which it has a controlling financial interest. An entity generally is considered to have acontrolling financial interest when it owns a majority of the voting interest in an entity. The Company alsoconsolidates any variable interest entity (“VIE”) for which it is considered the primary beneficiary. Allmaterial intercompany accounts and transactions have been eliminated.A VIE is an entity in which the equity investment holders have not contributed sufficient capital tofinance its activities or the equity investment holders do not have defined rights and obligations normallyassociated with an equity investment. An entity that has the majority of the risks and rewards of ownershipof a VIE, referred to as the primary beneficiary, is required to consolidate the VIE.The Company evaluates whether entities are VIEs and determines if it qualifies as the primarybeneficiary of the VIEs. The Company’s VIEs primarily include certain sponsored investment products andcertain other investment products in which the Company holds an equity ownership interest. Other VIEsinclude limited liability partnerships, limited liability companies, and joint ventures. The form of variableinterests that the Company has in VIEs generally includes equity ownership interest and investmentmanagement and related service fees earned from the sponsored investment products. The evaluation ofwhether the Company qualifies as the primary beneficiary of VIEs is highly complex and involvessignificant judgments, estimates and assumptions. The Company generally utilizes expected cash flowscenarios to determine its interest in the expected losses or residual returns of the VIEs from the investmentmanagement and related service fees or equity ownership interests held. The key estimates and assumptionsused in the analyses include the amount of assets under management, investment management and relatedservice fee rates, the life of the investment product, and the discount rate.73