THIS DOCUMENT IS A COPY OF THE FORM 10-K FILED ON DECEMBER 29, 1993 PURSUANT TO
A RULE 201 TEMPORARY HARDSHIP EXEMPTION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1993
Commission file number 1-9318
FRANKLIN RESOURCES, INC.
Exact Name of Registrant as Specified in its Charter)
Delaware
(State of other jurisdiction or incorporation or organization
13-2670991
(IRS Employer identification number))
777 Mariners Island Blvd. San Mateo, CA 94404
(Address of principal and executive Office)(Zip Code)
Registrant's telephone number, including Area Code:(415) 312-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock, par value $.10 per share New York StockExchange
Common Stock, par value $.10 per share Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) or the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to the filing requirements
for at least the past 90 days.
YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon a closing price of $44.25 on December
13, 1993 on the New York Stock Exchange was $1,942,755,629 Shares
of common stock outstanding at December 13, 1993: 82,134,654
[Documents Incorporated by Reference:]
Proxy Statement for Annual Meeting of Shareholders to be held
January 19, 1994 in Part III.
Item 1. Business
(a) General development of business
Franklin Resources, Inc. ("FRI") and its predecessors have been
engaged in the financial services business since 1947. FRI was
organized in Delaware in November 1969. The term "Company" as
used herein, unless the context otherwise requires, refers to
Franklin Resources, Inc. and its subsidiaries. The Company's
principal executive and administrative offices are at 777 Mariners
Island Boulevard, San Mateo, California 94404. As of September
30, 1993, on a worldwide basis the Company employed approximately
3,500 employees, consisting of officers, investment management,
distribution, administrative, sales and clerical support staff.
The Company also employs additional temporary help as necessary to
meet unusual requirements. Management believes that its relations
with its employees are excellent.
On October 30, 1992, the Company and certain of its direct and
indirect subsidiaries consummated the acquisition (the
"Acquisition") of substantially all of the assets and liabilities
of Templeton, Galbraith & Hansberger Ltd, a corporation organized
under the laws of the Cayman Islands and based in Nassau, Bahamas
("Old TGH"), which provided diversified investment management and
related services on a worldwide basis directly and through
subsidiaries to various domestic open-end and closed-end investment
companies as well as to a variety of international investment
portfolios and to domestic and international private and
institutional accounts. At the time of the Acquisition, assets
under management by Old TGH and related companies exceeded $20
billion. Unless the context otherwise requires, references herein
to "Templeton" are deemed to refer to the business operations
acquired by the Company in connection with the Acquisition.
Subsequent to the Acquisition, the Company has operated the
Franklin and Templeton businesses on a unified basis.
The Company and its subsidiaries paid to Old TGH an aggregate of
$731.6 million in addition to the assumption of certain
liabilities, which with certain other adjustments, had the effect
of increasing the purchase price for financial reporting purposes
to approximately $786 million. The Acquisition was funded by a
$360 million term loan facility with a syndicate of financial
institutions; the issuance in August 1992 in anticipation of such
Acquisition of $150 million of 6.25% subordinated debentures of
Templeton Worldwide, Inc., a newly formed subsidiary holding
company formed by the Company; $189 million in cash; and an $87
million issuance of the Company's $.10 par value Common Stock to
certain Old TGH major stockholders and to Templeton employees.
Ownership of certain of such Company shares by Templeton employees
vest over time and is subject to continued employment by such
employees with the Company or a subsidiary thereof.
In September 1993, the Company entered into an agreement which was
consummated in November, 1993, after the close of the fiscal year,
to manage and advise the approximate $150 million Huntington Funds
of Pasadena, California now called the Franklin/Templeton Global
Trust. This open-end investment company of several currency
portfolio series, includes the Global Currency Fund, The Hard
Currency Fund and The High Income Currency Fund, which invests in
high quality foreign equivalent money market instruments in various
global currencies as well as the German Government Bond Fund, which
invests in German government bonds and equivalents. A fifth
portfolio, which was a money market fund, is in process of
liquidation.
The Company is principally a holding company primarily engaged,
through various subsidiaries, in providing investment management,
marketing, distribution, transfer agency and administrative
services to the open-end investment companies in the Franklin Group
of Funds and the Templeton Group of Funds and to domestic and
international based private and institutional managed accounts.
The Company also provides investment management and related
services to 10 closed-end investment companies whose shares are
traded on various major stock exchanges. In addition, the Company
provides investment management, marketing and distribution services
to certain sponsored investment companies organized in the Grand
Duchy of Luxembourg (hereinafter referred to as "SICAV Funds"),
which are distributed in market-places outside of North America and
to certain investment funds and portfolios in Canada (hereinafter
referred to as "Canadian Funds") as well as to certain other
international portfolios in the United Kingdom and elsewhere. The
Franklin Group of Funds consist of 34 open-end investment
companies (mutual funds) consisting of approximately 109
portfolios. The Templeton Group of Funds consist of twelve (12)
open-end investment companies (mutual funds) consisting of
approximately 23 portfolios. The investment companies in the
Franklin and Templeton Groups of Funds are registered as such under
the Investment Company Act of 1940 (the "40 Act").
The Franklin and Templeton Groups of Funds are hereinafter referred
to individually as a "Franklin Fund" or a "Templeton Fund" and
collectively as the "Franklin Funds" or the "Templeton Funds" or
when applicable to both fund groups as the "Funds" or a "Fund".
The SICAV Funds, the Canadian Funds, and the domestic and
international based private and institutional managed accounts and
other domestic and international portfolios are collectively
referred to as the "Managed Accounts". The Franklin and Templeton
Groups of Funds along with the Managed Accounts are collectively
referred to as the Franklin/Templeton Group.
As of September 30, 1993 in the Franklin/Templeton Group, total
assets under management were $107.5 billion, the make-up of which
was approximately as follows: for the Franklin Group of Funds,
$78.6 billion; for the Templeton Group of Funds, $21.9 billion; for
the Managed Accounts, $7.0 billion. This makes the
Franklin\Templeton Group one of the largest investment management
complexes in the United States.
The Company, through certain subsidiaries, also provides advisory
services, sponsors and manages public and private real estate
programs and variable annuity products. Other subsidiaries offer
consumer banking services, insured deposits, and credit cards. The
Company also provides custodial, trustee and fiduciary services to
IRA and Keogh plans and to qualified retirement plans and private
trusts. On a consolidated worldwide basis, the Company provides
domestic and international individual and institutional investors
with a broad range of investment products and services designed to
meet varying investment objectives, which affords its clients the
opportunity to allocate their investment resources among various
alternative investment products as changing worldwide economic and
market conditions warrant.
Subsidiaries-Investment Management, Administration, Distribution
and Related Services
The Company's principal line of business is providing investment
management, administration, distribution, and related services to
the Franklin and Templeton Groups of Funds and to the Managed
Accounts. This business is primarily conducted through the wholly
owned direct and indirect subsidiary companies described below.
Revenues are generated primarily by subsidiaries that provide
advisory and management services.
Franklin Advisers, Inc.
Franklin Advisers, Inc. ("Advisers") is a California corporation
formed in 1985 and is based in San Mateo, California. Advisers is
registered as an investment advisor with the Securities and
Exchange Commission ( the "SEC") under the Investment Advisers Act
of 1940 (the "Advisers Act") and is also registered as an
investment adviser in the States of California, and New Jersey.
Advisers provides investment advisory, portfolio management and
administrative services under management agreements with most of
the Funds in the Franklin Group of Funds. Advisers manages more
than 50% of total assets under management which generates more than
50% of total Company revenues.
Templeton, Galbraith & Hansberger Ltd
Templeton, Galbraith & Hansberger Ltd ("New TGH") is a Bahamian
corporation located in Nassau, Bahamas formed in connection with
the Acquisition and is the successor company to Old TGH. New TGH
is registered as an investment advisor with the SEC under the
Advisers Act. New TGH provides investment advisory, portfolio
management and administrative services under various management
agreements with certain of the Templeton Funds and Managed
Accounts. New TGH is the principal investment advisor to the
Templeton Funds. Revenues are derived primarily from investment
management fees calculated on a sliding scale fund-by-fund basis in
relation to Templeton Fund assets under management.
Templeton Investment Counsel, Inc.
Templeton Investment Counsel, Inc. ("TICI") is a Florida
corporation formed in October, 1979, based in Ft. Lauderdale,
Florida and was acquired by the Company in connection with the
Acquisition. TICI is the principal investment advisor to the
Managed Accounts. In addition, it provides investment advisory
portfolio management services to certain of the Templeton Funds and
subadvisory services to certain of the Franklin Funds.
Templeton Global Investors, Inc
Templeton Global Investors, Inc ("TGII") is a Delaware corporation
formed in January, 1988 based in Ft. Lauderdale, Florida and was
acquired by the Company in connection with the Acquisition. TGII
provides business management services, including fund accounting,
securities pricing, trading, compliance and other related
administrative activities under various management agreements to
certain of the Templeton Funds. Revenues are derived from business
management fees calculated on a sliding scale fund-by-fund basis in
relation to assets under management.
Templeton Investment Management (Hong Kong) Limited
Templeton Investment Management (Hong Kong) Limited ("Templeton
Hong Kong") is a corporation organized under the laws of and is
based in Hong Kong. It was formed as a successor company to an Old
TGH subsidiary in connection with the Acquisition. Templeton Hong
Kong is registered as the foreign equivalent of an investment
advisor in Hong Kong and is also registered with the SEC under the
Advisers Act. Revenues are derived from investment management fees
calculated on a fund-by-fund basis in relation to assets under
management. Templeton Hong Kong is principally an investment
advisor to emerging market equity portfolios.
Templeton Investment Management (Singapore) Pte. Ltd.
Templeton Investment Management (Singapore) Pte. Ltd ("Templeton
Singapore") is a corporation organized under the laws of and based
in Singapore and was formed in connection with the Acquisition. It
is registered as the foreign equivalent of an investment advisor in
Singapore with the Monetary Authority of Singapore and provides
investment advisory and related services to certain Templeton
portfolios. Templeton Singapore is principally an investment
advisor to emerging market equity portfolios.
Templeton Management Limited
Templeton Management Limited is a Canadian corporation formed in
October, 1982 which with its subsidiaries was purchased in the
Acquisition and is registered in Canada as the foreign equivalent
of an investment advisor and a mutual fund dealer with the Ontario
Securities Commission. It provides investment advisory, portfolio
management, distribution and administrative services under various
management agreements with the Canadian Funds and with private and
institutional accounts.
Franklin/Templeton Distributors, Inc.
Franklin/Templeton Distributors, Inc. ("Distributors") is a New
York corporation formed in 1947 and whose name was changed from
Franklin Distributors, Inc. in connection with the post-Acquisition
unification of the Templeton and Franklin organizations. It is
registered with the SEC as a broker/dealer and as an investment
adviser and is a member of the National Association of Securities
Dealers ("NASD"). As the underwriter of the shares of most of the
Franklin/Templeton Group of Funds, it earns underwriting
commissions on distribution of shares of the Funds.
Templeton Quantitative Advisors, Inc.
Templeton Quantitative Advisors, Inc. ("TQA") is a Delaware
corporation formed in July, 1990 and was acquired in the
Acquisition. TQA is registered with the SEC as an investment
advisor to institutional accounts, including limited partnerships.
TQA also offers sophisticated financial research services to third
parties through its DAIS division.
Templeton/Franklin Investment Services, Inc.
Templeton/Franklin Investment Services, Inc. ("TFIS") is a
Delaware corporation formed in October 1987 and was acquired in the
Acquisition. TFIS is registered with the SEC as an investment
adviser and as a broker/dealer and is a member of the NASD. TFIS
provides advisory services to wrap fee and comprehensive fee
accounts.
Franklin/Templeton Investor Services, Inc.
Franklin/Templeton Investor Services, Inc. ("FTIS") is a California
corporation formed in 1981 whose name was changed from Franklin
Administrative Services, Inc in connection with the post-
Acquisition unification of operations of the Templeton and Franklin
organizations. FTIS provides shareholder record keeping services
and acts as transfer agent and dividend-paying agent for the
Franklin/Templeton Groups of Funds.. FTIS is registered with the
SEC as a transfer agent under the Securities Exchange Act of 1934
(the "Exchange Act"). FTIS is compensated under an agreement with
each Franklin and Templeton open-end mutual fund on the basis of a
fixed annual fee per account, which varies with the Fund and the
type of services being provided.
Other Templeton Investment Advisory and Related Subsidiaries were
acquired in connection with the Acquisition and are organized and
located in Florida, California, England, Scotland, Luxembourg,
Germany and Australia and provide investment advisory and related
services to various domestic and foreign portfolios and private and
institutional accounts.
Franklin Trust Company
Franklin Trust Company, a California corporation formed in 1983,
("FTC") is a trust company licensed by the California
Superintendent of Banks. FTC serves primarily as custodian for
Individual Retirement Accounts and Keogh Plans whose assets are
invested in the Franklin Group of Funds, and as trustee or
fiduciary of private trusts and retirement plans.
Templeton Funds Trust Company
Templeton Funds Trust Company, a Florida corporation formed in
December, 1985, (TFTC") is a trust company licensed by the Florida
Office of the Comptroller. TFTC serves primarily as custodian for
Individual Retirement Accounts and Keogh Plans whose assets are
invested in the Templeton Group of Funds, and as trustee of
commingled trusts for qualified retirement plans.
Franklin Management, Inc.
Franklin Management, Inc., a California corporation organized in
1978, is a registered investment advisor for private accounts.
Franklin Institutional Services Corporation
Franklin Institutional Services Corporation ("FISCO") is a
California corporation organized in 1991. FISCO is a registered
investment adviser and provides services to bank trust departments,
municipalities, corporate and public pension plans and pension
consultants.
Franklin Agency, Inc.
Franklin Agency, Inc. ("Agency") is a California corporation
organized in December, 1971. Agency provides insurance agency
services for the Franklin Valuemark annuity products.
Templeton Funds Annuity Company
Templeton Funds Annuity Company ("TFAC") is a Florida corporation
formed in January, 1984 and purchased in the Acquisition which
offers variable annuity products. TFAC is regulated by the Florida
Department of Insurance and Treasurer.
Templeton Worldwide, Inc.
Templeton Worldwide, Inc. is a Delaware corporation organized as a
holding company for all of the Templeton companies acquired or
formed in connection with the Acquisition.
Subsidiaries-Other Financial Services
The Company is also engaged in three other lines of business in the
financial services marketplace conducted through the subsidiaries
described below: consumer banking services, the sponsorship and
management of public and private real estate programs and the
marketing and distribution of primarily investment related
insurance products.
Banking Services
Franklin Bank ("Bank"), formerly Pacific Union Bank & Trust
Company, a 98% owned subsidiary of the Company, is a non-Federal
Reserve member California State chartered bank. The Bank was
formed in 1974 and was acquired by the Company in December, 1985.
The Bank, with total assets of $211 million as of September 30,
1993, provides consumer banking products and services such as
credit cards, deposit accounts and consumer loans. The Bank does
not exercise its commercial lending powers in order to maintain its
status as a "non-bank bank" pursuant to the provisions of the
Competitive Equality Banking Act of 1987 ("CEBA") which permits the
Company, a "non banking company" prior to CEBA, to remain exempt
from the Bank Holding Company Act under the "grandfathering"
provisions of CEBA. As a non-bank bank, it is subject to various
regulatory limitations, including limits on the increase in its
asset growth to 7% on an annual basis as well as a prohibition on
engaging in any activity in which it was not engaged in March of
1987.
Real Estate Subsidiaries
The Company's real estate related line of business is conducted
primarily through three principal subsidiary corporations.
Franklin Properties, Inc. ("FPI") is a real estate investment and
property management company organized in California in 1988, which
sponsors and manages real estate investment trusts. Property
Resources, Inc. ("PRI"), a California corporation organized in
1967 and acquired by the Company in December 1985, is a real estate
syndication company, serving as general partner or advisor for
real estate investment programs. Franklin Real Estate Management,
Inc. ("FREMI") is registered with the SEC as an investment advisor
and was formed in March 1991 to pursue the institutional sector of
the real estate market.
Insurance Services
ILA Financial Services, Inc. ("ILA") is an Arizona corporation that
is 80% owned by the Company. It was formed in 1969 as an insurance
holding company. Its principal subsidiary is Arizona Life Insurance
Company ("Arizona Life") based in Phoenix, Arizona. ILA
specializes in marketing term life insurance and annuities. ILA
and Arizona Life are registered as life insurance companies in
seven states.
Investment Management
The Franklin/Templeton Group of Funds and Managed Accounts
accommodate a variety of investment objectives, including, capital
appreciation, growth and income, income, tax-free income and
stability of principal. In seeking to achieve its objectives each
portfolio emphasizes different investment securities. Portfolios
seeking income focus on taxable and tax-exempt money market
instruments, tax-exempt municipal bonds, fixed income debt
securities of corporations and of the United States government and
its agencies and instrumentalities such as the Government National
Mortgage Association ("GNMA" or "Ginnie Mae"), the Federal
National Mortgage Association ("Fannie Mae"), and the Federal Home
Loan Mortgage Corporation ("Freddie Mac"). Portfolios that seek
capital appreciation invest primarily in equity securities in a
wide variety of markets, including international and domestic; some
seek broad national market exposure, while others focus on
narrower sectors such as precious metals, health care, emerging
technology, mid-cap companies, real estate securities, and
utilities. A majority of the assets managed are income-oriented.
Equity investments such as common stocks represent approximately
33% of total assets managed.
The Managed Accounts include many of the world's largest
corporations, endowments, charitable foundations, pension funds and
other institutions. Investment management services for such
portfolios focus on specific client objectives utilizing the
various investment techniques offered by the Franklin/Templeton
Group.
Except for the Company's money market funds, and funds specifically
designed for institutional investors, whose shares are sold without
a sales charge at all purchase levels, shares of the open end funds
in the Franklin/Templeton Group of Funds are generally sold at
their respective net asset value per share plus a sales charge
which varies depending on the individual fund and the amount
purchased. In accordance with certain terms and conditions
described in the prospectuses for such funds, certain investors are
eligible to purchase shares at net asset value or at reduced rates,
and investors may generally exchange their shares of a fund at net
asset value for shares of another fund in the Franklin/Templeton
Group when they believe such an investment decision is appropriate.
As of September 30, 1993, the net asset holdings of the four
largest funds in the Franklin/Templeton Group were Franklin
Custodian Funds, Inc. ($22.5 billion), Franklin California Tax-Free
Income Fund, Inc. ($14.3 billion), Franklin Federal Tax-Free Income
Fund ($6.9 billion), and the Franklin New York Tax-Free Income
Fund, Inc. ($4.7 billion). At September 30, 1993, these four mutual
funds represented, in the aggregate, 48% of all net assets under
management in the Franklin/Templeton Groups of Funds.
The Franklin Custodian Funds, Inc. ("Custodian") consists of five
separate series, each representing a separate portfolio with its
own investment objectives and policies. The largest of these is
the U.S. Government Securities Series which is invested almost
exclusively in GNMA obligations. As of September 30, 1993, the
aggregate net assets of the U.S. Government Securities Series
exceeded $14.3 billion.
The Company believes that among the factors contributing to
investor demand for shares of the Franklin U.S. Government
Securities Series is its relatively high yield in an environment of
low interest rates and the government's guarantee of timely payment
of principal and interest on the GNMA certificates in the portfolio
of such fund. During the period from 1991 to 1993, yields on GNMA
securities funds ranged from a high of 7.2% to a low of 6.0%.
The Franklin California Tax-Free Income Fund, Inc., the Franklin
New York Tax-Free Income Fund, Inc. and the Franklin Federal Tax-
Free Income Fund, emphasize investments in a diversified portfolio
of municipal securities, the interest on which is exempt from
federal income tax. The Franklin California Tax-Free Income Fund,
Inc. and the Franklin New York Tax-Free Income Fund, Inc. have the
further investment objective of paying dividends to their
shareholders which are exempt, respectively, from California and
New York personal income taxes. The Franklin California Tax-Free
Income Fund, Inc. is believed to be the largest municipal bond
mutual fund in the nation.
General Fund Description
Set forth in the tables below is a brief description of the funds
and of the principal investments and investment strategies of such
funds or portfolios comprising most of the funds or portfolios in
the Franklin/Templeton Group separated into 15 different general
categories as follows:
(i) Franklin Funds Seeking Preservation of Capital and Income
(ii) Franklin Funds Seeking Current Income
(iii)Franklin Funds Seeking Tax Free Income
(iv) Franklin Funds Seeking Growth and Income
(v) Franklin Funds Seeking Capital Growth
(vi) Franklin Funds for Tax-Deferred Investments (Valuemark
variable annuity)
(vii)Franklin Closed-End Funds
(viii)Franklin Funds for Institutional Investors
(ix) Templeton Funds Seeking Capital Growth from Global
Portfolios
(x) Templeton Funds Seeking Capital Growth from Domestic
Portfolios
(xi) Templeton Funds Seeking High Current Income from Global
Portfolios
(xii)Templeton SICAV Funds
(xiii)Templeton Canadian Funds
(xiv)Templeton Closed-End Funds
(xv) Representative Templeton International Portfolios
(i) Franklin Funds Seeking Peservation of Capital and Income
<TABLE>
<CAPTION>
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Franklin Money Fund 5/1/76 Money Market Instruments.
Invests in short-term securities
for capital preservation,
liquidity and dividends.
Franklin Federal 5/13/80 Short-term Instruments backed by
Money Fund U.S. government securities.
Invests in repurchase agreements,
collateralized by U.S. government
securities.
Franklin Tax- 2/18/82 Invests in short-term municipal
Exempt Money Fund securities for federally tax-free
dividends.
Franklin 9/3/85 Invests in short-term California
California Tax- municipal securities for double
Exempt Money Fund tax-free dividends.
Franklin New York 9/3/85 Invests in short-term New York
Tax-Exempt Money municipal securities for triple
Fund tax-free dividends (free from
federal, N.Y. state and N.Y. City
taxes).
<CAPTION>
(ii) Franklin Funds Seeking Current Income
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Franklin 12/26/91 Double A rated mortgage-backed
Adjustable Rate securities. ARMS created by private
Securities Fund issuers as well as Ginnie Mae,
Fannie Mae and Freddie Mac. Seeks
high current income and increased
price stability.
Franklin 10/20/87 Adjustable U.S. Government or government agency
Government guaranteed adjustable rate mortgage-
Securities Fund backed securities. Pooled adjustable
rate mortgage securities (ARMS).
Seeks income with lower volatility
of principal
Franklin's AGE 12/31/69 High yielding lower rated corporate
High Income Fund bonds. Seeks high current income.
Franklin Global 3/15/88 Global government fixed-income
Government Income securities. Seeks high current
Fund income.
Franklin 1/14/87 High grade corporate and U.S.
Investment Grade government securities. Seeks high
Income Fund current income.
<S> <C> <S>
Franklin Short- 4/15/87 U.S. government securities. Seeks
Intermediate U.S. income and relative stability of
Government principal by investing in less
Securities Fund volatile, shorter term securities
of U.S. government securities
carrying the full faith and credit
guarantee of the U.S. government.
Franklin Tax- 5/4/87 High yielding corporate bonds.
Advantaged High Designed for non-U.S. investors
Yield Securities seeking income from high yield
Fund corporate bonds, exempt from non-
resident alien taxation.
Franklin Tax- 6/9/90 Foreign debt securities. Invests
Advantaged in qualifying debt securities and
International Bond foreign currency denominated debt
Fund securities of non-U.S. issuers
that are not subject to U.S.
federal income tax or U.S. tax
withholding requirements. Designed
for non-U.S. investors.
Franklin Tax- 5/4/87 Ginnie Mae securities. Seeks high
Advantaged U.S. current income by investing
Government primarily in Ginnie Mae securities
Securities Fund carrying the full faith and credit
guarantee of the U.S. government,
exempt from non-resident alien
taxation.
U.S. Government 5/31/70 Ginnie Mae Securities. Seeks high
Securities Series (a current income by investing
series of Franklin primarily in Ginnie Mae securities
Custodian Funds, carrying the full faith and credit
Inc.) guarantee of the U.S. government.
Franklin Corporate 1/14/87 Preferred securities. Seeks high
Qualified Dividend after-tax income for corporations
Fund eligible for the dividend received
deduction.
<CAPTION>
(iii) Franklin Funds Seeking Tax-Free Income
Federal Tax-Free Funds
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Franklin Federal 9/21/92 Diversified municipal bonds with
Intermediate-Term an average maturity of three to
Tax-Free Income Fund ten years.
Franklin Federal Tax- 10/7/83 Diversified municipal bonds.
Free Income Fund Seeks federal tax-free income by
investing in nationally
diversified, investment quality
municipal bonds.
Franklin High Yield 3/18/86 High yielding municipal bonds.
Tax-Free Income Fund Seeks federal tax-free income by
investing in nationally
diversified, high yield, medium
and lower rated municipal bonds.
Franklin Puerto Rico 8/3/85 For U.S.citizens and residents.
Tax-Free Income Fund Seeks to provide a maximum level
of income exempt from federal
income tax and personal income
taxes of the majority of the
states.
Franklin Insured Tax- 4/1/85 Diversified portfolio of insured
Free Income Fund municipal bonds. Seeks federal tax-
free income by investing in
nationally diversified, insured
municipal bonds.
State Tax-Free Funds
The Company manages insured state tax-free funds established
from 1985 to 1993 in the states of Arizona, California,
Florida, Massachusetts, Michigan, Minnesota, New York and Ohio
whose principal investments and strategy are the purchase of
insured municipal bonds exempt from federal and specified state
personal income taxes providing an investment vehicle for
double tax- free income from long-term municipal securities.
In addition, the Company manages 25 non-insured state tax-free
income funds established from 1977 to 1993 providing double tax-
free income from long-term municipal securities to residents of
21 states.
<CAPTION>
(iv) Franklin Funds Seeking Growth and Income
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Franklin Balance 4/2/90 Undervalued securities of closed-
Sheet Investment end funds and common stocks which
Fund have per-share current market
values believed to be below their
net asset or book values.
Franklin Convertible 4/15/87 Convertible bonds and convertible
Securities Fund preferred stock. Seeks high
current income, potential capital
growth, and downside protection in
declining markets.
Franklin Global 7/2/92 Equity and debt securities issued
Utilities Fund by foreign and domestic utilities
companies.
Income Series (a 3/31/48 High yielding stocks and bonds.
series of Franklin Invests in a diversified portfolio
Custodian Funds, of high yielding lower rated
Inc.) corporate bonds, preferred stocks,
and dividend paying common stocks.
Franklin Rising 4/2/90 Growth stocks with increasing
Dividends Fund dividends. Invests in stocks with
consistent, substantial dividend
increases for capital growth.
Franklin Equity 3/15/88 Common stocks with high dividend
Income Fund yields. Invests in high yielding
common stocks for greater price
stability, capital appreciation,
and high current dividend income.
Utilities Series (a 9/30/48 Growth utilities stocks. Invests
series of Franklin in utility companies located in
Custodian Funds, high growth areas.
Inc.)
Franklin Premier 12/5/51 Common stocks and options.
Return Fund Invests in established dividend-
paying stocks and writes covered
call options on many of these
stocks to generate additional
return.
<CAPTION>
(v) Franklin Funds Seeking Capital Growth
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Franklin California 10/30/91 Primarily in growth stocks or
Growth Fund securities of companies
headquartered in or conducting a
majority of operations in
California.
DynaTech Series (a 1/1/68 Established and emerging growth
series of Franklin stocks. Invests in the volatile
Custodian Funds, stocks of companies engaged in
Inc.) dramatic break-through areas such
as medicine, telecommunications
and electronics or who have
proprietary advantages in their
field.
Franklin Global 2/14/92 Common stocks of health care
Health Care Fund companies worldwide.
Franklin Gold Fund 5/19/69 Securities of companies engaged in
mining, processing or dealing in
gold or other precious metals.
Franklin Equity Fund 1/1/33 Undervalued common stocks.
Invests in common stocks of
seasoned companies with low prices
in relation to earnings growth.
Growth Series (a 3/31/48 Leading growth stocks. Invests in
series of the well-known companies with
Franklin Custodian demonstrated growth
Funds, Inc.) characteristics.
Franklin 9/20/91 Common stocks of companies outside
International Equity the U.S.
Fund
Franklin Pacific 9/20/91 Common stocks of companies in the
Growth Fund Pacific Rim.
Franklin Small Cap 2/14/92 Common stocks of small
Growth Fund capitalization companies.
<CAPTION>
(vi) Franklin Funds for Tax-Deferred Investments
Franklin Valuemark II is a variable life and flexible-premium
variable annuity issued by Allianz Life Insurance Company of
North America and managed by Franklin Advisers, Inc. It is
available for sale in all 50 states including New York where it
is issued by Preferred Life Insurance Company of New York.
Most of the Valuemark funds are modeled after existing Franklin
funds that share the same investment objectives and strategies.
<CAPTION>
(vii) Franklin Closed-End Funds
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Principal Maturity 1/19/89 Mortgage-backed securities, zero
Trust (listed on the coupon securities and high income
New York Stock producing debt securities. Seeks
Exchange "NYSE") to return investors' original
capital of $10 per share on or
before May 31, 2001, while
providing high monthly income.
Franklin Universal 9/23/88 Fixed-income debt securities,
Trust (listed on the dividend paying stocks and
NYSE) securities of precious metals and
natural resources companies.
Seeks high current income
consistent with preservation of
capital.
Franklin Multi- 10/24/89 High yielding, fixed-income
Income Trust (listed corporate securities as well as
on the NYSE) dividend-paying stocks of
companies engaged in the public
utilities industry. Seeks high
current income consistent with
preservation of capital as well as
growth of income through dividend
increases and capital
appreciation.
Hampton Utilities 3/7/88 Dividend-paying stocks of
Trust (listed on the companies engaged in the public
American Stock utilities industry. Seeks long-
Exchange "AMEX") term capital appreciation
consistent with preservation of
capital and current income.
<CAPTION>
(viii) Franklin Funds for Institutional Investors
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Money Market 7/17/85 Money Market Instruments. Invests
Portfolio in short-term securities for
capital preservation, liquidity
and dividends.
Franklin Late Day 1/19/88 Money Market Instruments,
Money Market including repurchase agreements
Portfolio which allow for investor purchases
later in the day than generally
available from other money funds.
Franklin U.S. 1/19/88 Short-term instruments backed by
Government U.S. government securities.
Securities Money Invests in repurchase agreements,
Market Portfolio collateralized by U.S. government
securities.
Franklin U.S. 8/20/91 U.S. Treasury securities. Invests
Treasury Money in short-term U.S. Treasury
Market Portfolio obligations.
Franklin 1/2/92 A portfolio of mortgage-backed
Institutional securities. Pooled adjustable
Adjustable Rate rate mortgage securities ("ARMS").
Securities Fund
Franklin Strategic 2/1/93 Mortgage-back securities. Pooled
Mortgage Portfolio mortgages issued or guaranteed by
Ginnie Mae, Fannie Mae or Freddie
Mac.
FISCO Midcap Growth 8/17/93 Medium capitalization stocks.
Fund Seeks total return exceeding the
total return of aggregate U.S.
medium capitalization stocks as
measured by a benchmark.
Franklin 11/1/91 Invests in a portfolio of
Institutional adjustable U.S. government or
Adjustable U.S. guaranteed agency mortgage-backed
Government securities. ARMS created by
Securities Fund Ginnie Mae, Fannie Mae and Freddie
Mac. Seeks high current income
and increased price stability.
U.S. Government 5/20/91 Mortgage-backed securities. ARMS
Adjustable Rate created by Ginnie Mae, Fannie Mae
Mortgage Portfolio and Freddie Mac. Seeks high
(sold only to other current income and increased price
investment stability.
companies)
Adjustable Rate 11/5/91 Mortgage-backed securities. ARMS.
Securities Portfolio
(sold only to other
investment
companies)
The Money Market 7/28/92 Money Market instruments. Invests
Portfolio (sold only in short-term securities for
to other investment capital preservation, liquidity
companies) and dividends.
The U.S. Government 7/28/92 Short-term Instruments backed by
Securities Money U.S. government securities.
Market Portfolio Invests in repurchase agreements,
(sold only to other collateralized by U.S. government
investment securities.
companies)
<CAPTION>
(ix) Templeton Funds Seeking Capital Growth from Global Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Templeton Developing 10/17/91 Invests in stock of issuers in
Markets Trust countries with developing markets.
Templeton Foreign 10/5/82 Invests in stocks and bonds of
Fund foreign issuers
Templeton Global 2/28/90 Invests in securities issued by
Opportunities Trust companies and governments of any
nation
Templeton Growth Fund 11/29/54 Invests in stocks and bonds issued
by companies and governments of any
nation
Templeton Real Estate 9/18/89 Invests in securities of domestic
Securities Fund and foreign companies engaged in or
related to the real estate industry
Templeton Smaller 6/1/81 Invests in common stocks of smaller
Companies Growth Fund companies of any nation.
Templeton World Fund 1/17/78 Invests in stocks and bonds of
foreign and domestic companies
<CAPTION>
(x) Templeton Funds Seeking Capital Growth From Domestic Portfolios
<S> <C> <S>
Templeton American 3/27/91 Invests no less than 65% of assets
Trust in stocks and bonds of U.S.
companies and the U.S. government
<CAPTION>
(xi) Templeton Funds Seeking High Current Income from Global
Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Templeton Income Fund 9/24/86 Invests in bonds and dividend paying
stocks of companies and governments
of any nation.
<CAPTION>
(xii) Templeton SICAV Funds
Templeton Global Strategy SICAV
Equity Funds (denominated in U.S. Dollars unless otherwise
noted)
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Templeton Global 2/28/91 Seeks long-term capital growth by
Growth Fund investing mainly in the shares of
companies of any size found in any
nation.
Templeton 4/26/91 Seeks long-term capital growth by
Deutschemark Global investing mainly in shares of
Growth Fund companies of any size found in any
nation (denominated in
Deutschemarks).
Templeton Smaller 7/8/91 Seeks long-term capital growth by
Companies Fund investing mainly in shares of
companies with a market
capitalization of less than $1
billion found in any nation.
Templeton American 2/28/91 Seeks long-term capital growth by
Fund investing mainly in shares of
companies of all sizes based in the
North or South American continents.
Templeton Far East 6/30/91 Seeks long-term capital growth by
Fund investing mainly in shares of
companies of all sizes which are
based or derive significant profits
from the Far East.
Templeton Emerging 2/28/91 Seeks long-term capital growth by
Markets Fund investing in the shares and debt
obligations of corporations and
governments of developing or
emerging nations.
Templeton Indonesia 1/24/92 Seeks long-term capital growth by
Fund investing mainly in shares of
companies based in Indonesia or
traded principally on Indonesia
stock exchanges (denominated in
Indonesian rupees).
Developing Growth 4/17/91 Seeks long-term capital growth by
Stock Fund investing in the shares of emerging
growth companies which are generally
small to medium sized (below $500
million in market capitalization).
Templeton European 4/17/91 Seeks long-term capital growth by
Fund investing mainly in shares of
companies of all sizes based in
European countries (denominated in
Swiss francs).
<CAPTION>
Fixed Income Funds (denominated in U.S. Dollars unless otherwise
noted)
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Templeton Global 2/28/91 Seeks to maximize current income by
Income Fund investing mainly in fixed-interest
securities of governments and
companies worldwide.
Templeton 2/28/91 Seeks to maximize total investment
Deutschemark Global return by investing in a wide
Bond Fund variety of fixed-interest
securities, including those issued
by supranational bodies such as The
World Bank (denominated in
Deutschemarks).
Templeton US 2/28/91 Seeks security of capital and income
Government Fund by investing in bonds issued by the
US government and its agencies.
Templeton Emerging 7/5/91 Seeks to maximize total investment
Markets Fixed Income return by investing mainly in dollar
Fund and non-dollar denominated debt
obligations of emerging markets.
Templeton Haven Fund 7/8/91 Seeks to maintain a stable share
price by investing in short-term
high quality transferable debt
securities (denominated in Swiss
francs).
<CAPTION>
Templeton Worldwide Investments SICAV
<S> <C> <S>
Growth Portfolio 8/21/89 Seeks long term capital growth by
investing in all types of securities
issued by companies or government of
any nation.
Income Portfolio 8/21/89 Seeks high current income and
relative stability of net asset
value by investing in high quality
money market instruments and debt
securities with remaining maturities
in excess of two years.
<CAPTION>
(xiii) Templeton Canadian Funds
Non-Institutional Funds
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Templeton Balanced 04/07/83 Seeks to achieve long term capital
Fund appreciation consistent with
reasonable security of capital. It
invests primarily in a combination
of common and preferred shares,
bonds, and debentures; managed to
comply with eligibility requirements
under Canadian law regarding
retirement and deferred profit
sharing plans.
Templeton Emerging 09/20/91 Seeks long-term capital appreciation
Markets Fund by investing primarily in emerging
country equity securities.
Templeton Global 06/07/88 Seeks to provide high current income
Income Fund by investing primarily in a
portfolio of fixed income securities
of issuers throughout the world.
Templeton Global 01/03/89 Seeks capital appreciation by
Smaller Companies investing primarily in equity
Fund securities of emerging growth
companies throughout the world.
Templeton Growth 09/01/54 Seeks long term capital growth
Fund, Ltd. through a flexible policy of
investing in stock and debt
obligations of companies and
governments of any nation.
Templeton Heritage 01/02/90 Seeks high current income by
Bond Fund investing primarily in publicly
traded debt securities issued or
guaranteed by Canadian governments
or their agencies, or issued by
Canadian municipalities or
corporations.
Templeton Heritage 01/03/89 Seeks capital appreciation through
Retirement Fund investment in a diversified
portfolio of Canadian equity
securities selected with a view to
offsetting inflation and sharing in
the growth of the Canadian economy.
Managed to meet the eligibility
requirements of the Canadian law
regarding retirement and deferred
profit sharing plans.
Templeton 01/03/89 Seeks long term total return through
International Stock a flexible policy of investing in
Fund shares and debt obligations of
companies and governments outside of
Canada and the United States.
Templeton Treasury 02/29/88 Seeks a high level of current income
Bill Fund consistent with preservation of
capital and liquidity through
investments in Canadian government
or agency debt obligations and high
quality money market instruments.
<CAPTION>
Institutional Funds
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Templeton Canadian 07/06/90 For institutional investors. Seeks
Equity Trust capital appreciation by investing in
Canadian equity growth securities.
Templeton Emerging 07/06/90 For institutional investors. Seeks
Markets Trust long term capital appreciation by
investing primarily in emerging
country equity securities.
Templeton Global 07/06/90 For institutional investors. Seeks
Equity Trust long term capital appreciation by
investing in stocks and bonds issued
by companies and governments of any
nation.
Templeton 07/06/90 For institutional investors. Seeks
International Equity long term capital appreciation by
Trust investing in stocks and bonds issued
by companies and governments of any
nation.
Templeton 07/06/90 For institutional investors. Seeks
International Stock long term total return through a
Trust flexible policy of investing in
shares and debt obligations of
companies and governments outside of
Canada and the United States.
<CAPTION>
(xiv) Templeton Closed-End Funds
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Templeton Emerging 2/26/87 Long-term capital appreciation
Market Fund, Inc achieved by investing primarily in
(listed on the NYSE emerging country equity securities.
and Pacific Stock
Exchange "PSE")
Templeton Global 3/17/88 High current income with a secondary
Income Fund, Inc. investment objective of capital
(listed on the NYSE appreciation when consistent with it
and PSE) principal objective by investing
primarily in a portfolio of fixed-
income securities (including debt
securities and preferred stock) of
U.S. and foreign issuers.
Templeton Global 11/22/88 High level of current income
Governments Income consistent with the preservation of
Trust (listed on the capital achieved by investing at
NYSE) least 65% of its total assets in
debt securities issued or guaranteed
by governments, government agencies
supranational entities, political
subdivisions and other government
entities of various nations
throughout the world.
Templeton Global 5/23/90 High level of total return (income
Utilities, Inc. plus capital appreciation),without
(listed on the AMEX undue risk, through investment of at
and the Midwest Stock least 65% of its total assets in
Exchange) equity and debt securities issued by
domestic and foreign companies in
the utility industries.
Templeton Emerging 9/23/93 High current income with a secondary
Markets Income Fund, investment objective of capital
Inc. ( listed on the appreciation achieved by investing
NYSE) primarily in a portfolio of high
yielding debt obligations of
sovereign or sovereign-related
entities and private sector
companies in emerging market
countries.
Templeton China World 9/9/93 Long-term capital appreciation, by
Fund, Inc. (listed on investing primarily in equity
the NYSE) securities of companies organized
under the laws of or with a
principal office in the People's
Republic of China ("PRC"), Hong Kong
or Taiwan collectively "Greater
China", for which the principal
trading market is in Greater China,
and which derive at least 50% of
their revenues from goods or
services sold or produced, or have
at least 50% of their assets in the
PRC.
<CAPTION>
(xv) Representative Templeton International Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
<S> <C> <S>
Templeton Emerging 06/19/89 Seeks long term capital appreciation
Markets Investment through investing in companies
Trust Plc. operating or trading in emerging
market countries. (Closed End)
Templeton Global 08/29/88 Seeks to provide income through an
Balanced Trust internationally diversified
portfolio of equities, fixed
interest, and convertible stocks.
(Unit Trust)
Templeton Global 08/29/88 Seeks to maximize total investment
Growth Trust return by investing in an
internationally diversified
portfolio of equity shares and
convertible stocks. (Unit Trust)
Templeton/National 04/06/93 Growth Portfolio - Seeks long term
Bank of Greece Trans- capital growth through investments
European Fund in stock and debt securities of
companies and governments primarily
located in the European Economic
Community.
Income Portfolio - Seeks high
current income and relative
stability of principal through
investments in debt securities of
companies and governments located
primarily in the European Economic
Community.
Templeton Value Trust 06/08/89 Seeks maximum total investment
return by investing in all
geographic and economic sectors.
Asian Development 01/22/88 Seeks to maximize overall long-term
Equity Fund return by investing, directly or
indirectly, mainly in shares,
convertible bonds, warrants, and
other equity related securities of
entities in the Asian developing
countries.
Templeton Asia Fund 11/14/89 Seeks to achieve long-term capital
appreciation by investing primarily
in equity securities of entities
which either are listed on
recognized exchanged in capital
markets of the Asia/Oceania Region
or which have their area of primary
activity in those same capital
markets.
Templeton Emerging 06/24/93 Seeks to achieve long-term capital
Asia Fund appreciation by investing primarily
in equity securities of companies
which are either listed on
recognized exchanges in capital
markets in emerging Asian countries
or companies which have their
primary activity in those same
capital markets.
Templeton Global 07/13/88 Seeks to achieve high current income
Income Portfolio, by investing primarily in a
Ltd. portfolio of fixed income securities
(including debt securities and
preferred stock) of issuers
throughout the world.
</TABLE>
Recent Mutual Fund Introductions
The mutual funds referenced above include four new municipal bond
funds introduced during the year ended September 30, 1993: Franklin
Arizona Insured Tax-Free Income Fund, Franklin California High
Yield Municipal Fund, Franklin Florida Insured Tax-Free Income
Fund, and Franklin Washington Municipal Bond Fund.. During the
year, Templeton also successfully introduced two closed-end funds.
The Templeton China World Fund, which invests primarily in equity
securities of companies in China, Hong Kong and Taiwan raised a net
amount of $281 million and the Templeton Emerging Markets Income
Fund which invests in emerging market debt securities raised a net
amount of $659 million. In addition, Franklin also introduced the
FISCO MidCap Growth Fund
(b) Financial information about industry segments
Information on the Company's operations in various geographic areas
of the world and a breakout of business segment information is
contained in Footnote 5 to the Consolidated Financial Statements
contained in Item 8. herein.
(c) Narrative Description of Business
Investment Management and Administrative Services
The Company, through its principal subsidiaries described above,
provides investment advisory, portfolio management, transfer agent
and administrative services to the Franklin/Templeton Group. Such
services are provided pursuant to agreements in effect with each of
the U.S. registered Franklin and Templeton Funds. Comparable
agreements are in effect with foreign registered funds and with
private and institutional managed accounts. The management
agreements for the Franklin and Templeton Funds continue in effect
for successive annual periods, providing such continuance is
specifically approved at least annually by a vote cast in person at
a meeting of such Fund's Boards of Trustees or Directors called for
that purpose, or by a vote of the holders of a majority vote of the
Fund's outstanding voting securities, and in either event, by a
majority of such Fund's Trustees or Directors who are not parties
to such agreement or interested persons of the Funds or the Company
within the meaning of the 40 Act. Trustees and Directors of Fund
Boards are hereinafter referred to as "directors".
Each such agreement automatically terminates in the event of its
"assignment" (as defined in the 40 Act) and either party may
terminate the agreement without penalty after written notice
ranging from 30 to 60 days. "Assignment" is defined in the 40 Act
as including any direct or indirect transfer of a controlling block
of voting stock. Control is defined as the power to exercise a
controlling influence over the management or policies of a company.
If there were to be a termination of a significant number of the
management agreements between the Franklin and Templeton Funds and
the Company's subsidiaries, such termination would have a material
adverse impact upon the Company. To date, no management agreements
of the Company or any of its subsidiaries with any of the Franklin
or Templeton Funds have been involuntarily terminated.
As of September 30, 1993, substantially all of the stock of the
various directly and indirectly owned subsidiary companies was
owned directly by FRI or subsidiaries thereof, except for nominal
numbers of shares with respect to certain foreign entities required
to be owned by nationals of such countries in accordance with
foreign law. Charles B. Johnson, Rupert H. Johnson, Jr. and R.
Martin Wiskemann beneficially own approximately 20%, 16% and 10%,
respectively, of the outstanding voting common stock of FRI.
Charles B. Johnson and his brother Rupert H. Johnson, Jr. serve on
the Board of Directors of FRI as well as on most of the Franklin
and some of the Templeton Fund boards.
Under the terms of the management agreements with the Franklin and
Templeton Funds, the companies described above generally supervise
and implement such Fund's investment activities and provide the
administrative services and facilities which are necessary to the
operation of such Fund's business. Such companies also conduct
research and provide investment advisory services and, subject to
and in accordance with any directions such Fund's boards may issue
from time to time, such companies decide which securities such
Funds will purchase, hold or sell. In addition, such companies
take all steps necessary to implement such decisions, including the
selection of brokers and dealers to execute transactions for such
Funds, in accordance with detailed criteria set forth in the
management agreement for such Funds.
Generally, the Company or a subsidiary provides and pays the
salaries of personnel who serve as officers of the Franklin and
Templeton Funds, including the President and such other
administrative personnel as are necessary to conduct such Funds'
day-to-day business operations, including maintaining a Fund's
portfolio records, answering shareholder inquiries, providing
information, creating and publishing literature, compliance with
securities regulations, accounting systems and controls,
preparation of annual reports and other administrative activities.
The Funds generally pay their own expenses such as legal and
auditing fees, reporting and board and shareholder meeting costs,
SEC and state registration and similar expenses. Generally, the
Funds pay advisory companies a fee payable monthly based upon a
Fund's net assets. Annual rates under the various investment
management agreements range from 0.25% to a maximum of 1.25% and
are generally reduced as average net assets exceed various
threshold levels.
The investment management agreements permit advisory companies to
act as an advisor to more than one Fund so long as such company's
ability to render services to such Fund is not impaired, and so
long as purchases and sales appropriate for all such Funds are made
on a proportionate or other equitable basis. Management of the
Company and the directors of the Funds regularly review the fund
fee structures in the light of fund performance, the level and
range of services provided, industry conditions and other relevant
factors. Advisory fees are generally waived or reduced when a new
Fund is first established and then increased to contractual levels
with the growth in net assets.
The investment advisory services provided by such advisory
companies include fundamental investment research and valuation
analyses, encompassing original country, industry and company
research, utilizing such sources as the inspection of corporate
activities, management interviews, company prepared information,
publicly available information as well as analyses of suppliers,
customers and competitors. In addition, research services provided
by brokerage firms are used to support other research. In this
regard, some brokerage business from the Funds is allocated in
recognition of value-added research services received consistent
with receiving the best execution of Fund trades.
Fixed income research includes economic analysis, credit analysis
and value analysis. The economic analysis function monitors and
evaluates numerous factors that influence the supply and demand for
credit on a worldwide basis. Credit analysts research the credit
worthiness of debt issuers and their individual short-term and long-
term debt issues. Yield spread differential analysis reviews the
relative value of market sectors that represent buying and selling
opportunities.
Additional shareholder administrative services are provided by FTIS
which receives administrative fees from the Funds for providing
shareholder record keeping services and for acting as transfer and
dividend-paying agent for the Funds. Such compensation is based
upon an annual fee per shareholder account, ranging between $6 and
$21.72, a pro rated portion of which is paid monthly.
Distribution and Marketing
Distributors acts as the principal underwriter and distributor of
shares of the Franklin and Templeton Groups of Funds. Pursuant to
underwriting agreements with the Funds, Distributors generally pays
the expenses of distribution of Fund shares. Although the Company
does significant advertising and sales promotions through media
sources, Fund shares are sold primarily through a very large
network of independent participating securities dealers. As of
September 30, 1993, approximately 3,200 local, regional and
national securities brokerage firms offered shares of the Franklin
and Templeton Groups of Funds for sale to the investing public.
The Company has approximately 47 "wholesalers" who interface with
the broker/dealer community. Fund shares are offered to
individuals, qualified groups, trustees, IRA and Keogh plans,
employee benefit plans, trust companies, bank trust departments and
institutional investors.
Sales of Fund shares are generally subject to sales charges which
range from zero to 5.75% depending upon the amount invested, the
type of investor and the particular Fund product. A similar sales
charge is also assessed by some of the Franklin Funds upon the
reinvestment of dividends. The Company's money market and
institutional funds are sold to investors without a sales charge.
As of September 30, 1993, there were approximately 3.6 million
shareholder accounts in the Franklin/Templeton Group of Funds.
Broker/dealers are paid a commission for services in matching
investors with Funds whose investment objectives match such
investor's goals. Brokers/dealers also assist in explaining the
operations of the Funds, servicing the account and in various other
distribution services. Commissions paid to broker/dealers are
typically paid at the time of the purchase as a percentage of the
amount invested. For most of the Franklin Funds, Distributors
currently reallows all related sales charges paid by a shareholder
to the broker/dealer originating a sale. Distributors retains a
portion of the sales charge in certain of the Templeton Funds. The
sales charges from the reinvestment of Franklin Fund dividends are
generally split equally with the broker/dealers.
All of the U.S registered Templeton Funds and some of the U.S.
registered Franklin Funds have adopted distribution plans under
Rule 12b-1 promulgated under the 40 Act. The Boards of the
remaining Franklin Funds presently without such plans (excluding
money funds) have adopted such plans, subject to shareholder
approval. Planning for solicitation of shareholder approval is now
in process. Pursuant to such plans, Distributors is or will be
entitled to reimbursement from each of such Funds in amounts
ranging from 0.1% to 0.5% for expenditures which are primarily
intended to result in the sale of such Fund's shares. The 40 Act
requires that such a plan of distribution be initially approved by
the Fund's directors, including a majority of such directors who
are not "interested persons" and by the vote of a majority of the
outstanding voting shares of the Fund. If approved, such plan of
distribution may be for a term of one year, and thereafter must be
approved at least annually by the Fund Board and by a majority of
disinterested directors. All such plans are subject to termination
at any time by a majority vote of the disinterested directors or by
the Fund shareholders. Upon implementation of such plans by Funds
which do not presently have them in place, it is anticipated that
sales charges by such Funds upon reinvestment of dividends will be
eliminated.
Revenues
The Company's revenues are derived primarily from its investment
managment activities. Total operating revenues are set forth in
the table below. Investment management fees have comprised
approximately 76% of total operating revenue for each of the three
fiscal years reported. Underwriting commissions from mutual fund
activities contributed approximately 11.9%, 13.6% and 13.6% in
1991, 1992 and 1993, respectively. Transfer, trust and related
fees from mutual fund activities contributed 6.5%, 5.3% and 7.0% in
1991, 1992 and 1993, respectively.
<TABLE>
<CAPTION>
Operating Revenues
Years Ended
September 30,
($ in Millions)
1991 1992 1993
<S> <C> <C> <C>
Investment $230.4 $284.0 $489.7
management fees
Underwriting
commissions, net 35.8 50.4 87.1
Transfer, trust and
related fees 19.5 19.5 45.1
Banking, real estate 14.9 17.0 18.8
and other
$300.6 $370.9 $640.7
Totals
</TABLE>
Other Financial Services
The Company's insurance related activities consist primarily of the
sale of variable annuity products of the Franklin Valuemark Funds.
The Company's consumer banking, real estate and insurance related
businesses do not contribute significantly to either the revenues
or the net income of the Company. The consumer banking operations
are limited by national banking laws and no immediate significant
increase in earnings is anticipated. The real estate operations
have incurred net losses since inception and the Company does not
anticipate any immediate improvement in this line of business.
Regulatory Considerations
Virtually all aspects of the Company's businesses are subject to
various foreign, federal and state laws and regulations. As
discussed above, the Company and a number of its subsidiaries are
registered with various foreign, federal and state governmental
agencies. Foreign, federal and state laws and regulations grant
such supervisory agencies broad administrative powers, including
the power to limit or restrict the Company from carrying on its
business if it fails to comply with such laws and regulations. In
such event, the possible sanctions which may be imposed include the
suspension of individual employees, limitations on the Company's
(or a subsidiary's) engaging in business for specified periods of
time, the revocation of the investment advisor or broker/dealer
registrations of subsidiaries and censures and fines.
The Company's officers, directors and employees may from time to
time own securities which are also held by the Funds. The
Company's internal policies with respect to individual investments
require prior clearance and reporting of transactions and restrict
certain transactions so as to reduce the possibility of conflicts
of interest.
To the extent that existing or future regulations affecting the
sale of Fund shares or their investment strategies cause or
contribute to reduced sales of Fund shares or impair the investment
performance of the Funds, the Company's aggregate net assets under
management and its revenues might be adversely affected. Changes
in regulations affecting free movement of international currencies
might also adversely affect the Company.
In 1993, the NASD received SEC approval for a new Rule of Fair
Practice which limits the amount of aggregate sales charges which
may be paid in connection with the purchase and holding of
investment company shares sold through brokers. The Rule provides
that funds with an asset-based sales charge (most commonly provided
in Distribution Plans pursuant to SEC 40 Act Rule 12b-1) may
impose no more than 6.25% - 7.25% (depending upon whether or not
the fund also pays "service fees") in combined front-end, deferred
sales charges and asset- based sales charges. The effect of that
Rule might be to limit the amount of fees that could be paid
pursuant to a fund's 12b-1 Plan in a situation where a fund has no,
or limited new sales for a prolonged period of time. In that
event, it is possible that a fund which was experiencing weak sales
would have the situation exacerbated by the fact that it would have
to limit fees to brokers under its 12b-1Plan, or reduce its upfront
sales charge. None of the Franklin or Templeton Funds is in , or
close to that situation at the present time.
Competition
The investment company and privately managed funds industry is
highly competitive. In the United States, there are over 4,300
mutual funds of varying sizes and investment policies and
objectives whose shares are being offered to the public. During
the past three fiscal years, assets under management in the mutual
fund industry increased by over $800 billion. During this same
time period, the Company was able to maintain an approximate 4%
market share of such net assets by a combination of service to
customers, yields and performance on investments and extensive
marketing activities with its broker/dealer network. In addition,
the Templeton Acquisition has materially strengthened the ability
of the Company to compete in the growing marketplace for global
investing.
In addition, the Company has advertised in major national financial
publications as well as on radio and television to promote name
recognition and to assist its broker/dealer network. Such
activities included purchasing network and cable programming,
sponsorship of The Nightly Business Report on public television and
extensive newspaper and magazine advertising.
Competition for sales of Fund shares is influenced by various
factors, including general securities market conditions, government
regulations, global economic conditions, portfolio performance,
advertising and sales promotional efforts, share distribution
channels and the type and quality of dealer and shareholder
services. Many securities dealers, whose large retail distribution
systems play an important role in the sale of shares in the
Franklin Funds, also sponsor competing proprietary mutual funds.
The Company believes that such securities dealers value the ability
to offer customers a broad selection of investment alternatives and
will continue to sell the Company's Funds notwithstanding the
availability of proprietary products. However, to the extent that
these firms limit or restrict the sale of Franklin or Templeton
Fund shares through their brokerage systems in favor of these
proprietary mutual funds, net assets under management might decline
and the Company's revenues might be adversely affected.
Another element of competition among mutual funds is the rates at
which fees and sales charges are imposed. The Company believes
that its investment management and other fee structures are already
relatively competitive and does not presently anticipate
significant competitive pressures for further reductions. However,
a number of mutual fund sponsors presently market their funds
without sales charges. As investor interest in the mutual fund
industry has increased, competitive pressures have increased on
sales charges of broker/dealer distributed funds. The Company
believes that, although this trend will continue, a significant
portion of the investing public still relies on the services of the
broker/dealer community, particularly during weaker market
conditions. However, in response to competitive pressures or for
other similar reasons, the Company might be forced to lower sales
charges which are currently substantially reallowed to
broker/dealers. The reduction in such sales charges could make the
sale of shares of the Franklin and Templeton Groups of Funds
somewhat less attractive to the broker/dealer community, which
could in turn have a material adverse effect on the Company's
revenues. The Company believes that it is well positioned to deal
with such changes in marketing trends as a result of its already
extensive advertising activities and broad based marketplace
recognition.
In addition to competition from other investment company managers
and investment advisers, the Company and the investment company
industry are in competition with the financial services and other
investment alternatives offered by stock brokerage and investment
banking firms, insurance companies, banks, savings and loan
associations and other financial institutions. Many of these
competitors have substantially greater resources than the Company.
The Company has and continues to actively pursue sales
relationships with banks and insurance companies to broaden its
distribution network in response to such competitive pressures.
Recently, Congress has considered various proposals which would
permit bank holding companies and their subsidiaries to engage in
various, presently prohibited activities, including sponsoring
mutual funds and distributing their securities. These or similar
proposals, if enacted, would enable bank affiliates to compete
directly with the mutual fund industry. In addition, the Office of
the Comptroller of the Currency has proposed amendments to its
regulations governing common trust funds which, if adopted, may
increase competition between banks and mutual fund companies. The
Investment Company Institute and others have opposed various
aspects of these proposals. The Company cannot determine at the
present time whether such proposals will be adopted, or, if
adopted, what effect they may have on the Company.
Special Considerations
General
As discussed above, the Company's revenues are derived primarily
from invesment management activities and the distribution of mutual
fund shares. Although net assets under management have increased
from $57.9 billion in 1991 to $69.2 billion in 1992 to $107.5
billion in 1993, it is also possible for net assets under
management to decline. A decline in net assets under management
would adversely affect the Company's revenues proportional to such
decline in net assets. Broadly speaking, the direction and amount
of changes in the net assets of the funds are dependent upon two
factors: (1) the level of sales of shares of the funds as compared
to redemptions of shares of the funds; and (2) the increase or
decrease in the market value of the securities owned by the funds.
A discussion of the effect of net sales as compared to market value
changes during the last three fiscal years is set forth in
Management's Discussion and Analysis in Item 7. below.
These factors in turn are affected by many things, including the
general condition of national and world economics and the direction
and volume of changes in interest rates and/or inflation rates.
Because the effects of these factors on equity funds and fixed
income funds often operate inversely, it is difficult to predict
the net effect of any particular set of conditions on the level of
assets under management.
Templeton Acquisition
As a result of the Templeton Acquisition, the portfolio mix of the
combined Templeton and Franklin Funds changed from primarily fixed
income oriented to both equity and fixed income components
increasing the potential impact of changes in the international
equity market on the net assets under management of the combined
entity. On the other hand, the Company believes that the combined
mutual fund complex will be more competitive in the future as a
result of a greater diversity of product mix available to its
customers.
Item 2. Properties
General
The Company owns or leases offices and facilities in four locations
in the immediate vicinity of its principal executive and
administrative offices located at 777 Mariners Island Boulevard,
San Mateo, California. In addition, the Company owns several
buildings near Sacramento, California as well as buildings in St.
Petersburg, Florida and Nassau, Bahamas. Since the Company is
operated on a unified basis, in most instances corporate
activities, fund related activities, accounting operations, sales,
real estate and banking operations, management information system
activities, publishing and printing operations, shareholder service
operations and other business activities and operations take place
in all such locations. In addition, the Company or its
subsidiaries lease office space in New York, New Jersey, Florida
and in several other states as well as in Canada, England,
Scotland, Luxembourg, Germany, Hong Kong, Singapore, and Australia.
Property Description
The Company leases approximately 177,000 square feet of space at
the Mariners Island Boulevard location for a monthly rental of
approximately $452,030 under a lease expiring February 16, 2001.
The lease is subject to adjustment to market value rentals in 1996.
The Company also leases 120,942 square feet of office space at
1147 and 1149 Chess Drive in Foster City, California at a monthly
rental of $118,588 expiring in June, 2000. The Company also owns
and occupies an $8.9 million office building with 69,200 square
feet of office space at 1800 Gateway Drive, Foster City,
California. The Company also leases approximately 21,053 square
feet of office space at 901 Mariners Island Boulevard, San Mateo,
California and, in addition to the Florida and Sacramento locations
described below, an aggregate of approximately 56,000 square feet
in other locations in the United States.
The Company owns an 88,800 square foot facility in St. Petersburg,
Florida, primarily devoted to shareholder servicing activities and
leases approximately 24,000 square feet in St. Petersburg. The
principal Templeton offices are located in 58,000 square feet of
space in Ft. Lauderdale, Florida for a monthly rental of
approximately $103,580 under various leases expiring in December
2000. The Company also owns an approximate 17,300 square foot
office building in Nassau, Bahamas as well as a nearby condominium
residence. In addition, the Company leases approximately 35,462
square feet of office space for its offices in Canada, England,
Scotland, Germany, Luxembourg, Hong Kong, Singapore and Australia.
The Company has implemented a plan to geographically diversify its
operations to avoid any disruption to its business activities from
natural or other disasters. During the fiscal year ended September
30, 1993, the Company opened a customer service and data processing
facility in a $6.8 million office building which it acquired and
remodeled at 10600 White Rock Road, Rancho, Cordova, California
near Sacramento, California. The Company occupies approximately
67,630 square feet in this property and has leased out
approximately 52,646 square feet until February 2000 at a monthly
rate of $67,920. The Company has constructed two buildings of
approximately 65,000 square feet each on an additional eighteen
acres of adjoining, previously undeveloped land for $3.6 million
and has plans for the development of additional facilities but has
not yet commenced construction. One of such buildings is used for
customer service activities and the other is presently used for
storage purposes.
Other
The Company is the sole limited partner with a 60% partnership
interest in Mariner Partners, a California limited partnership
formed in 1984 to develop, operate and hold the property occupied
by the Company at 777 Mariners Island Boulevard. Mariner Partners
obtained 30 year non-recourse financing for the property from
Metropolitan Life Insurance Company at an interest rate of 8-7/8%.
The principal balance outstanding as of September 30, 1993 was
$26.8 million. The loan is due in November 1996. The Company
anticipates that Mariner Partners will have no difficulty in
refinancing the property.
Item 3. Pending Legal Proceedings
On December 31, 1990, a lawsuit was filed in the Superior Court of
California, San Mateo County, by a plaintiff who was not, and never
had been a shareholder, against the AGE High Income Fund, Inc.(the
"Fund"), its manager, Franklin Advisers, Inc., its principal
underwriter, Franklin/Templeton Distributors, Inc. and its
shareholder services agent, Franklin/Templeton Investor Services,
Inc collectively "Defendants". The suit, filed pursuant to the
California Business and Profession Code, sought to enjoin certain
advertising and to obtain restitution for certain alleged losses by
shareholders. The suit was amended in mid 1993 to add the Company
as a Defendant. On December 7, 1993, the Court entered an order
dismissing the suit with prejudice. The order was entered pursuant
to a settlement agreement that provided no injunctive relief,
damages or restitution. Defendants agreed to add certain non-
material statements to the Fund's prospectus and shareholder
reports and Defendants, other than the Fund, paid a portion of
plaintiff's attorneys fees, most of which was reimbursed by
insurance.
Item 4. Submission of Matters to a Vote of Security Owners
During the fourth quarter of the fiscal year covered by this
report, no matter was submitted to a vote of security holders.
<TABLE>
<CAPTION>
Executive Officers of Registrant
The executive officers of the Company are:
Name Age Principal Occupation
<S> <C> <S>
Charles B. 60 President, Chief Executive officer
Johnson and Director of the Company;
Director and President,
Franklin/Templeton Distributors,
Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc.;
Director, General Host Corporation
and Franklin Bank; and officer,
director, trustee or managing
general partner, as the case may
be, of most other principal
domestic subsidiaries of the
Company and of most of the
investment companies in the
Franklin Group of Funds and some
of the investment companies in the
Templeton Group of Funds. Mr.
Johnson is the brother of Rupert
H. Johnson, Jr. and the father of
Charles E. Johnson.
Rupert H. 53 Executive Vice President and
Johnson, Jr. Director of the Company; Director
and President, Franklin Advisers,
Inc.; Director and Senior Vice
President, Franklin/Templeton
Distributors, Inc.; Director,
Franklin/Templeton Investor
Services, Inc. and Franklin Bank;
and officer, director, trustee or
managing general partner, as the
case may be, of most other
principal domestic subsidiaries of
the Company and most of the
investment companies in the
Franklin Group of Funds and some
of the investment companies in the
Templeton Group of Funds. Mr.
Johnson is the brother of Charles
B. Johnson and the uncle of
Charles E. Johnson
<S> <C> <S>
Harmon E. Burns 48 Executive Vice President, Director
and Secretary of the Company;
Senior Vice President,
Franklin/Templeton Distributors,
Inc. and Franklin Advisers, Inc.;
Director, Franklin/Templeton
Investor Services, Inc. and
Franklin Bank; and officer,
director, trustee or managing
general partner, as the case may
be, of most other principal
domestic subsidiaries of the
Company and most of the investment
companies in the Franklin Group of
Funds and some of the investment
companies in the Templeton Group
of Funds
Charles E. 37 Senior Vice President of the
Johnson Company; President, Franklin
Institutional Services
Corporation; Senior Vice
President, Franklin/Templeton
Distributors Inc.; President,
Franklin Agency, Inc.; Vice
President, Franklin Advisers,
Inc.; officer and/or director of
other subsidiaries of the Company
and officer, director or trustee
of some of the investment
companies in the Franklin and
Templeton Group of Funds; employed
in various capacities by the
Company or its subsidiaries since
1985. Mr. Johnson is the son of
Charles B. Johnson and the nephew
of Rupert H. Johnson, Jr.
William J. 68 Senior Vice President since March
Lippman 1990; Senior Vice President of
Franklin Advisers, Inc. since July
1988; officer and trustee of some
of the investment companies in the
Franklin Group of Funds. Until
June 1988, President, Chief
Executive Officer and a Director
of L.F. Rothschild Fund
Management, Inc., Director of
L.F.Rothschild Asset Management,
Inc., Administrative Managing
Director and Director of L.F.
Rothschild & Co., Incorporated.
Martin L. 33 Senior Vice President, Chief
Flanagan Financial and Accounting Officer
of the Company and an officer of
most the subsidiaries of the
Company since March, 1993;
Executive Vice President and
director of Templeton Worldwide,
Inc., President, and director of
Templeton Global Investors, Inc.
From January 1992 through October
1992, Executive Vice President,
director and chief operating
officer of Old TGH. For more than
five (5) years, prior to that, Mr.
Flanagan served as Chief Financial
Officer and in various executive
capacities with Old TGH.
Deborah R. 45 Senior Vice President-Legal since
Gatzek March 1990; Vice President-Legal
from March, 1986 to March 1990 and
Senior Vice President of
Franklin/Templeton Distributors,
Inc. and Vice President of
Franklin Advisers, Inc and an
officer of various other
subsidiary companies. Employed by
the Company in a legal capacity
since June 1983; officer of all
the investment companies in the
Franklin Group of Funds. Ms.
Gatzek is the spouse of Leslie M.
Kratter.
Kenneth V. 61 Senior Vice President since
Domingues September 1986; Chief Financial
Officer and Chief Accounting
Officer from August 1986 to March
1993; officer of some of the other
subsidiaries of the Company and of
all the investment companies in
the Franklin Group of Funds.
Loretta Fry 61 Vice President since October 1986,
and a Vice President of
Franklin/Templeton Distributors,
Inc; employed by the Company in
various administrative and
operations capacities for more
than five years.
Leslie M. 48 Vice President since March 1993.
Kratter Employed since January 1992.
Secretary of Franklin Advisers,
Inc., Franklin/Templeton
Distributors, Inc. and a number of
the company's subsidiaries. For
more than five (5) years prior to
that time, Mr. Kratter served as
Executive Vice President and
General Counsel of IASCO, a
privately held company engaged in
providing aviation services,
municipal governmental services
and agricultural investments. Mr.
Kratter is the spouse of Deborah
Gatzek.
Donna S. Ikeda 37 Vice President since October 1993;
re-joined the Company in August
1993. Previously employed from
1982 to 1990 as Director of Human
Resources and also held position
as Manager/AVP of Shareholder
Services, Retirement Plan Phone
Service and Customer New
Accounts. From 1990 until August
1993, Vice President, Human
Resources for G.T. Capital
Management, Inc. and G.T. Global
Financial Services, Inc.,mutual
fund management and financial
services companies.
Edward V. McVey 56 Senior Vice President and National
Sales Manager of
Franklin/Templeton Distributors,
Inc. since May 1985; officer of
most of the investment companies
in the Franklin Group of Funds.
Charles C. 45 Vice President since September
McGuire 1987; employed by the Company on a
full time basis since July 1987.
From October 1986 to June 1987,
Mr. McGuire served as a consultant
in the area of data processing.
Mr. McGuire is a nephew of Charles
B. Johnson and Rupert H. Johnson,
Jr.
</TABLE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's common stock is traded on the New York Stock Exchange
("NYSE") and the Pacific Stock Exchange (Symbol: BEN). At December
3, 1993, there were approximately 1,600 shareholders of record. The
high and low sales prices (as adjusted for stock splits) by quarter
for the 1992 and 1993 fiscal years, as traded on the NYSE Composite
Tape, were as follows:
<TABLE>
<CAPTION>
1992 Fiscal Year 1993 Fiscal Year
High Low High Low
<S> <C> <C> <C> <C>
Quarter
Oct-Dec 28-1/4 17-7/8 39 27-1/8
Jan-Mar 29-1/4 23-1/4 40-1/2 33-1/2
Apr-June 27-1/8 22-3/4 39-5/8 32
July-Sept 33-3/8 24-5/8 49-1/4 37-1/8
</TABLE>
The Company paid dividends, as adjusted for the March 1992 common
stock split, of $.26 per share in fiscal 1992 and $.28 per share in
fiscal 1993. The Company expects to continue paying dividends to
common stockholders depending upon earnings and other relevant
factors.
Item 6. Selected Financial Highlights
(in 000's, except per share amounts)
<TABLE>
<CAPTION>
September 30, 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C>
Summary of
Operations:
Operating
revenues $225,139 $251,324 $300,604 $370,943 $640,744
Net Income $78,637 $89,443 $98,236 $124,051 $175,522
Financial
Data:
Total assets $393,952 $478,542 $578,610 $834,287 $1,581,534
Notes payable
and leases $6,122 $4,168 $5,551 $155,541 $506,536
Stockholders'
equity $216,506 $288,827 $363,014 $467,209 $720,378
NET ASSETS
UNDER
MANAGEMENT
(in millions) $ 41,439 $ 45,137 $ 57,877 $ 69,218 $ 107,490
Per Common
Share*:
Earnings
Primary $1.00 $1.14 $1.26 $1.59 $2.12
Fully
diluted $1.00 $1.14 $1.26 $1.59 $2.10
Cash
dividends $.15 $.20 $.23 $.26 $.28
Stockholders'
equity $2.76 $3.68 $4.66 $5.99 $8.77
* Dividends and earnings per share are restated to reflect a 3-for-
2 stock split in December 1989 and a 2-for-1 stock split in March
1992.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
Franklin Resources, Inc. and its majority-owned subsidiaries ("the
Company") derives its revenue from its principal line of business
providing investment management, administration, and related
services to the Franklin and Templeton Groups of Mutual Funds,
managed accounts and other investment products. For all periods
presented, the Company's operations have been characterized by a
substantial increase in assets under management, which have
resulted in a significant increase in net income. Total assets
under management as of September 30, 1993 were $107.5 billion.
The Company continues to expand its range of investment products
and services in the United States and abroad. The most significant
development during the fiscal year ended September 30, 1993 was the
Company's acquisition on October 30, 1992 of the assets and
liabilities of Templeton, Galbraith & Hansberger Ltd.,
("Templeton"), a Cayman Island corporation for approximately $786
million. The acquisition of the investment management,
distribution and related companies servicing the Templeton Group of
Mutual Funds and managed accounts had the effect of increasing the
Company's net assets under management by over $20 billion to $90.7
billion on the date of acquisition.
The Company has a diversified base of assets under management and a
full range of investment management products and services to meet
the needs of most individuals and institutions. The Company's
revenues are derived largely from the amount and composition of
assets under management. Consequently, fluctuations in financial
markets impact revenues and the results of operations. Although
current industry expectations are for continued growth, no
assurance can be given that historical growth levels will be
maintained.
Results of Operations
Net income for the year ended September 30, 1993 was $175.5
million, an increase of $51.4 million (41%) from $124.1 million in
1992, which increased $25.9 million (26%) from $98.2 million in
1991. These increases were primarily attributable to a substantial
increase in the amount of revenues received from the Franklin and
Templeton Groups of Funds. The Franklin and Templeton businesses
have operated as a unified organization since the time of the
acquisition. Since that time, significant progress has been made
integrating those activities which create a more effective
organization, including shareholder services, sales and marketing,
legal and finance.
Assets Under Management
Total assets under management were $107.5 billion at September 30,
1993, an increase of $38.3 billion (55%) from 69.2 billion at
September 30, 1992, which increased $11.3 billion (20%) from $57.9
billion at September 30, 1991. Such increases during the two-year
period ended September 30, 1993 are principally attributable to
increased net additions to assets under management and to market
appreciation. Of the total increase, $20.3 billion (53%) was
attributable to the Company's acquisition of Templeton with an
additional increase of $8.1 billion (21%) by Templeton subsequent
to the acquisition date and a $9.9 billion (26%) increase in net
assets managed by Franklin.
As shown in the following table, a material portion (56%) of the
net assets under management at September 30, 1993 were in fixed
income instruments held in portfolios of tax-free income funds and
U.S. government bond funds. Net assets of U.S. government bond
funds were $19.7 billion at September 30, 1993, an increase of $3.4
billion (21%) over the two year period from 1991 to 1993. During
1993, investors were attracted to tax-free income funds due to the
increase in federal income tax rates and away from U.S. government
bond funds as interest rates generally declined.
Net assets of equity and equity income funds were $35.0 billion at
September 30, 1993, an increase of $28.1 billion (407%) over the
two year period from 1991 to 1993. Of this increase, 282% was
attributable to the Templeton assets. Equity and equity income
funds represent 33% of the Company's total assets under management
at September 30, 1993 as compared to 12% at September 30, 1991.
Investors have been attracted to the higher returns generated in
the equity and equity income funds during this period. The
Templeton products, which invest primarily in the global equity
markets, received increased investor interest as compared to prior
periods.
Managed accounts assets under management were $7.0 billion at
September 30, 1993, an increase of $3.8 billion (118%) during the
period from 1991 to 1993 and an increase of $4.2 billion (151%)
from 1992. This increase was attributable to Templeton. Managed
accounts assets represent 6% of the Company's total assets under
management. The Company strongly believes there are significant
opportunities in the managed account business and intends to
aggressively expand in this area.
FRANKLIN RESOURCES, INC.
Net Assets Under Management
(In $ millions)
<TABLE>
<CAPTION>
Year ended September 30,
1991 1992 1993
<S> <C> <C> <C>
Franklin Group of Funds:
Tax-Free Income Funds
(exclusive of Money Funds) $28,427 $33,477 $40,741
U.S. Government Bond
Funds(primarily GNMAs) 16,287 20,155 19,727
Equity/Income Funds 6,913 10,166 15,515
Money Funds 3,052 2,645 2,631
Total Franklin Group of Funds 54,679 66,443 78,614
Templeton Family of Funds*:
Equity Funds - - 19,463
Fixed Income Funds - - 2,429
Total Templeton Family of Funds - - 21,892
Managed Accounts:
Franklin 3,198 2,775 459
Templeton* - - 6,525
Total Managed Accounts 3,198 2,775 6,984
Total $57,877 $69,218 $107,490
* Excludes periods prior to acquisition
</TABLE>
The diversification of the Company's assets under management during
the past two fiscal years may afford the Company increased
stability in results of operations. The Company has continued this
diversification with the acquisition of the $150 million Huntington
international currency funds in November of 1993. The Company
expects continued interest in its full range of products with
greater growth in the global/international equity and tax-free
income products over the near-term.
Set forth below are the statements of income for the periods ending
1991 through 1993, including a consolidating statement of income
for the period ended September 30, 1993 showing the separate
results of operations of Templeton for the eleven-month period
ending September 30, 1993.
Consolidating Statements of Income
for the years ended September 30, 1991, 1992 and 1993
(dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1993
Franklin Templeton Consolidated
*
1991 1992
<S> <C> <C> <C> <C> <C>
Operating revenues:
Investment management
fees $230,364 $284,029 $334,069 $155,666 $489,735
Underwriting
commissions, net 35,833 50,376 83,636 3,483 87,119
Transfer, trust and
related fees 19,453 19,492 20,584 24,505 45,089
Banking, real estate and
other 14,954 17,046 18,801 - 18,801
300,604 370,943 457,090 183,654 640,744
Operating expenses:
General and
administrative 107,361 126,964 160,785 97,281 258,066
Selling expenses 41,256 46,787 56,509 14,957 71,466
Amortization of goodwill 133 133 133 16,855 16,988
Interest expense of
banking subsidiary 11,502 10,538 9,356 - 9,356
160,252 184,422 226,783 129,093 355,876
Operating income 140,352 186,521 230,307 54,561 284,868
Other income (expenses):
Investment and other
income 22,461 20,364 12,036 2,715 14,751
Interest expense (94) (2,137) (467) (24,754) (25,221)
Other income
(expenses) - net 22,367 18,227 11,569 (22,039) (10,470)
Income before taxes on
income 162,719 204,748 241,876 32,522 274,398
Taxes on income 64,483 80,697 93,544 5,332 98,876
Net income $98,236 $124,051 $148,332 $27,190 $175,522
Earnings per share:
Primary $ 1.26 $ 1.59 $ 1.79 $ .33 $2,12
Fully diluted $ 1.26 $ 1.59 $ 1.77 $ .33 $2.10
* For the eleven-month period subsequent to October 30, 1992.
</TABLE>
Operating Revenues
Total operating revenues were $640.7 million for the period ended
September 30, 1993, an increase of $269.8 million (73%) from $370.9
million in 1992, which increased $70.3 million (23%) from $300.6
million in 1991, the components of which are described below.
(HORIZONTAL BAR GRAPH OF REVENUES FROM INVESTMENT MANAGEMENT FEES
OMITTED HERE. IDENTICAL INFORMATION CONTAINED IN CONSOLIDATING
STATEMENTS OF INCOME IN ITEM 7. ABOVE)
Investment management fees for the period ended September 30, 1993
were $489.7 million, an increase of $205.7 million (72%) from
$284.0 million in 1992, which increased $53.6 million (23%) from
$230.4 million in 1991. Of the 1993 increase, $155.6 million is
attributable to the addition of the Templeton operations during the
period while the remainder during this period and the prior periods
is the result of a general increase in assets under management.
Investment management fees have comprised approximately 76% of
total operating revenue for each of the three fiscal years
reported. The Company's revenues from investment management fees
are derived primarily from fixed fee arrangements with open-end and
closed-end investment companies and from managed accounts. Annual
rates under the various investment management agreements range from
.25% to a maximum of 1.25% and generally decline as average net
assets exceed various threshold levels. There have been no
significant changes in the fee structures for the Franklin Group of
Funds during the last three fiscal years. On January 1, 1992, the
fee structures of a number of the Templeton Funds increased.
HORIZONTAL BAR GRAPH OF REVENUES FROM UNDERWRITING COMMISSIONS
OMITTED HERE. IDENTICAL INFORMATION CONTAINED IN CONSOLIDATING
STATEMENTS OF INCOME IN ITEM 7. ABOVE)
Underwriting commissions for the year ended September 30, 1993 were
$87.1 million, an increase of $36.7 million (73%) from $50.4
million in 1992, which increased $14.6 million (41%) from $35.8
million for 1991. These increases resulted from higher sales than
in prior periods, of which $3.5 million in 1993 is attributable to
Templeton. Sales of Franklin and Templeton Funds include a
commission of which a significant portion is reallowed to selling
intermediaries. Revenues from underwriting commissions are earned
primarily from Templeton mutual fund sales and through commissions
charged on the reinvestment of dividends into most Franklin Funds.
During the year, the Company combined the mutual fund marketing and
sales activities of the Franklin and Templeton Groups of Funds,
resulting in a more effective marketing and sales effort. The
Boards of Directors of the Franklin Mutual Funds have adopted,
subject to shareholder approval, distribution plans pursuant to
Rule 12b-1 of the Investment Company Act of 1940. In conjunction
with the implementation of these Plans, it is the intention to
modify the Franklin Mutual Fund sales commission structure to
eliminate commissions on reinvestment of dividends. The impact of
these changes is expected to have a minimal overall impact on
revenue while providing a more competitive sales structure. The
Company anticipates shareholder approval of these distribution
plans which would permit implementation during the third quarter of
1994. The Templeton Group of Funds registered in the United States
adopted distribution plans pursuant to Rule 12b-1, effective
January 1, 1992, which had the effect of increasing revenues for
the eleven-month period ended September 30, 1993.
(HORIZONTAL BAR GRAPH OF REVENUES TRANSFER, TRUST AND RELATED FEES
OMITTED HERE. IDENTICAL INFORMATION CONTAINED IN CONSOLIDATING
STATEMENTS OF INCOME IN ITEM 7. ABOVE)
Transfer, trust and related fees were $45.1 million for the period
ended September 30, 1993, an increase of $25.6 million (131%) as
compared to 1992. Of this increase $24.5 million is attributable
to Templeton. These fees are generally fixed charges per account
which vary with the particular type of mutual fund and service
being rendered. Consequently, these fees are dependent upon the
number of shareholder accounts, with the amount of mutual fund
sales or redemptions generally having a direct impact. During the
year, the Company combined its transfer agency activities into a
single entity which has, and should continue to result in improved
efficiencies and services.
Banking, real estate and other revenues for the year ended
September 30, 1993 were $18.8 million, an increase of $1.8 million
(10%) from $17.0 million in 1992, which increased $2.0 million
(13%) from $15.0 million in 1991. These increases are a result of
growth in interest earnings by Franklin Bank.
The banking subsidiary contributed $114,000, $858,000 and $1.1
million to operating income in 1991, 1992 and 1993, respectively.
Management does not currently anticipate any immediate significant
increase in earnings due to regulatory limitations.
The Company's real estate operations incurred operating losses of
$2.9 million, $4.4 million and $7.9 million in 1991, 1992 and 1993,
respectively, as a result of the continued depressed real estate
market.
Operating Expenses
Operating expenses were $355.9 million for the year ended September
30, 1993, an increase of $171.5 million (93%) from $184.4 million
in 1992, which increased $24.2 million (15%) from $160.2 million in
1991. These increases principally result from the general
expansion of the organization, with the Templeton acquisition being
the material factor in 1993.
General and administrative expenses for the year ended September
30, 1993 were $258.1 million, an increase of $131.1 million (103%)
as compared to 1992. Of this increase, $97.2 million is
attributable to Templeton. General and administrative expenses
increased $19.6 million (18%) in 1992 as compared to 1991.
Operating income as a percentage of operating revenue was 44% for
the year ended 1993 as compared to 50% and 47% for the years ended
1992 and 1991, respectively. The decrease in the operating profit
margin for the year ending 1993 as compared to 1992 is primarily
attributable to purchase accounting and other costs related to the
acquisition of Templeton. For the year ended 1993, amortization of
goodwill represents 13% of Templeton's operating expenses and 5% of
the Company's total operating expenses. Also, the Company entered
into future incentive compensation arrangements with certain
eligible employees which provide for the payment of both cash and
restricted stock to such employees pursuant to a vesting schedule.
The costs associated with these incentive compensation arrangements
are being amortized over the contract period. These incentives
began vesting in 1993 and extend through 1998. The Company's Board
of Directors has approved an annual incentive compensation plan,
which is subject to shareholder approval, that provides for
incentive payment of cash, restricted stock, options and stock
appreciation rights as a means to motivate, retain and continue to
attract talented individuals. This plan will initially have the
effect of increasing employment costs.
Selling expenses were $71.5 million for the year ended September
30, 1993, an increase of $24.7 million (53%) as compared to 1992,
which increased of $5.5 million (13%) from $41.3 million in 1991.
Templeton represents $14.9 million of the 1993 increase. The
Company has sought to capitalize on the positive environment in the
investment management industry by advertising and promoting the
Company's range of investment products and services in the United
States and other international markets.
Interest expense of the banking subsidiary was $9.4 million, a
decrease of $1.2 million (11%) from 1992, which decreased $1
million (8%) from $11.5 million in 1991. These decreases result
primarily from falling levels of market interest rates during the
period.
Total operating expenses will likely continue to increase with the
overall expansion of the business, the increase in competition and
the Company's commitment to continually improving its products and
services.
Other Income (Expense)
Interest and other income for the year ended September 30, 1993 was
$14.7 million, a decrease of $5.6 million (27%) from 1992, which
decreased $2.1 million (9%) from $22.5 million in 1991. The net
change in investment income results from a combination of factors,
including the decline in the average level of interest rates, lower
dividend rates on investments and realization of capital losses.
However, the principal reason for the reduction in investment
income is due to the approximate 40% reduction in amounts available
for investment due to the liquidation of investment portfolios to
fund the cash portion of the Templeton acquisition in 1993.
Non-banking interest expense for the year ended September 30, 1993
was $25.2 million, an increase of $23.1 million from 1992, which
increased $2.0 million from $94 thousand in 1991. The increase in
interest expense is attributable to the debt incurred in the
Company's acquisition of Templeton.
Financial Condition, Liquidity And Capital Resources
Stockholders' equity was $720.4 million at September 30, 1993, an
increase of $253.2 million (54%) from $467.2 million at year end
1992, which increased $104.2 million (29%) from $363.0 million at
year end 1991.
Cash provided by operating activities for the period ended
September 30, 1993 was $199.4 million an increase of $22.2 million
(13%) from $177.2 million in 1992. Net cash expended in investing
activities in 1993 aggregated $539.8 million including $631.9
million used in the purchase of Templeton and $20.1 million used in
the purchase of premises and equipment. The remainder came from
the Company's investment portfolio, including its bank and real
estate operations. The Company generated net cash of $334.7
million in 1993 of which $360.0 million was from the issuance of
bank debt which was used for the Company's acquisition of
Templeton. The Company expended $22.3 million for dividends to
stockholders. At September 30, 1993, the Company held liquid
assets in excess of $564.8 million, including $303.0 million of
cash and cash equivalents.
Financing for the Templeton acquisition was provided by the
proceeds of $150 million of subordinated debentures with option
rights, issued prior to the beginning of the current fiscal year
specifically to finance the purchase, a $360 million term loan,
approximately $87 million in Franklin stock issued to Templeton
management and employee shareholders, and approximately $189
million of additional cash.
The $150 million of subordinated debentures require the payment of
semi-annual interest at the rate of 6.25% per annum, resulting in
semi-annual payments of approximately $4.7 million. The debentures
are redeemable at the election of the holder, anytime on or after
August 3, 1997, at a price ranging from 93.65% to 100% of face
value.
The original $360 million term loan was refinanced and modified on
June 28, 1993. The primary changes to the loan were a reduction of
the principal balance to $346 million, accelerating the maturity
date of the loan from a seven (7) year period to a five (5) year
period from the amendment date, conversion of the loan from a term
loan to a revolving credit and competitive auction facility with an
annual reduction in the amount available under such facility.
Additional charges included the lowering of the interest rate
margins on the facility, elimination of quarterly amortization,
mandatory annual prepayments based upon cash flows, elimination of,
or favorable adjustments to, various restrictive covenants and
ratios under the original loan facility. The Company was in
compliance with all covenants as of September 30, 1993.
Swap agreements, previously entered into in order to fix interest
rates on $205 million of the original term loan, were amended to
remain applicable to the new facility. Fixed rates of interest
under these swap arrangements range from 3.73% to 5.02% on original
maturities of one to three years. The effective rate of interest
under the new loan facility, including the reduced margin and
payments to be made pursuant to the swap arrangements, was 4.22% as
of September 30, 1993.
The Company anticipates that 1994 property and equipment
acquisitions, initially budgeted at more than $22 million, will be
funded from liquid assets currently available and from future
operating cash inflows.
Changes In Accounting Principles
During fiscal 1993, the Company adopted Statements of Financial
Accounting Standards Nos. 109, "Accounting for Income Taxes," and
115, "Accounting for Certain Investments in Debt and Equity
Securities." As more fully discussed in Note 1 to the consolidated
financial statements, the cumulative effects of adopting these
standards are immaterial.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index Of Consolidated Financial Statements And Schedules
for the years ended September 30, 1991, 1992 and 1993
CONTENTS
Consolidated Financial Statements of Franklin Resources, Inc:
Pages
Report of Independent Accountants F-1
Consolidated Balance Sheets
September 30, 1992 and 1993 F-2 to F-3
Consolidated Statements of Income, for the years ended
September 30, 1991, 1992, and 1993 F-4
Consolidated Statements of Stockholders' Equity,
for the years ended September 30, 1991, 1992 and 1993 F-5
Consolidated Statements of Cash Flows,
for the years ended September 30, 1991, 1992 and 1993 F-6
Notes to Consolidated Financial Statements F-7 to F-20
Schedule:
II. Consolidated Amounts Receivable from Employees F-21
X. Consolidated Supplementary Profit and Loss Information F-22
All other schedules have been omitted as the information is
provided in the financial statements or in related notes thereto or
are not required to be filed as the information is not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Franklin Resources, Inc.:
We have audited the consolidated financial statements and financial
statement schedules of Franklin Resources, Inc. and Subsidiaries
listed in Item 14(a) of this Form 10-K. These financial statements
and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedules
based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, during 1993 the
Company adopted a classified balance sheet which separately
discloses current assets and liabilities and, in connection with
that change, the company changed its method of accounting for cash
and cash equivalents. In addition, as also discussed in Note 1 to
the financial statements, during 1993 the Company changed its
methods of accounting for income taxes and investments in debt and
equity securities.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Franklin Resources, Inc. and Subsidiaries as
of September 30, 1993 and 1992, and the consolidated results of its
operations and its consolidated cash flows for each of the three
years in the period ended September 30, 1993 in conformity with
generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information
required to be included therein.
Coopers & Lybrand
/s/ Coopers & Lybrand
San Francisco, California
December 3, 1993
Franklin Resources, Inc.
Consolidated Balance Sheets
September 30, 1992 and 1993 (dollar amounts in thousands)
<TABLE>
<CAPTION>
Assets
1992 1993
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 301,684 $ 293,777
Receivables:
Fees from Franklin/Templeton Group of Funds 28,501 63,471
Proceeds from sale of funds' shares - 39,150
Other 7,362 16,860
Investments in the Franklin/Templeton Group of
Funds, available-for-sale 226,616 72,401
Current deferred taxes - 5,971
Prepaid expenses and other 4,983 5,812
---------- ----------
Total current assets 569,146 497,442
---------- ----------
Franklin Bank Assets:
Cash and cash equivalents 6,960 9,175
Loans receivable, net 134,641 128,820
Investment securities, available-for-sale 47,865 69,962
Premises and equipment, net 182 170
Other assets 3,649 3,029
---------- ----------
Total bank assets 193,297 211,156
---------- ----------
Other Assets:
Investments:
Investment securities, available-for-sale 18,117 74,624
Real estate 18,680 9,393
Deferred costs - 10,367
Premises and equipment, net 34,625 65,821
Goodwill, net of $983 and $17,972 accumulated
amortization, respectively 422 696,973
Other assets - 15,758
---------- ----------
Total other assets 71,844 872,936
---------- ----------
$ 834,287 $1,581,534
========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Franklin Resources, Inc.
Consolidated Balance Sheets (Continued)
September 30, 1992 and 1993 (dollar amounts in thousands)
<TABLE>
<CAPTION>
1992 1993
---------------------
Liabilities and stockholders' Equity
<S> <C> <C>
Current Liabilities:
Trade payables and accrued expenses $ 27,224 $ 91,708
Current maturities of long-term debt - 51,716
Payable to funds for shares sold - 38,695
Dividends payable 5,070 5,747
---------- ----------
Total current liabilities 32,294 187,866
Franklin Bank Liabilities:
Deposits of account holders:
Interest bearing demand deposits 16,059 10,794
Non-interest bearing demand deposits 11,959 8,986
Savings and time deposits 148,954 175,055
Other liabilities 1,264 974
---------- ----------
Total bank liabilities 178,236 195,809
---------- ----------
Other Liabilities:
Bank debt - 296,000
Subordinated debentures 150,000 150,000
Other notes and capital leases payable 5,541 8,820
Deferred tax liabilities 1,007 10,999
Other liabilities - 11,662
---------- ----------
Total other liabilities 156,548 477,481
---------- ----------
Total liabilities 367,078 861,156
---------- ----------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $.10 par value,
100,000,000 shares authorized;
78,806,700 and 82,098,580 shares issued,
and 77,997,374 and 82,098,580 shares
outstanding, for 1992 and 1993,
respectively 7,881 8,210
Capital in excess of par value - 83,683
Retained earnings 477,861 630,399
Less cost of treasury stock - 809,326
shares in 1992 (18,533) -
Less unearned restricted stock
compensation - (8,335)
Unrealized gain on investment
securities, net of tax - 6,242
Foreign currency translation adjustment - 179
---------- ----------
Total stockholders' equity 467,209 720,378
---------- ----------
$ 834,287 $1,581,534
========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Franklin Resources, Inc.
Consolidated Statements Of Income
for the years ended September 30, 1991, 1992 and 1993
(dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Operating revenues:
Investment management fees $ 230,364 $ 284,029 $ 489,735
Underwriting commissions, net 35,833 50,376 87,119
Transfer, trust and related fees 19,453 19,492 45,089
Banking, real estate and other 14,954 17,046 18,801
---------- ---------- ---------
Total operating revenues 300,604 370,943 640,744
---------- ---------- ---------
Operating expenses:
General and administrative 107,361 126,964 258,066
Selling expenses 41,256 46,787 71,466
Amortization of goodwill 133 133 16,988
Interest expense of banking
subsidiary 11,502 10,538 9,356
---------- ---------- ---------
Total operating expenses 160,252 184,422 355,876
---------- ---------- ---------
Operating income 140,352 186,521 284,868
---------- ---------- ---------
Other income (expenses):
Investment and other income 22,461 20,364 14,751
Interest expense (94) (2,137) (25,221)
---------- ---------- ---------
Other income (expenses) , net 22,367 18,227 (10,470)
---------- ---------- ---------
Income before taxes on income 162,719 204,748 274,398
Taxes on income 64,483 80,697 98,876
---------- ---------- ---------
Net income $98,236 $124,051 $175,522
========== ========== ========
Earnings per share:
Primary $1.26 $1.59 $2.12
========== ========== ========
Fully diluted $1.26 $1.59 $2.10
========== ========== ========
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Franklin Resources, Inc.
Consolidated Statements Of Stockhoholders' Equity
for the years ended September 30, 1991, 1992 and 1993
(shares and dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
Shares Amount Capital Retained Shares Amount Unearned Unrealized Foreign Total
in Earnings Restricted Gain on Currency
excess Stock Investment Translation
of par Compensa- Securities
value tion
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
October 1,
1990 39,815 $3,982 $83,683 $297,870 (614) $(13,033) - - - $288,827
Net income 98,236 98,236
Cash
dividends on
common stock (17,935) (17,935)
Acquisition
of treasury
stock (248) (6,347) (6,347)
Exercise of
options 27 16 206 233
Balance,
Sept 30,
1991 39,815 3,982 35 378,171 (846) (19,174) - - - 363,014
Net income 124,051 124,051
Cash
dividends on
common stock (20,275) (20,275)
Effect of
common stock
split 38,992 3,899 (3,899) -
Exercise of
options (35) (187) 37 641 419
Balance,
Sept 30,
1992 78,807 7,881 - 477,861 (809) (18,533) - - - 467,209
Net income 175,522 175,522
Unrealized
gain on
investment
securities
net of tax 6,242 6,242
Foreign
currency
translation
adjustment 179 179
Cash
dividends on
common stock (22,984) (22,984)
Exercise of
options
Employee
plan 17 2 (3,648) 195 5,101 1,455
Other 40 715 715
Issuance of
stock for
Templeton
acquisition 2,894 289 87,331 87,620
Issuance of
restricted
shares, less
amortization
of $4,420 381 38 574 12,717 (8,335) 4,420
Balance,
Sept 30,
1993 82,099 $8,210 $83,683 $630,399 - - $(8,335) $6,242 $179 $720,378
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Franklin Resources, Inc.
Consolidated Statements Of Cash Flows
for the years ended September 30, 1991, 1992 and 1993
(dollars in thousand)
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 98,236 $ 124,051 $ 175,522
--------- --------- ---------
Items reconciling net income to
net cash provided by operating
activities:
Decrease (Increase) in
receivables,prepaid expenses and
other (3,711) 50,208 (22,900)
Increase (decrease) in trade
payables and accrued expenses (272) 2,468 13,283
Increase (decrease) in current
taxes payable 2,912 (3,122) 2,198
Increase (decrease) in deferred
taxes payable 743 (1,282) 4,021
Depreciation and amortization 4,721 4,339 24,286
Losses on real estate
investments 12 585 2,969
--------- --------- ---------
Total reconciling items 4,405 53,196 23,857
--------- --------- ---------
Net cash provided by operating
activities 102,641 177,247 199,379
--------- --------- ---------
Cash flows from investing
activities:
Liquidation (purchase) of mutual
funds, net (12,114) (173,440) 164,606
Purchase of bank investment
portfolio (31,323) (25,222) (60,877)
Liquidation of bank investment
portfolio 23,105 17,189 39,013
Liquidation (purchase) of real
estate investments (4,352) 64 1,385
Liquidation (purchase) of other
investments (622) 560 (33,533)
Net (increase) decrease in bank
loans receivable (33,565) (53,652) 1,728
Purchase of premises and
equipment and other (4,994) (16,377) (20,138)
Acquisition of Templeton, net of
cash acquired - - (631,944)
Net cash used in investing
activities (63,865) (250,878) (539,760)
Cash flows from financing
activities:
Increase in deposits of bank
account holders, net 20,559 2,839 17,573
Exercise of common stock options 232 419 1,997
Dividends paid on common stock (17,380) (19,686) (22,307)
Acquisition of treasury stock (6,347) - -
Issuance of notes payable and
bank debt - 150,000 360,000
Payments on notes and capital
leases (77) (296) (22,574)
--------- --------- ---------
Net cash (used in) provided by
financing activities (3,013) 133,276 334,689
--------- --------- ---------
Net increase (decrease) in cash
and cash equivalents 35,763 59,645 (5,692)
Cash and cash equivalents
beginning of year 213,236 248,999 308,644
--------- --------- ---------
Cash and cash equivalents end of
year $ 248,999 $308,644 $302,952
======== ======== =======
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest $11,808 $11,224 $34,577
Income taxes $56,188 $85,293 $94,963
Supplemental disclosure of non-
cash information:
Value of common stock issued
in Templeton acquisition - - $100,376
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Franklin Resources, Inc.
Notes To Consolidated Financial Statements
1. Significant Accounting Policies:
Basis of Presentation:
The consolidated financial statements include the accounts of
Franklin Resources, Inc. and its majority-owned subsidiaries (the
"Company"). The acquired Templeton, Galbraith & Hansberger Ltd.
("Templeton") operations are included from the acquisition date,
October 30, 1992. All material intercompany accounts and transac
tions have been eliminated from the consolidated financial state
ments.
Foreign Currency Translation:
Assets and liabilities of foreign subsidiaries have been
translated at current exchange rates, and related revenues and
expenses have been translated at average exchange rates in effect
during the period. The resulting cumulative translation adjustment
has been recorded as a separate component of stockholders' equity.
Foreign currency gains and losses are reflected in income current
ly.
Major Customers:
Substantially all revenues earned by the Company are from
providing investment management, underwriting, stock transfer and
trust services to the Franklin/Templeton Group of Funds that
operate in the United States, Canada, Europe and other
international markets under various rules and regulations set forth
by the Securities and Exchange Commission, individual state
agencies and foreign governments. All services are provided to
these mutual funds under contracts that definitively set forth the
fees to be charged for these services. The majority of these
contracts are subject to periodic review and approval by each
fund's Board of Directors/Trustees and shareholders (See Note 13).
Recognition of Revenues:
Investment management, stock transfer and trust fees and
investment income are all accrued as earned. Underwriting
commissions on the sale of mutual fund shares and dividend reinvest
ments are recorded on trade date, net of amounts paid to
unaffiliated intermediaries.
Deferred Costs:
Deferred costs result from the sale of certain U.S., Canadian and
European based mutual funds which have deferred sales charges and
distribution fees. Amortization of such deferred costs is charged
against mutual fund underwriting commission revenues on a straight-
line basis over a period of five years for the U.S. based funds,
forty months for the Canadian based funds and four years for Europ
ean funds. Deferred costs related to the issuance of debt are
amortized to interest expense over the life of the related debt.
Taxes on Income:
Effective October 1, 1992, the Company changed its method of
accounting for income taxes from the income method to the liability
method required by Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 109. The
effect of adopting SFAS No. 109 on the current period income was
immaterial, as was the cumulative effect of the accounting change
on prior years.
Cash and Cash Equivalents:
Cash and cash equivalents include cash on hand, demand deposits
with banks or other high credit quality financial institutions,
debt instruments with original maturities of three months or less,
and other highly liquid investments, including money market funds,
which are readily convertible into cash.
During 1993 the Company changed its presentation from a non-
classified balance sheet to a classified balance sheet. In
connection with this change, the Company also changed its method of
accounting for cash and cash equivalents to include investments in
money market funds which were previously included in marketable
securities. This change resulted in the reclassification of money
market funds from investments to cash and cash equivalents of
$238,348,000, $305,686,000 and $244,987,000 in 1993, 1992 and 1991,
respectively. All of these money fund investments are in the
Franklin/Templeton Group of Funds. The Company believes that this
change provides for a better presentation of the Company's
financial position and conforms with common industry practice.
Investment Valuation:
In May 1993, the FASB issued SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Effective
September 30, 1993 the Company elected to adopt SFAS No. 115.
This statement requires the Company to classify and account for
debt and equity securities as follows:
Held-to-Maturity:
Debt securities that management has the positive intent and
ability to hold until maturity are carried at their remaining
unpaid principal balance, net of unamortized premiums or unaccreted
discounts. Premiums are amortized and discounts are accreted using
the level interest yield method over the estimated remaining term
of the underlying security.
Trading Securities:
Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are reported at
market value, with unrealized gains and losses included in
earnings.
Available-for-Sale:
Debt and equity securities that are neither held to maturity nor
trading securities are classified as available-for-sale and are
carried at market value. Market values for investments in open-end
mutual funds are based on the last reported net asset value.
Market values for other investments are based on the last reported
price on the exchange on which they are traded. Investments not
traded on an exchange are carried at estimated market value.
Unrealized gains and losses are excluded from earnings and reported
net of tax as a separate component of stockholders' equity until
realized.
For periods prior to the adoption of SFAS No. 115, the Company
valued investments at the lower of cost or market, except that the
Company's broker/ dealer subsidiaries carried investments at
market value. There was no effect to the previously reported
stockholders' equity or current earnings of applying the new stan
dard.
Realized gains and losses are recognized on the specific
identification method and are included in investment income.
Financial Instruments:
Fair Value of Financial Instruments
In December 1991, the FASB issued SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments," effective for financial
statements issued for fiscal years ending after December 15, 1992.
SFAS No. 107 requires the disclosure of estimated fair values of
all asset, liability and off-balance sheet financial instruments.
Fair value estimates are determined as of the balance sheet date,
utilizing quoted market prices, where available, or various
assumptions and estimates.
The methods and assumptions used to estimate the fair values of
each class of financial instruments are as follows:
Cash and Cash Equivalents: Due to the relatively short-term nature
of these intruments, the carrying value approximates fair value.
Available-for-Sale Investment Securities: These instruments are
carried at fair values as determined by quoted market prices.
Loans Receivable: The fair values of the banking subsidiary's
performing residential mortgage loans and home equity loans are
estimated using current market comparable information for
securitizable mortgages, adjusting for credit and other relevant
characteristics. The fair value of consumer loans is estimated by
discounting the cash flows using interest rates that consider the
current credit and interest rate risk inherent in the loans and
current economic and lending conditions.
Deposits: The fair values of the banking subsidiary's deposits
subject to immediate withdrawal are equal to the amount payable on
demand at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated by discounting future cash
flows using interest rates currently offered on time deposits with
similar remaining maturities.
Long-Term Debt: The fair value of long-term debt is estimated using
disounted cash flow analysis based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements.
The fair value of the option rights attached to the subordinated
debentures is calculated based on the Company's closing stock price
and the option and redemption prices on September 30, 1993.
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance
sheet risk. At September 30, 1993 the Company had interest rate
swap agreements in effect on a portion of its long-term debt. The
differential to be paid or received is accrued as the interest
rates change and is recognized over the life of the agreements. The
carrying value of these instruments approximates fair value.
At September 30, 1993 the only instrument with off-balance sheet
risk to which the banking subsidiary was a party were commitments
to extend credit. Since many of the commitments are expected to
expire without being drawn upon, the total committed amounts do not
necessarily represent the future cash requirements. Fair value for
these instruments are based on current settlement values and fees
and interest rates currently charged to enter into similar
agreements, taking into account the remaining term of the
agreements and the counterparties' credit standing.
Furniture, Equipment and Leasehold Improvements:
Furniture and equipment are recorded at cost and are depreciated
on the straight-line basis over their estimated useful lives.
Expenditures for repairs and maintenance are charged to expense
when incurred. Leasehold improvements are amortized on the
straight-line basis over their estimated useful lives or the lease
term, whichever is shorter.
Goodwill:
Goodwill represents the excess cost over the fair market value of
the Company's acquisition of Templeton. The goodwill is being
amortized on a straight-line basis over a period of forty years.
Earnings Per Share:
Earnings per share is computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents (stock options and debenture option rights) considered
outstanding during each year. The weighted average number of
shares outstanding during 1991, 1992 and 1993 were 78,002,182,
77,971,835, and 81,594,765, respectively. The weighted average
numbers of shares outstanding reflect retroactive application of
the stock split in March 1992. Common stock equivalents utilized
in computing earnings per share were 1,261,833 for primary and
2,117,004 for fully diluted and had an immaterial effect on fully
diluted earnings per share prior to 1993.
Reclassifications:
Certain amounts in the 1991 and 1992 financial statements have
been reclassified to correspond to the 1993 presentation. These
reclassifications did not affect previously reported net income or
retained earnings.
2. Banking Subsidiary Loans and Allowance for Loan Losses and Fair
Value of Deposits:
Banking subsidiary loans at September 30, 1992 and 1993 consisted
of the following (in thousands):
<TABLE>
<CAPTION>
1992 1993
-------- --------
<S> <C> <C>
Installment and other loans,
primarily auto loans $ 73,943 $77,008
Credit card loans 62,373 54,389
Real estate loans 10,805 8,001
----------- -----------
147,121 139,398
Unearned fees and
discounts (10,425) (9,106)
Allowance for loan losses (2,055) (1,472)
----------- -----------
Loans receivable, net $134,641 $128,820
======== =======
</TABLE>
The estimated fair value of net loans receivable as of September
30, 1993 was $129.6 million.
Included in banking subsidiary loans is an allowance for loan
losses for the years ended September 30, 1991, 1992, and 1993 as
follows (in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
--------------------------
<S> <C> <C> <C>
Beginning balance $ 1,047 $ 1,234 $2,055
Provision for loan
losses 2,665 4,931 4,093
Loans charged off (2,624) (4,519) (5,273)
Recoveries 146 409 597
-------- -------- --------
Ending balance $ 1,234 $ 2,055 $1,472
====== ====== ======
</TABLE>
The carrying values at September 30, 1993 of interest bearing and
non-interest bearing demand deposits were $10.8 million and $9.0
million, respectively, which approximated fair value. The fair
value of savings and time deposits was approximately $178.4
million.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." SFAS No. 114 requires that certain im
paired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate.
The Company is required to adopt this new standard by fiscal year
1996. The Company anticipates that the adoption of SFAS No. 114
will not have a material effect on the financial statements.
3. Investments:
Investments at September 30, 1993 and 1992 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1992 1993
Available-for-Sale
Cost which Amortized Unrealized Estimated
Approximates Cost Gain Market
Market (Loss)
<S> <C> <C> <C> <C>
Franklin/Templeton Group
of Funds:
U.S. government
security funds $147,289 $2,073 $ (22) $ 2,051
Tax-free income funds 31,903 12,272 1,854 14,126
Equity/income funds 47,424 49,176 7,048 56,224
----------- --------- -------- --------
$226,616 $63,521 $8,880 $72,401
======== ======= ====== ======
Restricted securities - $30,254 - $30,254
Debt securities - 16,755 2,454 19,209
Equity securities 18,117 26,104 (943) 25,161
-------- ------- ------ -------
$18,117 $73,113 $1,511 $74,624
======= ======= ====== =======
Banking Investment
portfolio:
U.S. agencies
securities $4,026 $13,471 $ 11 $13,482
U.S. Treasury
securities 34,246 49,454 78 49,532
Other marketable
securities 9,593 6,666 282 6,948
---------- ---------- -------- ---------
-
Total banking
investment portfolio $47,865 $69,591 $371 $69,962
======= ======= ====== =======
</TABLE>
Investments in the Frankin/Templeton Group of Funds are shares of
regulated investment companies for which the Company acts as invest
ment manager. Investments in real estate include limited partner
ships, carried at cost of $13,489,000.
Proceeds from the sale of investment securities for 1993 and 1992
were $57.2 million and $24.3 million, respectively. Gains of $1.5
million and $2.5 million were realized on these sales for 1993 and
1992, respectively.
At September 30, 1993, debt securities of the bank's investment
portfolio at amortized cost and estimated market value with schedu
led maturities were as follows (in thousands):
<TABLE>
<CAPTION>
Maturity Amortized Estimated
Cost Market
Value
<S> <C> <C>
0-1 year $50,347 $50,399
1-5 years 15,553 15,602
Greater than 5 years 16 15
Government National
Mortage Assoc. securities 3,675 3,946
--------- ----------
$69,591 $69,962
======= =======
</TABLE>
Other debt securities have scheduled maturities as follows (in
thousands):
<TABLE>
<CAPTION>
Maturity Amortized Estimated
Cost Market
Value
<S> <C> <C>
0-1 year $2,453 $2,468
1-5 years 499 506
5-10 years 6,694 7,622
Greater than 10
years 7,109 8,613
---------- ----------
$16,755 $19,209
======= =======
</TABLE>
4. Premises and Equipment
The following is a summary of premises and
equipment at September 30, 1992 and 1993 (in thousands):
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Furniture and equipment $24,232 $49,274
Premises 18,847 29,695
Leasehold improvements 8,475 9,964
Leased equipment 2,037 7,882
Land 3,135 6,922
--------- ---------
56,726 103,737
Less: Accumulated
depreciation and
amortization (21,919) (37,746)
----------- ----------
$34,807 $65,991
======== =======
</TABLE>
5. Segment Information:
The Company conducts operations in four principal geographic
areas of the world: North America, the Bahamas, Europe and
Asia/Pacific. Revenue by geographic area includes fees and
commissions charged to customers and fees charged to affiliates.
Operating income by geographic area is defined as net income less
non-banking interest expense. Identifiable assets are those assets
used exclusively in the operations of each geographic area.
The table below is for the year ended September 30, 1993 (in
thousands).
<TABLE>
<CAPTION>
North Bahamas Europe Asia Adjustments Consoli-
America /Pacific and dated
Eliminations
<S> <C> <C> <C> <C> <C> <C>
Revenues
From:
Unaffiliated
Customers $552,005 $ 66,580 $ 8,743 $13,416 - $640,744
Affiliates 3,179 597 28 5,411 (9,215) -
-------- -------- -------- ---------- ----------- ----------
-
Total $555,184 $ 67,177 $ 8,771 $ 18,827 $ (9,215) $640,744
======== ======== ======= ======= ======== ========
Operating
Income
(loss) $161,062 $ 38,491 $(3,738) $ 5,213 $ (285) $200,743
======== ======== ======== ======= ======== ========
Identifiable
Assets $895,483 $459,848 $22,304 $128,240 $ 1,062 1,506,937
Corporate
Assets 74,597
----------
Total Assets $1,581,534
=========
</TABLE>
Summarized below are the business segments (in thousands):
<TABLE>
<CAPTION>
Identifiable Revenue Operating
Assets Income
<S> <C> <C> <C>
1991:
Mutual Funds $366,604 $274,473 $94,446
Banking 189,542 15,528 114
Real Estate 16,040 848 (2,880)
Insurance and
Other 6,424 9,755 6,650
-------- --------- ---------
Company Totals $578,610 $300,604 $98,330
======== ======== =======
1992
Mutual Funds $619,242 $335,651 $116,049
Banking 193,297 16,743 858
Real Estate 14,021 841 (4,401)
Insurance and Other 7,727 17,709 13,682
------- --------- ---------
Company Totals $834,287 $370,944 $126,188
======== ======== ========
1993
Mutual Funds $1,320,390 $580,414 $173,779
Banking 211,156 17,583 1,147
Real Estate 8,944 1,051 (7,860)
Insurance and
Other 41,044 41,696 33,677
------------ --------- ---------
Company Totals $1,581,534 $640,744 $200,743
========= ======== ========
</TABLE>
The mutual funds segment's assets are primarily receivables from,
and investments in, mutual funds and goodwill from the acquisition
of Templeton. The banking affiliate's assets are primarily invest
ment securities and consumer loans.
6. Long-Term Debt:
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Bank debt $ - $346,000
Subordinated debentures 150,000 150,000
Mortgage notes payable in
monthly installments
through 2006 4,063 5,527
Capital lease obligations
(See Note 9) 1,478 5,009
-------- ----------
155,541 506,536
-------- ----------
Less current maturities of
long-term debt issuance - (51,716)
-------- -----------
Total long-term debt $155,541 $454,820
======= ========
</TABLE>
Principal payments on long-term debt excluding capital lease
obligations are as follows (in thousands):
<TABLE>
<S> <C>
1994 $50,339
1995 50,188
1996 50,210
1997 50,230
1998 146,251
Thereafter 154,309
-----------
$501,527
=======
</TABLE>
On June 28, 1993 the Company entered into a modification of its
term debt agreement providing for a 5-year revolving credit and
competitive auction facility ("bank debt"). The bank debt has a
variable interest rate which as of September 30, 1993 was 3.625%
and provides for annual reducing levels of available credit. On
February 4, 1993, the Company entered into interest swap agreements
in order to fix interest rates on $205 million of the term loan.
The fixed rates of interest range from 3.73% to 5.02% on maturities
of one to three years. The effective rate of interest on the bank
debt, including the payments to be made pursuant to the swap
arrangements, was 4.22% as of September 30, 1993. The interest
rate swap agreements have varying maturities over the life of the
underlying debt. The bank debt agreement includes various
restrictive covenants, including: a capitalization ratio, interest
coverage ratio, minimum working capital and limitation on
additional debt. The Company was in compliance with all covenants
as of September 30, 1993.
The subordinated debentures mature on August 3, 2002 and have a
fixed interest rate of 6.25% per annum. Under certain
circumstances, all or a portion of the debentures could pay
additional interest, increasing to a maximum rate of 7.77%.
The subordinated debentures have non-detachable option rights
which allow the holder to purchase common shares of the Company at
any time during the term of the debentures, for cash or in redemp
tion of the debentures. The Company may redeem the debentures any
time after August 3, 1997, or sooner to the extent options are
exercised. The maximum number of shares purchasable under the
option rights is 4,721,435 shares. The option price ranges from
$28.65 to $31.77 per share and the redemption price ranges from
93.65% to 100% of face value, over the term of the debentures.
The estimated fair value of the term loan approximates carrying
value as of September 30, 1993. The estimated fair value of the
subordinated debentures approximates $232.5 million.
Included in deferred costs are debt issuance costs of $5,627,151
net of accumulated amortization of $388,095. The debt issuance
costs are amortized using the effective interest method, over the
life of the related debt.
7. Investment Income (in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Dividends $18,326 $17,487 $11,162
Interest 2,225 2,068 3,678
Realized gains
(losses), net 1 (585) (2,730)
Foreign exchange
gains (losses), net - - (174)
Partnership income 1,556 1,001 1,399
Rental income 353 393 1,416
------- -------- -------
-
$22,461 $20,364 $14,751
======= ======= =======
</TABLE>
Substantially all of the Company's dividends were generated by
investments in the Franklin/Templeton Group of Funds (See Note 3).
8. Taxes on Income:
Taxes on income for the years ended September 30, 1991, 1992 and
1993 are comprised of the following (in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Current:
Federal $48,768 $63,918 $74,958
State 14,972 18,061 17,807
Foreign - - 4,342
Deferred 743 (1,282) 1,769
-------- ------- -------
Total provision $64,483 $80,697 $98,876
======= ======= =======
</TABLE>
The major components of the deferred provision for income taxes for
the years ended September 30, 1991 and 1992 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1991 1992
<S> <C> <C>
Cash basis subsidiaries $ (235) $ -
State taxes (623) (1,154)
Net effect of income and
expenses reported in the
years received or paid for
tax purposes and included
in financial statements as
accrued 1,814 (469)
Excess of tax depreciation
over (under) book (213) 341
-------- ----------
$ 743 $(1,282)
======= =======
</TABLE>
The major components of the net deferred tax liability as of
September 30, 1993 were as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
State taxes expensed currently
deductible in following year $5,989
Temporary differences on investment
losses 3,286
Deferred compensation 2,901
Restricted stock compensation plan 2,605
Other 2,177
-----------
Total deferred tax assets 16,958
-----------
Deferred tax liabilities:
Temporary differences on partnership
earnings 4,955
Capitalized compensation costs 5,542
Unrealized gains on securities 4,520
Depreciation on fixed assets 2,816
Prepaid expenses 1,486
Other 2,667
-----------
Total deferred tax liabilities 21,986
-----------
Net deferred tax liabilities $5,028
======
</TABLE>
Net current deferred tax assets of $6.0 million were made up of
current deferred tax assets of $15.6 million and current deferred
tax liabilities of $9.6 million. Net non-current deferred tax
liabilities of $11.0 million were made up of non-current deferred
tax assets of $1.4 million and non-current deferred tax liabilities
of $12.4 million.
Undistributed earnings of the Company's foreign subsidiaries
amounted to approximately $12 million at September 30, 1993. Those
earnings are considered to be indefinitely reinvested and,
accordingly, no provision for U.S. federal and state income taxes
has been provided thereon. Upon distribution of those earnings in
the form of dividends or otherwise, the Company would be subject to
U.S. income taxes. Determination of the amount of unrecognized
deferred U.S. income tax liability is not practicable because of
the foreign credits and offsets associated with its hypothetical
calculation.
The following is a reconciliation between the amount of tax expense
at the federal statutory rate of 34%, 34% and 34.75% and taxes on
income as reflected in operations for the years ended September 30,
1991, 1992 and 1993, respectively (in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Federal taxes at
statutory rate $ 55,325 $ 69,614 $ 95,353
State taxes, net of
federal tax effect 9,617 11,858 11,166
Foreign earnings subject
to reduced tax rates for
which no U.S. tax is
provided - - (6,591)
Other (459) (775) (1,052)
-------- -------- --------
Actual tax provision $ 64,483 $ 80,697 $ 98,876
======= ======= ======
Effective tax rate 40% 39% 36%
======= ======= ======
</TABLE>
9. Commitments and Contingencies:
The Company leases office space (including from an unconsolidated
affiliate) and equipment under long-term operating leases expiring
at various dates through fiscal year 2001. Lease expenses amounted
to $7.8 million, $8.4 million and $12.1 million for the fiscal
years ended September 30, 1991, 1992 and 1993, respectively. At
September 30, 1993, remaining operating lease commitments are as
follows (in thousands):
<TABLE>
<S> <C>
1994 $ 12,170
1995 10,687
1996 6,407
1997 3,808
1998 3,093
Thereafter 5,240
-----------
$ 41,405
=======
</TABLE>
The Company has also entered into capital leases for certain
equipment (primarily computer equipment) with a cost of $7.9
million and accumulated amortization of $2.6 million at September
30, 1993. Future minimum payments under such leases as of Septem
ber 30, 1993 are as follows (in thousands):
<TABLE>
<S> <C>
1994 $2,091
1995 1,734
1996 1,390
1997 755
1998 186
--------
6,156
Less imputed
interest 1,147
--------
Net $5,009
=====
</TABLE>
At September 30, 1993, the Company's banking subsidiary had
commitments to extend credit as follows (in thousands):
<TABLE>
<S> <C>
Credit card lines $187,432
Real estate equity lines 1,440
Stock secured lines 202
Unsecured consumer lines 343
-----------
$189,417
=======
</TABLE>
The carrying value of these commitments approximates fair value.
The Company acts as fiduciary for retirement and employee
benefit plans. At September 30, 1993, assets held in trust
amounted to approximately $8.6 billion.
10. Stockholders' Equity:
On March 5, 1992, the Board of Directors approved a two-for-one
stock split, for which the Company issued 38,991,437 additional
shares of common stock.
During the years ended September 30, 1991, 1992 and 1993, the
Company paid dividends to common stockholders of $.23, $.26, and
$.28 per share, respectively (as restated for the March 1992 two-
for-one stock split).
11. Employee Stock Option Plans:
The stockholders have adopted 1984 and 1989 stock option plans.
These plans provide for the grant of options to purchase up to
2,156,250 shares of the Company's common stock to officers and
other key employees of the Company. Terms and conditions (including
price, exercise date and number of shares) are determined by the
Board of Directors, which administers the plans.
Information on the plans for the three years ended September 30,
1993, adjusted to reflect the 1992 stock split, is as follows
(shares and total in thousands):
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share Total
<S> <C> <C> <C>
Outstanding options at
October 1, 1990 298 $5.75 to $7.80 $2,030
Granted 10 $15.25 152
Exercised (31) $5.75 to $7.80 (232)
------- ---------
Outstanding options at
September 30, 1991 277 $5.75 to $15.25 1,950
Exercised (60) $5.75 to $7.67 (419)
------- --------
Outstanding options at
September 30, 1992 217 $5.75 to $15.25 1,531
Exercised (212) $5.75 to $15.25 (1,455)
------- --------
Outstanding options at
September 30, 1993 5 $15.25 $76
=== ====
</TABLE>
There were 1,146,770 unoptioned shares available for the granting
of options under the plans at September 30, 1992 and 1993. The
Company recognizes no charge to income in connection with the plans
as the options are granted at the fair market value of the common
stock at the time of grant.
As part of the Templeton acquisition, the Company issued options to
purchase 169,498 shares of the Company's common stock to employees
of certain foreign subsidiaries. The option prices range from
$8.93 to $30.00 per share with a total exercise price of $2.6
million.
12. Employee Benefit and Incentive Plans:
The Company has defined contribution profit sharing plans
covering all U.S. employees of the Company who are not covered by a
collective bargaining agreement, who have at least 12 months of
employment and whose minimum age is 21 at the nearest birthday.
Contributions are based on the Company's prior year's results of
operations and are made at the discretion of the Company's Board of
Directors. The Company contributed $2.1 million, $2.6 million and
$2.8 million during 1991, 1992 and 1993, respectively, that related
to the 1990, 1991 and 1992 plan years.
The Company sponsors a 401(k) defined contribution pension plan
in which most U.S. employees are eligible to participate. The
Company funds the 401(k) plan by matching employee contributions,
subject to statutory limitations. Employer contributions were $617
thousand and $844 thousand for the years ended September 30, 1992
and 1993, respectively.
The Company sponsors restricted stock arrangements for its
employees. The Company has issued shares of its common stock in
the names of the employees, a portion of which replaced Templeton
restricted shares, at a value of $24.9 million as of September 30,
1993. The deferred compensation cost of these securities is being
amortized on a straight-line basis to the date the stock vests with
the employees. The unamortized cost of the restricted shares is
shown as a reduction of stockholder's equity.
The Company also holds in its name shares with a carrying value
of $2.5 million in certain of the Templeton mutual funds as part of
certain non-qualified, deferred compensation arrangements. The cost
of these shares is being amortized on a straight-line basis over
the deferral period.
13. Other Matters:
Commission and fee revenue from the following mutual funds
accounted for more than 10% of total revenues in the years
indicated:
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Franklin Custodian Funds 26% 25% 19%
Franklin California Tax-Free Income Fund 18% 16% 11%
</TABLE>
Other receivables include outstanding loans and notes receivable
from officers and directors at September 30, 1992 and 1993 of $658
thousand and $698 thousand, respectively.
14. Quarterly Results of Operations (unaudited) (in thousands,
except per share of amounts):
<TABLE>
<CAPTION>
Fiscal 1992 Quarter
First Second Third Fourth
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $82,651 $90,151 $89,921 $108,220
Net income $28,787 $31,087 $31,181 $32,996
Earnings per
share $ .37 $ .40 $ .40 $ .42
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1993 Quarter
First Second Third Fourth
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $126,949 $153,626 $162,682 $197,487
Net income $ 34,764 $ 42,233 $ 44,798 $ 53,727
Earnings per
share:
Primary $ .43 $ .51 $ .54 $ .64
Fully
diluted $ .43 $ .51 $ .54 $ .62
Earnings per share have been restated to reflect a two-for-one
stock split in 1992.
</TABLE>
15. Acquisition of Templeton:
On October 30, 1992, the Company acquired substantially all of
the assets and liabilities of Templeton, manager of the Templeton
Family of Mutual Funds and private accounts. The acquisition was
accounted for as a purchase, with a purchase price of approximately
$786 million of which approximately $713 million was allocated to
goodwill. The purchase was financed by $360 million in bank debt,
$150 million in subordinated debentures with option rights, $189
million in cash and $87 million in the Company's common stock.
Based on unaudited financial data, had the acquisition been made
on October 1, 1991, pro forma revenues, net income and net income
per share for the year ended September 30, 1992, would have been
approximately $540 million, $130 million and $1.60, respectively.
Pro forma results for the year ended September 30, 1993, as if the
acquisition had been made on October 1, 1992, are not presented as
they would not be materially different from the reported results
which include the operations of Templeton for the period from
October 30, 1992 to September 30, 1993.
Franklin Resources, Inc.
Schedule II. Consolidated Amounts Receivable From Employees
for the years ended September 30, 1991, 1992, and 1993
<TABLE>
<CAPTION>
Name of Fisc- Balance Addi- Amounts Amo Current Not
Debtor al at begin-tions Collect- u- Current
Year ning of ed nts
Ended period Wri
Sept t-
30 ten
off
<S> <C> <C> <C> <C> <C> <C> <C>
J. Paul 1992 $0 $293,164 $0 $0 $315,718 $0
Lewis $22,554
(1)(2)(3) 1993 $315,718 $23,453 $0 $0 $339,171 $0
Harmon E.
Burns (4) 1991 $380,000 $0 $380,000 $0 $0 $0
Charles
E. 1991 $110,901 $7,316 $0 $0 $28,884 $89,333
Johnson 1992 $118,217 $7,316 $0 $0 $36,200 $89,333
(4) 1993 $125,533 $7,316 $0 $0 $43,516 $89,333
Mark
Mobius
(5)(8) 1993 $100,000 $0 $0 $0 $100,000 $0
Mark
Holowes-
ko (5)(8) 1993 $100,000 $0 $0 $0 $100,000 $0
Dan
Jacobs
(5)(8) 1993 $100,000 $0 $0 $0 $100,000 $0
Gary
Motyl
(5)(8) 1993 $100,000 $0 $0 $100,000 $0
Martin L.
Flanagan 1993 $100,000 $0 $0 $0 $100,000 $0
(5)(7)(8) 1993 $550,228 $0 $18,712 $0 $0 $531,576
Jerry
Ledzinski
(6)(8) 1993 $500,000 $0 $0 $0 $0 $500,000
Thomas L.
Hans-
berger
(7) (8) 1993 $690,605 $0 $690,605 $0 $0 $0
Footnotes
1 On October 15, 1991, the Company loaned J. Paul Lewis
("Lewis"), an employee and shareholder of Franklin Asset Management
Systems ("FAMS"), an 86% owned subsidiary of the Company, $293,164
(the "Loan") at a variable interest rate based upon the Bank of
America "prime rate." The Loan was due and payable on April 15,
1992 and was collateralized by shares of the stock of FAMS owned by
Lewis. No payments of principal or interest have been made on the
Loan. On February 24, 1992, Lewis filed a voluntary petition for
relief under Chapter 7 of the Bankruptcy Code.
2 The $22,554 and $23,453 represents accrued but unpaid interest
due on the Loan as of September 30, 1992 and September 30, 1993,
respectively.
3 The Company and the Trustee in Bankruptcy have entered into
negotiations to cancel the full indebtedness under the Loan in
exchange for the transfer of the shares of FAMS owned by Lewis to
the Company and the payment by the Company of $6,000 to the
bankruptcy estate. Such settlement is subject to the approval of
the Bankruptcy Court.
4 Pursuant to a Company policy to make loans for the exercise of
employee stock options, a loan in the amount of $380,000 was made
to Harmon E. Burns, Executive Vice-President of the Company in
March 1990. Such loan was paid in full before maturity in February
1991. Under the same policy, a loan was made to Charles E.
Johnson, Vice-President of the Company, for $89,333 in October,
1987, with accrued interest additions.
5 The Company has made loans to various officers with principal
being canceled if employed after one year from the issuance of
such loan.
6 Variable demand note. Interest is at 6% and was paid during
the year.
7 Represents a secured 20-year mortgage loan bearing interest at
the rate of 5.98% on Mr. Flanagan's and a 10 year secured mortgage
loan on Mr. Hansberger's then principle residences in Nassau,
Bahamas made by a predecessor company and acquired by the Company
in connection with the Templeton acquisition.
8 Beginning balances for Messrs. Jacobs, Mobius, Holowesko,
Motyl, Flanagan , Hansberger and Ledzinski for periods prior to the
current fiscal year which relate to pre-acquisition transactions
are included in the table under additions for the year ended
September 30, 1993.
</TABLE>
Franklin Resources, Inc.
Schedule X. Consolidated Supplementary Profit And Loss Information
for the years ended September 30, 1991, 1992 and 1993
<TABLE>
<CAPTION>
Charged to Cost and Expenses
Column A Column B
1991 1992 1993
<S> <C> <C> <C>
Taxes, other than
income taxes $ 5,018 $ 6,100 $9,368
Advertising $24,017 $26,533 $38,272
</TABLE>
Maintenance and repairs, depreciation and amortization of furniture
and equipment, and royalties were either not present or were
immaterial in amount. Information related to rental income is shown
in Note 7 to the financial statements.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- NONE
PART III
Items 10-13 are incorporated by reference to the Company's
definitive proxy soliciting material to be used in connection with
the annual meeting of shareholders to be held on January 19, 1994.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8K
(a)(1)Please see the index in Item 8 for a list of the financial
statements filed as part of this report.
(2)Please see the index in Item 8 for a list of the financial
statement schedules filed as part of this report.
(3) The following exhibits are filed as part of this
report:
3(i) Registrant's Articles of Incorporation are
incorporated by reference to Form 10 (File No. 06952)
3(ii) Registrant's By-Laws are incorporated by
reference to Form 10 (File No. 06952)
10.1 Representative Distribution Plan between Templeton
Growth Fund, Inc. and Franklin/ Templeton Investor
Services, Inc.
10.2 Representative Business Management Agreement between
Templeton Growth Fund, Inc. and Templeton Global
Investors, Inc.
10.3 Representative Transfer Agent Agreement between
Templeton Growth Fund, Inc. and Franklin/Templeton
Investor Services, Inc.
10.4 Representative Distribution Agreement between
Templeton Growth Fund, Inc. and Franklin/ Templeton
Distributors, Inc.
10.5 Representative Investment Management Agreement
between Templeton Growth Fund, Inc. and Templeton,
Galbraith and Hansberger Ltd.
10.6 Representative Management Agreement between Advisers
and the Franklin Group of Funds incorporated by reference
to Exhibit 10.1 to the Company's Annual Report on Form
10K for the fiscal year ended September 30, 1992 (the
"1992 Annual Report")
10.7 Representative Distribution Agreement between
Distributors and the Franklin Group of Funds incorporated
by reference to Exhibit 10.2 to the 1992 Annual Report
10.8 Representative Distribution 12b-1 Plan between
Distributors and the Franklin Group of Funds incorporated
by reference to Exhibit 10.3 to the 1992 Annual Report
10.9 Representative Shareholder Services Agreement
between FTIS and the Franklin Group of Funds incorporated
by reference to Exhibit 10.4 to the 1992 Annual Report
10.10 Representative Amendment to Shareholder
Services Agreement between FTIS and the Franklin Group
of Funds incorporated by reference to Exhibit 10.5 to
the 1992 Annual Report
18 Letter re: Change in Accounting
Principles
21 List of Subsidiaries
23 Consent of Independent Accountant
99 (i) Report on internal accounting control of
transfer agent from Coopers & Lybrand
99(ii) Report on internal accounting control of
transfer agent from McGladrey & Pullen
(b) No reports on Form 8-K were filed for the quarter ended 9/30/93
(c) See Item. 14(a)(3) above.
(d) No separate financial statements are required;
schedules are included in Item 8.
Exhibit 10.1
DISTRIBUTION PLAN
WHEREAS, Templeton Growth Fund, Inc. (the "Fund") is
registered as an open-end diversified management investment company
under the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Fund and Franklin/Templeton Distributors, Inc.
(the "Selling Company"), a wholly owned subsidiary of Franklin
Resources, Inc. and a broker-dealer registered under the Securities
Exchange Act of 1934, have entered into an Underwriting Agreement
pursuant to which the Selling Company will act as principal
underwriter of Shares of the Fund for sale to the public; and
WHEREAS, the Board of Directors of the Fund has determined to
adopt this Distribution Plan (the "Plan"), in accordance with the
requirements of the 1940 Act and has determined that there is a
reasonable likelihood that the Plan will benefit the Fund and its
Shareholders.
NOW THEREFORE, the Fund hereby adopts the Plan on the
following terms and conditions:
1. The Fund will reimburse the Selling Company for costs and
expenses incurred in connection with the distribution and marketing
of Shares of the Fund. Such distribution costs and expenses may
include: (a) payments to broker-dealers who provide certain
services of value to the Fund's Shareholders (sometimes referred to
as a "trail fee"); (b) reimbursement of expenses relating to
selling and servicing efforts or of organizing and conducting sales
seminars; (c) payments to employees or agents of the Selling
Company who engage in or support distribution of Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of Fund Shares
exceeding $1 million (on which the Fund imposes no initial sales
charge) and interest or carrying charges in connection therewith;
and (f) such other similar services as the Fund's Board of
Directors determines to be reasonably calculated to result in the
sale of Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to a limit of
0.25% per annum of the Fund's average daily net assets. Payments
made out of or charged against the assets of the Fund must be in
reimbursement for costs and expenses in connection with any
activity which is primarily intended to result in the sale of Fund
Shares. The costs and expenses not reimbursed in any one given
month (including costs and expenses not reimbursed because they
exceeded the limit of 0.25% per annum of the Fund's average daily
net assets) may be reimbursed in subsequent months or years.
2. The Plan shall not take effect with respect to the Fund
until it has been approved by a vote of at least a majority (as
defined in the 1940 Act) of the outstanding voting Shares of the
Fund. With respect to the submission of the Plan for such a vote,
it shall have been effectively approved with respect to the Fund if
a majority of the outstanding voting Shares of the Fund votes for
approval of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements, by
votes of a majority of both (a) the Board of Directors of the Fund,
and (b) those Directors of the Fund who are not "interested
persons" (as defined in the 1940 Act) and have no direct or
indirect financial interest in the operation of the Plan or any
agreements related to it (the "Plan Directors"), cast in person at
a meeting (or meetings) called for the purpose of voting on the
Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to the Plan or any related
agreement shall provide to the Fund's Board of Directors, and the
Board shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures
were made.
6. Any agreement related to the Plan shall be in writing and
shall provide: (a) that such agreement may be terminated at any
time as to the Fund, without payment of any penalty, by vote of a
majority of the Plan Directors or by vote of a majority of the
outstanding voting Shares of the Fund, on not more than 60 days'
written notice to any other party to the agreement; and (b) that
such agreement shall terminate automatically in the event of its
assignment.
7. The Plan may be terminated at any time with respect to
the Fund, without payment of any penalty, by vote of a majority of
the Plan Directors, or by vote of a majority of the outstanding
voting Shares of the Fund.
8. The Plan may be amended at any time with respect to the
Fund by the Fund's Board of Directors, provided that (a) any
amendment to increase materially the costs which the Fund may bear
for distribution pursuant to the Plan shall be effective only upon
approval by a vote of a majority of the outstanding voting Shares
of the Fund, and (b) any material amendments of the terms of the
Plan shall become effective only upon approval as provided in
paragraph 3 hereof.
9. While the Plan is in effect, the selection and nomination
of Directors who are not "interested persons" (as defined in the
1940 Act) of the Fund shall be committed to the discretion of the
Directors who are not interested persons.
10. The Fund shall preserve copies of the Plan, any related
agreement and any report made pursuant to paragraph 5 hereof, for a
period of not less than six years from the date of the Plan, such
agreement or report, as the case may be, the first two years of
which shall be in an easily accessible place.
IN WITNESS WHEREOF, the Fund has executed this Distribution
Plan on this 1st day of June, 1993.
TEMPLETON GROWTH FUND, INC.
ATTEST:
By:
Thomas M. Mistele
Secretary Harold F. McElraft
Vice President
Exhibit 10.2
BUSINESS MANAGEMENT AGREEMENT BETWEEN
TEMPLETON GROWTH FUND, INC. AND
TEMPLETON GLOBAL INVESTORS, INC.
AGREEMENT dated as of April 1, 1993, between Templeton
Growth Fund, Inc., a Maryland corporation which is a registered
open-end investment company (the "Fund") and Templeton Global
Investors, Inc. ("TGII").
In consideration of the mutual promises herein made, the
parties hereby agree as follows:
(1) TGII agrees, during the life of this Agreement, to
be responsible for:
(a) providing office space, telephone, office
equipment and supplies for the Fund;
(b) paying compensation of the Fund's officers
for services rendered as such;
(c) authorizing expenditures and approving
bills for payment on behalf of the Fund;
(d) supervising preparation of annual and
semiannual reports to Shareholders, notices of
dividends, capital gains distributions and tax
credits, and attending to routine correspondence and
other communications with individual Shareholders;
(e) daily pricing of the Fund's investment
portfolio and preparing and supervising publication
of daily quotations of the bid and asked prices of
the Fund's Shares, earnings reports and other
financial data;
(f) monitoring relationships with
organizations serving the Fund, including
custodians, transfer agents and printers;
(g) providing trading desk facilities for the
Fund;
(h) supervising compliance by the Fund with
recordkeeping requirements under the Investment
Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder, with state regulatory
requirements, maintenance of books and records for
the Fund (other than those maintained by the
custodian and transfer agent), preparing and filing
of tax reports other than the Fund's income tax
returns;
(i) monitoring the qualifications of tax
deferred retirement plans for the Fund; and
(j) providing executive, clerical and
secretarial personnel needed to carry out the above
responsibilities.
(2) The Fund agrees, during the life of this Agreement,
to pay to TGII as compensation for the foregoing a monthly fee
equal on an annual basis to 0.15% of the first $200 million of the
aggregate average daily net assets of the Fund during the month
preceding each payment, reduced as follows: on such net assets in
excess of $200 million up to $700 million, a monthly fee equal on
an annual basis to 0.135%; on such net assets in excess of $700
million up to $1.2 billion, a monthly fee equal on an annual basis
to 0.1%; and on such net assets in excess of $1.2 billion, a
monthly fee equal on an annual basis to 0.075%.
(3) This Agreement shall remain in full force and effect
through December 31, 1993 and thereafter from year to year to the
extent continuance is approved annually by the Board of Directors
of the Fund.
(4) This Agreement may be terminated by the Fund at any
time on sixty (60) days' written notice without payment of penalty,
provided that such termination by the Fund shall be directed or
approved by the vote of a majority of the Directors of the Fund in
office at the time or by the vote of a majority of the outstanding
voting securities of the Fund (as defined by the 1940 Act); and
shall automatically and immediately terminate in the event of its
assignment (as defined by the 1940 Act).
(5) In the absence of willful misfeasance, bad faith or
gross negligence on the part of TGII, or of reckless disregard of
its duties and obligations hereunder, TGII shall not be subject to
liability for any act or omission in the course of, or connected
with, rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers and
their respective corporate seals to be hereunto duly affixed and
attested.
TEMPLETON GROWTH FUND, INC.
By:
Harold F. McElraft
Vice President
ATTEST:
Thomas M. Mistele
Secretary
TEMPLETON GLOBAL INVESTORS, INC.
By:
ATTEST:
Gregory E. McGowan
Secretary
November 2, 1989
Exhibit 10.3
TRANSFER AGENT AGREEMENT BETWEEN
TEMPLETON GROWTH FUND, INC. AND
FRANKLIN/TEMPLETON INVESTOR SERVICES, INC.
AGREEMENT dated as of September 1, 1993 between TEMPLETON
GROWTH FUND, INC., a registered open-end investment company with
offices at 700 Central Avenue, St. Petersburg, Florida 33701 (the
"Fund") and FRANKLIN/TEMPLETON INVESTOR SERVICES, INC., a
registered transfer agent with offices at 700 Central Avenue, St.
Petersburg, Florida 33701 ("FTIS").
W I T N E S S E T H:
That for and in consideration of the mutual promises
hereinafter set forth, the Fund and FTIS agree as follows:
1. Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires,
shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles
of Incorporation of the Fund as the same may be amended from time
to time;
(b) "Authorized Person" shall be deemed to include any
person, whether or not such person is an officer or employee of the
Fund, duly authorized to give Oral Instructions or Written
Instructions on behalf of the Fund as indicated in a certificate
furnished to FTIS pursuant to Section 4(c) hereof as may be
received by FTIS from time to time;
(c) "Custodian" refers to the custodian and any sub-
custodian of all securities and other property which the Fund may
from time to time deposit, or cause to be deposited or held under
the name or account of such custodian pursuant to the Custody
Agreement;
(d) "Oral Instructions" shall mean instructions, other
than written instructions, actually received by FTIS from a person
reasonably believed by FTIS to be an Authorized Person;
(e) "Shares" refers to shares of common stock, par value
$.20 per share, of the Fund; and
(f) "Written Instructions" shall mean a written
communication signed by a person reasonably believed by FTIS to be
an Authorized Person and actually received by FTIS.
2. Appointment of FTIS . The Fund hereby appoints and
constitutes FTIS as transfer agent for Shares of the Fund and as
shareholder servicing agent for the Fund, and FTIS accepts such
appointment and agrees to perform the duties hereinafter set forth.
3. Compensation.
(a) The Fund will compensate or cause FTIS to be
compensated for the performance of its obligations hereunder in
accordance with the fees set forth in the written schedule of fees
annexed hereto as Schedule A and incorporated herein. Schedule A
does not include out-of-pocket disbursements of FTIS for which FTIS
shall be entitled to bill the Fund separately. FTIS will bill the
Fund as soon as practicable after the end of each calendar month,
and said billings will be detailed in accordance with Schedule A.
The Fund will promptly pay to FTIS the amount of such billing.
Out-of-pocket disbursements shall include, but shall not
be limited to, the items specified in the written schedule of out-
of-pocket expenses annexed hereto as Schedule B and incorporated
herein. Schedule B may be modified by FTIS upon not less than 30
days' prior written notice to the Fund. Unspecified out-of-pocket
expenses shall be limited to those out-of-pocket expenses
reasonably incurred by FTIS in the performance of its obligations
hereunder. Reimbursement by the Fund for expenses incurred by FTIS
in any month shall be made as soon as practicable after the receipt
of an itemized bill from FTIS.
(b) Any compensation agreed to hereunder may be adjusted
from time to time by attaching to Schedule A of this Agreement a
revised Fee Schedule.
4. Documents. In connection with the appointment of FTIS,
the Fund shall, on or before the date this Agreement goes into
effect, but in any case, within a reasonable period of time for
FTIS to prepare to perform its duties hereunder, deliver or cause
to be delivered to FTIS the following documents:
(a) If applicable, a specimen of the certificate for
Shares of the Fund;
(b) All account application forms and other documents
relating to Shareholder accounts or to any plan, program or service
offered by the Fund;
(c) A certificate identifying the Authorized Persons and
specimen signatures of Authorized Persons who will sign Written
Instructions; and
(d) All documents and papers necessary under the laws of
Florida, under the Fund's Articles of Incorporation, and as may be
required for the due performance of FTIS's duties under this
Agreement or for the due performance of additional duties as may
from time to time be agreed upon between the Fund and FTIS.
5. Distributions Payable in Shares. In the event that the
Board of Directors of the Fund shall declare a distribution payable
in Shares, the Fund shall deliver or cause to be delivered to FTIS
written notice of such declaration signed on behalf of the Fund by
an officer thereof, upon which FTIS shall be entitled to rely for
all purposes, certifying (i) the number of Shares involved, and
(ii) that all appropriate action has been taken.
6. Duties of the Transfer Agent. FTIS shall be responsible
for administering and/or performing transfer agent functions; for
acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with
the Custodian) of Shares. The operating standards and procedures
to be followed shall be determined from time to time by agreement
between the Fund and FTIS. Without limiting the generality of the
foregoing, FTIS agrees to perform the specific duties listed on
Schedule C.
7. Recordkeeping and Other Information. FTIS shall create
and maintain all necessary records in accordance with all
applicable laws, rules and regulations.
8. Other Duties. In addition, FTIS shall perform such other
duties and functions, and shall be paid such amounts therefor, as
may from time to time be agreed upon in writing between the Fund
and FTIS. Such other duties and functions shall be reflected in a
written amendment to Schedule C, and the compensation for such
other duties and functions shall be reflected in a written
amendment to Schedule A.
9. Reliance by Transfer Agent; Instructions.
(a) FTIS will be protected in acting upon Written or
Oral Instructions reasonably believed to have been executed or
orally communicated by an Authorized Person and will not be held to
have any notice of any change of authority of any person until
receipt of a Written Instruction thereof from an officer of the
Fund. FTIS will also be protected in processing Share certificates
which it reasonably believes to bear the proper manual or facsimile
signatures of the officers of the Fund and the proper
countersignature of FTIS.
(b) At any time FTIS may apply to any Authorized Person
of the Fund for Written Instructions and may seek advice at the
Fund's expense from legal counsel for the Fund or from its own
legal counsel, with respect to any matter arising in connection
with this Agreement, and it shall not be liable for any action
taken or not taken or suffered by it in good faith in accordance
with such Written Instructions or in accordance with the opinion of
counsel for the Fund or for FTIS. Written Instructions requested
by FTIS will be provided by the Fund within a reasonable period of
time. In addition, FTIS, or its officers, agents or employees,
shall accept Oral Instructions or Written Instructions given to
them by any person representing or acting on behalf of the Fund
only if said representative is known by FTIS, or its officers,
agents or employees, to be an Authorized Person.
10. Acts of God, etc. FTIS will not be liable or responsible
for delays or errors by reason of circumstances beyond its control,
including acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown beyond
its control, flood or catastrophe, acts of God, insurrection, war,
riots or failure beyond its control of transportation,
communication or power supply.
11. Duty of Care and Indemnification. The Fund will
indemnify FTIS against and hold it harmless from any and all
losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit not resulting from willful misfeasance, bad
faith or gross negligence on the part of FTIS, and arising out of,
or in connection with, its duties hereunder. In addition, the Fund
will indemnify FTIS against and hold it harmless from any and all
losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any
claim, demand, action or suit as a result of: (i) any action taken
in accordance with Written or Oral Instructions, or any other
instructions or Share certificates reasonably believed by FTIS to
be genuine and to be signed, countersigned or executed, or orally
communicated by an Authorized Person; (ii) any action taken in
accordance with written or oral advice reasonably believed by FTIS
to have been given by counsel for the Fund or by its own counsel;
(iii) any action taken as a result of any error or omission in any
record (including but not limited to magnetic tapes, computer
printouts, hard copies and microfilm copies) delivered, or caused
to be delivered by the Fund to FTIS in connection with this
Agreement; or (iv) any action taken in accordance with oral
instructions given under the Telephone Exchange and Redemption
Privileges, as described in the Fund's current prospectus, when
believed by FTIS to be genuine.
In any case in which the Fund may be asked to indemnify or
hold FTIS harmless, the Fund shall be advised of all pertinent
facts concerning the situation in question and FTIS will use
reasonable care to identify and notify the Fund promptly concerning
any situation which presents or appears likely to present a claim
for indemnification against the Fund. The Fund shall have the
option to defend FTIS against any claim which may be the subject of
this indemnification, and, in the event that the Fund so elects,
such defense shall be conducted by counsel chosen by the Fund and
satisfactory to FTIS, and thereupon the Fund shall take over
complete defense of the claim and FTIS shall sustain no further
legal or other expenses in such situation for which it seeks
indemnification under this Section 11. FTIS will not confess any
claim or make any compromise in any case in which the Fund will be
asked to provide indemnification, except with the Fund's prior
written consent. The obligations of the parties hereto under this
Section shall survive the termination of this Agreement.
12. Term and Termination.
(a) This Agreement shall be effective as of the date
first written above and shall continue through December 31, 1993
and thereafter shall continue automatically for successive annual
periods ending on December 31 of each year, provided such
continuance is specifically approved at least annually by (i) the
Fund's Board of Directors or (ii) a vote of a "majority" (as
defined in the Investment Company
Act of 1940 (the "1940 Act")) of the Fund's outstanding voting
securities, provided that in either event the continuance is also
approved by a majority of the Board of Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person at a meeting called for the
purpose of voting such approval;
(b) Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date
of such termination, which shall be not less than 60 days after the
date of receipt of such notice. In the event such notice is given
by the Fund, it shall be accompanied by a resolution of the Board
of Directors of the Fund, certified by the Secretary of the Fund,
designating a successor transfer agent or transfer agents. Upon
such termination and at the expense of the Fund, FTIS will deliver
to such successor a certified list of shareholders of the Fund
(with names and addresses), an historical record of the account of
each Shareholder and the status thereof, and all other relevant
books, records, correspondence, and other data established or
maintained by FTIS under this Agreement in a form reasonably
acceptable to the Fund, and will cooperate in the transfer of such
duties and responsibilities, including provisions for assistance
from 's FTIS's personnel in the establishment of books, records and
other data by such successor or successors.
13. Amendment. This Agreement may not be amended or modified
in any manner except by a written agreement executed by both
parties.
14. Subcontracting. The Fund agrees that FTIS may, in its
discretion, subcontract for certain of the services described under
this Agreement or the Schedules hereto; provided that the
appointment of any such agent shall not relieve FTIS of its
responsibilities hereunder.
15. Miscellaneous.
(a) Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Fund or
FTIS shall be sufficiently given if addressed to that party and
received by it at its office set forth below or at such other place
as it may from time to time designate in writing.
To the Fund:
Templeton Growth Fund, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
To FTIS:
Franklin/Templeton Investor Services, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
(b) This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable without the written consent of the other party.
(c) This Agreement shall be construed in accordance with
the laws of the State of California.
(d) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original; but
such counterparts shall, together, constitute only one instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or
effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective corporate officers
thereunder duly authorized as of the day and year first above
written.
TEMPLETON GROWTH FUND, INC.
ATTEST
BY:
Thomas M. Mistele Harold F. McElraft
Secretary Vice President
FRANKLIN/TEMPLETON INVESTOR SERVICES,
INC.
ATTEST
BY:
Thomas M. Mistele Harold F. McElraft
Secretary Vice President
For Schedule A - I pulled the sheet from our Contracts Binders - it
appeared to be a more current version and had the correct CPI
rates.
Schedule A
<TABLE>
<CAPTION>
FEES
<S> <S>
Shareholder account $13.03, adjusted as of
maintenance (per annum, February 1 of each year to
pro rated payable monthly) reflect changes in the
Department of Labor Consumer
Price Index.
Cash withdrawal program No charge to the Company.
Retirement plans No charge to the Company
($10.00 annual maintenance
charge is applied against
each Plan account).
Wire orders of redemptions No charge to the Company
or express mailing of ($15.00 fee is deducted for
redemption proceeds each wire order; $10.00 is
deducted for each express
mailing).
</TABLE>
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse FTIS monthly for the following out-of-
pocket expenses:
o postage and mailing
o forms
o outgoing wire charges
o telephone
o Federal Reserve charges for check clearance
o if applicable, magnetic tape and freight
o retention of records
o microfilm/microfiche
o stationary
o insurance
o if applicable, terminals, transmitting lines and any
expenses incurred in connection with such terminals and
lines
o all other miscellaneous expenses reasonably incurred
by FTIS
The Fund agrees that postage and mailing expenses will be paid
on the day of or prior to mailing as agreed with FTIS. In
addition, the Fund will promptly reimburse FTIS for any other
expenses incurred by FTIS as to which the Fund and FTIS mutually
agree that such expenses are not otherwise properly borne by FTIS
as part of its duties and obligations under the Agreement.
Schedule C
DUTIES
AS TRANSFER AGENT FOR INVESTORS IN THE FUND, FTIS WILL:
o Record in its transfer record, countersign as
transfer agent, and deliver certificates signed manually
or by facsimile, by the President or a Vice-President and
by the Secretary or the Assistant Secretary of the Fund,
in such names and for such number of authorized but
hitherto unissued Shares of the Fund as to which FTIS
shall receive instructions; and
o Transfer on its records from time to time, when
presented to it for that purpose, certificates of said
Shares, whether now outstanding or hereafter issued, when
countersigned by a duly authorized transfer agent, and
upon the cancellation of the old certificates, record and
countersign new certificates for a corresponding
aggregate number of Shares and deliver said new
certificates.
AS SHAREHOLDER SERVICE AGENT FOR INVESTORS IN THE FUND, FTIS WILL:
o Receive from the Fund, from the Fund's Principal
Underwriter or from a Shareholder, on a form acceptable
to FTIS, information necessary to record sales and
redemptions and to generate sale and/or redemption
confirmations;
o Mail sale and/or redemption confirmations using
standard forms;
o Accept and process cash payments from investors,
clear checks which represent payments for the purchase of
Shares;
o Requisition Shares in accordance with instructions
of the Principal Underwriter of the Shares of the Fund;
o Produce periodic reports reflecting the accounts
receivable and the paid pending (free stock) items;
o Open, maintain and close Shareholder accounts;
o Establish registration of ownership of Shares in
accordance with generally accepted form;
o Maintain monthly records of (i) issued Shares
and (ii) number of Shareholders and their aggregate
Shareholdings classified according to their residence in
each State of the United States or foreign country;
o Accept and process telephone exchanges and
redemptions for Shares in accordance with the Fund's
Telephone Exchange and Redemption Privileges as described
in the Fund's current prospectus.
o Maintain and safeguard records for each Shareholder
showing name(s), address, number of any certificates
issued, and number of Shares registered in such name(s),
together with continuous proof of the outstanding Shares,
and dealer identification, and reflecting all current
changes. On request, provide information as to an
investor's qualification for Cumulative Quantity
Discount. Provide all accounts with year-to-date and
year-end historical confirmation statements;
o Provide on request a duplicate set of records for
file maintenance in the Fund's office in St. Petersburg,
Florida;
o Out of money received in payment for Share sales,
pay to the Fund's Custodian Account with the Custodian,
the net asset value per Share and pay to the Principal
Underwriter its commission;
o Redeem Shares and prepare and mail (or wire)
liquidation proceeds;
o Pass upon the adequacy of documents submitted by a
Shareholder or his legal representative to substantiate
the transfer of ownership of Shares from the registered
owner to transferees;
o From time to time, make transfers upon the books of
the Fund in accordance with properly executed transfer
instructions furnished to FTIS and make transfers of
certificates for such Shares as may be surrendered for
transfer properly endorsed, and countersign new
certificates issued in lieu thereof;
o Upon receipt of proper documentation, place stop
transfers, obtain necessary insurance forms, and reissue
replacement certificates against lost, stolen or
destroyed Share certificates;
o Check surrendered certificates for stop transfer
restrictions. Although FTIS cannot insure the
genuineness of certificates surrendered for cancellation,
it will employ all due reasonable care in deciding the
genuineness of such certificates and the guarantor of the
signature(s) thereon;
o Cancel surrendered certificates and record and
countersign new certificates;
o Certify outstanding Shares to auditors;
o In connection with any meeting of Shareholders, upon
receiving appropriate detailed instructions and written
materials prepared by the Fund and proxy proofs checked
by the Fund, print proxy cards; deliver to Shareholders
all reports, prospectuses, proxy cards and related proxy
materials of suitable design for enclosing; receive and
tabulate executed proxies; and furnish a list of
Shareholders for the meeting;
o Answer routine correspondence and telephone
inquiries about individual accounts. Prepare monthly
reports for correspondence volume and correspondence data
necessary for the Fund's Semi-Annual Report on Form N-
SAR;
o Prepare and mail dealer commission statements and
checks;
o Maintain and furnish the Fund and its Shareholders
with such information as the Fund may reasonably request
for the purpose of compliance by the Fund with the
applicable tax and securities laws of applicable
jurisdictions;
o Mail confirmations of transactions to investors and
dealers in a timely fashion;
o Pay or reinvest income dividends and/or capital
gains distributions to Shareholders of record, in
accordance with the Fund's and/or Shareholder's
instructions, provided that:
(a) The Fund shall notify FTIS in
writing promptly upon declaration of any such
dividend and/or distribution, and in any event
at least forty-eight (48) hours before the
record date;
(b) Such notification shall include
the declaration date, the record date, the
payable date, the rate, and, if applicable, the
reinvestment date and the reinvestment price to
be used; and
(c) Prior to the payable date, the
Fund shall furnish FTIS with sufficient fully
and finally collected funds to make such
distribution;
o Prepare and file annual United States information
returns of dividends and capital gains distributions
(Form 1099) and mail payee copies to Shareholders; report
and pay United States income taxes withheld from
distributions made to nonresidents of the United States,
and prepare and mail to Shareholders the notice required
by the U.S. Internal Revenue Code as to realized capital
gains distributed and/or retained, and their
proportionate share of any foreign taxes paid by the
Fund;
o Prepare transfer journals;
o Set up wire order trades on file;
o Receive payment for trades and update the trade
file;
o Produce delinquency and other trade file reports;
o Provide dealer commission statements and payments
thereof for the Principal Underwriter;
o Sort and print shareholder information by state,
social code, price break, etc.; and
o Mail promptly the Statement of Additional
Information of the Fund to each Shareholder who requests
it, at no cost to the Shareholder.
In connection with the Fund's Cash Withdrawal Program, FTIS
will:
o Make payment of amounts withdrawn periodically by
the Shareholder pursuant to the Program by redeeming
Shares, and confirm such redemptions to the Shareholder;
and
o Provide confirmations of all redemptions,
reinvestment of dividends and distributions, and any
additional investments in the Program, including a
summary confirmation at the year-end.
In connection with Tax Deferred Retirement Plans involving the
Fund, FTIS will:
o Receive and process applications, accept
contributions, record Shares issued and dividends
reinvested;
o Make distributions when properly requested; and
o Furnish reports to regulatory authorities as
required.
Exhibit 10.4
TEMPLETON GROWTH FUND, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Franklin/Templeton Distributors, Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Re: Distribution Agreement
Gentlemen:
We are a Maryland corporation operating as an open-end management
investment company. As such, our company, Templeton Growth Fund,
Inc. (referred to herein as the "Fund") is registered under the
Investment Company Act of 1940, (the "1940 Act"), and its shares
are registered under the Securities Act of 1933 (the "1933 Act").
We desire to begin issuing our authorized but unissued shares of
common stock (the "Shares") to authorized persons in accordance
with applicable Federal and State securities laws.
You have informed us that your company is registered as a broker-
dealer under the provisions of the Securities Exchange Act of 1934
and that your company is a member of the National Association of
Securities Dealers, Inc. You have indicated your desire to act as
the exclusive selling agent and distributor for the Shares. We
have been authorized to execute and deliver this Agreement to you
by a resolution of our Board of Directors passed at a meeting at
which a majority of our Directors, including a majority who are not
otherwise interested persons of the Fund and who are not interested
persons of our investment adviser, its related organizations or
with you or your related organizations, were present and voted in
favor of the said resolution approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this
Agreement and in consideration of the agreements on your part
herein expressed and upon the terms and conditions set forth
herein, we hereby appoint you as the exclusive sales agent for our
Shares (except for sales made directly by the Fund without sales
charge) and agree that we will deliver such Shares as you may sell.
You agree to use your best efforts to promote the sale of Shares,
but are not obligated to sell any specific number of Shares.
2. Independent Contractor. You will undertake and discharge
your obligations hereunder as an independent contractor and shall
have no authority or power to obligate or bind us by your actions,
conduct or contracts except that you are authorized to accept
orders for the purchase or repurchase of Shares as our agent. You
may appoint sub-agents or distribute through dealers or otherwise
as you may determine from time to time, but this Agreement shall
not be construed as authorizing any dealer or other person to
accept orders for sale or repurchase on our behalf or otherwise act
as our agent for any purpose. You may allow such sub-agents or
dealers such commissions or discounts not exceeding the total sales
commission as you shall deem advisable so long as any such
commissions or discounts are set forth in our current prospectus to
the extent required by the applicable Federal and State securities
laws.
3. Offering Price. The Shares of the Fund shall be offered
for sale at a price equivalent to their respective net asset value
(as specified in the Fund's prospectus) plus a variable percentage
of the public offering price as sales commission. On each business
day on which the New York Stock Exchange is open for business, we
will furnish you with the net asset value of the Shares which shall
be determined in accordance with our then effective prospectus.
All Shares will be sold in the manner set forth in our then
effective prospectus.
4. Sales Commission. You shall be entitled to charge a
sales commission on the sale of our Shares in the amount set forth
in our then effective prospectus. Such commission (subject to any
quantity or other discounts or eliminations of commission as set
forth in our then current effective prospectus) shall be an amount
mutually agreed upon between us and equal to the difference between
the net asset value and the public offering price of our Shares.
You may reallow to dealers all or any part of the discount you are
allowed.
5. Terms and Conditions of Sales. Shares of the Fund shall
be offered for sale only in those jurisdictions where they have
been properly registered or are exempt from registration, and only
to those groups of people which the Board of Directors may from
time to time determine to be eligible to purchase such shares.
6. Payment of Shares. At or prior to the time of delivery
of any of our Shares you will pay or cause to be paid to our
Custodian or its successor, for our account, an amount in cash
equal to the net asset value of such Shares. In the event that you
pay for Shares sold by you prior to your receipt of payment from
purchasers you are authorized to reimburse yourself for the net
asset value of such Shares from the offering price of such Shares
when received by you.
7. Purchases for Your Own Account. You shall not purchase
our Shares for your own account for purposes of resale to the
public, but you may purchase Shares for your own investment account
upon your written assurance that the purchase is for investment
purposes and that the Shares will not be resold except through
redemption by us.
8. Sale of Shares at Net Asset Value. You may sell our
Shares at net asset value in accordance with the terms of the
Fund's then current prospectuses.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and
certified financial statements of our company to be
included in any Post-Effective Amendments
("Amendments") to our Registration Statement under
the 1933 Act or 1940 Act, including the prospectus
and statement of additional information included
therein;
(b) Of the preparation, including legal fees,
and of printing all Amendments or supplements filed
with the Securities and Exchange Commission,
including the copies of the prospectuses included in
the Amendments which we send to our existing
shareholders other than those necessitated by your
(including your "Parent's") activities or Rules and
Regulations related to your activities where such
Amendments or supplements result in expenses which
we would not otherwise have incurred;
(c) Of the preparation, printing and
distribution of any reports or communications which
we send to our existing shareholders; and
(d) Of filing and other fees to Federal and
State securities regulatory authorities necessary to
continue offering our Shares of the Fund as you may
require in connection with your duties as
underwriter.
You will pay the expenses:
(a) Of printing the copies of the prospectuses
and any supplements thereto and statement of
additional information which are necessary to
continue to offer our Shares;
(b) Of the preparation, excluding legal fees,
and printing of all Amendments and supplements to
our prospectuses and statement of additional
information if the Amendment or supplement arises
from your (including your "Parent's") activities or
Rules and Regulations related to your activities and
those expenses would not otherwise have been
incurred by us;
(c) Of printing additional copies, for use by
you as sales literature, of reports or other
communications which we have prepared for
distribution to our existing shareholders; and
(d) Incurred by you in advertising, promoting
and selling our Shares.
10. Furnishing of Information. We will furnish to you such
information with respect to the Fund and its Shares, in such form
and signed by such of our officers as you may reasonably request,
and we warrant that the statements therein contained when so signed
will be true and correct. We will also furnish you with such
information and will take such action as you may reasonably request
in order to qualify our Shares for sale to the public under the
Blue Sky Laws of jurisdictions in which you may wish to offer them.
We will furnish you with annual audited financial statements of our
books and accounts certified by independent public accountants,
with semi-annual financial statements prepared by us, and, from
time to time, with such additional information regarding our
financial condition as you may reasonably request.
11. Conduct of Business. Other than our currently effective
prospectus, you will not issue any sales material or statements
except literature or advertising which conforms to the requirements
of Federal and State securities laws and regulations and which have
been filed, where necessary, with the appropriate regulatory
authorities. You will furnish us with copies of all such materials
prior to their use and no such material shall be published if we
shall reasonably and promptly object.
You shall comply with the applicable Federal and State
laws and regulations where our Shares are offered for sale and
conduct your affairs with us and with dealers, brokers or investors
in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and in strict accordance
with the applicable provisions of the Articles of Incorporation and
By-Laws of the Fund.
In the absence of willful misfeasance, bad faith or gross
negligence on your part, or of reckless disregard of your
obligations hereunder, you shall not be subject to liability for
any act or omission in the course of, or connected with, rendering
services hereunder.
12. Contingent Deferred Sales Charges. You shall be entitled
to receive a contingent deferred sales charge from the proceeds of
redemption of Shares of the Fund on such terms and in such amounts
as are set forth in the then current prospectus of the Fund. In
addition, you may retain any amounts authorized for payment to you
under the Fund's Distribution Plan.
13. Redemption or Repurchase Within Seven Days. If Shares
are tendered to us for redemption or repurchase by us within seven
business days after your acceptance of the original purchase order
for such Shares, you will immediately refund to us the full sales
commission (net of allowances to dealers or brokers) allowed to you
on the original sale, and will promptly, upon receipt thereof, pay
to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender
for redemption within 10 days of the day on which notice of such
tender for redemption is received by us.
14. Other Activities. Your services pursuant to this
Agreement shall not be deemed to be exclusive, and you may render
similar services and act as an underwriter, distributor or dealer
for other investment companies in the offering of their shares.
15. Term of Agreement. This Agreement shall become effective
on the date of its execution, and shall remain in effect for a
period of two (2) years. The Agreement is renewable annually
thereafter with respect to the Fund for successive periods not to
exceed one year (i) by a vote of a majority of the outstanding
voting securities of the Fund or by a vote of the Board of
Directors of the Fund, and (ii) by a vote of a majority of the
Directors of the Fund who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as
Directors of the Fund), cast in person at a meeting called for the
purpose of voting on the Agreement.
This Agreement may at any time be terminated by the Fund
without the payment of any penalty, (i) either by vote of the Board
of Directors of the Fund or by vote of a majority of the
outstanding voting securities of the Fund, on 60 days' written
notice to you; or (ii) by you on 60 days' written notice to the
Fund; and shall immediately terminate with respect to the Fund in
the event of its assignment.
16. Suspension of Sales. We reserve the right at all times
to suspend or limit the public offering of the Shares of the Fund
upon two days' written notice to you.
17. Miscellaneous. This Agreement shall be subject to the
laws of the State of California and shall be interpreted and
construed to further promote the operation of the Fund as an open-
end investment company. As used herein the terms "Net Asset
Value", "Offering Price", "Investment Company", "Open-End
Investment Company", "Assignment", "Principal Underwriter",
"Interested Person", "Parents", "Affiliated Person", and "Majority
of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and Regulations
thereunder.
If the foregoing meets with your approval, please acknowledge your
acceptance by signing each of the enclosed copies, whereupon this
will become a binding agreement as of the date set forth below.
Very truly yours,
TEMPLETON GROWTH FUND, INC
By:
Accepted:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
DATED: June 1, 1993
Exhibit 10.5
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of October, 1992,
between TEMPLETON GROWTH FUND, INC., a corporation organized under
the laws of the State of Maryland (hereinafter referred to as the
"Fund"), and TEMPLETON, GALBRAITH & HANSBERGER LTD. (hereinafter
referred to as the "Investment Manager").
In consideration of the mutual agreements herein made,
the Fund and the Investment Manager understand and agree as
follows:
(1) The Investment Manager agrees, during the life of
this Agreement, to furnish the Fund with investment research and
advice and continuously to furnish the Fund with an investment
program for the assets of the Fund consistent with the provisions
of the Articles of Incorporation of the Fund and the investment
policies adopted and declared by the Fund's Board of Directors. It
is understood that all acts of the Investment Manager in performing
this Agreement are performed by it outside the United States.
(2) The Investment Manager is not required to furnish
any personnel, overhead items or facilities for the Fund, including
trading desk facilities or daily pricing of the Fund's portfolio.
(3) The Investment Manager shall be responsible for
selecting members of securities exchanges, brokers and dealers
(such members, brokers and dealers being hereinafter referred to as
"brokers") for the execution of the Fund's portfolio transactions
consistent with the Fund's brokerage policy and, when applicable,
the negotiation of commissions in connection therewith.
All decisions and placements shall be made in accordance
with the following principles:
(A) Purchase and sale orders will usually be
placed with brokers which are selected by the Investment
Manager as able to achieve "best execution" of such
orders. "Best execution" shall mean prompt and reliable
execution at the most favorable securities price, taking
into account the other provisions hereinafter set forth.
The determination of what may constitute best execution
and price in the execution of a securities transaction by
a broker involves a number of considerations, including,
without limitation, the overall direct net economic
result to the Fund (involving both price paid or received
and any commissions and other costs paid), the
efficiency with which the transaction is executed, the
ability to effect the transaction at all where a large
block is involved, availability of the broker to stand
ready to execute possibly difficult transactions in the
future, and the financial strength and stability of the
broker. Such considerations are judgmental and are
weighed by the Investment Manager in determining the
overall reasonableness of brokerage commissions.
(B) In selecting brokers for portfolio
transactions, the Investment Manager shall take into
account its past experience as to brokers qualified to
achieve "best execution", including brokers who
specialize in any foreign securities held by the Fund.
(C) The Investment Manager is authorized to
allocate brokerage business to brokers who have provided
brokerage and research services, as such services are
defined in Section 28(e) of the Securities Exchange Act
of 1934 (the "1934 Act") for the Fund and/or other
accounts, if any, for which the Investment Manager
exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions for
which fixed minimum commission rates are not applicable,
to cause the Fund to pay a commission for effecting a
securities transaction in excess of the amount another
broker would have charged for effecting that transaction,
if the Investment Manager determines in good faith that
such amount of commission is reasonable in relation to
the value of the brokerage and research services provided
by such broker, viewed in terms of either that particular
transaction or the Investment Manager's overall
responsibilities with respect to the Fund and the other
accounts, if any, as to which it exercises investment
discretion. In reaching such determination, the
Investment Manager will not be required to place or
attempt to place a specific dollar value on the research
or execution services of a broker or on the portion of
any commission reflecting either of said services. In
demonstrating that such determinations were made in good
faith, the Investment Manager shall be prepared to show
that all commissions were allocated and paid for purposes
contemplated by the Fund's brokerage policy; that the
research services provide lawful and appropriate
assistance to the Investment Manager in the performance
of its investment decision-making responsibilities, and
that the commissions were within a reasonable range.
Whether commissions were within a reasonable range shall
be based on any available information as to the level of
commission known to be charged by other brokers on
comparable transactions, but there shall be taken into
account the Fund's policies that (i) obtaining a low
commission is deemed secondary to obtaining a favorable
securities price, since it is recognized that usually it
is more beneficial to the Fund to obtain a favorable
price than to pay the lowest commission; and (ii) the
quality, comprehensiveness, and frequency of research
studies which are provided for the Investment Manager are
useful to the Investment Manager in performing its
advisory services under its Agreement. Research services
provided by brokers to the Investment Manager are
considered to be in addition to, and not in lieu of,
services required to be performed by the Investment
Manager under this Agreement. Research furnished by
brokers through which the Fund effects securities
transactions may be used by the Investment Manager for
any of its accounts, and not all such research may be
used by the Investment Manager for the Fund. When
execution of portfolio transactions is allocated to
brokers trading on exchanges with fixed brokerage
commission rates, account may be taken of various
services provided by the broker.
(D) Purchases and sales of portfolio
securities within the United States other than on a
securities exchange shall be executed with primary market
makers acting as principal, except where, in the judgment
of the Investment Manager, better prices and execution
may be obtained on a commission basis or from other
sources.
(E) Sales of Fund Shares (which shall be
deemed to include also Shares of other registered
investment companies which have either the same adviser
or an investment adviser affiliated with the Fund's
Investment Manager) by a broker are one factor among
others to be taken into account in deciding to allocate
portfolio transactions (including agency transactions,
principal transactions, purchases in underwritings or
tenders in response to tender offers) for the account of
the Fund to that broker; provided that the broker shall
furnish "best execution," as defined in subparagraph A
above, and that such allocation shall be within the scope
of the Fund's policies as stated above; provided further,
that in every allocation made to a broker in which the
sale of Fund Shares is taken into account, there shall be
no increase in the amount of the commissions or other
compensation paid to such broker beyond a reasonable
commission or other compensation determined, as set forth
in subparagraph C above, on the basis of best execution
alone or best execution plus research services, without
taking account of or placing any value upon such sale of
Fund's Shares.
(4) The Fund agrees to pay to the Investment Manager as
compensation for such services a monthly fee equal on an annual
basis to 0.75% of the first $200,000,000 of the average daily net
assets of the Fund during the month preceding each payment, reduced
to a fee equal on an annual basis to 0.675% of such average net
assets in excess of $200,000,000 up to $1,300,000,000 and further
reduced to a fee equal on an annual basis of 0.60% of such net
assets in excess of $1,300,000,000.
Notwithstanding the foregoing, if the total expenses of
the Fund (including the fee to the Investment Manager) in any
fiscal year of the Fund exceed any expense limitation imposed by
applicable State law, the Investment Manager shall reimburse the
Fund for such excess in the manner and to the extent required by
applicable State law. The term "total expenses," as used in this
paragraph, does not include interest, taxes, litigation expenses,
distribution expenses, brokerage commissions or other costs of
acquiring or disposing of any of the Fund's portfolio securities or
any costs or expenses incurred or arising other than in the
ordinary and necessary course of the Fund's business. When the
accrued amount of such expenses exceeds this limit, the monthly
payment of the Investment Manager's fee will be reduced by the
amount of such excess, subject to adjustment month by month during
the balance of the Fund's fiscal year if accrued expenses
thereafter fall below the limit.
(5) This Agreement shall become effective on October 30,
1992 and shall continue in effect until December 31, 1993. If not
sooner terminated, this Agreement shall continue in effect for
successive periods of 12 months each thereafter, provided that each
such continuance shall be specifically approved annually by the
vote of a majority of the Fund's Board of Directors who are not
parties to this Agreement or "interested persons" (as defined in
Investment Company Act of 1940 (the "1940 Act")) of any such party,
cast in person at a meeting called for the purpose of voting on
such approval and either the vote of (a) a majority of the
outstanding voting securities of the Fund, as defined in the 1940
Act, or (b) a majority of the Fund's Board of Directors as a whole.
(6) Notwithstanding the foregoing, this Agreement may be
terminated by either party at any time, without the payment of any
penalty, on sixty (60) days' written notice to the other party,
provided that termination by the Fund is approved by vote of a
majority of the Fund's Board of Directors in office at the time or
by vote of a majority of the outstanding voting securities of the
Fund (as defined by the 1940 Act).
(7) This Agreement will terminate automatically and
immediately in the event of its assignment (as defined in the 1940
Act).
(8) In the event this Agreement is terminated and the
Investment Manager no longer acts as Investment Manager to the
Fund, the Investment Manager reserves the right to withdraw from
the Fund the use of the name "Templeton" or any name misleadingly
implying a continuing relationship between the Fund and the
Investment Manager or any of its affiliates.
(9) Except as may otherwise be provided by the 1940 Act,
neither the Investment Manager nor its officers, directors,
employees or agents shall be subject to any liability for any error
of judgment, mistake of law, or any loss arising out of any
investment or other act or omission in the performance by the
Investment Manager of its duties under the Agreement or for any
loss or damage resulting from the imposition by any government of
exchange control restrictions which might affect the liquidity of
the Fund's assets, or from acts or omissions of custodians, or
securities depositories, or from any war or political act of any
foreign government to which such assets might be exposed, or for
failure, on the part of the custodian or otherwise, timely to
collect payments, except for any liability, loss or damage
resulting from willful misfeasance, bad faith or gross negligence
on the Investment Manager's part or by reason of reckless disregard
of the Investment Manager's duties under this Agreement. It is
hereby understood and acknowledged by the Fund that the value of
the investments made for the Fund may increase as well as decrease
and are not guaranteed by the Investment Manager. It is further
understood and acknowledged by the Fund that investment decisions
made on behalf of the Fund by the Investment Manager are subject to
a variety of factors which may affect the values and income
generated by the Fund's portfolio securities, including general
economic conditions, market factors and currency exchange rates,
and that investment decisions made by the Investment Manager will
not always be profitable or prove to have been correct.
(10) It is understood that the services of the Investment
Manager are not deemed to be exclusive, and nothing in this
Agreement shall prevent the Investment Manager, or any affiliate
thereof, from providing similar services to other investment
companies and other clients, including clients which may invest in
the same types of securities as the Fund, or, in providing such
services, from using information furnished by others. When the
Investment Manager determines to buy or sell the same security for
the Fund that the Investment Manager or one or more of its
affiliates has selected for clients of the Investment Manager or
its affiliates, the orders for all such security transactions shall
be placed for execution by methods determined by the Investment
Manager, with approval by the Fund's Board of Directors, to be
impartial and fair.
(11) This Agreement shall be construed in accordance with
the laws of the State of Maryland, provided that nothing herein
shall be construed as being inconsistent with applicable Federal
and state securities laws and any rules, regulations and orders
thereunder.
(12) If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby and, to
this extent, the provisions of this Agreement shall be deemed to be
severable.
(13) Nothing herein shall be construed as constituting
the Investment Manager an agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers and
their respective corporate seals to be hereunto duly affixed and
attested.
TEMPLETON GROWTH FUND, INC.
By:
Daniel Calabria
Vice President
ATTEST:
Thomas M. Mistele
Secretary
TEMPLETON, GALBRAITH & HANSBERGER LTD.
By:
Thomas L. Hansberger
President
ATTEST:
Gregory E. McGowan
Secretary
December 3, 1993
Exhibit 18
Franklin Resources, Inc.
777 Mariners Island Blvd
San Mateo, CA 94404
We are providing this letter to you for inclusion as an exhibit to
your Form 10-K filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change from an
unclassified balance sheet to a classified balance sheet and the
related change in items included in Cash and Cash Equivalents in
the financial statements contained in the Company's Form 10-K for
the year ended September 30, 1993. Based on our reading of the
data and discussions with Company officials of the business
judgment and business planning factors relating to the changes, we
believe management's justifications to be reasonable. Accordingly,
we concur that the newly adopted accounting principles described
above are preferable in the Company's circumstances to the methods
previously applied.
Very truly yours,
/s/ Coopers & Lybrand
Coopers & Lybrand
EXHIBIT 21
<TABLE>
<CAPTION>
FRANKLIN RESOURCES, INC.
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1993
LIST OF PRINCIPAL SUBSIDIARIES*
Name State or
Nation
of
Incorporation
<S> <S>
Franklin/Templeton Investor Services, Inc California
Franklin Agency, Inc. California
Franklin Asset Management Systems California
Franklin Management, Inc. California
Franklin/Templeton Distributors, Inc. New York
Franklin Energy Corporation California
FS Capital Group California
Franklin Trust Company California
Franklin Advisers, Inc. California
Franklin Properties, Inc. California
Continental Property Management Company California
Franklin Real Estate Management, Inc. California
FS Properties Inc California
Property Resources, Inc. California
Franklin Bank California
ILA Financial Services, Inc. Arizona
Franklin Partners, Inc. California
Franklin Institutional Services Corporation California
Franklin Capital Corporation Utah
Templeton Worldwide, Inc. Delaware
Templeton Global Investors, Inc. Delaware
Templeton International, Inc Delaware
Templeton Quantitative Advisors, Inc. Delaware
Templeton/Franklin Investment Services, Inc. Delaware
Templeton Funds Management, Inc. Florida
Templeton Investment Counsel, Inc. Florida
Templeton Management Limited Canada
Templeton Heritage Limited Canada
Templeton Funds Trust Company Florida
Templeton Funds Annuity Company Florida
Templeton Investment Management (Hong Kong)
Limited Hong Kong
Templeton Investment Management (Singapore)
Pte. Ltd. Singapore
Templeton Investment Management (Australia)
Limited Australia
Templeton Global Strategic Services Germany
(Deutschland) GmbH
Templeton Global Investors Limited England
Templeton Investment Management Limited England
Templeton Unit Trust Managers Limited England
Templeton Global Strategic Services S.A. Luxembourg
Templeton Management (Lux) S.A. Luxembourg
T.G.H. Holdings Ltd. Bahamas
Templeton, Galbraith & Hansberger Ltd. Bahamas
*All subsidiaries currently do business only under their corporate
name except for Templeton Quantitative Advisors, Inc. which also
operates under the assumed name The DAIS Group; Templeton
Investment Counsel, Inc. which also operates under the name
Templeton Global Managers; and Templeton/Franklin Investment
Services, Inc which also operates under the assumed name Templeton
Portfolio Advisory. All Templeton subsidiaries also on occasion use
the name Templeton Worldwide.
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement of Franklin Resources, Inc. on Form S-8 for the 1988
Restricted Stock Plan and Form S-8 for the Canada Stock Option Plan
of our report dated December 3, 1993, on our audits of the
consolidated financial statements and financial statement schedules
of Franklin Resources, Inc. as of September 30, 1993 and 1992, and
for the years ended September 30, 1993, 1992, and 1991, which
report is included in this Annual Report on Form 10-K.
Coopers & Lybrand
/s/ Coopers & Lybrand
San Francisco, California
December 17, 1993
Exhibit 99(i)
Board of Directors
Franklin/Templeton Investor Services, Inc.:
In planning and performing our audit of the consolidated financial
statements of Franklin Resources, Inc. (FRI) for the year ended
September 30, 1993, we have considered the internal control
structure, including what we considered relevant to the criteria
established by the Securities and Exchange Commission as set forth
in Rule 17ad-13 (a) (3) of the Securities Exchange Act of 1934, of
San Mateo, California operations of Franklin/Templeton Investor
Services, Inc. (the Company), the mutual fund transfer and
shareholder servicing subsidiary of FRI, in order to determine our
auditing procedures for the purpose of expressing our opinion on
the consolidated financial statements and not to provide assurance
on the internal control structure. The study of the internal
accounting and administrative procedures of the Florida operations
of the Company was performed by other auditors, who issued their
separate report thereon.
Under Rule 17ad-13(a)(3), the objectives of a transfer agent's
system of internal accounting control for the transfer of record
ownership and the safeguarding of related securities and funds
should be to provide reasonable, but not absolute, assurance that
securities and funds are safeguarded against loss from unauthorized
use or disposition and that transfer agent activities are performed
promptly and accurately. The Rule defines a material inadequacy as
a condition wherein the prescribed procedures or the degree of
compliance with them do not reduce to a relatively low level the
risk that errors or irregularities, in amounts that would have a
significant adverse effect on the transfer agent's ability promptly
and accurately to transfer record ownership and safeguard related
securities and funds, would occur or not be detected within a
timely period by employees in the normal course of performing their
assigned functions. Occurrence of errors or irregularities more
frequently than in isolated instances may be evidence that the
system has a material inadequacy. A significant adverse effect on
a transfer agent's ability promptly and accurately to transfer
record ownership and safeguard related securities and funds could
result from any condition or conditions that individually, or taken
as a whole, would reasonably be expected to (1) inhibit the
transfer agent from promptly and accurately discharging its
responsibilities under its contractual agreement with the issuer;
(2) result in material financial loss to the transfer agent; or (3)
result in a violation of regulations set forth in Rule 17ad-13(a)
(3) (iii).
The management of the Company is responsible for establishing and
maintaining an internal control structure and the practices and
procedures referred to in the preceding paragraph. In fulfilling
this responsibility, estimates and judgments by management are
required to assess the expected benefits and related costs of
internal control structure policies and procedures and of the
practices and procedures referred to in the preceding
Board of Directors December 3, 1993
Franklin/Templeton Investors Services, Inc.: Page 2
paragraph and to assess whether those practices and procedures can
be expected to achieve the Commission's above mentioned objectives.
Two of the objectives of an internal control structure and the
practices and procedures are to provide management with reasonable,
but not absolute, assurance that assets for which the Company has
responsibility are safeguarded against loss from unauthorized use
or disposition and that transactions are executed in accordance
with management's authorization and recorded properly to permit the
preparation of financial statements in conformity with generally
accepted accounting principles. Rule 17ad-13(a)(3) lists
additional objectives of the practices and procedures listed in the
preceding paragraph.
Because of inherent limitations in any internal accounting control
procedures or the practices and procedures referred to above,
errors or irregularities may occur and not be detected. Also,
projection of any evaluation of them to future periods is subject
to the risk that they may become inadequate because of changes in
conditions or that the effectiveness of their design may
deteriorate.
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control structure
that might be material weaknesses under standards established by
the American Institute of Certified Public Accounts. A material
weakness is a condition in which the design or operation of the
specific internal control structure elements does not reduce to a
relatively low level the risk that errors or irregularities in
amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their
assigned functions. However, we noted no matters involving the
internal control structure including procedures for safeguarding
securities, that we consider to be material weaknesses as defined
above.
We understand that practices and procedures that accomplish the
objectives referred to in the second paragraph of this report are
considered by the Commission to be adequate for its purposes in
accordance with the Securities Exchange Act of 1934 and related
regulations, and that practices and procedures that do not
accomplish such objectives in all material respects indicate a
material inadequacy for such purposes. Based on this understanding
and on our study, we believe that the Company's San Mateo,
California practices and procedures were adequate at September 30,
1993, to meet the Commission's objectives.
This report is intended solely for the use of management, the
Securities and Exchange Commission, the New York Stock Exchange and
other regulatory agencies which rely on Rule 17ad-13(a)(3) under
the Securities Exchange Act of 1934, and should not be used for any
other purpose.
Coopers & Lybrand
/s/ Coopers & Lybrand
San Francisco, California
December 3, 1993
Exhibit 99(ii)
To the Board of Directors
Franklin/Templeton Investor Services, Inc.
St. Petersburg, FL
We have made a study and evaluation of the internal control
structure over the TITAN Mutual Fund Shareholder System and Related
Shareholder Servicing Functions of Franklin/Templeton Investor
Services, Inc. located in St. Petersburg, FL (the "Service Center")
in effect as of September 17, 1993. Our study and evaluation was
made in accordance with standards established by the American
Institute of Certified Public Accountants using the criteria
established by the Securities and Exchange Commission as set forth
in Rule 17 AD-13(a)(3) of the Securities Exchange Act of 1934.
Under the aforementioned Rule, a transfer agent's internal control
structure for the transfer of record ownership and the safeguarding
of related securities and funds should provide reasonable, but not
absolute, assurance that securities and funds are safeguarded
against loss from unauthorized use or disposition and that transfer
agent activities are performed promptly and accurately. The Rule
defines a material inadequacy as a condition wherein the prescribed
procedures or the degree of compliance with them do not reduce to a
relatively low level the risk that errors or irregularities, in
amounts that would have a significant adverse effect on the
transfer agent's ability to promptly and accurately transfer record
ownership and safeguard related securities and funds, would occur
and not be detected within a timely period by employees in the
normal course of performing their assigned functions. Occurrence
of errors or irregularities more frequently than in isolated
instances may be evidence that the system has a material
inadequacy. A significant adverse effect on a transfer agent's
ability to properly and accurately transfer record ownership and
safeguard related securities and funds could result from any
condition or conditions that individually, or taken as a whole,
would reasonably be expected to (1) inhibit the transfer agent from
promptly and accurately discharging its responsibilities under its
contractual agreement with the issuer; (2) result in material
financial loss to the transfer agent; or (3) result in a violation
of regulations set forth in Rule 17 AD-13(a)(3)(iii).
The management of the Service Center is responsible for
establishing and maintaining an internal control structure and the
practices and procedures referred to in the preceding paragraph.
In fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and related
costs of control procedures. The objectives of such a system are
to provide management with reasonable, but not absolute, assurance
that assets for which the Service Center has responsibility are
safeguarded against loss from unauthorized use or disposition and
that transactions are executed in accordance with management's
authorization and in accordance with governing instruments and are
recorded properly to permit the preparation of reliable financial
data.
Because of inherent limitations in any internal control structure
or the practices and procedures referred to above, errors or
irregularities may nevertheless occur and not be detected. Also,
projection of any evaluation of them to future periods is subject
to the risk that they may become inadequate because of changes in
conditions or that the degree of compliance with them may
deteriorate.
Page 2
In our opinion, the internal control structure of the Service
Center that existed as of September 17, 1993, taken as a whole, was
sufficient to meet the objectives stated above insofar as those
objectives pertain to the prevention or detection of a condition
that would be material in relation to the financial statements of
Franklin/Templeton Investor Services, Inc.
In addition, we understand that practices and procedures that
accomplish the objectives referred to in the second paragraph of
this report are considered by the Commission to be adequate for its
purposes in accordance in the Securities Exchange Act of 1934 and
related regulations, and that practices and procedures that do not
accomplish such objectives in all material respects indicate a
material inadequacy for such purposes. Based on this understanding
and on our study, we believe that the Company's practices and
procedures were adequate as of September 17, 1993, to meet the
Commission's objectives.
This report is intended solely for the use of management and the
Securities and Exchange Commission and should not be used for any
other purpose
McGladrey & Pullen
/s/ McGladrey & Pullen
New York, New York
September 17, 1993
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
FRANKLIN RESOURCES, INC.
Date: December 8, 1993 By /s/ Charles B. Johnson
Charles B. Johnson, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated:
Date: December 8, 1993 By /s/ Charles B. Johnson
Charles B. Johnson, Principal Executive Officer and Director
Date: December 8, 1993 By /s/ Harmon E. Burns
Harmon E. Burns, Executive Vice President
Legal and Administrative, Secretary and Director
Date: December 8, 1993 By /s/ Martin L. Flanagan
Martin L. Flanagan, Treasurer and Chief Financial
Officer
Date: December 8, 1993 By /s/ Philip A. Scatena
Philip A. Scatena, Controller
Date: December 8, 1993 By /s/ Judson R. Grosvenor
Judson R. Grosvenor, Director
Date: December 8, 1993 By /s/ F. Warren Hellman
F. Warren Hellman, Director
Date: December 8, 1993 By /s/ Rupert H. Johnson
Rupert H. Johnson, Jr., Director
Date: December 8, 1993 By /s/ Harry O. Kline
Harry O. Kline, Director
Date: December 8, 1993 By /s/ Louis E. Woodworth
Louis E. Woodworth, Director
Date: December 8, 1993 By /s/ Peter M. Sacerdote
Peter M. Sacerdote, Director
GRAPHICAL APPENDIX
PURSUANT TO REGULATION S-T 232.304
1. HORIZONTAL BAR GRAPH OF REVENUES SHOWING INVESTMENT MANAGEMENT
FEES HAS BEEN OMITTED FROM THE MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN ITEM 7. ABOVE.
IDENTICAL INFORMATION IS CONTAINED IN THE NARRATIVE DESCRIPTION
SURROUNDING SUCH BAR GRAPH AND IN THE CONSOLIDATING STATEMENTS OF
INCOME.
2. HORIZONTAL BAR GRAPH OF REVENUES SHOWING UNDERWRITING
COMMISSIONS HAS BEEN OMITTED FROM THE MANAGEMENT DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN ITEM
7. ABOVE. IDENTICAL INFORMATION IS CONTAINED IN THE NARRATIVE
DESCRIPTION SURROUNDING SUCH BAR GRAPH AND IN THE CONSOLIDATING
STATEMENTS OF INCOME
3. HORIZONTAL BAR GRAPH OF REVENUES SHOWING TRANSFER, TRUST AND
RELATED FEES HAS BEEN OMITTED FROM THE MANAGEMENT DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN ITEM
7. ABOVE. IDENTICAL INFORMATION IS CONTAINED IN THE NARRATIVE
DESCRIPTION SURROUNDING SUCH BAR GRAPH AND IN THE CONSOLIDATING
STATEMENTS OF INCOME.
