UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1996
OR
[ ]
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9318
FRANKLIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2670991
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (415 312-2000)
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 STOCK EXCHANGE
COMMON STOCK, PAR VALUE $.10 PER SHARE PACIFIC STOCK EXCHANGE
COMMON STOCK, PAR VALUE $.10 PER SHARE LONDON STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
(Title of class)
(Title of class)
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 registrant's 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 the closing price of $64.750 on December 13, 1996 on the
New York Stock Exchange was $2,684,730,286. Calculation of holdings by
non-affiliates is based upon the assumption, for these purposes only, that
officers, directors, nominees, Registrant's Profit Sharing Plan and persons
holding 5% or more of Registrant's Common Stock are affiliates. Number of shares
of the registrant's common stock outstanding at December 13, 1996: 83,739,711.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant's proxy statement for its Annual Meeting
of Stockholders to be held January 23, 1997, which will be filed with the
Commission before, on or subsequent to the date hereof, are incorporated by
reference into Part III of this report.
PART I
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, 1996, the Company
employed approximately 4,960 employees on a worldwide basis, 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 Templeton acquisition (the "Templeton 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. 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 Templeton Acquisition.
Subsequent to the Templeton Acquisition, the Company has operated the Franklin
and Templeton businesses on a unified basis.
In November 1993, the Company consummated an agreement to manage and advise the
Huntington Funds of Pasadena, California, now called the Franklin Templeton
Global Trust. This open-end investment company of several currency portfolio
series includes the Franklin Templeton Global Currency Fund, the Franklin
Templeton Hard Currency Fund and the Franklin Templeton High Income Currency
Fund, which invests in high quality foreign equivalent money market instruments
in various global currencies, as well as the Franklin Templeton German
Government Bond Fund, which invests in German government bonds and equivalents.
In November 1996, after the close of the fiscal year, the Company and its
wholly-owned subsidiary, Franklin Mutual Advisers, Inc. ("FMAI") acquired (the
"Mutual Acquisition") certain assets and liabilities of Heine Securities
Corporation ("Heine"). FMAI became the investment adviser to Heine's principal
client, Mutual Series Fund Inc., an open-end investment company with five (5)
series funds ("Mutual Series").
The base purchase price consisted of a $400 million cash payment, the delivery
of 1.1 million shares (the "Shares") of the Company's Common Stock and the
deposit into escrow of $150 million to be invested in shares of Mutual Series.,
which shares will be released over a five year period, with a minimum $100
million retention for the full five year period. In addition to the base
purchase price, the transaction included a contingent payment ranging from
$96.25 million to $192.5 million if certain agreed upon growth targets are met
over the next five years.
For a two-year period following the closing of the Mutual Acquisition, Heine and
its chief executive officer, Michael F. Price must limit their ownership of the
Company's common stock to no more than 4.9% and have also agreed to certain
limitations on the transferability of the Shares. In addition, the Shares must
be voted in accordance with the recommendations of the Company's Board of
Directors. The Company has also granted certain registration rights with respect
to the Shares. Mr. Price and five senior executives of Heine entered into
employment agreements assumed by FMAI upon the consummation of the transaction.
The purchase price paid at the closing, which took place effective as of
November 1, 1996, was funded through a combination of the Company's available
cash, securities and the sale of commercial paper.
The description of the Company's business does not include matters relating to
the Mutual Acquisition which occurred after the close of the fiscal year.
FRI is principally a parent company primarily engaged, through various
subsidiaries, in providing investment management, marketing, distribution,
transfer agency and administrative services to the open-end investment companies
of the Franklin Templeton Group of Funds and to domestic and international
managed and institutional accounts. The Company also provides investment
management and related services to a number of Franklin and Templeton closed-end
investment companies whose shares are traded on various major domestic and some
international 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 marketplaces 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("R") consists of
thirty-five (35) open-end investment companies (mutual funds) with multiple
portfolios. The Templeton Family of Funds includes fourteen (14) open-end
investment companies (mutual funds) with multiple portfolios.
The Franklin Group of Funds and the Templeton Family 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, individually as a "Fund" and collectively as the
"Franklin and Templeton funds" or the "Funds". The closed-end investment
companies, the foreign based funds and the other domestic and international
managed and institutional accounts are collectively referred to as the "Other
Assets". The Franklin and Templeton funds along with the Other Assets are
collectively referred to as the "Franklin Templeton Group".
As of September 30, 1996, (which excludes assets under management after the
close of the fiscal year resulting from the Mutual Acquisition) total assets
under management in the Franklin Templeton Group were $151.6 billion, the
make-up of which was approximately as follows: for the open-end investment
companies in the Franklin Group of Funds (excluding variable annuities), $73.5
billion; for the open-end investment companies in the Templeton Family of Funds
(excluding variable annuities), $41.7 billion; for all the Other Assets
(including variable annuities), $36.4 billion. This makes the Franklin Templeton
Group one of the largest investment management complexes in the United States.
The mix of assets under management by a large financial services complex such as
the Franklin Templeton Group can be segregated by type of assets, type of
investment vehicle, type of investor or geographic location of assets held.
International and domestic equity assets under management, whether held for
growth potential, income potential or various combinations thereof by all types
of investors, including institutional and separate accounts on a worldwide
basis, were approximately $86.7 billion at September 30, 1996 and represent
approximately 57% of total assets under management. Fixed-income assets (both
long and short-term), including money market fund assets, held by all types of
investors on a worldwide basis were approximately $64.9 billion and represented
43% of total assets under management at fiscal year end. Equity growth and
equity income assets in funds primarily sold to non institutional investors were
$66.4 billion and represented 44% of total assets under management at fiscal
year end. A significant portion of these equity assets ($47.2 billion) held in
funds sold primarily to non institutional investors were in global and
international equity funds. Assets under management for institutional accounts,
whether in institutional mutual funds, separate accounts or other types of
investment products, were approximately $21.3 billion or 14% of total assets
under management at fiscal year end and were primarily invested in global and
international equities. Assets under management by U.S. based closed-end funds
were $4.2 billion at September 30, 1996.
The Company, through certain subsidiaries, also provides advisory services,
variable annuity products, and sponsors and manages public and private real
estate programs. Other subsidiaries offer consumer banking services, insured
deposits, dealer auto loans, and credit cards. The Company also provides
custodial, trustee and fiduciary services to IRA and profit sharing or money
purchase plans and to qualified retirement plans and private trusts. From time
to time, the Company also participates in various investment management joint
ventures. 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 for the Franklin and Templeton
funds and for the Other Assets. This business is primarily conducted through the
principal wholly-owned direct and indirect subsidiary companies described below.
Revenues are generated primarily by subsidiaries that provide advisory and
management services. Revenues are derived primarily from investment management
fees calculated on a sliding scale fund-by-fund basis in relation to fund assets
under management.
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 advisor 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 approximately $81.3 billion, representing approximately
54% of the Company's total assets under management, and generates approximately
25% of total Company revenues.
FRANKLIN ADVISORY SERVICES, INC.
Franklin Advisory Services, Inc. ("FASI") is a Delaware corporation formed in
1996 and is based in Fort Lee, New Jersey. FASI is registered as an investment
advisor with the SEC under the Advisers Act and is also registered as an
investment advisor in the State of New Jersey. FASI provides investment advisory
and portfolio management services under management agreements with certain funds
in the Franklin Group of Funds.
TEMPLETON GLOBAL ADVISORS LIMITED.
Templeton Global Advisors Limited "TGAL" is a Bahamian corporation located in
Nassau, Bahamas formed in connection with the Templeton Acquisition and is the
successor company to Old TGH. TGAL is registered as an investment advisor with
the SEC under the Advisers Act. TGAL provides investment advisory, portfolio
management and administrative services under various agreements with certain of
the Templeton funds and Other Assets. TGAL is the principal investment advisor
to the Templeton funds and manages approximately $34.8 billion, representing
approximately 23% of the Company's total assets under management.
FRANKLIN INVESTMENT ADVISORY SERVICES, INC.
Franklin Investment Advisory Services, Inc. ("FIASI") is a Delaware corporation
formed in 1996 and is based in Norwalk, Connecticut. FIASI is registered as an
investment advisor with the SEC under the Advisers Act.
FRANKLIN TEMPLETON SERVICES, INC.
Franklin Templeton Services, Inc. ("FTSI") is a Delaware corporation formed in
1996 and is based in San Mateo, California. FTSI provides business management
services, including fund accounting, securities pricing, trading, compliance and
other related administrative activities under various management agreements to
certain of the Franklin and Templeton funds.
TEMPLETON INVESTMENT COUNSEL, INC.
Templeton Investment Counsel, Inc. ("TICI") is a Florida corporation formed in
October, 1979, based in Ft. Lauderdale, Florida TICI is the principal investment
advisor to managed and institutional 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. TICI manages
approximately $13.9 billion, representing 9% of the Company's total assets under
management.
TEMPLETON ASSET MANAGEMENT LTD.
Templeton Asset Management Ltd. ("Templeton Singapore") is a corporation
organized under the laws of and based in Singapore. It is registered as the
foreign equivalent of an investment advisor in Singapore with the Monetary
Authority of Singapore and is also registered with the SEC under the Advisers
Act. A representative office of Templeton Singapore is registered as the foreign
equivalent of an investment advisor in Hong Kong. Templeton Singapore provides
investment advisory and related services to certain Templeton funds and
portfolios. Templeton Singapore is principally an investment advisor to emerging
market equity portfolios.
TEMPLETON/FRANKLIN INVESTMENT SERVICES (ASIA) LIMITED
Templeton/Franklin Investment Services (Asia) Limited is a corporation organized
under the laws of, and is based in, Hong Kong. It was formed in late 1993 to
distribute and service the Company's financial products in Asia.
TEMPLETON MANAGEMENT LIMITED
Templeton Management Limited is a Canadian corporation formed in October 1982,
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. It is registered with the SEC as a broker-dealer and as an
investment advisor and is a member of the National Association of Securities
Dealers, Inc. (the "NASD"). As the underwriter of the shares of most of the
Franklin and Templeton funds, it earns underwriting commissions on the
distribution of shares of the Funds.
TEMPLETON/FRANKLIN INVESTMENT SERVICES, INC.
Templeton/Franklin Investment Services, Inc. ("TFIS") is a Delaware corporation
formed in October 1987 and is registered with the SEC as a broker-dealer and an
investment advisor. Its principal business activities include: (i) through its
Templeton Portfolio Advisory division, serving as a sponsor of a comprehensive
fee (wrap account) program, in which it provides investment advisory and
broker-dealer services, as well as serving as investment adviser in other
broker-dealer wrap account programs and directly as an adviser for separate
accounts; and (ii) serving as a direct marketing broker-dealer for institutional
investors in Franklin Templeton Funds.
FRANKLIN/TEMPLETON INVESTOR SERVICES, INC.
Franklin/Templeton Investor Services, Inc. ("FTIS") is a California corporation
formed in 1981 which provides shareholder record keeping services and acts as
transfer agent and dividend-paying agent for the Franklin and Templeton 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, DISTRIBUTION, RESEARCH AND RELATED
SUBSIDIARIES are organized and/or located in California, Florida, Australia, the
Bahamas, France, Germany, India, Italy, Luxembourg, and the United Kingdom, and
provide investment advisory and related services to other subsidiaries of the
Company and to various domestic and foreign portfolios and private and
institutional accounts. In addition, the Company, through various Templeton
subsidiaries, has opened or is in the process of opening branch offices or in
some instances forming subsidiaries in various other international locations,
including Argentina, Cyprus, Hungary, Japan, Mauritius, Russia, South Africa,
and Vietnam.
FRANKLIN TEMPLETON TRUST COMPANY
Franklin Templeton Trust Company ("FTTC"), a California corporation formed in
October 1983, is a trust company licensed by the California Superintendent of
Banks. FTTC serves primarily as custodian for Individual Retirement Accounts and
profit sharing or money purchase plans whose assets are invested in the Franklin
and Templeton funds, and as trustee or fiduciary of private trusts and
retirement plans.
TEMPLETON FUNDS TRUST COMPANY
Templeton Funds Trust Company ("TFTC"), a Florida corporation formed in
December, 1985, is a trust company licensed by the Florida Office of the
Comptroller. TFTC provides sub-administration services through Franklin
Templeton Trust Company to Individual Retirement Accounts and profit sharing or
money purchase whose assets are invested in the Templeton Family of Funds, and
serves as trustee of commingled trusts for qualified retirement plans.
FRANKLIN MANAGEMENT, INC.
Franklin Management, Inc. ("FMI"), a California corporation organized in
February 1978, is a registered investment advisor for private accounts. FMI also
provides advisory services to third party broker-dealer wrap fee programs.
FRANKLIN INSTITUTIONAL SERVICES CORPORATION
Franklin Institutional Services Corporation ("FISCO") is a California
corporation organized in August 1991. FISCO is a registered investment advisor
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 which offers variable annuity products. TFAC is principally
regulated by the Florida Department of Insurance and Treasurer.
TEMPLETON WORLDWIDE, INC.
Templeton Worldwide, Inc. is a Delaware corporation organized in July 1992 as
the parent holding company for all of the Templeton companies .
SUBSIDIARIES-OTHER FINANCIAL SERVICES
In addition to its principal business activity of providing investment
management and related services, during all or portions of the fiscal year, the
Company was also engaged in two (2) other lines of business in the financial
services marketplace conducted through the subsidiaries described below:
consumer lending services and the management of public and private real estate
programs.
Consumer Lending Services
FRANKLIN BANK (the "Bank"), a 98.2%-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 $152.3 million as of September 30, 1996, provides consumer banking
products and services such as credit cards, auto loans, 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.
FRANKLIN CAPITAL CORPORATION
Franklin Capital Corporation ("FCC") is a Utah corporation formed in June 1993
to expand the Company's auto lending activities. FCC conducts its business
primarily in the Western region of the United States and originates its loans
through a network of auto dealerships representing a wide variety of makes and
models. FCC offers several different loan programs to finance new and used
vehicles. FCC also acquires credit card receivables from the Bank. As of
September 30, 1996, FCC's total assets included $174.6 million of gross
automobile contracts and $70.4 million of gross credit card receivables.
Real Estate Subsidiaries
The Company's real estate related line of business is conducted primarily
through two (2) principal subsidiary corporations. Franklin Properties, Inc.
("FPI") is a real estate investment and management company organized in
California in April 1988, which managed three (3) publicly traded real estate
investment trusts, until May 7, 1996, at which time two of the real estate
investment trusts were merged into the third real estate investment trust, and
renamed Franklin Select Realty Trust, Inc. Franklin Select Realty Trust, Inc.
continues to be managed by FPI under an advisory agreement and is publicly
traded on the American Stock Exchange Property Resources, Inc. ("PRI"), a
California corporation organized in April 1967 and acquired by the Company in
December 1985, serves as general partner or advisor for certain other real
estate investment programs.
INVESTMENT MANAGEMENT
The Franklin Templeton Group accommodates a variety of investment objectives,
including, capital appreciation, growth and income, income, tax-free income and
stability of principal. In seeking to achieve such 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 international and domestic markets, some seek broad
national market exposure, while others focus on narrower sectors such as
precious metals, health care, emerging technology, mid-cap companies, small-cap
companies, real estate securities and utilities. Still others focus on
investments in particular emerging market countries and regions. A majority of
the assets managed are equity oriented.
In addition to closed-end funds, many of which are described below, the Other
Assets include portfolios managed for the world's largest corporations,
endowments, charitable foundations, pension funds, wealthy individuals 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.
During the fiscal year ended September 30, 1996, 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 and Templeton funds were generally sold at their
respective net asset value per share plus a sales charge, which varies depending
upon the type of share, 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 sales charges, 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
without the payment of additional sales charges.
As of September 30, 1996, the net asset holdings of the five largest funds in
the Franklin Templeton Group (some of which are investment companies and some of
which are series of other investment companies) were Franklin California
Tax-Free Income Fund, Inc. ($13.6 billion), Franklin U.S. Government Securities
Fund ($10.2 billion), Templeton Foreign Fund ($10.5 billion), Templeton Growth
Fund ($9.0 billion) and the Franklin Federal Tax-Free Income Fund ($7.1
billion). At September 30, 1996, these five mutual funds represented, in the
aggregate, 33% of all assets under management in the Franklin Templeton Group.
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 principal Funds or portfolios in the Franklin Templeton
Group separated into 21 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) Franklin Templeton International Currency
Funds
(x) Templeton Funds Seeking Preservation of
Capital and Income
(xi) Templeton Funds Seeking Capital Growth from
Global Portfolios
(xii) Templeton Funds Seeking Capital Growth from
Domestic Portfolios
(xiii)Templeton Funds Seeking High Current Income
from Global Portfolios
(xiv) Templeton Funds Seeking High Total Return from
Global Portfolios
(xv) Templeton Funds for Tax-Deferred Investments
(xvi) Templeton Contractual Plans
(xvii)Templeton SICAV Funds
(xviii)Templeton Canadian Funds
(xix) Templeton Closed-End Funds
(xx) Templeton Funds for Institutional Investors
(xxi) Representative Templeton International
Portfolios
(i) Franklin Funds Seeking Preservation of Capital and Income
Name of Fund Inception Principal
Date Investments/Strategy
Franklin California 9/3/85 Seeks double tax-free income
Tax-Exempt Money Fund (free from federal and state
personal income taxes) by
investing in short-term
California municipal securities.
Franklin Federal 5/13/80 Seeks high current income by
Money Fund investing in short-term
instruments backed by U.S.
government securities.
Franklin Money Fund 5/1/76 Seeks capital preservation, liquidity and
dividends by investing in short-term
securities (money market instruments).
Franklin New York 9/3/85 Seeks triple tax-free income
Tax-Exempt Money Fund (free from federal, N.Y. state
and N.Y. city taxes) by
investing in short-term New York
municipal securities.
Franklin Tax-Exempt 2/18/82 Seeks income free from federal
Money Fund taxes by investing in short-term
municipal securities.
Franklin Templeton 5/1/95 Seeks capital preservation,
Money Fund II liquidity and dividends, by
investing in short-term securities. Open only
to shareholders exchanging out of Class II
shares in other Franklin Templeton Funds.
(ii) Franklin Funds Seeking Current Income
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Adjustable 12/26/91 Seeks high current income and
Rate Securities Fund increased price stability by
investing in Double A rated mortgage-backed
securities: ARMS created by private issuers as
well as Ginnie Mae, Fannie Mae and Freddie
Mac.
Franklin Adjustable 10/20/87 Seeks income with lower
U.S. Government volatility of principal by
Securities Fund investing in government or
government agency guaranteed
adjustable rate mortgage-backed
securities.
Franklin Corporate 1/14/87 Seeks high after-tax income for
Qualified Dividend corporations by investing in
Fund preferred securities and by
maximizing the amount of
dividend income it receives that
qualifies for the
dividends-received deduction.
Franklin Global 3/15/88 Seeks high current income by
Government Income investing primarily in
Fund fixed-income securities issued
by both domestic and foreign
governments.
Franklin Investment 1/14/87 Seeks high current income by
Grade Income Fund investing in debt securities,
most of which will be intermediate term
investment grade issues and dividend paying
common and preferred stocks.
Franklin 4/15/87 Seeks income and relative
Short-Intermediate stability of principal by
U.S. Government investing in less volatile,
Securities Fund 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 Seeks high current income by
Advantaged U.S. investing in a portfolio limited
Government to securities that are
Securities Fund obligations of the U.S.
government, exempt from
non-resident alien taxation
(Ginnie Mae securities).
Designed for non-U.S. investors.
Franklin 5/4/87 Seeks high current income by
Tax-Advantaged High investing in high yield
Yield Securities Fund corporate bonds, exempt from
non-resident alien taxation.
Designed for non-U.S. investors.
Franklin 6/9/90 Seeks high current income by
Tax-Advantaged investing in qualifying debt
International Bond securities and foreign currency
Fund denominated debt securities of
non-U.S. issuers, not subject to
U.S. federal income tax or U.S.
tax withholding requirements.
Designed for non-U.S. investors.
Franklin Templeton 12/31/92 Seeks total return by investing
German Government in a managed portfolio of German
Bond Fund government bonds.
Franklin's AGE High 12/31/69 Seeks high current income by
Income Fund investing in high yielding lower
rated corporate bonds.
U.S. Government 5/31/70 Seeks high current income by
Securities Series (a investing in a portfolio limited
series of Franklin to securities that are
Custodian Funds, obligations of the U.S.
Inc.) government or its
instrumentalities (Ginnie Mae
securities).
(iii) Franklin Funds Seeking Tax-Free Income
Federal Tax-Free
Funds
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Federal 9/21/92 Seeks high current income by
Intermediate-Term investing in nationally
Tax-Free Income Fund diversified municipal bonds with
an average maturity of three to
ten years.
Franklin Federal 10/7/83 Seeks federal tax-free income by
Tax-Free Income Fund investing in nationally
diversified, investment quality municipal
bonds.
Franklin High Yield 3/18/86 Seeks federal tax-free income by
Tax-Free Income Fund investing in nationally
diversified, high yield, medium
and lower rated municipal bonds.
Franklin Insured 4/1/85 Seeks federal tax-free income by
Tax-Free Income Fund investing in nationally
diversified, insured municipal
bonds.
Franklin Puerto Rico 8/3/85 Seeks to provide a maximum level
Tax-Free Income Fund of income exempt from federal
income tax and the personal
income taxes of the majority of
the states by investing in
municipal securities. For U.S.
citizens and residents.
State Tax-Free Funds
The Company manages insured state tax-free funds established from 1985 to 1996
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 26
non-insured state tax-free income funds established from 1977 to 1996 providing
double tax-free income from long-term municipal securities to residents of 21
states.
(iv) Franklin Funds Seeking Growth and Income
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Asset 12/5/51 Seeks total return by investing
Allocation Fund in common stocks, investment
grade corporate and U.S.
government bonds, short-term
money market instruments,
securities of foreign issuers
and real estate securities.
Franklin Balance 4/2/90 Seeks high total return by
Sheet Investment Fund investing in common and
preferred stocks, secured or unsecured bonds,
and commercial paper or notes, which have
per-share current market values believed to be
below their net asset or book values.
Franklin Convertible 4/15/87 Seeks to maximize total return
Securities Fund by investing in convertible
bonds and convertible preferred
stock.
Franklin Equity 3/15/88 Seeks capital appreciation and
Income Fund high current dividend income by
investing in high yielding
common stocks for greater price
stability.
Franklin Global 7/2/92 Seeks total return by investing
Utilities Fund in equity and debt securities
issued by foreign and domestic
utilities companies.
Franklin MicroCap 12/12/95 Seeks high total return by
Value Fund investing primarily in
securities of companies with market
capitalization under $100 million at the time
of purchase and which are believed to be
undervalued in the marketplace.
Franklin Natural 6/5/95 Seeks high total return by
Resources Fund investing primarily in stocks of
companies that own, produce,
refine, process and market
natural resources.
Franklin Rising 4/2/90 Seeks capital appreciation by
Dividends Fund investing in stocks with
consistent, substantial dividend
increases for capital growth.
Franklin Strategic 5/24/94 Seeks high current income and
Income Fund capital appreciation, by
investing in domestic and
foreign fixed-income securities.
Franklin Value Fund 3/11/96 Seeks total return by
investing in equity and debt securities of
undervalued companies worldwide.
Income Series (a 3/31/48 Seeks to maximize income by
series of Franklin investing in a diversified
Custodian Funds, portfolio of high yielding lower
Inc.) rated corporate bonds, preferred
stocks and dividend paying
common stocks.
Utilities Series (a 9/30/48 Seeks capital appreciation and
series of Franklin current income by investing in
Custodian Funds, utility companies located in
Inc.) high growth areas.
(v) Franklin Funds Seeking Capital Growth
Name of Fund Inception Principal
Date Investments/Strategy
DynaTech Series (a 1/1/68 Seeks capital appreciation by
series of Franklin investing in the volatile stocks
Custodian Funds, of companies engaged in dramatic
Inc.) break-through areas such as
medicine, telecommunications and
electronics or who have
proprietary advantages in their
field.
Franklin Blue Chip 5/28/96 Seeks capital appreciation by
Fund investing in securities of
well-established,large capitalization
companies ("blue chip companies") with a long
record of revenue growth and profitability.
Franklin California 10/30/91 Seeks capital appreciation by
Growth Fund investing primarily in growth
stocks or securities of
companies headquartered in or
conducting a majority of
operations in California.
Franklin Equity Fund 1/1/33 Seeks capital appreciation
and current income by investing primarily in
common stocks of seasoned companies with low
prices in relation to earnings growth.
Franklin Global 2/14/92 Seeks capital appreciation by
Health Care Fund investing primarily in equity
securities of health care companies worldwide
with potential for above average growth.
Franklin Gold Fund 5/19/69 Seeks capital appreciation
and current income by investing in securities
of companies engaged in mining, processing or
dealing in gold or other precious metals.
Franklin MidCap 6/1/96 Seeks long-term capital growth
Growth Fund by investing in equity
securities of medium
capitalization companies
believed to be positioned for
rapid growth.
Franklin Real Estate 1/3/94 Seeks to maximize total return
Securities Fund by investing primarily in the
equity securities of companies
operating in the real estate
industry.
Franklin Small Cap 2/14/92 Seeks long-term capital growth
Growth Fund by investing primarily in equity
securities of small
capitalization growth companies.
Growth Series (a 3/31/48 Seeks capital appreciation by
series of the investing in well-known
Franklin Custodian companies with demonstrated
Funds, Inc.) growth characteristics.
(vi) Franklin Funds for Tax-Deferred Investments
Franklin Valuemark Funds is an open-end management investment company currently
consisting of twenty-three (23) separate series or portfolios which offer a wide
range of investment objectives, strategies, and risks. Shares are currently sold
only to separate accounts of the Allianz Life Insurance Company of North America
and its affiliates to fund the benefits under variable life insurance policies
and variable annuity contracts. Products presently offered include two flexible
premium deferred variable annuities ("Valuemark II" in New York and "Valuemark
III" in all other states), an immediate variable annuity ("Valuemark Income
Plus"), single premium variable life insurance ("Franklin Valuemark Life"), and
flexible premium variable life insurance ("ValueLife"). The portfolios are
managed by Advisers, Franklin Advisory Services, Inc., Franklin Mutual Advisers,
Inc., TICI, TGAL, and Templeton Singapore. The investment objectives and
policies of most of the portfolios are similar to those of corresponding
Franklin and Templeton funds, although differences in portfolio size,
investments held, and insurance and expense related differences will cause the
performance of the Valuemark portfolio to differ.
(vii) Franklin Closed-End Funds
Name of Fund Inception Principal
Date Investments/Strategy
Franklin 10/24/89 Seeks high current income by
Multi-Income Trust investing primarily in high
(listed on the NYSE) yielding, fixed-income corporate
securities as well as
dividend-paying stocks of
companies engaged in the public
utilities industry.
Franklin Universal 9/23/88 Seeks high current income by
Trust (listed on the investing in fixed-income debt
NYSE) securities and dividend paying
stocks and securities of
precious metals and natural
resources companies.
Principal Maturity 1/19/89 Seeks to return investors' original
Trust (listed on the capital of $10 per share on or before May 31,
New York Stock Exchange 2001, while providing high monthly
("NYSE") income by investing in mortgage-backed
securities, zero coupon securities and high
income producing debt securities.
(viii) Franklin Funds for Institutional Investors
Name of Fund Inception Principal
Date Investments/Strategy
Adjustable Rate 11/5/91 Seeks high current income by
Securities Portfolio investing
(sold only to other in mortgage-backed securities
investment companies) (ARMS).
Franklin Cash 7/1/94 Seeks high current income by
Reserves Fund investing
in domestic and foreign
short-term securities.
Franklin 1/2/92 Seeks high current income by
Institutional investing
Adjustable Rate in a portfolio of
Securities Fund mortgage-backed securities,
pooled adjustable rate mortgage
securities.
Franklin 11/1/91 Seeks high current income and
Institutional increased price stability by
Adjustable U.S. investing
Government in a portfolio of adjustable
Securities Fund U.S. government or guaranteed
agency mortgage-backed securities, (ARMS
created by Ginnie Mae, Fannie Mae and Freddie
Mac).
Franklin Strategic 2/1/93 Seeks a high level of total
Mortgage Portfolio return by investing primarily in
mortgage-backed securities, pooled mortgages
issued or guaranteed by Ginnie Mae, Fannie Mae
or Freddie Mac.
Franklin U. S. 2/8/94 Seeks high current income
Government Agency consistent with capital
Money Market Fund preservation and liquidity by
investing in short-term
instruments backed by U.S.
government securities.
Franklin U.S. 1/19/88 Seeks high current income
Government consistent with capital
Securities Money preservation and liquidity by
Market Portfolio investing in short-term
instruments backed by U.S.
government securities.
Franklin U.S. 8/20/91 Seeks high current income
Treasury Money consistent with capital
Market Portfolio preservation and liquidity by
investing in short-term U.S.
Treasury obligations.
Money Market 7/17/85 Seeks high current income
Portfolio consistent with capital
preservation and liquidity by
investing all of its assets in
money market instruments.
The Money Market 7/28/92 Seeks high current income
Portfolio (sold only consistent with capital
to other investment preservation and liquidity by
companies) investing all of its assets in
money market instruments.
The U.S.Government 7/28/92 Seeks high current income
Securities Money consistent with capital
Market Portfolio preservation and liquidity by (sold
only to other investing in short-term
investment companies) instruments backed
by U.S. government securities.
U.S. Government 5/20/91 Seeks high current income and
Adjustable Rate increased price stability by
Mortgage Portfolio investing
(sold only to other in mortgage-backed securities,
investment companies) (ARMS created by Ginnie Mae,
Fannie Mae and Freddie Mac).
(ix) Franklin Templeton International Currency Funds
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Templeton 6/30/86 Seeks to maximize total return,
Global Currency Fund by investing in interest-earning
money market instruments denominated in three
or more of 16 major world currencies.
Franklin Templeton 11/17/89 Seeks to protect against U.S.
Hard Currency Fund dollar depreciation by investing
in high-quality money market instruments
denominated in three or more of the five major
currencies of lowest inflation countries and
the Swiss Franc.
Franklin Templeton 11/17/89 Seeks current income higher than
High Income Currency that of U.S. dollar money market
Fund instruments by investing in
interest-bearing money market
instruments denominated in Major
and Non-Major Currencies.
(x) Templeton Funds Seeking Preservation of Capital and Income
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Money Fund 10/2/87 Seeks current income, stability
of principal and liquidity by
investing in high quality money
market instruments with
maturities not exceeding 397
days, consisting primarily of
short-term U.S. Government
Securities, bank certificates of
deposit, time deposits, bankers'
acceptances, commercial paper
and repurchase agreements.
(xi) Templeton Funds Seeking Capital Growth from Global Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Templeton 7/28/94 Seeks long-term capital growth
Japan Fund by investing primarily in the
equity securities of companies
domiciled in Japan and traded in
Japanese securities markets.
Templeton Developing 10/17/91 Seeks long-term capital
Markets Trust appreciation by investing
primarily in equity securities
of issuers in countries with
developing markets.
Templeton Foreign 10/5/82 Seeks long-term capital growth
Fund by investing in stocks and debt
obligations of companies and
governments outside the U.S.
Templeton Foreign 9/20/91 Seeks long-term capital growth
Smaller Companies by investing in a diverse
Fund portfolio of equity securities
that trade on markets in
countries other than the U.S.
Templeton Global 3/14/94 Seeks long-term capital growth
Infrastructure Fund by investing in securities of
domestic and foreign companies that are
principally engaged in or related to the
development, operation or rehabilitation of
the physical and social infrastructures of
various nations throughout the world.
Templeton Global 2/28/90 Seeks long-term capital growth
Opportunities Trust by investing in securities
issued by companies and
governments of any nation.
Templeton Greater 5/8/95 Seeks long-term capital
European Fund appreciation by investing
primarily in equity securities
of companies Western, Central
and Eastern Europe and in
Russia.
Templeton Growth Fund 11/29/54 Seeks long-term capital
growth by investing in stocks and bonds issued
by companies and governments of any nation.
Templeton Latin 5/8/95 Seeks long-term capital
America Fund appreciation by investing
primarily in equity securities
and debt obligations of issuers
in Latin American countries.
Templeton Pacific 9/20/91 Seeks long-term capital growth
Growth Fund by investing primarily in equity
securities that trade on markets
in the Pacific Rim.
Templeton Global 9/18/89 Seeks long-term capital growth
Real Estate Fund by investing in securities of
domestic and foreign companies
engaged in or related to the
real estate industry..
Templeton Global 6/1/81 Seeks long-term capital growth
Smaller Companies by investing in common and
Fund, Inc. preferred stocks, rights and
warrants of companies of various
nations throughout the world.
Templeton World Fund 1/17/78 Seeks long-term capital growth by investing
in stocks and debt obligations of foreign
and domestic companies.
(xii) Templeton Funds Seeking Capital Growth From Domestic
Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Templeton American 3/27/91 Seeks long-term total return by
Trust investing no less than 65% of
assets in stocks and debt
obligations of U.S. companies
and the U.S. government.
(xiii) Templeton Funds Seeking High Current Income from Global
Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Americas 6/27/94 Seeks high current income, with
Government total return as a secondary
Securities Fund objective, by investing
primarily in debt securities issued or
guaranteed by governments, government
agencies, political subdivisions, and other
government entities of countries located in
North, South and Central America and the
surrounding waters.
Templeton Income Fund 9/24/86 Seeks current income by
investing primarily in debt
securities, preferred stock,
common stocks which pay
dividends and income producing
securities convertible into
common stock of companies,
governments and government
agencies of various nations
throughout the world.
(xiv) Templeton Funds Seeking High Total Return from Global
Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Growth and 3/14/94 Seeks high total return by
Income Fund investing primarily in equity
(formerly Templeton and debt securities of domestic
Global Rising and foreign companies.
Dividends Fund)
(xv) Templeton Funds for Tax-Deferred Investments
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Asset 8/31/88 Seeks a high level of total
Allocation Fund return by investing in stocks of
companies in any nation, debt obligations of
companies and governments of any nation, and
in money market instruments.
Templeton Bond Fund 8/31/88 Seeks high current income by
investing primarily in debt
securities of companies,
governments and government
agencies of various nations
throughout the world, and in
debt securities which are
convertible into common stock of
such companies.
Templeton 5/1/92 Seeks long-term capital growth
International Fund by investing in stocks and debt
obligations of companies and
governments outside the United
States.
Templeton Money 8/31/88 Seeks current income, stability
Market Fund of principal and liquidity by
investing in money market instruments with
maturities not exceeding 397 days, consisting
primarily of short-term U.S. Government
securities, certificates of deposit, time
deposits, bankers' acceptances, commercial
paper and repurchase agreements.
Templeton Stock Fund 8/31/88 Seeks capital growth by
investing primarily in common stocks issued by
companies, large and small, in various nations
throughout the world.
Templeton Variable 2/16/88 Seeks long-term capital growth
Annuity Fund by investing primarily in stocks
and debt obligations of
companies and governments of any
nation, including the United
States.
(xvi) Templeton Contractual Plans
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Capital 3/1/91 Seeks long-term capital growth
Accumulator Fund, by investing in stocks and debt
Inc. obligations of companies and
governments of any nation.
(xvii) 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
Templeton 4/26/91 Seeks long-term capital growth
Deutschemark Global by investing mainly in shares of
Growth Fund companies of any size found in
any nation (denominated in
Deutschemarks).
Templeton Emerging 2/28/91 Seeks long-term capital growth
Markets Fund by investing in the shares and
debt obligations of corporations
and governments of developing or
emerging nations.
Templeton European 4/17/91 Seeks long-term capital growth
Fund by investing mainly in shares of
companies of all sizes based in
European countries (denominated
in Swiss francs).
Templeton Far East 6/30/91 Seeks long-term capital growth
Fund by investing mainly in shares of
companies of all sizes which are based in or
which derive significant profits from the Far
East.
Templeton Global 2/28/91 Seeks long-term capital growth
Growth Fund by investing primarily in the
shares of companies of any size
found in any nation.
Templeton Pan 2/28/91 Seeks long-term capital growth
American Fund by investing primarily in shares
of companies of all sizes based
in the North or South American
continents.
Templeton Smaller 7/8/91 Seeks long-term capital growth
Companies Fund by investing primarily in shares
of companies with a market capitalization of
less than $1 billion found in any nation.
Fixed Income Funds (denominated in U.S. Dollars unless otherwise
noted)
Name of Fund Inception Principal
Date Investments/Strategy
Templeton 2/28/91 Seeks to maximize total
Deutschemark Global investment return by investing
Bond Fund in a wide variety of
fixed-interest securities, including those
issued by supranational bodies such as The
World Bank (denominated in Deutschemarks).
Templeton Emerging 7/5/91 Seeks to maximize total
Markets Fixed Income investment return by investing
Fund primarily in dollar and
non-dollar denominated debt
obligations of emerging markets.
Templeton Global 2/28/91 Seeks to maximize current income
Income Fund by investing primarily in
fixed-interest securities of
governments and companies
worldwide.
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).
Templeton US 2/28/91 Seeks security of capital and
Government Fund income by investing in bonds
issued by the U.S. government
and its agencies.
Templeton Worldwide Investments SICAV
Growth Portfolio 8/21/89 Seeks long term capital
growth by investing in all types of securities
issued by companies or governments 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.
(xviii) Templeton Canadian Funds
Non-Institutional
Funds
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Balanced 04/07/83 Seeks long-term capital
Fund appreciation by investing
primarily in a combination of Canadian common
and preferred shares, bonds, and debentures;
managed to comply with eligibility
requirements under Canadian law regarding
retirement and other tax deferred plans.
Templeton Canadian 9/14/94 Seeks high level of total return
Asset Allocation Fund by investing primarily in
Canadian shares, debt obligations and
short-term instruments; managed to comply with
eligibility requirements under Canadian law
regarding retirement and other tax-deferred
plans.
Templeton Canadian 01/02/90 Seeks high current income and
Bond Fund capital appreciation by
investing primarily in publicly traded debt
securities issued or guaranteed by Canadian
governments or their agencies, or issued by
Canadian municipalities or corporations.
Templeton Canadian 01/03/89 Seeks capital appreciation by
Stock Fund investing in a diversified
portfolio of Canadian equity securities
primarily managed to comply with eligibility
requirements of the Canadian law regarding
retirement and other tax deferred plans.
Templeton Emerging 09/20/91 Seeks long-term capital
Markets Fund appreciation by investing
primarily in emerging country
equity securities.
Templeton Global 9/14/94 Seeks high level of total return
Balanced Fund by investing in shares, debt
obligations and short-term
instruments of companies and
governments of any nation,
including Canada and the United
States.
Templeton Global 06/07/88 Seeks high current income by
Bond Fund 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. by investing in stock and debt
obligations of companies and
governments of any nation.
Templeton 9/14/94 Seeks high level of total return
International by investing in shares, debt
Balanced Fund obligations and short-term
instruments of companies and
governments of any nation other
than Canada and the United
States.
Templeton 01/03/89 Seeks long-term total return by
International Stock investing in shares and debt
Fund obligations of companies and
governments outside of Canada
and the United States.
Templeton Treasury 02/29/88 Seeks a high level of current
Bill Fund income consistent with
preservation of capital and liquidity by
investing in Canadian government or agency
debt obligations and high quality short-term
money market instruments.
Funds for
Institutional
Investors
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Global 07/06/90 Seeks long-term capital
Equity Trust appreciation by investing in
(non-taxable) stocks and bonds issued by
companies and governments of any
nation.
Templeton 07/06/90 Seeks long-term capital
International Equity appreciation by investing in
Trust(non-taxable) stocks and bonds issued by
companies and governments
outside of Canada and the United
States.
Templeton 07/06/90 Seeks long-term total return by
International Stock investing in stocks and bonds
Trust (taxable) issued by companies and
governments outside of Canada
and the United States.
Closed-End Funds
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Emerging 6/21/94 Seeks long-term capital
Markets Appreciation appreciation, by investing in
Fund (listed on equity securities and debt
Toronto Stock obligations of issuers in
Exchange and emerging market countries.
Montreal Stock
Exchange)
(xix) Templeton Closed-End Funds
Name of Fund Inception Principal
Date Investments/Strategy
Templeton China 9/9/93 Seeks long-term capital
World Fund, Inc. appreciation, by investing
(listed on the NYSE) primarily in equity 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 in, or have at least 50% of their
assets in, the PRC.
Templeton Dragon 9/21/94 Seeks long-term capital
Fund, Inc. (Listed appreciation by investing at
on NYSE and Osaka least 45% of its total assets in
Securities Exchange) the equity securities of
companies (i) organized under the laws of, or
with a principal office in, the People's
Republic of China or Hong Kong, or the
principal business activities of which are
conducted in China or Hong Kong or for which
the principal equity securities trading market
is in China or Hong Kong, and (ii) that derive
at least 50% of their revenues from goods or
services sold or produced, or have at least
50% of their assets in China or Hong Kong.
Templeton Emerging 4/29/94 Seeks capital appreciation by
Markets Appreciation investing substantially all of
Fund, Inc. (Listed its assets in a portfolio of
on NYSE) equity securities and debt
obligations of issuers in
emerging market countries.
Templeton Emerging 2/26/87 Seeks long-term capital
Markets Fund, Inc. appreciation by investing
(listed on the NYSE primarily in emerging markets
and Pacific Stock equity securities.
Exchange "PSE")
Templeton Emerging 9/23/93 Seeks high current income, with
Markets Income Fund, a secondary investment objective
Inc. (listed on the of capital appreciation, by
NYSE) investing primarily in a
portfolio of high yielding debt obligations of
sovereign or sovereign-related entities and
private sector companies in emerging market
countries.
Templeton Global 11/22/88 Seeks high current income
Governments Income consistent with the preservation
Trust (listed on the of capital achieved by investing
NYSE) at 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 3/17/88 Seeks high current income, with
Income Fund, Inc. a secondary investment objective
(listed on the NYSE of capital appreciation, by
and PSE) investing primarily in a
portfolio of fixed-income
securities (including debt
securities and preferred stock)
of U.S. and foreign issuers.
Templeton Global 5/23/90 Seeks high level of total return
Utilities, Inc. (income plus capital
(listed on the AMEX appreciation),without undue
and the Midwest risk, by investing at least 65%
Stock Exchange) of its total assets in equity
and debt securities issued by
domestic and foreign companies
in the utility industries.
Templeton Russia 6/15/95 Seeks long-term capital
Fund, Inc. (Listed appreciation by investing
on NYSE) primarily in equity securities
of Russian Companies.
Templeton Vietnam 9/15/94 Seeks long-term capital
Opportunities Fund, appreciation by investing in the
Inc. (Listed on equity securities of Vietnam
NYSE) Companies.
(xx) Templeton Funds for Institutional Investors
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Emerging 5/3/93 Seeks long-term capital growth
Markets Series by investing in securities of
issuers of countries having
emerging markets.
Templeton Foreign 10/18/90 Seeks long-term capital growth
Equity Series by investing in stocks and debt
obligations of companies and
governments outside the United
States.
Templeton Foreign 5/3/93 Seeks long-term capital growth
Equity (South Africa by investing in stocks and debt
Free) Series obligations of companies and
governments outside both the
U.S. and South Africa.
Templeton Growth 5/3/93 Seeks long-term capital growth
Series by investing in stocks and debt
obligations of companies and
governments of any nation.
(xxi) Representative Templeton International Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Asian Development 01/22/88 Seeks to maximize overall
Equity Fund long-term return by investing,
directly or indirectly, primarily 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
exchanges 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
Asia Fund capital 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 Emerging 06/19/89 Seeks long term capital
Markets Investment appreciation by investing in
Trust Plc. companies operating or trading
in emerging market countries.
(Closed End)
Templeton Global 08/29/88 Seeks to provide income by
Balanced Trust investing in an internationally
diversified portfolio of
equities, fixed interest, and
convertible stocks. (Unit Trust)
Templeton Global 08/29/88 Seeks to maximize total
Growth Trust investment return by investing
in an internationally
diversified portfolio of equity
shares and convertible stocks.
(Unit Trust)
Templeton Global 07/13/88 Seeks to achieve high current
Income Portfolio, income by investing primarily in
Ltd. a portfolio of fixed income
securities (including debt
securities and preferred stock)
of issuers throughout the world.
Templeton Latin 5/3/94 Seeks long-term capital growth
America Investment by investing in companies listed
Trust Plc. on stock exchanges in Latin
America or that have substantial
trading interests in that
region. (Closed End)
Templeton Value Trust 06/08/89 Seeks maximum total
investment return by investing in all
geographic and economic sectors.
Templeton/National 04/06/93 Growth Portfolio - Seeks long
Bank of Greece term capital growth by investing
Trans-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 by
investing in debt securities of companies and
governments located primarily in the European
Economic Community.
Recent Fund Introductions
The funds referenced above include three (3) new funds introduced by the
Franklin Templeton Group during the fiscal year ended September 30, 1996:
Franklin Blue Chip Fund, Franklin MidCap Growth Fund and Franklin Value 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 various subsidiaries described above, provides
investment advisory, portfolio management, transfer agency, business management
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 open and closed-end investment companies. Comparable
agreements are in effect with foreign registered Funds and with other managed
accounts. The management agreements for the U.S. registered Franklin and
Templeton funds continue in effect for successive annual periods, providing such
continuance is specifically approved at least annually by a majority vote cast
in person at a meeting of such Funds' Boards of Trustees or Directors called for
that purpose, or by a vote of the holders of a majority of the Funds'
outstanding voting securities, and in either event, by a majority of such Funds'
trustees or directors who are not parties to such agreement or interested
persons of the Funds or the Company within the meaning of the Investment Company
Act of 1940 (the "40 Act"). Trustees and directors of Funds' boards are
hereinafter referred to as "directors". Foreign registered Funds have various
termination rights and provisions.
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 or with respect to a significant portion of the Other Assets, 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 and Templeton funds have been involuntarily terminated. Changes in the
customer base of institutional investors occur on a regular basis. Since the
Templeton Acquisition to date, assets under management in the category of Other
Assets set forth above have in the aggregate continued to grow.
As of September 30, 1996, substantially all of the shares of the various
directly and indirectly owned subsidiary companies were owned directly by the
Company 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 and certain other limited minority
ownership of and Franklin Bank. As of December 13, 1996, Charles B. Johnson,
Rupert H. Johnson, Jr. and R. Martin Wiskemann beneficially owned approximately
19.2%, 15.3% and 9.4%, respectively, of the outstanding voting common stock of
the Company. Charles B. Johnson and his brother Rupert H. Johnson, Jr. serve on
the Board of Directors of the Company as well as on most of the Franklin funds'
boards and some of the Templeton funds' boards. Charles E. Johnson, the son of
Charles B. Johnson and the nephew of Rupert H. Johnson, Jr. serves on the Board
of Directors of the Company and on some of the Franklin and Templeton funds'
boards.
Under the terms of the management agreements with the Franklin and Templeton
funds, the various subsidiary companies described above generally supervise and
implement such Funds' investment activities and provide the administrative
services and facilities which are necessary to the operation of such Funds'
business. Such subsidiary companies also conduct research and provide investment
advisory services and, subject to and in accordance with any directions such
Funds' boards may issue from time to time, such subsidiary companies determine
which securities such Funds will purchase, hold or sell. In addition, such
subsidiary 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 and applicable law and practice. Similar services are
rendered with respect to the Other Assets.
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 .15% to a maximum of 2.00% 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 companies' ability to render
services to each of such Funds 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 light of Fund performance, the level
and range of services provided, industry conditions and other relevant factors.
Advisory fees are generally waived or voluntarily 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, company visits and inspections, and the
utilization of such sources as company public records and activities, management
interviews, company prepared information, and other 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.
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. As of September 30, 1996, such compensation was based upon an annual fee
per shareholder account, ranging between $10.00 and $23.50, a pro-rated portion
of which was paid monthly.
DISTRIBUTION AND MARKETING
Distributors acts as the principal underwriter and distributor of shares of the
Franklin and Templeton open-end 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 large network of
independent participating securities dealers. As of September 30, 1996,
approximately 3,674 local, regional and national securities brokerage firms
offered shares of the Franklin and Templeton funds for sale to the investing
public. The Company has approximately 55 "wholesalers" who interface with the
broker-dealer community. Fund shares are offered to individual investors,
qualified groups, trustees, IRA and profit sharing or money purchase plans,
employee benefit plans, trust companies, bank trust departments and
institutional investors. In addition, various management and advisory services,
commingled and pooled accounts, wrap fee arrangements and various other private
investment management services are offered to certain private and institutional
investors.
Broker-dealers are paid various fees for services in matching investors with
Funds whose investment objectives match such investors' goals. Broker-dealers
also assist in explaining the operations of the Funds, in servicing the account
and in various other distribution services.
Most of the Franklin and Templeton Funds have a multi-class share structure
whereby Class I shares are sold with a maximum front-end sales charge which
ranges from a low of 1.50% to a high of 5.75%. Reductions in the maximum sales
charges may be available depending upon the amount invested and the type of
investor. Class II shares, which were introduced during the 1995 fiscal year,
have a hybrid, level load structure combining aspects of conventional front-end,
back-end and level-load pricing. Class II shares are subject to an initial sales
charge of 1% and are generally subject to a 1% contingent deferred sales charge
on redemptions within 18 months of purchase and to higher on-going Rule 12b-1
fees described below. The multi-class structure was adopted to provide investors
greater payment alternatives in implementing their investment programs. The
Company's money market and institutional funds are sold to investors without a
sales charge.
Most of the U.S registered Templeton funds and most of the U.S. registered
Franklin funds, with the exception of certain Franklin and Templeton money
market funds, have also adopted distribution plans (the "Plans") under Rule
12b-1 promulgated under the 40 Act ("Rule 12b-1"). Class II shares generally
have higher on-going Rule 12b-1 fees. The Plans are established for an initial
term of one year and, thereafter, must be approved annually by the Fund boards
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 Funds' shareholders. The Plans permit the Funds to bear certain expenses
relating to the distribution of their shares.
Fees under the Plans for Class I shares range in amount from a low of .10% per
annum of average daily net assets to a high of .50% while Class II share fees
range between .65% to 1 %. The implementation of the Plans provided for a lower
fee on Class I shares acquired prior to the adoption of such Plans. Fees from
the Plans are paid primarily to third party dealers who provide service to their
shareholder accounts, as well as engage in distribution activities. Distributors
may also receive reimbursement from the Funds for expenses involved in
distributing the Funds, such as advertising and reimbursement for a 1% payment
to dealers on sales of Class II shares, subject to the Plans' limitations on
amounts.
The financial effects on the Company of the distribution of the new class of
shares is discussed in more detail under Item 7, "Management's Discussion of
Analysis of Financial Condition and Results of Operation" (the "MD&A"), below.
As of September 30, 1996, there were approximately 5.4 million shareholder
accounts in the Franklin and Templeton Funds.
REVENUES
As shown in the table below, the Company's revenues are derived primarily from
its investment management activities. Total operating revenues are set forth in
the table below. Revenues from investment management fees have comprised
approximately 58%, 58% and 48% in 1996, 1995 and 1994 respectively, of total
operating revenue for each of the three fiscal years reported. Underwriting
commissions, from gross sales and reinvestments of products subject to
commissions contributed to revenues approximately 36%, 36% and 47% in 1996, 1995
and 1994 respectively. Shareholder servicing fees from mutual fund activities
contributed 6%, 5% and 4% in 1996, 1995 and 1994 respectively.
OPERATING REVENUES
YEARS ENDED SEPTEMBER 30,
($ IN MILLIONS)
1996 1995 1994
Investment management fees $883.8 $731.3 $647.7
Underwriting and distribution fees 545.0 449.1 626.3
Shareholder servicing fees 88.7 68.7 54.6
Banking/finance, net and other 5.0 8.7 13.9
-------- --------- --------
Totals $1,522.6 $1,257.8 $1,342.5
======== ========= ========
OTHER FINANCIAL SERVICES
The Company's consumer lending, dealer auto loan and real estate businesses do
not as yet contribute significantly to either the revenues or the net income of
the Company. Franklin Bank's operations are limited by national banking laws and
no immediate significant increase in revenues 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. The Company's
dealer auto loan business has required the infusion of significant working
capital during the prior two fiscal years, either in the form of inter-company
loans or by contributions to the capital of FCC by the Company. During portions
of this period, the Company experienced an increase in delinquency rates in such
loans and, in response, expanded its auto loan collection efforts and tightened
its underwriting policies. Delinquency rates were reduced between fiscal 1995
and 1996. A more detailed financial analysis of the financial effects of loan
losses and delinquency rates, as well as the funding of this activity, is
contained in the MD&A.
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 other investment products or their investment strategies cause or
contribute to reduced sales of Fund shares or investment products or impair the
investment performance of the Funds or such other investment products, the
Company's aggregate 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-1 Plan, or reduce its up front sales charge. None of the Franklin or
Templeton funds are in, or close to, that situation at the present time.
COMPETITION
The financial services industry is highly competitive. In the United States,
there are over 6,100 mutual funds of varying sizes, 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 $1.35 trillion, a 68.5% growth rate. Over this same time period, the
Company experienced an approximate approximately 1.13% decline in overall market
share. While the Company's assets and associated revenues still grew
substantially during this time period, substantial asset under management growth
occurred for other fund management companies whose asset bases were more heavily
oriented to domestic equities. Such growth was due to record domestic equity
market appreciation during this period as well as increased asset flows into
domestic equity products. The substantial returns available in the domestic
equity marketplace had a negative effect on sales of fixed-income products. The
combined effect of these two events were a significant factor in the Company's
market share decline. The Company believes that its strong fixed-income base
coupled with its strong global presence will serve its competitive needs well
over time. The Company continues its focus on service to customers, performance
on investments and extensive marketing activities with its strong broker-dealer
and other financial institution distribution network.
The Company advertises the Franklin Templeton Group in major national financial
publications, as well as on radio and television to promote name recognition and
to assist its distribution network. Such activities included purchasing network
and cable programming, sponsorship of sporting events, 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 and Templeton 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 Franklin and Templeton funds,
notwithstanding the availability of proprietary products. However, to the extent
that these firms limit or restrict the sale of Franklin and Templeton funds
shares through their brokerage systems in favor of their proprietary mutual
funds, assets under management might decline and the Company's revenues might be
adversely affected.
Although the Company believes that it has substantially improved its competitive
position and has substantially benefited from the Templeton Acquisition and the
wide variety of global investment products now available to its customers, the
shift in asset mix from primarily a fixed-income base to a combination of
fixed-income and global equities has increased the possibility of volatility in
the Company's managed portfolios due to the increased percentage of equity
investments held.
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 or further adjust 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 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
advisors, 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. Although the banking
industry continues to expand its sponsorship of proprietary funds distributed
through third party distributors, 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. However, as with
proprietary products offered by the Company's broker-dealer network, to the
extent that banks limit or restrict the sale of Franklin and Templeton share
through their distribution systems in favor of their proprietary mutual funds,
assets under management might decline and the Company's revenues might be
adversely affected. In addition, competitive pressures have led to increased
demands for distribution costs for broker-dealer distributed funds, which could
have a negative impact on the Company's profit margins and net income.
SPECIAL CONSIDERATIONS
GENERAL
As discussed above, the Company's revenues are derived primarily from investment
management activities. Broadly speaking, the direction and amount of change 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 significant portion of the Company's assets under management are
fixed-income securities. Fluctuations in interest rates and in the yield curve
will have an effect on fixed-income assets under management as well as on the
flow of monies to and from fixed-income funds and, therefore, on the Company's
revenues from such funds. In addition, the impact of changes in the equity
marketplace may significantly affect assets under management. Management
believes, however, that diversity of the Franklin Templeton Group is more
competitive as a result of a greater diversity of product mix available to its
customers. Market values 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. The effects of these factors
on equity funds and fixed-income funds often operate inversely and it is,
therefore, difficult to predict the net effect of any particular set of
conditions on the level of assets under management.
Although the Company and its assets under management are subject to political
and currency risks, due to its international activities, as is discussed in more
detail in the MD&A, its exposure to fluctuations in foreign currency markets and
to fixed-asset value depreciation is limited.
ITEM 2. PROPERTIES
GENERAL
The Company owns or leases offices and facilities in nine (9) 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 four (4) buildings near Sacramento, California, as well as two (2)
buildings in St. Petersburg, Florida, one (1) building in Phoenix, Arizona, one
(1) building in Nassau, Bahamas and a floor of a high rise office building in
Singapore. The Company also is currently in the process of constructing three
(3) new buildings in St. Petersburg, Florida and one (1) new building in Nassau,
Bahamas. The Company also leases facilities in various locations on a national
and worldwide basis. Since the Company is operated on a unified basis, corporate
activities, fund related activities, accounting operations, sales, real estate
and banking operations, auto loans and credit cards, management information
system activities, publishing and printing operations, shareholder service
operations and other business activities and operations take place in a variety
of such locations. The Company or its subsidiaries lease office space in
Florida, New York, and Utah and in several other states. In addition, the
Company or its subsidiaries lease office space in Argentina, Australia, Bermuda,
Canada, France, Germany, Hong Kong, India, Italy, Japan, Luxembourg, Poland,
Russia, Scotland, South Africa, and Vietnam. The Company is in the process of
leasing new office space in Hungary.
PROPERTY DESCRIPTION
LEASED
The Company leases properties at the locations set forth below:
<TABLE>
<CAPTION>
Approxi-mate Approxi-mate
LOCATION SQUARE FOOTAGE MONTHLY RENTAL EXPIRATION DATE
---------------------- ----------- ----------- ----------------
<S> <C> <C> <C>
777 Mariners Island Blvd.
San Mateo, CA 94404 177,000 $433,000 February 16, 2001
1147 & 1149 Chess Drive
Foster City, CA 94404 121,000 $132,000 June, 2000
1810 Gateway Drive
San Mateo, CA 49,000 $79,000 Late 1997
901 & 951 Mariners Island Blvd. Between March, 1999
San Mateo, CA 34,000 $60,000 & April, 2000
2 Waters Drive
San Mateo, CA 49,000 $74,000 July, 1999
1850 Gateway Drive
San Mateo, CA 23,000 $34,000 July, 2000
Ft. Lauderdale, FL (Templeton) 83,000 $185,000 December, 2000
Other U.S. Locations 47,000
Foreign Operations 110,000
</TABLE>
OWNED
The Company maintains a customer service facility in the property that it owns
at 10600 White Rock Road, Rancho Cordova, California, near Sacramento,
California. The Company occupies 75,000 square feet in this property and has
leased out 46,000 square feet to a third party until February, 2000 at an
approximate monthly rental of $65,000. The Company owns an additional
twenty-seven acres of adjoining land on which it has constructed two office
buildings of approximately 67,000 square feet each and a data center/warehouse
facility of approximately 162,000 square feet. The Company plans to develop
additional facilities on this property, but has not yet commenced construction.
The Company also owns and occupies an office building with approximately 69,000
square feet of office space at 1800 Gateway Drive, San Mateo, California.
The Company owns two facilities in St. Petersburg, Florida: an approximately
90,000 square foot office building primarily devoted to shareholder servicing
activities; and an approximately 117,000 square foot facility devoted to a
computer data center and training and mailing operations. The Company has
purchased approximate twenty-eight acres of land in St. Petersburg on which it
has commenced construction of three office buildings of approximately 70,000
square feet each. The Company plans to develop additional facilities on this
property in the future. The Company also owns an approximately 14,000 square
foot office building in Nassau, Bahamas, as well as a nearby condominium
residence. The Company has commenced construction of a second office building,
adjacent to the existing office building, of approximately 25,000 square feet.
Completion of the building is expected by early 1997.
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, 1996, was $25.6 million.
The loan was due in November, 1996. In December, 1996, Mariner Partners extended
the loan with Metropolitan Life Insurance Company until November, 2002. Interest
rate on the loan during the extension period is 8.10% per annum.
ITEM 3. PENDING LEGAL PROCEEDINGS
There are no material pending legal proceedings which the Company or any of its
subsidiaries was a party, or of which any of their property is the subject; nor
are any such proceedings known to be contemplated by any governmental
authorities.
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> <C>
Charles B. Johnson 63 President, Chief Executive Officer and Director of
the Company; Chairman and Director, Franklin
Advisers, Inc. and Franklin/Templeton Distributors,
Inc.; Director, Templeton Worldwide, Inc., Franklin
Bank, Franklin/Templeton Investor Services, Inc.,
Franklin Mutual Advisers, Inc. and General Host
Corporation; officer and/or director, as the case
may be, of most other principal domestic
subsidiaries of the Company; officer and/or
director, trustee or managing general partner, as
the case may be, of 56 of the investment companies
in the Franklin Templeton Group of Funds.
Harmon E. Burns 51 Executive Vice President, Director and Secretary of
the Company; Executive Vice President and Director
of Franklin/Templeton Distributors, Inc., Executive
Vice President of Franklin Advisers, Inc.;
Director, Templeton Worldwide, Inc.,
Franklin/Templeton Investor Services, Inc.,
Franklin Bank and Franklin Mutual Advisers, Inc.;
officer and/or director, as the case may be, of
most other principal domestic subsidiaries of the
Company; officer and/or director, trustee or
managing general partner, as the case may be, of 60
of the investment companies in the Franklin
Templeton Group of Funds.
Rupert H. Johnson, Jr. 56 Executive Vice President and Director of the
Company; Director and President, Franklin Advisers,
Inc.; Director and Executive Vice President,
Franklin/Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc.,
Templeton Worldwide, Inc., Franklin Bank and
Franklin Mutual Advisers, Inc.; officer and/or
director, trustee or managing partner, as the case
may be, of most other principal domestic
subsidiaries of the Company; and of 60 of the
investment companies in the Franklin Templeton
Group of Funds.
Kenneth V. Domingues 64 Senior Vice President of the Company, Franklin
Advisers, Inc. and Franklin/Templeton Distributors,
Inc.; Chief Financial Officer and Chief Accounting
Officer from August 1986 to March 1993; officer
and/or director, as the case may be, of other
subsidiaries of the Company; and officer and/or
managing general partner, as the case may be, of 37
of the investment companies in the Franklin
Templeton Group of Funds.
Martin L. Flanagan 36 Senior Vice President, Chief Financial and
Accounting Officer and Treasurer of the Company;
Senior Vice President of Franklin Advisers, Inc.,
Executive Vice President and Director of Templeton
Worldwide, Inc.; President, Chief Executive Officer
and Director of Templeton Global Investors, Inc.;
officer of most of the subsidiaries of the Company
since March, 1993; and officer and/or director,
trustee or managing partner, as the case may be, of
most other principal domestic subsidiaries of the
Company; and of 60 of the investment companies in
the Franklin Templeton Group of Funds.
Deborah R. Gatzek 48 Senior Vice President of the Company since March
1990; General Counsel since January 1996; Vice
President of the Company from March, 1986 to March
1990; Senior Vice President, Franklin/Templeton
Distributors, Inc.; Vice President, Franklin
Advisers, Inc.; and an officer of most other
principal domestic subsidiaries of the Company; and
officer of 60 of the investment companies in the
Franklin Templeton Group of Funds.
Charles E. Johnson 40 Senior Vice President of the Company; President and
Director, Templeton Worldwide, Inc.; President,
Franklin Institutional Services Corporation and
Franklin Mutual Advisers, Inc.; Senior Vice
President, Franklin/Templeton Distributors Inc.;
Chairman, Franklin Agency, Inc.; Vice President,
Franklin Advisers, Inc.; officer and/or director,
as the case may be, of other domestic and
international subsidiaries of the Company; officer,
director, trustee or managing general partner, as
the case may be, of 39 of the investment companies
in the Franklin Templeton Group of Funds.
William J. Lippman 71 Senior Vice President since March 1990;
Director, Templeton Worldwide, Inc.; and officer
and/or director or trustee of seven of the
investment companies in the Franklin Group of
Funds. Until June 1988, President, Chief Executive
Officer, and 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.
Jennifer J. Bolt 32 Vice President of the Company since June 1994;
Executive Vice President, Franklin Bank since
August 1993; President, Franklin Capital
Corporation, since November 1993; employed by the
Company in various other capacities for more than
the past five (5) years.
Loretta Fry 64 Vice President of the Company; Vice
President, Franklin Advisers, Inc. and
Franklin/Templeton Distributors, Inc.; employed by
the Company in various administrative and
operations capacities for more than five years.
Donna S. Ikeda 40 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.
Gregory E. Johnson 35 Vice President of the Company since June 1994;
President, Franklin/Templeton Distributors, Inc.
since September 1994; Vice President, Franklin
Advisers, Inc. Prior to that time, Senior Vice
President and Assistant National Sales Manager,
Franklin/Templeton Distributors, Inc.; Employee of
Franklin Resources, Inc. and its subsidiaries in
administrative and portfolio management capacities
since January 1986; officer of one investment
company in the Franklin Group of Funds.
Gordon F. Jones 49 Vice President and Chief Information Officer of the
Company since March 1995. From March 1990 to March
1995, Vice President of Novell, Inc., a worldwide
network systems company; Vice President and Chief
Information Officer of Novell, Inc. from March 1994
to March 1995.
Leslie M. Kratter 51 Vice President of the Company since March 1993.
Employed by the Company since January 1992.
Secretary of Franklin Advisers, Inc.,
Franklin/Templeton Distributors, Inc., Templeton
Worldwide, 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.
Kenneth A. Lewis 35 Vice President and Corporate Controller of the
Company, Senior Vice President and Controller of
Templeton Worldwide, Inc., and an officer of
several other domestic subsidiaries of the Company.
</TABLE>
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. Peter M. Sacerdote,
a director of the Company, is a brother-in-law of Charles B. Johnson and Rupert
H. Johnson, Jr. Charles E. Johnson is the son of Charles B. Johnson and the
nephew of Rupert H. Johnson, Jr. and Peter Sacerdote. Gregory E. Johnson is the
son of Charles B. Johnson, the nephew of Rupert H. Johnson, Jr. and Peter
Sacerdote and the brother of Jennifer Bolt and Charles E. Johnson. Jennifer Bolt
is the daughter of Charles B. Johnson, the niece of Rupert H. Johnson, Jr. and
Peter Sacerdote, and the sister of Charles E. Johnson and Gregory E. Johnson.
Leslie M. Kratter is the spouse of Deborah R. Gatzek.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information About the Company`s Common Stock
The Company's common stock is traded on the New York Stock Exchange ("NYSE") and
the Pacific Stock Exchange under the ticker symbol BEN and the London Stock
Exchange under the ticker symbol FKR. On September 30, 1996, the closing price
of the Company's common stock on the NYSE was $66 3/8 per share. At December 2,
1996, there were approximately 2,000 shareholders of record. In addition, the
Company estimates that there are approximately 15,000 beneficial shareholders
whose shares are held in street name. The high and low sales prices by quarter
for the 1996 and 1995 fiscal years, as traded on the NYSE Composite Tape, were
as follows:
<TABLE>
<CAPTION>
1996 Fiscal Year 1995 Fiscal Year
Quarter High Low High Low
- ------------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
October-December 58 46 3/4 41 3/8 34
January-March 59 1/8 46 3/8 40 33
April-June 61 3/4 53 5/8 46 1/8 38 1/4
July-September 68 5/8 51 3/4 58 42 1/2
</TABLE>
The Company declared dividends of $0.44 per share in fiscal 1996 and $0.40 per
share in fiscal 1995. The Company expects to continue paying dividends on a
quarterly basis to common stockholders depending upon earnings and other
relevant factors.
ITEM 6. SELECTED FINANCIAL HIGHLIGHTS
(in 000's, except Assets under Management and per share amounts )
<TABLE>
<CAPTION>
SELECTED FINANCIAL HIGHLIGHTS
As of and for the years ended September 30,
In thousands,except assets under
management and per share amounts
1996 1995 1994 1993 1992
- ------------------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Operating revenues $1,522,568 $1,257,797* $1,342,541* $1,176,519* $ 749,974*
Net income $ 314,730 $ 268,945 $251,308 $ 175,522 $ 124,051
Financial Data
Total assets $2,374,167 $2,244,681 $1,968,758 $1,581,534 $ 834,287
Long-term debt $ 399,462 $ 382,367 $383,668 $ 454,820 $ 155,541
Stockholders'
equity $1,400,591 $1,161,043 $930,815 $ 720,378 $ 467,209
Assets Under
Management
(in millions) $ 151,552 $ 130,837 $ 118,172 $ 170,490 $ 69,218
Per Common Share
Earnings
Primary $3.78 $3.24 $3.00 $2.12 $1.59
Fully diluted $3.76 $3.20 $3.00 $2.10 $1.59
Cash dividends $0.44 $0.40 $0.32 $0.28 $0.26
Average stockholders' equity $15.92 $13.82 $11.09 $8.77 $5.99
</TABLE>
*Reflects reclassification of underwriting and distribution expense.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Franklin Resources, Inc. and its majority-owned subsidiaries (the "Company")
derives substantially all of its revenue and net income from providing
investment management, administration, distribution and related services to the
Franklin Templeton funds, institutional accounts and other investment products.
The Company's revenues are derived largely from the amount and composition of
assets under its management. The Company has a diversified base of assets under
management and a full range of investment products and services to meet the
needs of most individuals and institutions.
During 1996, assets under the Company's management grew to $151.6 billion, an
increase of $20.8 billion (16%) over September 30, 1995, as a result of both net
sales and market appreciation.
The Company operates in five geographic areas of the world: the United States,
Canada, the Bahamas, Europe and Asia/Pacific. At September 30, 1996, the Company
had offices in 17 countries.
The contributions to the Company's operating profits from non-U.S. operations
increased in 1996 principally as a result of an increase in fee revenue from
investment management services provided by its foreign subsidiaries. In the
future, the contribution to operating revenue and operating profit from non-U.S.
operations will be dependent upon the amount and composition of assets managed
by the Company's non-U.S. subsidiaries.
Despite the Company's global presence, its exposure to adverse fluctuations in
foreign currency markets is limited because a material portion of the foreign
subsidiaries' revenues and the majority of their monetary assets are U.S. and
Canadian dollar denominated. Furthermore, custody of a material portion of the
foreign subsidiaries' monetary assets are held with U.S. financial institutions.
Approximately 98% of the Company's operating revenues were earned in U.S. and
Canadian dollars in both 1996 and 1995. The Company has not deemed it necessary
to enter into foreign currency hedging transactions.
The Company participates in the financial derivatives markets to manage its
exposure to interest-rate fluctuations. The Company has entered into
interest-rate swap agreements to convert interest payment obligations
under-variable rate debt instruments to fixed-rate interest payment obligations.
(See Note 6 to the financial statements.)
<TABLE>
<CAPTION>
Results of Operations
For the years ended September 30,
In millions, except
per share amounts % %
and percentages 1996 1995 change 1995 1994 change
- ------------------- ------ ------ ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net income $314.7 $268.9 17% $268.9 $251.3 7%
Earnings per share:
Primary $3.78 $3.24 17% $3.24 $3.00 8%
Fully-diluted $3.76 $3.20 18% $3.20 $3.00 7%
Operating margin 27% 29% - 29% 27% -
</TABLE>
Net income for 1996 increased 17% primarily due to a 21% increase in investment
management, underwriting and distribution fee revenue generated by increased
assets under management. Operating expenses increased at a higher rate than
operating revenues during 1996, resulting in a decline in the operating margin.
Underwriting and distribution expenses increased 32%, reflecting increased sales
of retail mutual funds as well as overall increases in costs associated with
distributing the Company's products. Employment costs increased 25%, reflecting
the Company's commitment to reward excellent performance of its employees. Net
income for 1995 increased 7% primarily as a result of a 13% increase in
investment management fee revenue.
Results of operations will continue to be dependent upon general economic
growth, the strength of capital markets and the Company's ability to meet market
demands with competitive products and services. Operating revenues will be
specifically dependent upon the amount and composition of assets under
management, mutual fund sales, and the number of mutual fund investors and
institutional clients. Operating expenses are expected to increase with the
Company's continued expansion, the increase in competition and the Company's
continued commitment to improving its products and services. These endeavors
will likely result in an increase in selling expenses, employment costs, and
other general and administrative expenses.
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT
As of the years ended September 30,
In billions 1996 1995 1994
- ---------------------------------- ------- -------- -------
<S> <C> <C> <C>
Franklin Templeton Group:
Fixed-income funds:
Tax-free income $42.5 $40.4 $39.4
U.S. government fixed-income
(primarily GNMAs) 15.6 14.7 14.7
Taxable and tax-free money funds 2.8 2.8 2.6
Global/international
fixed-income 2.9 2.8 2.5
- ---------------------------------- ------- -------- -------
Total fixed-income funds 63.8 60.7 59.2
Equity/income funds:
Global/international equity 47.2 36.0 28.1
U.S. equity/income 19.2 17.2 17.5
- ---------------------------------- ------- -------- -------
Total equity/income funds 66.4 53.2 45.6
Total Franklin Templeton
fund assets 130.2 113.9 104.8
Franklin Templeton
institutional assets 21.4 16.9 13.4
- ---------------------------------- ------- -------- -------
Total Franklin Templeton Group $151.6 $130.8 $118.2
Changes in Assets Under Management
As of and for the years ended September 30,
In billions 1996 1995 1994
- ---------------------------------- ------- -------- -------
<S> <C> <C> <C>
Assets under management - beginning $130.8 $118.2 $107.5
Sales and reinvestments,
net of underwriting commissions 35.7 27.9 41.1
Redemptions (21.5) (22.5) (28.8)
Market appreciation/(depreciation) 6.6 7.2 (1.6)
- ---------------------------------- ------- -------- -------
Assets under management - ending $151.6 $130.8 $118.2
</TABLE>
Assets under the Company's management increased by $20.8 billion (16%) in fiscal
1996, $12.6 billion (11%) in fiscal 1995 and $10.7 billion (10%) in fiscal 1994,
respectively.
As shown in the previous table, the composition of assets under management has
changed over the past three years. This development is a result of changes in
relative sales, redemptions and market value among the specific asset classes.
Fixed-income funds represented 42% of assets under management at September 30,
1996 as compared to 46% and 50% at September 30, 1995 and 1994, respectively.
This trend reflects investors' recent preference for equity/income funds and the
relatively higher level of market appreciation of those funds during the periods
under review. Equity/income funds represented 44% of assets under management at
September 30, 1996, as compared to 41% and 39% at September 30, 1995 and 1994,
respectively.
Institutional assets under management, comprised of predominantly
global/international equity portfolios, represented 14%, 13% and 11% of the
Company's assets under management at September 30, 1996, 1995 and 1994,
respectively, and is consistent with the growth rate experienced with the
Company's other equity products. The Company continues to expand the services it
provides in this area.
Operating Revenues
Investment management fees:
For the years ended September 30,
In millions 1996 1995 1994
- --------------------------- -------- --------- --------
Revenues $883.8 $731.3 $647.7
12- month average assets
under management $141,078 $121,666 $115,443
The Company's revenues from investment management fees are derived primarily
from contractual fixed-fee arrangements that are based upon the level of assets
under management with open-end and closed-end investment companies and managed
accounts. Under the various investment management agreements, annual rates vary
and generally decline as the average net assets of the portfolios exceed certain
threshold levels. Investment management services provided to Franklin Templeton
funds are reviewed and approved annually by each fund's Board of
Directors/Trustees. There have been no significant changes in the investment
management fee structures for the Franklin Templeton funds in the periods under
review.
Investment management fees for 1996 increased $152.5 million (21%) over 1995,
which increased $83.6 million (13%) over 1994. Management fees grew at a faster
rate than average assets under management in both 1996 and 1995. This was the
result of a shift in composition of average assets under management to higher
fee equity and income funds during the years under consideration.
Underwriting and distribution fees:
For the years ended September 30,
In millions 1996 1995 1994
Revenues $545.0 $449.1 $626.3
Gross fund sales of products
subject to commissions $23,018 $15,458 $22,460
Revenues from underwriting commissions are earned primarily from fund sales.
Most sales of Franklin Templeton funds include a sales commission, of which a
significant portion is reallowed to selling intermediaries. Certain subsidiaries
of the Company act as distributors for its sponsored mutual funds and receive
distribution fees, including 12b-1 fees, from those funds in reimbursement for
distribution expenses incurred. A significant portion of distribution fees are
reallowed to selling intermediaries. Distribution fees are generally based on
the level of assets under management.
Underwriting and distribution fees increased 21% in 1996 largely due to
increased retail mutual fund sales partially offset by a decrease in effective
commission rates. Effective commission rates declined as relative sales of
products with lower commission rates such as Class II shares and annuity
products increased. Underwriting and distribution fees for 1995 decreased 28%
due to lower retail mutual fund sales and changes made to fund commission
structures.
Shareholder servicing fees:
For the years ended September 30,
In millions 1996 1995 1994
- ----------------------------- -------- -------- --------
Revenues $88.7 $68.7 $54.6
Number of accounts 5.4 4.7 4.4
Shareholder servicing fees are generally fixed charges per account which vary
with the particular type of fund and the service being rendered.
Shareholder servicing fees for 1996 increased $20.0 million (29%). This increase
was in part the result of a 15% increase in retail fund shareholder accounts.
Also, effective July 1, 1995, approximately 85 of the Company's U.S. mutual
funds consisting of approximately 2.5 million shareholder accounts implemented
an average annual increase of $4 per shareholder account.
Shareholder servicing fees for 1995 increased $14.1 million (26%). The increase
was due to an increase in retail shareholder accounts and the fee increase
described above.
<TABLE>
<CAPTION>
Banking/finance, net and other:
For the years ended September 30,
In millions, except percentages 1996 1995 1994
- ----------------------------------- ------- ------- --------
<S> <C> <C> <C>
Revenues $ 47.3 $ 54.5 $ 31.5
Provision for loan losses (16.7) (17.2) (5.4)
Interest expense (25.6) (28.6) (12.2)
- ----------------------------------- ------- ------- --------
$ 5.0 $ 8.7 $ 13.9
Yield on average earning assets 8.8% 9.0% 9.6%
Cost of average interest-bearing liabilities 6.4% 5.9% 4.7%
</TABLE>
Banking/finance, net and other decreased 43% in 1996 as compared to a 37%
decrease in 1995. 1996 revenues and related interest expense decreased in large
part due to a 23% reduction in the net loan receivable balance as the Company's
more stringent underwriting policies have resulted in a decrease in the number
of new loans written. The provision for loan losses has decreased in 1996 due to
a reduction in delinquency rates, with 4.0% past due at the end of 1996 as
compared to 5.3% at the end of 1995. Actual charge-offs have increased 24% in
1996 as the Company has aggressively written off accounts it deems
uncollectible.
The Company substantially increased its auto loan portfolio during fiscal year
1994 as it expanded this business activity. Because a substantial portion of the
portfolio was new, the impact of delinquency and loss trends was not fully
reflected in the financial performance of the Company until fiscal 1995. The
decrease in banking/finance, net and other in 1995 was due primarily to an
increase in the provision for loan losses and interest expense attributable to
the banking/finance group.
Commencing in 1994, a portion of the banking/finance group's loans receivable
were financed through the Company. The interest expense on the amount funded by
the Company was $8.5 million and $18.3 million in 1996 and 1995, respectively.
The decrease during 1996 was a result of decreased borrowings needed to fund the
auto loan and credit card portfolios.
Operating Expenses
For the years ended September 30,
In millions 1996 1995 1994
- ------------------------------ --------- -------- --------
Underwriting and distribution $542.4 $412.0 $529.8
Employee related 325.1 260.1 251.3
General and administrative 148.0 129.1 107.3
Advertising and promotion 71.7 70.1 69.1
Amortization of intangible assets 18.3 18.3 18.3
- ------------------------------ --------- -------- --------
$1,105.5 $889.6 $975.8
Underwriting and distribution includes sales commissions and distribution fees
paid to brokers and other third party intermediaries. During 1995, many of the
U.S. Franklin and Templeton funds introduced a new class of shares, called Class
II shares, which pay brokers sales commissions and distribution fees that are
only partially recovered by the Company through distribution fee revenues.
During 1996, distribution expenses increased at a greater rate than distribution
revenues because of the relatively higher growth in the sales of Class II shares
and similar products sold primarily by the Company's Canadian subsidiary. In
1995, underwriting and distribution expenses decreased primarily due to the
decrease in the sales of retail mutual fund shares.
While Class II shares will increase distribution expenses of the Company and
will utilize the Company's capital resources over the short term, the Company
believes that Class II shares will result in an overall increase in assets under
management by expanding distribution of fund shares. Sales of Class II shares
represented 12% and 8% of total U.S.-based long-term mutual fund new sales for
1996 and 1995, respectively.
In 1994, the Company implemented an annual incentive plan which provides
eligible employees payment of both cash and restricted stock. The value of the
stock associated with the annual incentive plan is charged to income currently
and is determined by the Company's Board of Directors based on individual
performance and the Company's profit. Costs associated with restricted stock
awards granted prior to the adoption of the annual incentive plan are amortized
over the contract period. These deferred incentives vest through 1997. Employee
related costs increased 25% and 4% in 1996 and 1995, respectively, reflecting
changes in profitability of the corporation and in the number of full-time
employees. The number of full-time employees increased 9% and 10% in 1996 and
1995, respectively.
General and administrative expense increased in all periods under review due
principally to higher technology and occupancy costs related to the general
expansion of the business.
Other Income (Expenses)
The 1996 and 1995 increases in investment and other income resulted from
increases in the average levels of interest-bearing assets, as well as $17.3
million and $2.5 million in capital gains realized on the sale of investments,
in 1996 and 1995, respectively.
The Company's effective interest rate at September 30, 1996, including interest
on the banking/finance group debt, was 6.53% on $399.2 million of outstanding
commercial paper, medium-term notes and subordinated debentures as compared to
6.17% on $465.9 million of debt outstanding at September 30, 1995.
Taxes on Income
The Company's effective tax rate was 31%, 30% and 31% in 1996, 1995 and 1994,
respectively. The Company's effective tax rate differs from the U.S. statutory
rates due to the Company's non-U.S. subsidiaries' relative contributions to
taxable income. The Company does not provide taxes on these earnings, as they
have been reinvested and are not expected to be remitted to the parent Company.
The effective tax rate will continue to be reflective of the relative
contribution of foreign earnings which are subject to reduced tax rates and are
not currently included in U.S. taxable income.
Financial Condition, Liquidity and Capital Resources
As of September 30, 1996, stockholders' equity approximated $1.4 billion, double
that of three years earlier, principally as the result of increased net income.
Cash provided by operating activities increased to $359.6 million in 1996, up
from $296.5 million and $274.8 million in 1995 and 1994, respectively, primarily
from increased net income. Net cash provided by investing activities in 1996
increased principally due to a decrease in loan originations, an increase in the
collections of banking/finance loans receivable and from proceeds from the
liquidation of investments in preparation for the acquisition of the assets and
liabilities of Heine Securities Corporation as discussed below. The Company used
net cash of $193.7 million in 1996 for financing activities. The issuance of
$134.4 million in medium-term notes and commercial paper was offset by $203.1
million in payments on debt. The Company paid $34.7 million in dividends to
stockholders. During the year, the Company purchased 1.0 million shares of its
common stock for $53.4 million. As of September 30, 1996, the Company had 3.9
million shares remaining under its authorized repurchase program. The Company
will continue from time to time to purchase its own shares in the open market
and in private transactions for use in connection with various corporate
employee incentive programs and when it believes the market price of its shares
merits such action.
The Company's auto loan and credit card receivables business activities are
subject to significant fluctuations in those consumer market places as well as
to significant competition from companies with much larger receivable
portfolios. Auto loan and credit card portfolio losses can also be influenced
significantly by trends in the economy and credit markets which negatively
impact borrowers' ability to repay loans. As of September 30, 1996,
banking/finance loans receivable decreased due to net paydowns of existing loans
and a decrease in funding of new loans. A portion of the proceeds from net
paydowns of loans was used to reduce the receivable from the banking/finance
group. As of September 30, 1996, the auto loan portfolio consisted of
approximately 55% new and 45% used cars. Approximately 75% of the auto loans
outstanding were in California, approximately 10% in New Mexico and the balance
distributed throughout the western United States. The Company has experienced a
decrease in delinquency rates since September 30, 1995, in response to its
expanded auto loan collection efforts and enhanced systems supporting those
activities. Future increases in the Company's investment in dealer auto loan and
credit card portfolios will be funded through existing debt facilities and
operating cash flows.
At September 30, 1996, the Company held liquid assets of $889.9 million,
including $502.2 million of cash and cash equivalents, as compared to $643.2
million and $261.7 million, respectively, at September 30, 1995. During 1996 the
Company maintained a $400 million commercial paper program and a $300 million
medium-term note program. The Company has also established two revolving credit
and competitive auction facilities as back-up for the commercial paper program.
At September 30, 1996, total back-up credit facilities were $400 million of
which, $150 million was under a 364-day revolving credit facility. The remaining
$250 million back-up facility has a five-year term. At September 30, 1996,
approximately $750 million was available to the Company under unused credit
facilities. In October 1996, the Company increased the amounts available for
issuance under its medium-term note program from $100 million to $500 million.
In November 1996, the holders of the subordinated debentures exercised their
option to receive approximately 2.4 million shares of the Company's common stock
in return for the surrender of approximately $75 million of debentures. The
holders of the subordinated debentures also agreed to sell to the Company the
remaining option rights and surrender the remaining debentures for cash of
approximately $170 million. The transaction will be funded through available
cash and the issuance of medium-term notes.
On November 1, 1996, the Company and Heine Securities Corporation announced they
had merged their businesses in a transaction with an approximate aggregate value
of $615 million. The Company financed the transaction with 1.1 million shares of
the Company's common stock and a cash payment of $550 million from cash and
securities on hand, as well as its available commercial paper.
In addition to the aforementioned Heine Securities Corporation acquisition and
subordinated debenture option exercise, management expects that the principal
needs for cash will be to fund increased property and equipment acquisitions,
pay shareholder dividends, repurchase shares of the Company's common stock and
repay debt and advance sales commissions for Class II shares and Canadian
products. Management believes that the Company's existing liquid assets,
together with the expected continuing cash flow from operations, its ability to
issue stock, and its borrowing capacity under current credit facilities, will be
sufficient to meet its present and reasonably foreseeable cash needs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index Of Consolidated Financial Statements for the years
ended September 30, 1996, 1995 and 1994
CONTENTS
Consolidated Financial Statements of Franklin Resources, Inc.:
Pages
Report of Independent Accountants
Consolidated Balance Sheets
September 30, 1996 and 1995
Consolidated Statements of Income, for the years ended
September 30, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity,
for the years ended September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows,
for the years ended September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
All schedules have been omitted as the information is provided in the financial
statements or in related notes thereto or is not required to be filed as the
information is not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Franklin Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Franklin
Resources, Inc. and subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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 audits provide a reasonable basis for our opinion.
In our opinion, the 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
San Francisco, California
October 23, 1996, except for Note 14,
for which the date is November 26, 1996
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For the years ended September 30,
- ----------------------------------------------- ------------------ ----------------- ------------------
In thousands, except share data 1996 1995 1994
- ----------------------------------------------- ------------------ ----------------- ------------------
Operating Revenues:
<S> <C> <C> <C>
Investment management fees $883,779 $731,252 $647,675
Underwriting and distribution fees 545,039 449,141 626,341
Shareholder servicing fees 88,715 68,701 54,613
Banking/finance, net and other 5,035 8,703 13,912
- ----------------------------------------------- ------------------ ----------------- ------------------
Total operating revenues 1,522,568 1,257,797 1,342,541
- ----------------------------------------------- ------------------ ----------------- ------------------
Operating Expenses:
Underwriting and distribution 542,359 411,994 529,771
Employee related 325,135 260,097 251,337
General and administrative 147,963 129,122 107,348
Advertising and promotion 71,655 70,138 69,073
Amortization of intangible assets 18,348 18,305 18,311
- ----------------------------------------------- ------------------ ----------------- ------------------
Total operating expenses 1,105,460 889,656 975,840
- ----------------------------------------------- ------------------ ----------------- ------------------
Operating income 417,108 368,141 366,701
Other Income (Expenses):
Investment and other income 50,458 29,673 22,703
Interest expense (11,336) (11,159) (26,883)
- ----------------------------------------------- ------------------ ----------------- ------------------
Other income (expenses), net 39,122 18,514 (4,180)
- ----------------------------------------------- ------------------ ----------------- ------------------
Income before taxes on income 456,230 386,655 362,521
Taxes on income 141,500 117,710 111,213
- ----------------------------------------------- ------------------ ----------------- ------------------
Net income $314,730 $268,945 $251,308
- ----------------------------------------------- ------------------ ----------------- ------------------
Earnings per Share:
Primary $3.78 $3.24 $3.00
Fully diluted $3.76 $3.20 $3.00
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
As of the years ended September 30,
- ------------------------------------------------------------ -------------------
In thousands 1996 1995
- ------------------------------------------------------------- ---------------
Assets
Current Assets:
Cash and cash equivalents $483,975 $246,184
Receivables:
Fees from Franklin Templeton funds 133,453 110,972
Other 54,727 38,407
Investment securities, available-for-sale 174,156 208,478
Prepaid expenses and other 9,952 7,167
- ------------------------------------------------------------- ---------------
Total current assets 856,263 611,208
- ------------------------------------------------------------- ---------------
Banking/Finance Assets:
Cash and cash equivalents 18,214 15,515
Loans receivable, net 345,399 450,013
Investment securities, available-for-sale 25,325 23,655
Other 4,660 6,876
- ------------------------------------------------------------- ---------------
Total banking/finance assets 393,598 496,059
- ------------------------------------------------------------- ---------------
Other Assets:
Deferred sales commissions, net 24,316 8,473
Property and equipment, net 161,613 118,628
Intangible assets, net of $74,027 and $56,375
accumulated amortization, respectively 641,983 660,363
Receivable from banking/finance group 236,532 302,273
Other 59,862 47,677
Total other assets 1,124,306 1,137,414
- ------------------------------------------------------------- ---------------
Total assets $2,374,167 $2,244,681
- ------------------------------------------------------------- ---------------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
As of the years ended September 30,
In thousands 1996 1995
- ------------------------------------- --------- ----------
Liabilities and Stockholders' Equity
Current Liabilities:
Accrued employee related $77,935 $53,238
Commissions payable 28,067 21,280
Income taxes payable 27,673 8,221
Short-term debt 427 87,204
Other 48,099 43,128
- ----------------------------------------- ---------- -----------
Total current liabilities 182,201 213,071
- ----------------------------------------- ---------- -----------
Banking/Finance Liabilities:
Deposits:
Interest bearing 125,124 159,627
Non-interest bearing 6,095 9,747
Payable to parent 236,532 302,273
Other 1,725 2,076
- ----------------------------------------- ---------- -----------
Total banking/finance liabilities 369,476 473,723
- ----------------------------------------- ---------- -----------
Other Liabilities:
Long-term debt 399,462 382,367
Other 22,437 14,477
- ----------------------------------------- ---------- -----------
Total other liabilities 421,899 396,844
- ----------------------------------------- ---------- -----------
Total liabilities 973,576 1,083,638
- ----------------------------------------- ---------- -----------
Stockholders' Equity:
Preferred stock, $1.00 par value,
1,000,000 shares authorized; none issued - -
Common stock, $.10 par value, 500,000,000
shares authorized; 82,264,982 shares
issued in both years; and 80,272,131 and
80,939,611 shares outstanding, for 1996
and 1995, respectively 8,226 8,226
Capital in excess of par value 101,226 92,190
Retained earnings 1,370,513 1,091,204
Less cost of treasury stock (90,301) (48,519)
Other 10,927 17,942
- ----------------------------------------- ---------- -----------
Total stockholders' equity 1,400,591 1,161,043
- ----------------------------------------- ---------- -----------
Total liabilities and stockholders' equity $2,374,167 $2,244,681
- ----------------------------------------- ---------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
As of and for the years ended September 30, 1996, 1995 and 1994
Capital in Treas-
Common Stock Excess of Retained ury Stock
In thousands Shares Amount Par Value Earnings Shares Amount Other Total
- ---------------- ------ ------ -------- ---------- ------- -------- ------- ----------
Balance,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
October 1, 1993 82,099 $8,210 $83,683 $630,399 - - $(1,914) $720,378
Net income 251,308 251,308
Unrealized
gain on
investment
securities, 1,836 1,836
net of tax
Foreign currency
translation 352 352
adjustment
Purchase of
treasury stock (672) $(26,410) (26,410)
Cash dividends
on common stock (26,194) (26,194)
Issuance of
restricted
shares, net 119 11 6,797 5 1,001 (72) 7,737
Other 47 5 1,803 1,808
- ---------------- ------ ------ -------- ---------- ------- -------- ------- ---------
Balance,
September 30,
1994 82,265 8,226 92,283 855,513 (667) (25,409) 202 930,815
Net income 268,945 268,945
Unrealized gain
on investment
securities,
net of tax 13,745 13,745
Foreign currency
translation 835 835
adjustment
Purchase of
treasury stock (1,126) (41,749) (41,749)
Cash dividends
on common stock (33,254) (33,254)
Issuance of
restricted
shares, net (48) 431 17,121 3,160 20,233
Other (45) 37 1,518 1,473
- ---------------- ------ ------ -------- ---------- ------- -------- ------- ----------
Balance,
September 30,
1995 82,265 8,226 92,190 1,091,204 (1,325) (48,519) 17,942 1,161,043
Net income 314,730 314,730
Unrealized loss
on investment
securities,
net of tax (10,644) (10,644)
Foreign currency
translation
adjustment (752) (752)
Purchase of
treasury stock (1,001) (53,413) (53,413)
Cash dividends
on common stock (35,421) (35,421)
Issuance of
restricted
shares, net 9,672 280 9,777 4,381 23,830
Other (636) 53 1,854 1,218
Balance,
September 30,
1996 82,265 $8,226 $101,226 $1,370,513 (1,993) $(90,301) $10,927 $1,400,591
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30,
In thousands 1996 1995 1994
- ----------------------------------- ---------- --------- ----------
<S> <C> <C> <C>
Net Income $314,730 $268,945 $251,308
Adjustments to reconcile net income to
net cash provided by operating
activities:
Decrease (increase) in receivables
prepaid expenses and other (33,405) (9,525) 1,339
Increase in deferred sales
commissions, net (15,843) (5,422) (1,197)
Increase (decrease) in other
current liabilities 3,315 (2,529) (54,670)
Increase (decrease) in income
taxes payable 19,452 (9,405) 12,115
Increase in commissions payable 6,787 19,191 498
Increase (decrease) in accrued
employee related 41,328 (3,137) 30,117
Depreciation and amortization 40,491 40,940 36,693
Gains on disposition of assets (17,272) (2,604) (1,396)
- --------------------------------------- --------- -------- --------
Net cash provided by operating
activities 359,583 296,454 274,807
- --------------------------------------- --------- --------- ---------
Purchase of investments (70,768) (130,194) (39,660)
Liquidation of investments 107,287 90,869 30,654
Purchase of banking/finance investments (60,936) (110,163) (97,570)
Liquidation of banking/finance
investments 59,316 113,265 140,547
Originations of banking/finance loans
receivable (103,532) (222,341) (310,744)
Collections of banking/finance loans
receivable 207,664 146,963 42,529
Purchase of property and equipment (64,419) (40,365) (39,153)
- --------------------------------------- --------- -------- --------
Net cash provided by (used in)
investing activities 74,612 (151,966) (273,397)
- --------------------------------------- --------- -------- --------
Decrease in bank deposits (38,155) (21,525) (3,937)
Dividends paid on common stock (34,650) (31,688) (25,415)
Purchase of treasury stock (53,413) (41,749) (26,410)
Issuance of debt 134,377 34,254 399,431
Payments on debt (203,083) (32,832) (437,813)
Other 1,219 375 158
- --------------------------------------- --------- -------- --------
Net cash used in financing
activities (193,705) (93,165) (93,986)
- --------------------------------------- --------- -------- --------
Increase (decrease) in cash and (92,576)
cash equivalents 240,490 51,323
Cash and cash equivalents, beginning
of year 261,699 210,376 302,952
Cash and cash equivalents, end of year $502,189 $261,699 $210,376
- --------------------------------------- --------- -------- --------
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the year for:
Interest, including banking/finance
group interest $36,619 $28,129 $31,004
Income taxes $122,486 $125,496 $98,691
Supplemental Disclosure of Non-Cash Information:
Value of common stock issued $18,667 $18,546 $8,044
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Resources, Inc. and its consolidated subsidiaries (the Company) derives
substantially all of its revenues and net income from providing investment
management, administration, distribution and related services to the Franklin
Templeton funds, institutional accounts and other investment products 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. Services to the
Franklin Templeton funds are provided 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. Currently, no fund represents more than 10%
of total revenues. Company revenues are largely dependent on the total value and
composition of assets under management, which include domestic and international
equity and debt portfolios; accordingly, fluctuations in financial markets and
in the composition of assets under management impact revenues and results of
operations.
BASIS OF PRESENTATION
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles which require the use of estimates made by the
Company's management. Certain 1995 and 1994 amounts have been reclassified to
conform to 1996 presentation.
The consolidated financial statements include the accounts of Franklin
Resources, Inc. and its majority-owned subsidiaries. All material intercompany
accounts and transactions are eliminated except the intercompany payable from
the banking/finance group to the parent to fund auto and credit card loans.
Operating revenues of the banking/finance group are presented net of interest
expense and the provision for loan losses. Reported interest expense excludes
interest expense attributable to the banking/finance group.
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. Due to
the relatively short-term nature of these instruments, the carrying value
approximates fair value.
INVESTMENT SECURITIES
The Company's investments in the Franklin Templeton funds and other securities
available-for-sale are carried at fair value. Fair values for investments in
Franklin Templeton funds are based on the last reported net asset value. Fair
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 management's estimate of fair value.
Realized gains and losses are included in investment income currently based on
specific identification. Unrealized gains and losses are reported net of tax as
a separate component of stockholders' equity until realized.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to 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 term of the agreements. The
carrying value of these instruments approximated fair value (see Note 6).
LOANS RECEIVABLE
Interest on auto installment loans is accrued principally using the rule of 78s
method, which approximates the interest method. Interest on all other loans is
accrued using the simple interest method. An allowance for loan losses is
established monthly based on historical experience, including delinquency and
loss trends. A loan is charged to the allowance when it is deemed to be
uncollectible, taking into consideration the value of the collateral, the
financial condition of the borrower and other factors. Recoveries on loans
previously charged off as uncollectible are credited to the allowance for loan
losses.
DEFERRED SALES COMMISSIONS
Sales commissions paid to financial intermediaries in connection with the sale
of certain share classes of open-end Franklin Templeton funds are deferred and
amortized on a straight-line basis over a period of up to eighteen months for
U.S.-based funds, forty months for Canadian-based funds and four years for
European funds.
PROPERTY AND EQUIPMENT
Property 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.
INTANGIBLE ASSETS
At September 30, 1996 and 1995, intangible assets consist principally of the
excess of cost over fair market value of the Company's acquisition of Templeton,
which is being amortized on a straight-line basis over a period of forty years.
The Company has evaluated the potential impairment of goodwill on the basis of
the expected future operating cash flows to be derived from this intangible
asset in relation to the Company's carrying value and has determined that there
is no impairment. Periodically, the Company will review the carrying value of
goodwill for potential impairment.
RECOGNITION OF REVENUES
Investment management, shareholder servicing fees, investment income and
distribution fees are all accrued as earned. Underwriting commissions related to
the sale of Franklin Templeton fund shares are recorded on the trade date.
ADVERTISING AND PROMOTION
Costs of advertising and promotion are expensed as the advertising appears in
the media.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated at current
exchange rates as of the end of the accounting period, and related revenues and
expenses are translated at average exchange rates in effect during the period.
Net exchange gains and losses resulting from translation are excluded from
income and are recorded as a separate component of stockholders' equity. Foreign
currency transaction gains and losses are reflected in income currently.
EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents (principally
restricted stock and debenture option rights) considered outstanding during each
year. The weighted average number of shares and common stock equivalents used in
computing earnings per share in 1996, 1995, and 1994 were 83,313,000,
83,114,000, and 83,709,000 for primary and 83,761,000, 84,031,000, and
83,709,000 for fully diluted, respectively.
<TABLE>
<CAPTION>
2. INVESTMENT SECURITIES
Investments at September 30, 1996 and 1995 consisted of the following:
1996
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- ------------------------ -------- --------- --------- ---------
Investment securities
available-for-sale:
<S> <C> <C> <C> <C>
Franklin Templeton funds $116,146 $12,993 $- $129,139
Debt 10,841 240 - 11,081
Equities 1,578 2,332 (61) 3,849
Other 30,068 19 - 30,087
-------- -------- --------- ---------
$158,633 $15,584 $(61) $174,156
Banking/finance group
investment portfolio:
U.S. treasury and other
U.S. government agency $25,267 $38 $(91) $25,214
Other 110 1 - 111
-------- -------- --------- ---------
$25,377 $39 $(91) $25,325
1995
------------------ ----------------- ------------------ -------------------
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- --------------------------------------------- ------------------ ----------------- ------------------ -------------------
Investment securities
available-for-sale:
Franklin Templeton funds $125,253 $14,638 $(5,957) $133,934
Debt 21,031 638 (563) 21,106
Equities 2,366 23,895 (68) 26,193
Other 26,991 255 (1) 27,245
-------------- ----------------- ------------------ -------------------
$175,641 $39,426 $(6,589) $208,478
-------------- ----------------- ------------------ -------------------
Banking/finance group
investment portfolio:
U.S. treasury and other
U.S. government agency $23,675 $91 $(222) $23,544
Other 110 1 - 111
-------------- ----------------- ------------------ -------------------
$23,785 $92 $(222) $23,655
</TABLE>
Investments in the Franklin Templeton funds are shares of investment companies
for which the Company acts as investment manager.
At September 30, 1996, debt securities, at fair value which approximates
amortized cost, are as follows:
Banking/ Other
Finance Debt
In thousands Group Securities
- ---------------------------- -------- --------
Maturity:
0-1 year $23,190 $2,476
1-5 years 2,024 4,776
Greater than 5 years - 3,829
-------- ---------
$25,214 $11,081
3. BANKING/FINANCE GROUP LOANS AND ALLOWANCE FOR LOAN LOSSES The banking/finance
group's loans at September 30, 1996 and 1995 consisted of the following:
In thousands 1996 1995
- ------------------------------- -------- ---------
Auto $284,141 $400,867
Credit card 87,527 95,040
Other 6,387 6,000
-------- ---------
378,055 501,907
Unearned fees and discounts (23,092) (42,813)
Allowance for loan losses (9,564) (9,081)
-------- ---------
Loans receivable, net $345,399 $450,013
Activity in the banking/finance group's allowance for loan losses for the years
ended September 30, 1996, 1995, and 1994 was as follows:
In thousands 1996 1995 1994
- ---------------------------- --------- --------- ---------
Beginning balance $9,081 $3,170 $1,472
Provision for loan losses 16,691 17,189 5,415
Loans charged off (18,485) (14,879) (4,390)
Recoveries 2,277 3,601 673
- ---------------------------- --------- --------- ---------
Ending balance $9,564 $9,081 $3,170
For the years ended September 30, 1996, 1995, and 1994, the interest expense of
the banking/finance group included in banking/finance, net and other revenues
was $25.6 million, $28.6 million, and $12.2 million, respectively.
The fair value of consumer loans is estimated using interest rates that consider
the current credit and interest rate risk inherent in the loans and current
economic and lending conditions. At September 30, 1996 and 1995, the carrying
value of loans receivable approximated fair value.
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 using interest rates
currently offered on time deposits with similar remaining maturities. At
September 30, 1996 and 1995, the carrying values of deposits subject to
immediate withdrawal and of fixed-rate certificates of deposit approximated fair
value.
4. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at September 30, 1996 and
1995:
Estimated
Useful Lives
In thousands in Years 1996 1995
- ---------------------------- ----------- -------- ---------
Furniture and equipment 3-5 $114,228 $88,769
Premises and leasehold
improvements 5-35 92,493 70,011
Leased equipment 5 2,451 7,456
Land -- 23,811 9,984
-------- ---------
232,983 176,220
Less: Accumulated depreciation
and amortization (71,370) (57,592)
-------- ---------
$161,613 $118,628
5. SEGMENT INFORMATION
The Company conducts operations in five principal geographic areas of
the world: USA, Canada, the Bahamas, Europe and Asia/Pacific. Revenue
by geographic area includes fees and commissions charged to customers
and fees charged to affiliates. Identifiable assets are those assets
used exclusively in the operations of each geographic area.
Information is summarized below:
<TABLE>
<CAPTION>
1996
Adjustment
and
Asia/ Elimin- Consol-
In thousands USA Canada Bahamas Europe Pacific ation idated
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Revenues from:
<S> <C> <C> <C> <C> <C> <C> <C>
Unaffiliated
customers $1,107,255 $100,602 $174,250 $31,753 $108,708 -- $1,522,568
Affiliates 34,452 509 1,773 13,742 5,982 $(56,458) --
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total $1,141,707 $101,111 $176,023 $45,495 $114,690 $(56,458) $1,522,568
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Operating
income/
(loss) $193,821 $29,131 $115,826 $742 $77,588 -- $417,108
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Identifiable
assets $848,156 $69,547 $432,088 $24,912 $154,503 -- $1,529,206
Corporate
assets -- -- -- -- -- $844,961 844,961
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total
assets $848,156 $69,547 $432,088 $24,912 $154,503 $844,961 $2,374,167
- ------------ ---------- -------- -------- -------- -------- --------- ----------
1995
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Adjust-ment
and
Asia/ Elimin- Consol-
In thousands USA Canada Bahamas Europe Pacific ation idated
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Revenues from:
Unaffiliated
customers $948,728 $67,326 $133,545 $25,471 $82,727 -- $1,257,797
Affiliates 17,080 492 1,606 10,903 7,160 $(37,241) --
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total $965,808 $67,818 $135,151 $36,374 $89,887 $(37,241) $1,257,797
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Operating
income/(loss) $199,615 $22,362 $90,393 $(1,770) $57,541 -- $368,141
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Identifiable
assets $819,287 $43,589 $438,859 $23,681 $138,213 -- $1,463,629
Corporate
assets -- -- -- -- -- $781,052 781,052
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total
assets $819,287 $43,589 $438,859 $23,681 $138,213 $781,052 $2,244,681
- ------------ ---------- -------- -------- -------- -------- --------- ----------
1994
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Adjust-ment
and
Asia/ Elimin- Consol-
In thousands USA Canada Bahamas Europe Pacific ation idated
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Revenues from:
Unaffiliated
customers $1,099,405 $50,919 $103,677 $33,509 $55,031 -- $1,342,541
Affiliates 8,699 510 1,040 567 6,214 $(17,030) --
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total $1,108,104 $51,429 $104,717 $34,076 $61,245 $(17,030) $1,342,541
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Operating
income/
(loss) $242,137 $15,978 $70,161 $(1,711) $40,136 -- $366,701
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Identifiable
assets $726,224 $39,500 $448,205 $22,443 $139,748 -- $1,376,120
Corporate
assets -- -- -- -- -- $592,638 592,638
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total
assets $726,224 $39,500 $448,205 $22,443 $139,748 $592,638 $1,968,758
Summarized below are the business segments:
</TABLE>
1996
---------- ---------- ---------
Operating
Identifi-able Income
In thousands Assets Revenue (Loss)
- ----------------------------- ---------- ---------- ---------
Investment management $1,124,229 $1,517,533 $429,348
Banking/finance 393,598 3,179 (11,090)
Other 11,379 1,856 (1,150)
---------- ---------- ---------
Company totals $1,529,206 $1,522,568 $417,108
1995
---------- ---------- ---------
Investment management $958,200 $1,249,094 $379,288
Banking/finance 496,059 6,841 (10,217)
Other 9,370 1,862 (930)
---------- ---------- ---------
Company totals $1,463,629 $1,257,797 $368,141
1994
---------- ---------- ---------
Investment management $923,894 $1,328,629 $365,566
Banking/finance 443,420 12,625 2,537
Other 8,806 1,287 (1,402)
---------- ---------- ---------
Company totals $1,376,120 $1,342,541 $366,701
The investment management segment's assets are primarily receivables from, and
investments in, Franklin Templeton funds and goodwill from the acquisition of
Templeton. The banking/finance segment's assets are primarily investment
securities and consumer loans.
6. DEBT
Debt at September 30, 1996 and 1995 was as follows:
1996
Weighted
Average
Effective
Interest
In thousands Rate 1996 1995
------- ------- -------
Short-Term Debt:
Current maturities of other notes
and capital lease obligations -- $427 $1,283
Commercial paper -- -- 85,921
------- ------- -------
Total short-term debt $427 $87,204
------- ------- -------
Long-Term Debt:
Notes payable 6.57% $120,000 $80,000
Commercial paper issued under
long-term borrowing agreements 6.04% 128,731 150,000
Subordinated debentures 6.69% 150,000 150,000
Other notes and capital lease
obligations 731 2,367
------- -------
Total long-term debt $399,462 $382,367
Maturities of long-term debt excluding other notes and capital lease obligations
are as follows (in thousands):
1997 $128,731
1998 60,000
2001 60,000
Thereafter 150,000
---------
$398,731
The Company has two back-up credit agreements with a group of commercial banks
that will allow it at its option to refinance the commercial paper up to five
years from the closing date, May 17, 1996. In accordance with the Company's
intention and ability to refinance these obligations on a long-term basis, the
outstanding balance of $128.7 million at September 30, 1996 has been classified
long-term. The credit agreements include 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, 1996.
At September 30, 1996, the Company had interest-rate swap agreements maturing
August through September 1999 which effectively fixed interest rates on $125
million of commercial paper. The fixed rates of interest ranged from 6.240% to
6.451%. These financial instruments are placed with major financial
institutions. The creditworthiness of the counterparties is subject to
continuous review and full performance is anticipated. Any potential loss from
failure of the counterparties to perform is deemed to be immaterial. Subsequent
to year end, the Company entered into agreements to fix interest rates on an
additional $170 million of commercial paper at rates between 6.350% and 6.645%,
maturing in years 1998 through 2000 (see Note 14).
During 1994, the Company initiated a $300 million medium-term note program.
Notes totaling $120 million were issued during fiscal year 1996. These notes
mature at various times from 1998 through 2001. On October 9, 1996, the Company
increased the amounts available for issuance under its medium-term note program
from $100 million to $500 million.
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 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 redemption 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
was 4,721,435 shares at September 30, 1996. The option price ranges from $29.44
to $31.77 per share and the redemption price ranges from 92.68% to 100% of face
value, over the remaining term of the debentures (see Note 14).
The fair values of long-term debt are estimated using interest rates currently
offered to the Company for debt with similar remaining maturities. 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
at the reporting date. At September 30, 1996 and 1995, the fair value of
long-term debt approximated its carrying value.
7. INVESTMENT INCOME
In thousands 1996 1995 1994
- ---------------------------- --------- --------- ---------
Dividends $15,683 $12,873 $10,969
Interest 16,787 12,029 6,538
Realized gains, net 17,271 2,499 1,396
Foreign exchange losses, net (394) (355) (420)
Other income 1,111 2,627 4,220
- ---------------------------- --------- --------- ---------
$50,458 $29,673 $22,703
Substantially all of the Company's dividend income was generated by investments
in the Franklin Templeton funds.
8. Taxes on Income
Taxes on income for the years ended September 30, 1996, 1995,
and 1994 were comprised of the following:
In thousands 1996 1995 1994
- ----------------------------- --------- --------- ---------
Current:
Federal $98,803 $76,350 $87,951
State 23,118 19,969 22,257
Foreign 25,558 20,018 13,717
Deferred (benefit) expenses (5,979) 1,373 (12,712)
- ----------------------------- --------- --------- ---------
Total provision $141,500 $117,710 $111,213
Included in income before taxes was $225.7 million, $161.7 million, and $115.3
million of foreign income for the years ended September 30, 1996, 1995, and
1994, respectively.
The major components of the net deferred tax asset (liability) as of September
30, 1996 and 1995 were as follows:
In thousands 1996 1995
- --------------------------------------------- -------- ---------
Deferred Tax Assets:
State taxes expensed currently, deductible
in following year $6,608 $5,543
Temporary differences on investment losses 2,124 3,278
Loan loss reserves 3,760 3,868
Deferred compensation 1,983 486
Restricted stock compensation plan 20,016 17,700
Net operating loss carryforwards 18,203 16,180
Other 5,077 1,478
-------- ---------
Total deferred tax assets 57,771 48,533
-------- ---------
Valuation allowance for net operating loss
carryforwards (18,203) (16,180)
-------- ---------
Deferred tax assets, net of valuation allowance 39,568 32,353
-------- ---------
Deferred Tax Liabilities:
Temporary differences on partnership
earnings $5,504 $5,516
Capitalized compensation costs 7,503 6,992
Net unrealized gains on securities 4,622 11,942
Depreciation on fixed assets 6,244 4,963
Prepaid expenses 6,019 3,309
Other 1,315 1,899
-------- ---------
Total deferred tax liabilities 31,207 34,621
-------- ---------
Net deferred tax asset (liability) $8,361 $(2,268)
At September 30, 1996, there were approximately $20.1 million of foreign net
operating loss carryforwards of which approximately $2.8 million expire in 2003
and the remaining have an indefinite life. In addition, there are approximately
$192.4 million in state net operating loss carryforwards that expire between
2006 and 2011. A valuation allowance has been recognized to offset the related
deferred tax assets due to the uncertainty of realizing the benefit of the loss
carryforwards.
A substantial portion of the undistributed earnings of the Company's foreign
subsidiaries has been reinvested and is not expected to be remitted to the
parent company. Accordingly, no U.S. federal or state income taxes have been
provided thereon. At September 30, 1996, the cumulative amount of reinvested
income for which no U.S. taxes have been provided was approximately $369
million. Determination of the amount of unrecognized deferred U.S. income tax
liability related to such reinvested income is not practicable because of the
numerous assumptions associated with this hypothetical calculation; however,
foreign tax credits would be available to reduce some portion of this amount.
The following is a reconciliation between the amount of tax expense at the
federal statutory rate and taxes on income as reflected in operations for the
years ended September 30, 1996, 1995, and 1994, respectively:
In thousands 1996 1995 1994
- ------------------------------------------------------------------------------
- ----------------------------------- --------- -------- --------
U.S. federal statutory rate 35% 35% 35%
Federal taxes at statutory rate $159,786 $135,329 $126,882
State taxes, net of federal tax
effect 18,167 12,747 12,944
Foreign earnings subject to reduced
tax rates for which no U.S. tax is
provided (43,159) (32,956) (25,194)
Other 6,706 2,590 (3,419)
- ----------------------------------- --------- -------- --------
Actual tax provision $141,500 $117,710 $111,213
- ----------------------------------- --------- -------- --------
Effective tax rate 31% 30% 31%
9. COMMITMENTS
The Company leases office space (including space from an unconsolidated
affiliate) and equipment under long-term operating leases expiring at various
dates through fiscal year 2001. Lease expenses were $24.3 million, $21.8
million, and $15.1 million for the fiscal years ended September 30, 1996, 1995,
and 1994, respectively.
At September 30, 1996, remaining operating lease commitments were as follows (in
thousands):
1997 $16,970
1998 14,501
1999 13,177
2000 10,362
2001 4,037
Thereafter 10,591
--------
$69,638
At September 30, 1996, the Company's banking/finance group had commitments to
extend credit aggregating $481 million principally under its credit card lines.
The Company through certain subsidiaries acts as fiduciary for retirement and
employee benefit plans. At September 30, 1996, assets held in trust were
approximately $12.8 billion.
10. Dividends
During the years ended September 30, 1996, 1995, and 1994, the Company declared
dividends to common stockholders of $0.44, $0.40, and $0.32 per share,
respectively.
11. Employee Stock Award and Option Plans
In 1994, the Company implemented an annual incentive plan which provides
eligible employees payment of both cash and restricted stock. The costs
associated with the annual incentive plan awards are charged to income
currently.
The Company has adopted stock option plans which provide for the grant of
options to officers and other key employees of the Company to purchase up to
2,358,250 shares of the Company's common stock of which 1,046,513 and 1,099,123
shares were authorized but unissued as of September 30,1996 and 1995,
respectively. Terms and conditions (including price, exercise date and number of
shares) are determined by the Board of Directors, which administers the plans.
At September 30, 1996, options to purchase 188,007 shares were outstanding at
prices ranging from $11.82 to $56.44 of which 38,411 shares were exercisable.
During 1996, 24,247 shares were granted and 52,610 were exercised.
Beginning with the financial statements for 1997, the Company will be required
to make certain additional disclosures as if the fair value-based method of
accounting, defined in SFAS 123 "Accounting for Stock-Based Compensation," had
been applied to the Company's stock option grants made subsequent to September
30, 1995.
12. Employee Benefit and Incentive Plans
On January 1, 1996, the Company merged its two defined contribution plans. The
resulting defined contribution profit sharing 401(k) plan covers eligible U.S.
employees. 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's contribution, including both profit sharing and matching
components, was $15.9 million, $13.9 million, and $10.1 million during 1996,
1995, and 1994, respectively.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarter
------------------------------------------------
In thousands First Second Third Fourth
- ------------------- ------- ------- ------- --------
1996
Revenues $342,614 $393,801 $395,402 $390,751
Net income $73,951 $75,212 $81,066 $84,501
Earnings per share:
Primary $0.89 $0.91 $0.98 $1.01
Fully diluted $0.89 $0.91 $0.97 $1.01
1995
Revenues $303,711 $298,033 $319,826 $336,227
Net income $63,304 $63,040 $69,029 $73,572
Earnings per share:
Primary $0.76 $0.76 $0.84 $0.89
Fully diluted $0.76 $0.76 $0.83 $0.88
1994
Revenues $342,313 $365,329 $316,463 $318,436
Net income $59,001 $68,601 $60,023 $63,683
Earnings per share:
Primary $0.70 $0.82 $0.72 $0.76
Fully diluted $0.70 $0.82 $0.72 $0.76
14. Subsequent Events
Acquisition
On November 1, 1996, the Company acquired the assets and liabilities of Heine
Securities Corporation, Inc. (Heine), the investment advisor to Mutual Series
Fund Inc. (Mutual). The transaction has an aggregate value of approximately $615
million. The shareholder of Heine received $550 million in cash and 1.1 million
shares of Franklin Resources, Inc. common stock which may not be sold for two
years and which are subject to other restrictions. The shareholder will
initially invest $150 million of the cash proceeds in Mutual with a minimum
balance of $100 million for five years. The Company financed the cash payment
from cash and securities on hand, as well as its available commercial paper. As
part of the financing for this transaction, the Company entered into swap
agreements with major financial institutions which became effective on October
31, 1996 and mature through October 31, 2000. (See Note 6.)
Subordinated Debentures
On November 26, 1996, the holders of the option rights related to the Company's
subordinated debentures (see Note 6) have entered into an agreement with the
Company to exercise their option rights to receive approximately 2.4 million
shares of the Company's common stock in return for approximately $75 million of
the subordinated debentures. In addition, the Company has agreed to purchase the
remaining $75 million of subordinated debentures and option rights from the
holders for approximately $170 million. The Company intends to finance the
purchase of the option rights from the proceeds of a new issuance of medium-term
notes and cash on hand.
PART III
Items 10-13 are incorporated by reference to the Company's definitive proxy
statement to be mailed to stockholders in connection with the Annual Meeting of
Stockholders to be held January 23, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(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)(a) Registrant's Certificate of Incorporation, as filed November 28,
1969, incorporated by reference to Exhibit (3)(i) to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 (the "1994 Annual Report")
(3)(i)(b) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985, incorporated by reference
to Exhibit (3)(ii) to the 1994 Annual Report
(3)(i)(c) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987, incorporated by reference
to Exhibit (3)(iii) to the 1994 Annual Report
(3)(i)(d) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994, incorporated by
reference to Exhibit (3)(iv) to the 1994 Annual Report
(3)(ii) Registrant's By-Laws are incorporated by reference to Form 10
(File No. 06952), incorporated by reference to Exhibit (3)(v)
to the 1994 Annual Report
10.1 Representative Distribution Plan between Templeton Growth Fund,
Inc. and Franklin/Templeton Investor Services, Inc. incorporated
by reference to Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993 (the
"1993 Annual Report")
10.2 Representative Transfer Agent Agreement between Templeton Growth
Fund, Inc. and Franklin/Templeton Investor Services, Inc.
incorporated by reference to Exhibit 10.3 to the 1993 Annual
Report
10.3 Representative Investment Management Agreement between Templeton
Growth Fund, Inc. and Templeton, Galbraith & Hansberger Ltd.
incorporated by reference to Exhibit 10.5 to the 1993 Annual
Report
10.4 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 10-K for the fiscal
year ended September 30, 1992 (the "1992 Annual Report")
10.5 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
10.6 Registrant's Amended Annual Incentive Compensation Plan approved
January 24, 1995 incorporated by reference to the Company's
Proxy Statement filed under cover of Schedule 14A on December
28, 1994 in connection with its Annual Meeting of Stockholders
held on January 24, 1995.
10.7 Registrant's Universal Stock Plan approved January 19, 1994
incorporated by reference to the Company's 1995 Proxy Statement
filed under cover of Schedule 14A on December 29, 1993 in
connection with its Annual Meeting of Stockholders held on
January 19, 1994.
10.8 Representative Amended and Restated Distribution Agreement
between Franklin/Templeton Distributors, Inc. and Franklin
Federal Tax-Free Income Fund, incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1995 (the "June 1995
Quarterly Report")
10.9 Representative Distribution 12b-1 Plan for Class II shares
between Franklin/Templeton Distributors, Inc. and Franklin
Federal Tax-Free Income Fund, incorporated by reference to
Exhibit 10.2 to the June 1995 Quarterly Report
10.10 Representative Investment Management Agreement between Templeton
Global Strategy SICAV and Templeton Investment Management
Limited, incorporated by reference to Exhibit 10.3 to the June
1995 Quarterly Report
10.11 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and BAC Corp. Securities,
incorporated by reference to Exhibit 10.4 to the June 1995
Quarterly Report
10.12 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to
Exhibit 10.5 to the June 1995 Quarterly Report
10.13 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (ERISA), incorporated by
reference to Exhibit 10.6 to the June 1995 Quarterly Report
10.14 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (NON-ERISA), incorporated by
reference to Exhibit 10.7 to the June 1995 Quarterly Report
10.15 Representative Amended and Restated Transfer Agent and
Shareholder Services Agreement between Franklin/Templeton
Investor Services, Inc. and Franklin Custodian Funds, Inc.,
dated July 1, 1995, incorporated by reference to Exhibit 10.16
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995 (the "1995 Annual Report")
10.16 Representative Amended and Restated Distribution Agreement
between Franklin/Templeton Distributors, Inc. and Franklin
Custodian Funds, Inc.,incorporated by reference to Exhibit 10.17
to the 1995 Annual Report.
10.17 Representative Class II Distribution Plan between
Franklin/Templeton Distributors, Inc. and Franklin Custodian
Funds, Inc., on behalf of its Growth Series, incorporated by
reference to Exhibit 10.18 to the 1995 Annual Report.
10.18 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to
Exhibit 10.19 to the 1995 Annual Report.
10.19 Representative Mutual Fund Purchase and Sales Agreement for
Accounts of Bank and Trust Company Customers, effective July 1,
1995, incorporated by reference to Exhibit 10.20 to the 1995
Annual Report.
10.20 Representative Management Agreement between Franklin Value
Investors Trust, on behalf of Franklin MicroCap Value Fund, and
Franklin Advisers, Inc., incorporated by reference to Exhibit
10.21 to the 1995 Annual Report.
10.21 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and Sub-Distributor, incorporated by
reference to Exhibit 10.22 to the 1995 Annual Report.
10.22 Representative Non-Exclusive Underwriting Agreement between
Templeton Growth Fund, Inc. and Templeton Franklin Investment
Services (Asia) Limited, dated September 18, 1995, incorporated
by reference to Exhibit 10.23 to the 1995 Annual Report.
10.23 Representative Shareholder Services Agreement between
Franklin/Templeton Investor Services, Inc. and Templeton
Franklin Investment Services (Asia) Limited, dated September 18,
1995, incorporated by reference to Exhibit 10.24 to the 1995
Annual Report.
10.24 Agreement to Merge the Businesses of Heine Securities
Corporation, Elmore Securities Corporation and Franklin
Resources, Inc., dated June 25, 1996, incorporated by reference
to Exhibit 2 to Registrant's Report on Form 8-K dated June 25,
1996.
10.25 Subcontract for Transfer Agency and Shareholder Services
dated November 1, 1996 by and between Franklin Investor
Services, Inc. and PFPC Inc.
10.26 Representative Sample of Franklin/Templeton Investor Services,
Inc. Transfer Agent and Shareholder Services Agreement.
10.27 Representative Administration Agreement between Templeton
Growth Fund, Inc. and Franklin Templeton Services, Inc.
10.28 Representative Sample of Fund Administration Agreement with
Franklin Templeton Services, Inc.
10.29 Representative Subcontract for Fund Administrative Services
between Franklin Advisers, Inc. and Franklin Templeton Services,
Inc.
10.30 Representative Investment Advisory Agreement between Franklin
Mutual Series Fund Inc. and Franklin Mutual Advisers, Inc.
10.31 Representative Management Agreement between Franklin Valuemark
Funds and Franklin Mutual Advisers, Inc.
10.32 Representative Investment Advisory and Asset Allocation
Agreement between Franklin Templeton Fund Allocator Series and
Franklin Advisers, Inc.
10.33 Representative Management Agreement between Franklin New York
Tax-Free Income Fund, Inc. and Franklin Investment Advisory
Services, Inc.
12 Computation of Ratios of Earnings to Fixed
Charges
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
(b) (1) A Current Report on Form 8-K dated July 25, 1996 was filed on
July 26, 1996 attaching Registrant's press release dated July 25,
1996 under Items 5 and 7.
(2) A Current Report on Form 8-K dated October 24, 1996 was filed on
October 25, 1996 attaching Registrant's press release dated October
24, 1996 under Items 5 and 7.
(3) A Current Report on Form 8-K dated November 27, 1996 was filed on
November 27, 1996 attaching Registrant's press release dated November
27, 1996 under Items 5 and 7.
(c) See Item 14(a)(3) above.
(d) No separate financial statements are required; schedules are included
in Item 8.
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 26, 1996 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 26, 1996 By /S/ CHARLES B. JOHNSON
Charles B. Johnson, Principal
Executive Officer and Director
Date: December 26, 1996 By /S/ HARMON E. BURNS
Harmon E. Burns, Executive Vice
President-Legal and Adminis-
trative,Secretary and Director
Date: December 26, 1996 By /S/ MARTIN L. FLANAGAN
Martin L. Flanagan, Treasurer
and Chief Financial Officer
Date: December 26, 1996 By /S/ KENNETH A. LEWIS
Kenneth A. Lewis, Controller
Date: December 26, 1996 By /S/ JUDSON R. GROSVENOR
Judson R. Grosvenor, Director
Date: December 26, 1996 By /S/ F. WARREN HELLMAN
F. Warren Hellman, Director
Date: December 26, 1996 By /S/ CHARLES E. JOHNSON
Charles E. Johnson, Director
Date: December 26, 1996 By /S/ RUPERT H. JOHNSON, JR.
Rupert H. Johnson, Jr., Director
Date: December 26, 1996 By /S/ HARRY O. KLINE
Harry O. Kline, Director
Date: December 26, 1996 By /S/ LOUIS E. WOODWORTH
Louis E. Woodworth, Director
Date: December 26, 1996 By /S/ PETER M. SACERDOTE
Peter M. Sacerdote, Director
INDEX OF EXHIBITS
(3)(i)(a) Registrant's Certificate of Incorporation, as filed November 28,
1969, incorporated by reference to Exhibit (3)(i) to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 (the "1994 Annual Report")
(3)(i)(b) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985, incorporated by reference
to Exhibit (3)(ii) to the 1994 Annual Report
(3)(i)(c) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987, incorporated by reference
to Exhibit (3)(iii) to the 1994 Annual Report
(3)(i)(d) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994, incorporated by
reference to Exhibit (3)(iv) to the 1994 Annual Report
(3)(ii) Registrant's By-Laws are incorporated by reference to Form 10
(File No. 06952), incorporated by reference to Exhibit (3)(v)
to the 1994 Annual Report
10.1 Representative Distribution Plan between Templeton Growth Fund,
Inc. and Franklin/Templeton Investor Services, Inc.
incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1993 (the "1993 Annual Report")
10.2 Representative Transfer Agent Agreement between Templeton Growth
Fund, Inc. and Franklin/Templeton Investor Services, Inc.
incorporated by reference to Exhibit 10.3 to the 1993 Annual
Report
10.3 Representative Investment Management Agreement between Templeton
Growth Fund, Inc. and Templeton, Galbraith & Hansberger Ltd.
incorporated by reference to Exhibit 10.5 to the 1993 Annual
Report
10.4 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 10-K for the fiscal
year ended September 30, 1992 (the "1992 Annual Report")
10.5 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
10.6 Registrant's Amended Annual Incentive Compensation Plan approved
January 24, 1995 incorporated by reference to the Company's
Proxy Statement filed under cover of Schedule 14A on December
28, 1994 in connection with its Annual Meeting of Stockholders
held on January 24, 1995.
10.7 Registrant's Universal Stock Plan approved January 19, 1994
incorporated by reference to the Company's 1995 Proxy Statement
filed under cover of Schedule 14A on December 29, 1993 in
connection with its Annual Meeting of Stockholders held on
January 19, 1994.
10.8 Representative Amended and Restated Distribution Agreement
between Franklin/Templeton Distributors, Inc. and Franklin
Federal Tax-Free Income Fund, incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1995 (the "June 1995
Quarterly Report")
10.9 Representative Distribution 12b-1 Plan for Class II shares
between Franklin/Templeton Distributors, Inc. and Franklin
Federal Tax-Free Income Fund, incorporated by reference to
Exhibit 10.2 to the June 1995 Quarterly Report
10.10 Representative Investment Management Agreement between Templeton
Global Strategy SICAV and Templeton Investment Management
Limited, incorporated by reference to Exhibit 10.3 to the June
1995 Quarterly Report
10.11 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and BAC Corp. Securities,
incorporated by reference to Exhibit 10.4 to the June 1995
Quarterly Report
10.12 Representative Dealer Agreement between Franklin/Templeton
Distributors,Inc. and Dealer, incorporated by reference to
Exhibit 10.5 to the June 1995 Quarterly Report
10.13 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (ERISA), incorporated by
reference to Exhibit 10.6 to the June 1995 Quarterly Report
10.14 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (NON-ERISA), incorporated
by reference to Exhibit 10.7 to the June 1995 Quarterly Report
10.15 Representative Amended and Restated Transfer Agent and
Shareholder Services Agreement between Franklin/Templeton
Investor Services, Inc. and Franklin Custodian Funds, Inc.,
dated July 1, 1995, incorporated by reference to Exhibit 10.16
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995 (the "1995 Annual Report")
10.16 Representative Amended and Restated Distribution Agreement
between Franklin/Templeton Distributors, Inc. and Franklin
Custodian Funds, Inc.,incorporated by reference to Exhibit 10.17
to the 1995 Annual Report.
10.17 Representative Class II Distribution Plan between
Franklin/Templeton Distributors, Inc. and Franklin Custodian
Funds, Inc., on behalf of its Growth Series, incorporated by
reference to Exhibit 10.18 to the 1995 Annual Report.
10.18 Representative Dealer Agreement between Franklin/Templeton
Distributors,Inc. and Dealer, incorporated by reference to
Exhibit 10.19 to the 1995 Annual Report.
10.19 Representative Mutual Fund Purchase and Sales Agreement for
Accounts of Bank and Trust Company Customers, effective July 1,
1995, incorporated by reference to Exhibit 10.20 to the 1995
Annual Report.
10.20 Representative Management Agreement between Franklin Value
Investors Trust, on behalf of Franklin MicroCap Value Fund, and
Franklin Advisers, Inc., incorporated by reference to Exhibit
10.21 to the 1995 Annual Report.
10.21 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and Sub-Distributor, incorporated by
reference to Exhibit 10.22 to the 1995 Annual Report.
10.22 Representative Non-Exclusive Underwriting Agreement between
Templeton Growth Fund, Inc. and Templeton Franklin Investment
Services (Asia) Limited, dated September 18, 1995, incorporated
by reference to Exhibit 10.23 to the 1995 Annual Report.
10.23 Representative Shareholder Services Agreement between
Franklin/Templeton Investor Services, Inc. and Templeton
Franklin Investment Services (Asia) Limited, dated September 18,
1995, incorporated by reference to Exhibit 10.24 to the 1995
Annual Report.
10.24 Agreement to Merge the Businesses of Heine Securities
Corporation, Elmore Securities Corporation and Franklin
Resources, Inc., dated June 25, 1996, incorporated by reference
to Exhibit 2 to Registrant's Report on Form 8-K dated June 25,
1996.
10.25 Subcontract for Transfer Agency and Shareholder Services
dated November 1,1996 by and between Franklin Investor Services,
Inc. and PFPC Inc.
10.26 Representative Sample of Franklin/Templeton Investor Services,
Inc. Transfer Agent and Shareholder Services Agreement.
10.27 Representative Administration Agreement between Templeton Growth
Fund, Inc. and Franklin Templeton Services, Inc.
10.28 Representative Sample of Fund Administration Agreement with
Franklin Templeton Services, Inc.
10.29 Representative Subcontract for Fund Administrative Services
between Franklin Advisers, Inc. and Franklin Templeton Services,
Inc.
10.30 Representative Investment Advisory Agreement between Franklin
Mutual Series Fund Inc. and Franklin Mutual Advisers, Inc.
10.31 Representative Management Agreement between Franklin Valuemark
Funds and Franklin Mutual Advisers, Inc.
10.32 Representative Investment Advisory and Asset Allocation
Agreement between Franklin Templeton Fund Allocator Series and
Franklin Advisers, Inc.
10.33 Representative Management Agreement between Franklin New York
Tax-Free Income Fund, Inc. and Franklin Investment Advisory
Services, Inc.
12 Computation of Ratios of Earnings to Fixed
Charges
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
(b) (1) A Current Report on Form 8-K dated July 25, 1996 was filed on
July 26, 1996 attaching Registrant's press release dated July 25,
1996 under Items 5 and 7.
(2) A Current Report on Form 8-K dated October 24, 1996 was filed on
October 25, 1996 attaching Registrant's press release dated October
24, 1996 under Items 5 and 7.
(3) A Current Report on Form 8-K dated November 27, 1996 was filed on
November 27, 1996 attaching Registrant's press release dated
November 27, 1996 under Items 5 and 7.
(c) See Item 14(a)(3) above.
(d) No separate financial statements are required; schedules are included
in Item 8.
EXHIBIT 12
COMPUTATION OF RATRIOS OF EARNINGS TO FIXED CHARGES
1996 1995 1994
- ----------------------------- -------- --------- ---------
Income before taxes $456,230 $386,655 $362,521
Add fixed charges:
Interest expense 28,373 29,495 29,765
Interest factor on rent 8,085 7,271 5,026
Total fixed charges 36,458 36,766 34,791
Earnings before fixed charges
and taxes on income $492,688 $423,421 $397,312
Ratio of earnings to fixed charges
13.5 11.5 11.4
EXHIBIT 21
FRANKLIN RESOURCES, INC.
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1996
LIST OF PRINCIPAL SUBSIDIARIES*
State or
Nation
of Incor-
Name poration
Closed Joint-Stock Company Templeton Russia
Continental Property Management Company California
FCC Receivables Corp. Delaware
Franklin Advisers, Inc. California
Franklin Advisory Services, Inc. Delaware
Franklin Agency, Inc. California
Franklin Bank California
Franklin Capital Corporation Utah
Franklin Institutional Services Corporation California
Franklin Investment Advisory Services, Inc. Delaware
Franklin Management, Inc. California
Franklin Mutual Advisers, Inc. Delaware
Franklin Partners, Inc. California
Franklin Properties, Inc. California
Franklin Real Estate Management, Inc. California
Franklin Templeton Holding Limited Mauritius
Franklin Templeton Services, Inc. Delaware
Franklin Templeton Trust Company California
Franklin/Templeton Distributors, Inc. New York
Franklin/Templeton Investor Services, Inc. California
Franklin/Templeton Travel, Inc. California
FS Capital Group California
FS Properties Inc. California
ILA Financial Services, Inc. Arizona
Orion Fund Management Limited Bermuda
Property Resources Equity Trust California
Property Resources, Inc. California
T.G.H. Holdings Ltd. Bahamas
TDA Emerging Europe Fund, LLC Delaware
Templeton Global Value Investors, Inc. Delaware
Templeton Asset Management India Pvt. Ltd. India
Templeton Asset Management Ltd. Japan
Templeton Direct Advisors, Inc. Delaware
Templeton Direct Investments, Inc. Delaware
Templeton France S.A. France
Templeton Funds Annuity Company Florida
Templeton Funds Trust Company Florida
Templeton Global Advisors Limited Bahamas
Templeton Global Investors Limited England
Templeton Global Investors, Inc. Delaware
Templeton Global Strategic Services (Deutschland) GmbH Germany
Templeton Global Strategic Services S.A. Luxembourg
Templeton Heritage Limited Canada
Templeton Holdings Limited England
Templeton International, Inc. Delaware
Templeton Investment Counsel, Inc. Florida
Templeton Investment Holdings (Cyprus) Limited Cyprus
Templeton Investment Management (Australia) Limited Australia
Templeton Investment Management Co., Ltd. Singapore
Templeton Investment Management Limited England
Templeton Italia, Srl. Italy
Templeton Management Limited Canada
Templeton Quantitative Advisors, Inc. Delaware
Templeton Trust Services Pvt. Ltd. India
Templeton Unit Trust Managers Limited England
Templeton Worldwide, Inc. Delaware
Templeton/Franklin Investment Services
(Asia) Limited Hong Kong
Templeton/Franklin Investment Services, Inc. Delaware
Templeton/National Bank of Greece (Luxembourg) S.A. Luxembourg
*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 Bond 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.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Franklin Resources, Inc. on Form S-3 dated October 9, 1996 for the issuance of
medium term notes, Form S-3 filed September 30, 1994 for the registration of
1,411,736 shares, Form S-8 for the 1988 Restricted Stock Plan, Form S-8 for the
Franklin Resources, Inc. Universal Stock Plan, Form S-8 for Franklin Resources,
Inc. United Kingdom Stock Option Plan #1 and Form S-8 for the Canada Stock
Option Plan of our report dated October 27, 1995, on our audits of the
consolidated financial statements of Franklin Resources, Inc. as of September
30, 1996 and 1995 and for the years ended September 30, 1996, 1995, and 1994,
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 26, 1996
EXHBIIT 10.25
SUBCONTRACT FOR TRANSFER AGENCY
AND SHAREHOLDER SERVICES
This Subcontract for Transfer Agency and Shareholder Services ("Subcontract") is
made as of November 1, 1996, by and between FRANKLIN TEMPLETON INVESTOR
SERVICES, INC. ("FTIS"), a California corporation registered to act as a
transfer agent, and PFPC INC. ("PFPC"), a Delaware corporation registered to act
as a transfer agent.
In consideration of the mutual agreements herein made, FTIS and PFPC understand
and agree as follows:
I. Purpose of Subcontract.
This Subcontract is made in order to assist FTIS in fulfilling certain of its
obligations under the Shareholder Services Agreement ("Agreement") between FTIS
and FRANKLIN MUTUAL SERIES FUND, INC. ("Fund"). In consideration of and in
reliance upon FTIS's promise to pay consulting fees to PFPC as more fully
described herein, PFPC has agreed to enter into this Subcontract and to provide
the services specified herein.
II. Provisions of Subcontract.
1. DEFINITIONS. Whenever used in this Subcontract, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles" shall mean the Articles of Incorporation, Declaration
of Trust, Partnership Agreement, or similar organizational document as the case
may be, 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 FTIS or the Fund as
indicated in a certificate furnished to PFPC pursuant to Section 4(c) hereof as
may be received by PFPC from time to time.
(c) "Board" shall mean the Board of Directors, Board of Trustees or,
if the Fund is a limited partnership, the General Partner(s) of the Fund, as the
case may be.
(d) "Commission" shall mean the Securities and Exchange Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property with which the Fund may from time to time deposit
or cause to be deposited, or held under the name or account of such custodian or
subcustodian pursuant to a Custodian Agreement relating to Shares.
(f) "Fund" shall mean Franklin Mutual Series Fund Inc. or any
successor fund.
(g) "1940 Act" shall mean the Investment Company Act of 1940.
(h) "Oral Instructions" shall mean instructions, other than written
instructions, actually received by PFPC from an Authorized Person;
(i) "Prospectus" shall mean the most recently dated Fund Prospectus
and Statement of Additional Information, including any supplements thereto if
any, which has become effective under the Securities Act-of 1933 and the 1940
Act.
(j) "Shares" refers collectively to the Class Z shares of each
series of the Fund (each, a "Series"), and any other classes or series of stock,
beneficial interest or limited partnership interests that may be issued by the
Fund and made subject to this Subcontract by mutual written agreement of the
parties.
(k) "Shareholder" shall mean a holder of record of the Shares.
(1) "Written Instructions" shall mean a written communication signed
by an Authorized Person and actually received by PFPC. Written Instructions
shall include manually executed originals and authorized electronic
transmissions, including telefacsimile or other electronic transmission of a
manually executed original or other process.
2. APPOINTMENT OF PFPC. Without assigning its rights or delegating its
duties under the Agreement, FTIS hereby appoints and constitutes PFPC to act as
subcontractor to FTIS by performing transfer agent, registrar and dividend
disbursing agent services for FTIS with respect to the Shares, and as
shareholder servicing agent with respect to the Shares, in each case subject to
the direction and supervision of FTIS. PFPC accepts such engagement and agrees
to perform the duties hereinafter set forth. The parties further agree to that
the attached Schedules A-C are incorporated by reference as if fully set forth
in this Subcontract.
3. COMPENSATION.
FTIS will compensate or cause PFPC to be compensated for the
performance of its obligations thereunder in accordance with the other
provisions of this Subcontract and the fees set forth in the written schedule of
fees annexed hereto as Schedule A and incorporated herein. PFPC will transmit an
invoice to FTIS as soon as practicable after the end of each calendar month
which will reference the type of compensation due or be detailed in accordance
with Schedule A, as the case may be. FTIS will pay to PFPC the amount of such
invoice within thirty (30) days of the date thereof.
In addition, FTIS agrees to pay, and will be billed separately for,
out-of-pocket expenses incurred by PFPC in the performance of its duties
hereunder. Out-of-pocket expenses shall include the items specified in the
written schedule of out-of-pocket charges annexed hereto as Schedule B and
incorporated herein. Upon consent of FTIS, Schedule B may be modified by PFPC on
not less than 30 days' prior written notice to the Fund. Any unspecified
out-of-pocket expenses shall be limited to those out-of-pocket expenses
reasonably incurred by PFPC in the performance of its obligations hereunder
reimbursement of which is consented to by FTIS, which consent shall not be
unreasonably withheld. Reimbursement by FTIS for expenses incurred by PFPC in
any month shall be made as soon as practicable but no later than 15 days after
the receipt of an itemized bill for each Series from PFPC.
4. DOCUMENTS. In connection with the appointment of PFPC, FTIS shall
deliver or cause to be delivered to PFPC any of the following documents not
already in PFPC's possession on or before the date this Subcontract goes into
effect, but in any case within a reasonable period of time for PFPC to prepare
to perform its duties hereunder:
(a) If applicable, specimens of the certificates 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 signature card bearing the signatures of any officer of the
Fund or other Authorized Person, which may include FTIS personnel, who will sign
Written Instructions or is authorized to give Oral Instructions;
(d) A certified copy of the Articles, as amended;
(e) A certified copy of the By-laws of the Fund, as amended;
(f) A copy of the resolution of the Fund's Board authorizing the
execution and delivery of the Agreement;
(g) A certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of each Shareholder, to the extent
that this information is available to the Fund, and the number of Shares of the
Fund held by each, certificate numbers and denominations (if any certificates
have been issued), lists of any accounts against which stop transfer orders have
been placed, together with the reasons therefore, and the number of Shares
redeemed by the Fund.
5. FURTHER DOCUMENTATION. FTIS will also furnish PFPC with copies of the
any of the following documents not previously received by PFPC promptly after
the same shall become available:
(a) The most current and future resolutions of the Board authorizing
the issuance of Shares;
(b) Any registration statements filed on behalf of the Fund and all
post-effective amendments thereto filed with the Commission;
(c) A certified copy of each amendment to the Articles of
Incorporation or the By-laws of the Fund;
(d) Certified copies of each resolution of the Board or other
authorization designating Authorized Persons; and
(e) The Agreement, and any future amendments and present or future
Board resolutions approving the Agreement or any amendment; and
(f) Such other certificates, documents or opinions as PFPC may
reasonably request in connection with the performance of its duties hereunder.
6. REPRESENTATIONS OF FTIS.
(a) FTIS will obtain from the Fund and furnish to PFPC the Fund's
written representation that all outstanding Shares are validly issued, fully
paid and non-assessable. When Shares are hereafter issued in accordance with the
terms of the Articles and Prospectus, FTIS will obtain the Fund's separate
written assurance, addressed to PFPC, that such Shares shall be validly issued,
fully paid and non-assessable.
(b) FTIS represents and warrants that it has obtained and will
maintain in force proper registration as a transfer agent; that the Agreement is
enforceable and has been approved by the Board; and that the Agreement permits
FTIS to enter into and perform this Subcontract.
7. REPRESENTATIONS OF PFPC.
(a) PFPC represents that it has obtained and will maintain in force
proper registration as a transfer agent.
(b) PFPC represents that it has developed and will maintain in force
training materials and operating procedures and policies necessary to assure
familiarity and compliance with Fund transaction processing as required by Fund
policy, provided FTIS has provided to PFPC copies of such Fund policy or
informed PFPC of such policy in writing. Upon reasonable notice to PFPC, PFPC
will permit FTIS to review PFPC training materials and operating procedures and
policies during PFPC's normal business hours.
(c) PFPC represents that it will maintain in force its current
policies and procedures concerning signature guarantees which are consistent
with industry standards, legal requirements and the Fund's Prospectus and any
procedures communicated in writing to PFPC from FTIS.
(d) PFPC represents that it has employed and will maintain a work
force adequate to accomplish its responsibilities under this Subcontract. PFPC
further represents that it will provide FTIS and keep current a list of the
names, phone numbers and responsibilities of those assigned to work on Fund
operations. PFPC represents that it will advise FTIS prior to subcontracting any
duties under this agreement to any non-affiliated third party. PFPC shall advise
FTIS concerning the identity of any subcontractors, the specific duties to be
performed by the subcontractor(s) and the terms of any assignment (s).
(e) Notwithstanding any representation stated in this section 7,
PFPC shall not be responsible or liable for any such representation which has
been modified or eliminated by an Oral or Written Instruction.
8. DISTRIBUTIONS PAYABLE IN SHARES. In the event that the Board of the
Fund shall declare a distribution payable in Shares, FTIS shall deliver or cause
to be delivered to PFPC written notice of such declaration signed on behalf of
the Fund by an officer thereof, upon which PFPC shall be entitled to rely for
all purposes, certifying (i) the identity of the Shares involved, (ii) the
number of Shares involved, and (iii) that all appropriate action has been taken.
9. A. TRANSFER AGENT AND SHAREHOLDER SERVICES DUTIES OF PFPC. (a) PFPC
shall be responsible for administering and/or performing those functions
typically performed by a transfer agent subcontracted to act as transfer agent
and to perform shareholder account and administrative agent functions, in
connection with dividend and distribution functions and the issuance, transfer
and redemption or repurchase (including coordination with the Custodian) of
Shares in accordance with the terms of the Prospectus and applicable law. The
operating standards and procedures to be followed shall be determined from time
to time by agreement between FTIS and PFPC and shall initially be as described
in Schedule C attached hereto. In addition, FTIS shall promptly deliver to PFPC
all notices issued by the Fund with respect to the Shares in accordance with and
pursuant to the Articles or By-laws of the Fund or as required by law and shall
perform such other specific duties as are set forth in the Articles including
the giving of notice of any special or annual meetings of shareholders and any
other notices required thereby.
The parties agree that PFPC's obligations under this Subcontract include the
following services, for which PFPC is not entitled to additional compensation
except as set forth in (b) below.
o Performing any necessary backup withholding in connection with
PFPC's current tax reporting duties.
o Gathering and controlling Shareholder account information (but not
performing any system or programming upgrades) as needed to support additional
rights of current Shareholders, such as exchanges and rights of accumulation, in
connection with investments in the Franklin Templeton funds.
o Supporting the Fund's offer of Shares through FundSERV/ Networking.
o Cooperating with FTIS in services to the Fund's entire shareholder
base, limited to authorizing FTIS to obtain terminal access in order to answer
Shareholder inquiries, authorizing Sungard to release information to FTIS, and
redirecting applications or inquiries to FTIS as appropriate.
(b) In the event that any action taken by FTIS or the Fund, or on the
behalf of either of them by a third party or agent, increases the scope of
services or the costs incurred by PFPC in its performance under this
Subcontract, and provided that FTIS agrees in advance to the scope and amount of
any such additional services and/or costs, FTIS shall pay PFPC monthly, as
billed, PFPC's standard rate for such increased services and shall reimburse
PFPC monthly, as billed, for the reasonable additional costs so incurred.
(c) PFPC shall be under no duty to take any action on behalf of FTIS or
the Fund except as specifically set forth herein or any may be specifically
agreed to by PFPC in writing.
9. B. CONSULTING SERVICES. In addition to the other services to be
provided under this Subcontract, PFPC will act as a consultant to FTIS for
continuing services and support, including reasonable cooperation and assistance
with any future transition of services to FTIS or any other service provider to
the Fund, beginning from the date of this Subcontract through October 31, 1997,
and continuing thereafter if such date is extended pursuant to section 15(b),
for a fee of $50,000 per month. PFPC's performance of such consulting services
shall be deemed adequate and FTIS shall make such payments without interruption
unless PFPC performs such consulting services in bad faith or in a grossly
negligent manner. This provision shall survive termination of this Subcontract.
10. RECORD KEEPING AND OTHER INFORMATION.
(a) PFPC shall create and maintain records required of it pursuant
to its duties hereunder and as set forth in Schedule C in accordance with all
applicable laws, rules and regulations, including records required to be
maintained by Section 31(a) of the 1940 Act. All records shall be available
during regular business hours for inspection and use by the Fund. Where
applicable, such records shall be maintained by PFPC for the periods and in the
places required by Rule 31a-2 under the 1940 Act. PFPC acknowledges that all
such records are property of the Fund, and agrees to promptly surrender them to
the Fund upon the request of the Fund or FTIS or upon termination of this
Subcontract. PFPC will in addition provide FTIS with an updated copy of PFPC's
master files at any time or from time to time upon FTIS's request and at FTIS's
expense, and authorize Sungard to deliver to FTIS and at FTIS's expense any such
records available through Sungard at any time or from time to time.
(b) Upon reasonable notice by FTIS, PFPC shall make available during
regular business hours such of its facilities and premises employed in
connection with the performance of its duties under this Subcontract for
reasonable visitation by FTIS, or any person designated by FTIS as may be
reasonably necessary or appropriate as determined by FTIS for FTIS to evaluate
the quality of the services performed by PFPC pursuant hereto.
11. OTHER DUTIES. In addition to the duties set forth in Schedule C, PFPC
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 FTIS and
PFPC. The compensation for such other duties and functions shall be reflected in
a written amendment to Schedule A and the duties and functions shall be
reflected in an amendment to Schedule C, both dated and signed by authorized
persons of the parties hereto.
12. RELIANCE BY PFPC; INSTRUCTIONS.
(a) PFPC will have no liability when acting upon Written or Oral
Instructions 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 pursuant to Section 4(c) unless it has
actual notice thereof.
(b) At any time PFPC may apply to any Authorized Person for Written
Instructions and/or may seek advice from legal counsel for the Fund, FTIS, or
its own legal counsel, with respect to any matter arising in connection with
this Subcontract, 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, for FTIS or for PFPC, as
the case may be. PFPC shall bear the costs and fees of its own legal counsel.
Written Instructions requested by PFPC will be provided by FTIS within a
reasonable period of time. In addition, PFPC, its officers, agents or employees,
shall accept Oral Instructions or Written Instructions given to them by any
person only if said representative is an Authorized Person.
(c) Notwithstanding any other provisions of this Agreement, PFPC
shall be under no duty or obligation to inquire into, and shall not be liable
for: (i) the legality of the issuance or sale of any Shares; or (ii) the
legality of the declaration of any dividend by the Board, or the legality of the
issuance of any Shares in payment of any dividend; or (iii) the legality of any
recapitalization or readjustment of the Shares, or of any exchange offer or
similar transaction involving the Shares; or (iv) actions or omissions of
Sungard or any third party.
13. DUTY OF CARE AND INDEMNIFICATION
FTIS agrees to indemnify and hold harmless PFPC and its affiliates from
all taxes, charges, expenses, assessments, claims and liabilities (including,
without limitation, liabilities arising under the securities laws and
commodities laws and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) attorneys'
fees and disbursements, arising directly or indirectly from any action or
omission to act which PFPC takes (i) at the request or on the direction of or in
reliance on the advice of FTIS, the Fund or their counsel or (ii) upon Oral
Instructions or Written Instructions. Neither PFPC, nor any of its affiliates,
shall be indemnified against any liability (or any expenses incident to such
liability) arising out of PFPC's or its affiliates' own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement.
PFPC 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 resulting from
willful misfeasance, bad faith or gross negligence on the part of PFPC, and
arising out of, or in connection with, its duties hereunder. However, PFPC shall
have no liability for or obligation to indemnify FTIS against any losses,
claims, damages, liabilities or expenses (including reasonable counsel fees and
expenses) incurred by FTIS as a result of: (i) any action taken in accordance
with Written or Oral Instructions; (ii) any action taken in accordance with
written or oral advice reasonably believed by PFPC to have been given by counsel
for FTIS or the Fund; (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 FTIS to PFPC in connection with this Subcontract; or (iv) any
action taken in accordance with shareholder instructions which meet the
standards described in the Fund's current prospectus, including without
limitation oral instructions which meet the standards described in the section
of the prospectus dealing with telephone transactions, so long as PFPC believes
such instructions to be genuine.
Nothing in this Section shall supersede or limit PFPC's obligations regarding
"as of" trades, as described in paragraph 9 of Schedule C. The obligations of
the parties hereto under this Section shall survive the termination of this
Subcontract.
14. CONSEQUENTIAL DAMAGES. In no event and under no circumstances shall
either party under this Subcontract be liable to the other party for
consequential or indirect loss of profits, reputation or business or any other
special damages under any provision of this Subcontract or for any act or
failure to act hereunder.
15. TERM AND TERMINATION.
(a) This Subcontract shall be effective on the date first written
above, and thereafter shall automatically continue for successive annual periods
ending on the anniversary of the date first written above, provided that it may
be terminated by either party effective August 1, 1997 or thereafter, upon 120
days' prior written notice to the other party. However, FTIS may at its
discretion terminate the agreement on or after May 1, 1997, provided that it
provides 120 days' prior written notice to PFPC and further provided that FTIS
pays PFPC at the rate of $50,000 per month for the period between the
termination date and August 1, 1997. This termination provision shall not apply
to the consulting services and fees described in Section 9B hereof.
(b) Upon such termination, PFPC will deliver to a successor transfer
agent without additional cost to FTIS, a certified list of shareholders of the
Fund (with names and addresses), and all other relevant books, records,
correspondence and other Fund records and data in the possession of PFPC. In the
event that termination does not occur before the expiration of PFPC's obligation
to provide consulting services on October 31, 1997, PFPC shall continue to
provide consulting services as described in section 9.B until termination, and
FTIS shall continue to pay PFPC a consulting fee at the rate of $50,000 per
month until termination.
16. CONFIDENTIALITY. Both parties hereto agree that any nonpublic
information obtained hereunder concerning the other party (including but not
limited to the Fund shareholder list) is confidential and may not be disclosed
to any other person without the consent of the other party, except as may be
required by each party's auditors or outside counsel or by applicable law or at
the request of the Commission or other governmental agency. The parties further
agree that a breach of this provision would irreparably damage the other party
and accordingly agree that each of them is entitled, without bond or other
security, to an injunction or injunction to prevent breaches of this provision.
Neither party shall include the other party's identity in any advertising or
solicitation materials without the prior written approval of the other party,
except as described in Section 18(g).
17. AMENDMENT. This Subcontract may only be amended or modified by a
written instrument executed by both parties.
18. MISCELLANEOUS.
(a) Notices. Any notice or other instrument authorized or required
by this Subcontract to be given in writing to FTIS or PFPC, 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 FTIS:
Franklin Templeton Investor Services, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Telephone: (415) 312-2000
Attention: Frank Isola, President
TO PFPC:
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
Telephone: (302) 791-3213
Fax: (302) 791-1856
Attention; George W. Gainer, Jr., E.V.P,
(b) Successors. This Subcontract shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns,
provided, however, that this Subcontract shall not be assigned to any person
other than a person controlling, controlled by or under common control with the
assignor without the written consent of the other party, which consent shall not
be unreasonably withheld.
(c)Governing Law. This Subcontract shall be governed exclusively by
the laws of the State of New Jersey.
(d) Counterparts. This Subcontract 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) Captions. The captions of this Subcontract 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.
(f) Use of PFPC's Name. FTIS shall not, and shall insure that the
Fund does not use the name of PFPC in any Prospectus, Statement of Additional
Information, shareholders' report, sales literature or other material relating
to FTIS or the Fund in a manner not approved prior thereto by PFPC in writing;
provided, that PFPC need only receive notice of all reasonable uses of its name
which merely refer in accurate terms to its appointment hereunder or which are
required by any government agency or applicable law or rule.
(g) Use of Fund's or FTIS's Name. PFPC shall not use the name of
FTIS or the Fund or material relating to FTIS or the Fund on any documents or
forms for other than internal use in a manner not approved prior thereto in
writing; provided, that FTIS and the Fund need only receive notice of all
reasonable uses of their names which merely refer in accurate terms to the
appointment or provision of services of PFPC or which are required by any
government agency or applicable law or rule.
(h) Independent Contractors. The parties agree that they are
independent contractors and not partners or co-venturers.
(i) Entire Agreement; Severability. This Subcontract and the
Schedules attached hereto constitute the entire agreement of the parties hereto
relating to the matters covered hereby and supersede any previous agreements. If
any provision is held to be illegal, unenforceable or invalid for any reason,
the remaining provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Subcontract to be
executed by their respective corporate officers thereunder duly authorized as of
the day and year first above written.
PFPC INC. FRANKLIN TEMPLETON INVESTOR
SERVICES, INC.
BY: ________________________ ______________________
NAME: George W. Gainer Frank J. Isola
TITLE: Executive Vice President President
TERMINATION OF AGREEMENT
PFPC Inc. and Franklin Mutual Series Fund Inc. (formerly known as Mutual Series
Fund Inc.) hereby waive their respective rights of notice of termination and
agree that the Transfer Agency and Registrar Agreement between them, dated as of
April 1, 1994, as amended through the date hereof, is terminated effective as of
the date of the Subcontract for Transfer Agency and Shareholder Services, above.
Such waiver shall not operate or be construed to operate as a waiver of any
other provision of such agreement or of any power or right of either party
thereunder.
PFPC Inc.
By:_________________________
Title:
Franklin Mutual Series Fund Inc.
By:__________________________
Title:
EXHIBIT 10.26
FRANKLIN/TEMPLETON INVESTOR SERVICES, INC.
TRANSFER AGENT AND SHAREHOLDER SERVICES AGREEMENT
Investment Company:
Date:
The parties to this Agreement are the Investment Company named above
("Investment Company"), an open-end investment company registered as such under
the Investment Company Act of 1940 ("1940 Act"), on behalf of each class of
shares of each series of the Investment Company which now exists or may
hereafter be created (collectively, the "Funds") and FRANKLIN/TEMPLETON INVESTOR
SERVICES, INC. ("FTIS"), a registered transfer agent formerly known as Franklin
Administrative Services, Inc. This Agreement supersedes prior Shareholder
Services Agreements between the parties, as stated below in section 16(d).
W I T N E S E T H:
That for and in consideration of the mutual promises hereinafter set forth,
the Investment Company 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" shall mean the Articles of Incorporation, Declaration
of Trust or Agreement of Limited Partnership, as appropriate, of the
Investment Company 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 Investment Company,
duly authorized to give Oral Instructions or Written Instructions on behalf
of the Investment Company, as indicated in a resolution of the Investment
Company's Board which was valid at the time of this Agreement, or as
indicated in a certificate furnished to FTIS pursuant to Section 4(c)
hereof;
(c) "Board" shall mean the Investment Company's Board of Directors,
Board of Trustees or Managing General Partners, as appropriate;
(d) "Custodian" shall mean a custodian and any sub-custodian of
securities and other property which the Investment Company 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;
(e) "Oral Instructions" shall mean instructions (including without
limitation instructions received by telephone, facsimile, electronic mail
or other electronic mail), other than written instructions, actually
received by FTIS from a person reasonably believed by FTIS to be an
Authorized Person;
(f) "Shares" shall mean shares of each class of capital stock,
beneficial interest or limited partnership interest, as appropriate, of
each series of the Investment Company; and
(g) "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 Investment Company hereby appoints FTIS as
transfer agent for Shares of the Investment Company, as service agent in
connection with dividend and distribution functions, and as shareholder
servicing agent for the Investment Company, and FTIS accepts such appointment
and agrees to perform the following duties.
3. COMPENSATION.
(a) The Investment Company will compensate FTIS 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 separately reimbursed by the Investment Company. FTIS
will bill the Investment Company as soon as practicable after the end of
each calendar month, in accordance with Schedule A. The Investment Company
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. 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, subject to approval by the Board. Reimbursement by the
Investment Company for expenses incurred by FTIS in any month shall be made
as soon as practicable after the receipt of an itemized bill from FTIS.
Out-of-pocket disbursements may also include payments made by FTIS to
entities including affiliated entities which provide sub-shareholder
services, recordkeeping and/or transfer agency services to beneficial
owners of the Investment Company, where such services are substantially
similar to the services provided by FTIS to account holders of record. The
amount of these disbursements per benefit plan participant fund account per
year shall not exceed the per account transfer agency fees payable by the
Fund to FTIS in connection with maintaining actual shareholder accounts. On
an annual basis, FTIS shall provide a report to the Board showing, with
respect to each entity receiving such fees, the number of beneficial owners
serviced by such entity and the value of the assets in the Fund represented
by such accounts.
(b) Any compensation agreed to hereunder may be adjusted from time to
time by mutual agreement by attaching revised Schedules A or B to this
Agreement.
4. DOCUMENTS. In connection with the appointment of FTIS, the Investment
Company shall, within a reasonable period of time for FTIS to prepare to perform
its duties hereunder, deliver to FTIS the following documents:
(a) If applicable, specimens of the certificates for the Shares;
(b) All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the
Investment Company;
(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 the
Investment Company's state of domicile, under the Investment Company's
Articles, 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 Investment Company and FTIS.
5. 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, exchange, redemption or repurchase (including coordination
with the Custodian) of Shares. FTIS shall be bound to follow its usual and
customary operating standards and procedures, as they may be amended from time
to time, and each current prospectus and Statement of Additional Information
(hereafter, collectively, the "prospectus") of the Investment Company. Without
limiting the generality of the foregoing, FTIS agrees to perform the specific
duties listed on Schedule C.
The duties to be performed by FTIS shall not include the engagement,
supervision or compensation of any service providers, or any registrations or
fees of any kind, which are required by the laws of any foreign country in which
the Fund may choose to invest portfolio assets or sell Shares.
6. (a) DISTRIBUTIONS PAYABLE IN SHARES. In the event that the Board of the
Investment Company shall declare a distribution payable in Shares, the
Investment Company shall deliver to FTIS written notice of such declaration
signed on behalf of the Investment Company 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 to effect
such distribution.
(b) DISTRIBUTIONS PAYABLE IN CASH; REDEMPTION PAYMENTS. In the event
that the Board of the Investment Company shall declare a distribution
payable in cash, the Investment Company shall deliver to FTIS written
notice of such declaration signed on behalf of the Investment Company by an
officer thereof, upon which FTIS shall be entitled to rely for all
purposes, certifying (i) the amount per share to be distributed, (ii) the
record and payment dates for the distribution, and (iii) that all
appropriate action has been taken to effect such distribution. Once the
amount and validity of any dividend or redemption payments to shareholders
have been determined, the Investment Company shall transfer the payment
amounts from the Investment Company's accounts to an account or accounts
held in the name of FTIS, as paying agent for the shareholders, in
accordance with any applicable laws or regulations, and FTIS shall promptly
cause payments to be made to the shareholders.
7. RECORDKEEPING AND OTHER INFORMATION. FTIS shall create, maintain and
preserve all necessary records in accordance with all applicable laws, rules and
regulations. Such records are the property of the Investment Company, and FTIS
will promptly surrender them to the Investment Company upon request or upon
termination of this Agreement. In the event of such a request or termination,
FTIS shall be entitled to make and retain copies of all records surrendered, and
to be reimbursed by the Investment Company for reasonable expenses actually
incurred in making such copies. FTIS will take reasonable actions to maintain
the confidentiality of the Investment Company's records, which may nevertheless
be disclosed to the extent required by law or by this Agreement, or to the
extent permitted by the Investment Company.
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 Investment Company 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 Investment Company. 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 Investment
Company and the proper countersignature of FTIS.
(b) At any time FTIS may apply to any Authorized Person of the
Investment Company for Written Instructions, or may seek advice at the
Investment Company's expense from legal counsel for the Investment Company,
with respect to any matter arising in connection with this Agreement. FTIS
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 Investment Company. Written
Instructions requested by FTIS will be provided by the Investment Company
within a reasonable period of time.
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, earthquake, 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. FTIS will indemnify the Investment
Company 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 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. However, FTIS shall have no
liability for or obligation to indemnify the Investment Company against any
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) incurred by the Investment Company as a result of: (i) any
action taken in accordance with Written or Oral Instructions; (ii) any action
taken in accordance with written or oral advice reasonably believed by FTIS to
have been given by counsel for the Investment Company; (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 Investment Company to FTIS in connection with
this Agreement; or (iv) any action taken in accordance with shareholder
instructions which meet the standards described in the Investment Company's
current prospectus, including without limitation oral instructions which meet
the standards described in the section of the prospectus dealing with telephone
transactions, so long as FTIS believes such instructions to be genuine. 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, shall continue through December 31, 1996, 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 the Investment Company's Board.
(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. Upon such termination, FTIS will (i) deliver to such successor a
certified list of shareholders of the Investment Company (with names and
addresses) and an historical record of the account of each Shareholder and
the status thereof; (ii) surrender all other relevant records in accordance
with section 7 of this Agreement, above, and (iii) cooperate in the
transfer of such duties and responsibilities, including provisions for
assistance from FTIS's personnel in the establishment of books, records and
other data by such successor or successors. FTIS shall be entitled to
charge the Investment Company a reasonable fee for services rendered and
expenses actually incurred in performing its duties under this paragraph.
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 Investment Company agrees that FTIS may, in its
discretion, subcontract for all or any portion 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. DATA PROCESSING SYSTEM, PROGRAM AND INFORMATION
(a) The Investment Company shall not, solely by virtue of this
Agreement, obtain any rights, title and interest in and to the computer
systems and programs, including all related documentation, employed by FTIS
in connection with rendering services hereunder; provided however, that the
records prepared, maintained and preserved by FTIS pursuant to this
Agreement shall be the property of the Investment Company.
(b) Any modifications, changes and improvements in the automatic data
processing system (the "System") or in the manner in which the services are
rendered shall be made or provided as follows, and provided further that
modifications for which the Investment Company will be required to bear any
expenses shall be made only as set forth herein.
(i) FTIS shall, at no expense to the Investment Company, make any
revisions in the System necessary to (1) perform the services which it
has contracted to perform and (2) create and maintain the records
which it has contracted to create and maintain hereunder or (3)
enhance or update the System to the extent and in the manner necessary
to maintain said System. However, if specific reprogramming, coding or
other changes are necessary in the records of the Investment Company
or in its shareholder accounts in order to complete a system revision,
the costs for completing work specific to the Investment Company shall
be subject to a subsequent agreement between the parties. The System
is at all times to be competitive with that which is generally
available to the mutual fund industry from transfer agents.
(ii) To the extent that the System is modified to comply with
changes in the accounting or record-keeping rules applicable to mutual
funds, the Investment Company agrees to pay a reasonable pro rata
portion of the costs of the design, revision and programming of the
System; provided, however, that if the Investment Company's pro rata
portion exceeds $1,000 per 12 month period, the Investment Company's
obligation to pay a reasonable pro rata portion shall be conditioned
upon FTIS's having obtained prior Written Instructions from the
Investment Company for any charge. The determination that such
modifications or revisions are necessary, and that the System as so
modified produces records which comply with the record-keeping
requirements, as amended, shall be by mutual agreement; provided,
however, that upon written request by the Investment Company, FTIS
will provide the Investment Company with a written opinion of counsel
to FTIS to the effect that the modifications were required by changes
in the applicable laws or regulations and that the System, as
modified, complies with the laws or regulations as amended. Upon
completion of the changes FTIS shall render a statement to the
Investment Company, in reasonably detailed form, identifying the
nature of the revisions, the services, expenses and costs, and the
basis for determining the Investment Company's reasonable pro rata
portion. Any determination by FTIS of the Investment Company's pro
rata portion based upon the ratio of the number of shareholder
accounts of the Investment Company to the total number of shareholder
accounts of all clients for which FTIS provides comparable services
shall conclusively be presumed to be reasonable unless the nature of
the change to the System relates to certain types of shareholder
accounts, in which case the pro rata portion will be determined on a
mutually agreeable basis.
(iii) If system improvements are requested by the Investment
Company and are not otherwise required under this subsection 15(b),
FTIS shall be entitled to request a reasonable fee before agreeing to
make the improvements and shall be entitled to refuse to make any
requested improvements which FTIS reasonably believess to be
incompatible with its systems providing services to other funds.
16. MISCELLANEOUS.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Investment Company or FTIS shall be
sufficiently given if addressed to that party and received by it at its
office at the place described in the Investment Company's most recent
registration statement or at such other place as it may from time to time
designate in writing.
(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 by either party
without the written consent of the other party.
(c) This Agreement shall be construed in accordance with the laws of
the State of California applicable to contracts between California
residents which are to be performed primarily within 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. This Agreement supersedes all
prior Shareholder Services Agreements between the parties, and supersedes
all prior agreements between the parties relating to the subject matters of
this Agreement to the extent they are inconsistent with this Agreement.
(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.
(f) It is understood and expressly stipulated that neither the holders
of Shares of the Investment Company nor any member of the Board, officer,
agent or employee of the Investment Company shall be personally liable
hereunder, nor shall any resort be had to other private property for the
satisfaction of any claim or obligation hereunder, but the Investment
Company only shall be liable.
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.
[NAME OF INVESTMENT COMPANY] FRANKLIN/TEMPLETON
INVESTOR SERVICES, INC.
BY: _______________________ _______________________
NAME: Deborah R. Gatzek Frank J. Isola
TITLE: Secretary President
Schedule A
FEES
Shareholder account maintenance (per
annum, pro-rated payable monthly)
Money Market Funds
Other Funds - Monthly Dividends $ 18.00
Other Funds - Less Frequent Dividends
$ 11.00
$ 10.00
Schedule B
OUT-OF-POCKET EXPENSES
The Investment Company shall reimburse FTIS monthly for the following
out-of-pocket expenses:
postage, mailing and freight
forms for shareholder transactions and shareholder communications
outgoing wire charges telephone ACH and Federal Reserve charges for
check clearance and wire transfers
magnetic tape (or other means for storing information
electronically) retention of records microfilm/microfiche stationery
for shareholder mailings insurance against loss of Share
certificates when in transit if applicable, terminals, transmitting
lines and any expenses incurred in connection with such terminals
and lines all other miscellaneous expenses reasonably incurred by
FTIS in the performance of its obligations under the Agreement NSCC
Networking/Commission Settlement Expenses
This Schedule B may be amended by FTIS upon not less than 30 days' written
notice to the Investment Company, subject to approval by the Board.
Schedule C
DUTIES
AS TRANSFER AGENT FOR THE INVESTMENT COMPANY, FTIS WILL:
Upon receipt of proper authorization, record the issuance and sale
of Investment Company Shares in its transfer records in such names
and for such number of authorized but hitherto unissued Shares of
the Investment Company;
Upon receipt of proper authorization, transfer ownership of record
of certificated or uncertificated Investment Company Shares whether
now outstanding or hereafter issued;
Upon receipt of proper authorization, redeem Shares, debit
shareholder accounts and provide for payment to shareholders; and
If the Investment Company issues certificated shares, upon
receipt of proper authorization, countersign as transfer agent and
deliver certificates upon issuance, countersign certificates to
reflect ownership transfers, and cancel certificates when redeemed.
AS SHAREHOLDER SERVICE AGENT FOR THE INVESTMENT COMPANY, FTIS WILL:
Receive from the Investment Company, from the Investment Company'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;
Mail sale and/or redemption confirmations using standard forms;
Accept and process cash payments from investors and their
broker-dealers or other agents, clear checks which represent
payments for the purchase of Shares;
Support the use of automated systems for payment and other
share transactions, including NSCC Fund/Serv, PC Trades and other
systems which may be reasonably requested by FTIS customers;
Keep records as necessary to implement any deferred sales
charges, exchange restrictions or other policies of the Investment
Company affecting share transactions, including without limitation
any restrictions or policies applicable to certain classes of
shares, as stated in the applicable prospectus;
Requisition Shares in accordance with instructions of the
Principal Underwriter of the Shares of the Investment Company;
Produce periodic reports reflecting the accounts receivable and
the paid pending (free stock) items;
Open, maintain and close Shareholder accounts;
Establish registration of ownership of Shares in accordance
with generally accepted form;
Maintain 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;
Accept and process telephone exchanges and redemptions for Shares in
accordance with a Fund's Telephone Exchange and Redemption
Privileges as described in the Fund's current prospectus.
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;
Provide on request a duplicate set of records for file maintenance
in the Investment Company's office;
Provide for the proper allocation of proceeds of share sales to the
Investment Company and to the Principal Underwriter, in accordance
with the applicable prospectus;
Redeem Shares and provide for the preparation and delivery of
liquidation proceeds;
Provide for the processing of redemption checks, and maintain
checking account records;
Exercise reasonable and good-faith business judgment in the
registration of Share transfers, pledges and releases from pledges
in accordance with the California Uniform Commercial Code - -
Investment Securities;
From time to time make transfers of certificates for such Shares as
may be surrendered for transfer properly endorsed, and countersign
new certificates issued in lieu thereof;
Upon receipt of proper documentation, place stop transfers, obtain
necessary insurance forms, and reissue replacement certificates
against lost, stolen or destroyed Share certificates;
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;
Cancel surrendered certificates and record and countersign
new certificates;
Certify outstanding Shares to auditors;
In connection with any meeting of Shareholders, upon receiving
appropriate detailed instructions and written materials prepared by
the Investment Company and proxy proofs checked by the Investment
Company, provide for: (a) the printing of proxy cards, (b) the
delivery to Shareholders of all reports, prospectuses, proxy cards
and related proxy materials of suitable design for enclosing, (c)
the receipt and tabulation of executed proxies, and (d) delivery of
a list of Shareholders for the meeting;
Answer routine correspondence and telephone inquiries about
individual accounts. Prepare monthly reports for correspondence
volume and correspondence data necessary for the Investment
Company's Semi-Annual Report on Form N-SAR;
Provide for the preparation and delivery of dealer commission
statements and checks;
Maintain and furnish the Investment Company and its Shareholders
with such information as the Investment Company may reasonably
request for the purpose of compliance by the Investment Company with
the applicable tax and securities laws of applicable jurisdictions;
Mail confirmations of transactions to investors and dealers in a
timely fashion;
Provide for the payment or reinvestment of income dividends and/or
capital gains distributions to Shareholders of record, in accordance
with the Investment Company's and/or Shareholder's instructions,
provided that:
(a) The Investment Company 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 Investment Company shall
furnish FTIS with sufficient fully and finally collected
funds to make such distribution;
Prepare and file annual U.S. information returns of dividends and
capital gain distributions, gross redemption proceeds, foreign
person's U.S. source income, and other U.S. federal and state
information returns as required, and mail payee copies to
shareholders; report and pay U.S. backup withholding on all
reportable payments; report and pay U.S. federal income taxes
withheld from distributions and other payments made to nonresidents
of the U.S.; prepare and mail to shareholders any notice required by
the Internal Revenue Code as to taxable dividends, tax-exempt
interest dividends, realized net capital gains distributed and/ or
retained, foreign taxes paid and foreign source income distributed
or deemed distributed, U.S. source income and any tax withheld on
such income, dividends received deduction information, or other
applicable tax information appropriate for dissemination to
shareholders of the Trust;
Comply with all U.S. federal income tax requirements regarding the
collection of tax identification numbers and other required
shareholder certifications and information pertaining to shareholder
accounts; respond to all notifications from the U.S. Internal
Revenue Service regarding the application of the U.S. backup
withholding requirements including tax identification number
solicitation requirements;
Prepare transfer journals;
Set up wire order Share transactions on file;
Provide for receipt of payment for Share transactions, and update
the transaction file;
Produce delinquency and other trade file reports;
Provde dealer commission statements and provide for payments
thereof for the Principal Underwriter;
Sort and print shareholder information by state, social code,
price break, etc.; and
Mail promptly the Statement of Additional Information of the
Investment Company to each Shareholder who requests it, at no cost
to the Shareholder.
In connection with the Investment Company's Systematic Withdrawal Plan,
FTIS will:
Make payment of amounts withdrawn periodically by the Shareholder
pursuant to the Program by redeeming Shares, and confirm such
redemptions to the Shareholder; and
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.
EXHIBIT 10.27
FUND ADMINISTRATION AGREEMENT BETWEEN
TEMPLETON GROWTH FUND, INC.
AND
FRANKLIN TEMPLETON SERVICES, INC.
AGREEMENT dated as of October 1, 1996, between Templeton Growth
Fund, Inc. (the "Fund"), an investment company registered under the Investment
Company Act of 1940 ("1940 Act"), and Franklin Templeton Services, Inc. ("FTS"
or "Administrator").
In consideration of the mutual promises herein made, the parties
hereby agree as follows:
(1) The Administrator agrees, during the life of this Agreement, to
provide the following services to the Fund:
(a) providing office space, telephone, office equipment and supplies
for the Fund;
(b) providing trading desk facilities for the Fund, unless these
facilities are provided by the Fund's investment adviser;
(c) authorizing expenditures and approving bills for payment on
behalf of the Fund;
(d) supervising preparation of periodic reports to shareholders,
notices of dividends, capital gains distributions and tax credits; and attending
to routine correspondence and other communications with individual shareholders
when asked to do so by the Fund's shareholder servicing agent or other agents of
the Fund;
(e) coordinating the daily pricing of the Fund's investment
portfolio, including collecting quotations from pricing services engaged by the
Fund; providing fund accounting services, including preparing and supervising
publication of daily net asset value quotations, periodic earnings reports and
other financial data; and coordinating trade settlements;
(f) monitoring relationships with organizations serving the Fund,
including custodians, transfer agents, public accounting firms, law firms,
printers and other third party service providers;
(g) supervising compliance by the Fund with recordkeeping
requirements under the federal securities laws, including the 1940 Act and the
rules and regulations thereunder, and under other applicable state and federal
laws; and maintaining books and records for the Fund (other than those
maintained by the custodian and transfer agent);
(h) preparing and filing of tax reports including the Fund's income
tax returns, and monitoring the Fund's compliance with subchapter M of the
Internal Revenue Code, as amended, and other applicable tax laws and
regulations;
(i) monitoring the Fund's compliance with: 1940 Act and other
federal securities laws, and rules and regulations thereunder; state and foreign
laws and regulations applicable to the operation of investment companies; the
Fund's investment objectives, policies and restrictions; and the Code of Ethics
and other policies adopted by the Fund's Board of Directors ("Board") or by the
Fund's investment adviser and applicable to the Fund;
(j) providing executive, clerical and secretarial personnel needed
to carry out the above responsibilities;
(k) preparing and filing regulatory reports, including without
limitation Forms N-1A and N-SAR, proxy statements, information statements and
U.S. and foreign ownership reports; and
(l) providing support services incidental to carrying out these
duties.
Nothing in this Agreement shall obligate the Fund to pay any compensation to the
officers of the Fund. Nothing in this Agreement shall obligate FTS to pay for
the services of third parties, including attorneys, auditors, printers, pricing
services or others, engaged directly by the Fund to perform services on behalf
of the Fund.
(2) The Fund agrees, during the life of this Agreement, to pay to FTS as
compensation for the foregoing a monthly fee equal on an annual basis to 0.15%
of the first $200 million of the 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%.
From time to time, FTS may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in the purchase price
of its services. FTS shall be contractually bound hereunder by the terms of any
publicly announced waiver of its fee, or any limitation of each affected Fund's
expenses, as if such waiver or limitation were fully set forth herein.
(3) This Agreement shall remain in full force and effect through for one
year after its execution and thereafter from year to year to the extent
continuance is approved annually by the Board 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 Board 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 FTS, or of reckless disregard of its duties and obligations
hereunder, FTS 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.
FRANKLIN TEMPLETON SERVICES, INC.
By:
Martin L. Flanagan
President
TEMPLETON GROWTH FUND, INC.
By:
John R. Kay
Vice President
EXHIBIT 10.28
FUND ADMINISTRATION AGREEMENT BETWEEN
[Name of Trust or Corporation]
AND
FRANKLIN TEMPLETON SERVICES, INC.
AGREEMENT dated as of [DATE], between [Name of Trust or Corporation] (the
"Investment Company"), an investment company registered under the Investment
Company Act of 1940 ("1940 Act"), on behalf of [Name of Fund(s)] (each, a
"Fund"), separate series of the Investment Company, and Franklin Templeton
Services, Inc. ("FTS" or "Administrator").
In consideration of the mutual promises herein made, the parties
hereby agree as follows:
(1) The Administrator agrees, during the life of this Agreement,
to provide the following services to each Fund:
(a) providing office space, telephone, office equipment and
supplies for the Fund;
(b) providing trading desk facilities for the Fund, unless
these facilities are provided by the Fund's investment adviser;
(c) authorizing expenditures and approving bills for payment
on behalf of the Fund;
(d) supervising preparation of periodic reports to
shareholders, notices of dividends, capital gains distributions
and tax credits; and attending to routine correspondence and
other communications with individual shareholders when asked to
do so by the Fund's shareholder servicing agent or other agents
of the Fund;
(e) coordinating the daily pricing of the Fund's investment
portfolio, including collecting quotations from pricing services
engaged by the Fund; providing fund accounting services,
including preparing and supervising publication of daily net
asset value quotations, periodic earnings reports and other
financial data; and coordinating trade settlements;
(f) monitoring relationships with organizations serving the
Fund, including custodians, transfer agents, public accounting
firms, law firms, printers and other third party service
providers;
(g) supervising compliance by the Fund with recordkeeping
requirements under the federal securities laws, including the
1940 Act and the rules and regulations thereunder, and under
other applicable state and federal laws; and maintaining books
and records for the Fund (other than those maintained by the
custodian and transfer agent);
(h) preparing and filing of tax reports including the Fund's
income tax returns, and monitoring the Fund's compliance with
subchapter M of the Internal Revenue Code, as amended, and other
applicable tax laws and regulations;
(i) monitoring the Fund's compliance with: 1940 Act and
other federal securities laws, and rules and regulations
thereunder; state and foreign laws and regulations applicable to
the operation of investment companies; the Fund's investment
objectives, policies and restrictions; and the Code of Ethics and
other policies adopted by the Investment Company's Board of
Trustees or Directors ("Board") or by the Fund's investment
adviser and applicable to the Fund;
(j) providing executive, clerical and secretarial personnel
needed to carry out the above responsibilities;
(k) preparing and filing regulatory reports, including
without limitation Forms N-1A and NSAR, proxy statements,
information statements and U.S. and foreign ownership reports;
and
(l) providing support services incidental to carrying out
these duties.
Nothing in this Agreement shall obligate the Investment Company or any Fund to
pay any compensation to the officers of the Investment Company. Nothing in this
Agreement shall obligate FTS to pay for the services of third parties, including
attorneys, auditors, printers, pricing services or others, engaged directly by
the Fund to perform services on behalf of the Fund.
(2) The Investment Company agrees, during the life of this
Agreement, to pay to FTS as compensation for the foregoing a monthly
fee equal on an annual basis to 0.15% of the first $200 million of the
average daily net assets of each 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 0.10%; and on such
net assets in excess of $1.2 billion, a monthly fee equal on an annual
basis to 0.075%.
From time to time, FTS may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in the purchase price
of its services. FTS shall be contractually bound hereunder by the terms of any
publicly announced waiver of its fee, or any limitation of each affected Fund's
expenses, as if such waiver or limitation were fully set forth herein.
(3) This Agreement shall remain in full force and effect through
for one year after its execution and thereafter from year to year to
the extent continuance is approved annually by the Board of the
Investment Company.
(4) This Agreement may be terminated by the Investment Company at
any time on sixty (60) days' written notice without payment of
penalty, provided that such termination by the Investment Company
shall be directed or approved by the vote of a majority of the Board
of the Investment Company in office at the time or by the vote of a
majority of the outstanding voting securities of the Investment
Company (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 FTS, or of reckless disregard of its duties
and obligations hereunder, FTS 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.
[INVESTMENT COMPANY] FRANKLIN TEMPLETON SERVICES, INC.
By: By:
EXHIBIT 10.29
SUBCONTRACT FOR FUND ADMINISTRATIVE SERVICES
This Subcontract for Fund Administrative Services ("Subcontract") is made
as of October 1, 1996 between FRANKLIN ADVISERS, INC., a California corporation,
hereinafter called the "Investment Manager," and FRANKLIN TEMPLETON SERVICES,
INC. (the "Administrator").
In consideration of the mutual agreements herein made, the Administrator
and the Investment Manager understand and agree as follows:
I. Prime Contract.
This Subcontract is made in order to assist the Investment Manager in fulfilling
certain of the Investment Manager's obligations under each investment management
and investment advisory agreement ("Agreement") between the Investment Manager
and each Investment Company listed on Exhibit A, ("Investment Company") with
respect to each Fund listed on Exhibit A ("Fund"). This Subcontract is subject
to the terms of each Agreement, which is incorporated herein by reference.
II. Subcontractual Provisions.
(1) The Administrator agrees, during the life of this Agreement, to provide
the following services to each Fund:
(a) providing office space, telephone, office equipment and supplies
for the Fund;
(b) providing trading desk facilities for the Fund, unless these
facilities are provided by the Fund's investment adviser;
(c) authorizing expenditures and approving bills for payment on behalf
of the Fund;
(d) supervising preparation of periodic reports to shareholders,
notices of dividends, capital gains distributions and tax credits; and
attending to routine correspondence and other communications with
individual shareholders when asked to do so by the Fund's shareholder
servicing agent or other agents of the Fund;
(e) coordinating the daily pricing of the Fund's investment portfolio,
including collecting quotations from pricing services engaged by the Fund;
providing fund accounting services, including preparing and supervising
publication of daily net asset value quotations, periodic earnings reports
and other financial data; and coordinating trade settlements;
(f) monitoring relationships with organizations serving the Fund,
including custodians, transfer agents, public accounting firms, law firms,
printers and other third party service providers;
(g) supervising compliance by the Fund with recordkeeping requirements
under the federal securities laws, including the 1940 Act and the rules and
regulations thereunder, and under other applicable state and federal laws;
and maintaining books and records for the Fund (other than those maintained
by the custodian and transfer agent);
(h) preparing and filing of tax reports including the Fund's income
tax returns, and monitoring the Fund's compliance with subchapter M of the
Internal Revenue Code, as amended, and other applicable tax laws and
regulations;
(i) monitoring the Fund's compliance with: 1940 Act and other federal
securities laws, and rules and regulations thereunder; state and foreign
laws and regulations applicable to the operation of investment companies;
the Fund's investment objectives, policies and restrictions; and the Code
of Ethics and other policies adopted by the Investment Company's Board of
Trustees or Directors ("Board") or by the Fund's investment adviser and
applicable to the Fund;
(j) providing executive, clerical and secretarial personnel needed to
carry out the above responsibilities;
(k) preparing and filing regulatory reports, including without
limitation Forms N-1A and NSAR, proxy statements, information statements
and U.S. and foreign ownership reports; and
(l) providing support services incidental to carrying out these
duties.
Nothing in this Agreement shall obligate the Investment Company or any Fund to
pay any compensation to the officers of the Investment Company. Nothing in this
Agreement shall obligate FTS to pay for the services of third parties, including
attorneys, auditors, printers, pricing services or others, engaged directly by
the Fund to perform services on behalf of the Fund.
(2) The Investment Manager agrees to pay to the Administrator as
compensation for such services a monthly fee equal on an annual basis to 0.15%
of the first $200 million of the average daily net assets of each 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 Subcontract shall become effective on the date written above and
shall continue in effect as to each Investment Company and each Fund so long as
(1) the Agreement applicable to the Investment Company or Fund is in effect and
(2) this Subcontract is not terminated. This Subcontract will terminate as to
any Investment Company or Fund immediately upon the termination of the Agreement
applicable to the Investment Company or Fund, and may in addition be terminated
by either party at any time, without the payment of any penalty, on sixty (60)
days' written notice to the other party.
(4) In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Administrator, or of reckless disregard of its duties and
obligations hereunder, the Administrator 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 Subcontract to be
executed by their duly authorized officers.
FRANKLIN ADVISERS, INC.
By: _____________________________
Deborah R. Gatzek
Title: Vice President
& Assistant Secretary
FRANKLIN TEMPLETON SERVICES, INC.
By: _____________________________
Harmon E. Burns
Title: Executive Vice President
SUBCONTRACT FOR FUND ADMINISTRATIVE SERVICES
BETWEEN
FRANKLIN ADVISERS, INC.
AND
FRANKLIN TEMPLETON SERVICES, INC.
EXHIBIT A
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INVESTMENT COMPANY SERIES ---(IF APPLICABLE)
- --------------------------------------------------------------------------------
<S> <C>
Franklin High Income Trust AGE High Income Fund
Franklin Asset Allocation Fund
Franklin California Tax-Free Income
Fund, Inc.
Franklin California Tax-Free Trust Franklin California Insured Tax-Free Income
Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term
Tax-Free Income Fund
Franklin Custodian Funds, Inc. Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund
Franklin Federal Tax-Free Income
Fund
Franklin Gold Fund
Franklin Government Securities Trust
Franklin Investors Securities Trust Franklin Short-Intermediate U.S. Gov't
Securities Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Municipal Securities Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Trust Franklin New York Tax-Exempt Money Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Tax-Advantaged
International Bond Fund
Franklin Tax-Advantaged U.S.
Government Securities Fund
- --------------------------------------------------------------------------------
INVESTMENT COMPANY SERIES ---(IF APPLICABLE)
- --------------------------------------------------------------------------------
Franklin Tax-Advantaged High Yield
Securities Fund.
Franklin Real Estate Securities Franklin Real Estate Securities Fund
Trust
Franklin Strategic Mortgage
Portfolio
Franklin Strategic Series Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust Franklin Massachusetts Insured Tax-Free
Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income
Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
Franklin Michigan Tax-Free Income Fund
- --------------------------------------------------------------------------------
INVESTMENT COMPANY SERIES ---(IF APPLICABLE)
- --------------------------------------------------------------------------------
Institutional Fiduciary Trust Franklin U.S. Treasury Money Market Portfolio
Franklin U.S. Government Agency Money Market
Fund
MidCap Growth Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust
Franklin Principal Maturity Trust
Franklin Universal Trust
- --------------------------------------------------------------------------------
</TABLE>
EXHIBIT 10.30
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of November, 1996, between MUTUAL BEACON
FUND, a series (composed of one or more classes) of FRANKLIN MUTUAL SERIES FUND
INC., a corporation organized under the laws of the State of Maryland
(hereinafter referred to as the "Fund"), and Franklin Mutual Advisers, Inc.
(hereinafter referred to as the "Investment Adviser").
In consideration of the mutual agreements herein made, the Fund and the
Investment Adviser understand and agree as follows:
(1) The Investment Adviser agrees, during the life of this Agreement, to
manage the investment and reinvestment of the Fund's assets consistent with the
provisions of the Fund's Charter, By-laws and the investment policies adopted
and approved by the Fund's Board of Directors and shareholders pursuant to the
Investment Company Act of 1940 (the "1940 Act"). In pursuance of the foregoing,
the Investment Adviser shall have sole and exclusive discretion in all
determinations with respect to the purchasing and selling of securities and
other assets for the Fund and in voting and exercising all other rights
appertaining to such securities and other assets on behalf of the Fund, and
shall take all such steps as may be necessary to implement those determinations.
(2) The Investment Adviser 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, but personnel employed by the Investment
Adviser may act as officers and/or directors.
(3) The Investment Adviser 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 Adviser 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 Adviser in
determining the overall reasonableness of brokerage commissions.
(B) In selecting brokers for portfolio transactions, the Investment
Adviser 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 Adviser 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 Adviser 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 Adviser 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 Adviser'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 Adviser 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 Adviser 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 Adviser 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 commissions 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 Adviser are useful to the Investment Adviser in
performing its advisory services under its Agreement. Research services
provided by brokers to the Investment Adviser are considered to be in
addition to, and not in lieu of, services required to be performed by the
Investment Adviser under this Agreement. Research furnished by brokers
through which the Fund effects securities transactions may be used by the
Investment Adviser for any of its accounts, and not all such research may
be used by the Investment Adviser 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 Adviser, 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 Adviser) 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 Adviser as compensation for
such services a fee for its services based upon a percentage of the Fund's
average daily net assets, payable at the end of each calendar month. This fee
shall be calculated daily at the following annual rate: .60% for Mutual Beacon
Fund.
Notwithstanding the foregoing, if the total expenses of the Fund (including
the fee to the Investment Adviser) in any fiscal year of the Fund exceed any
expense limitation imposed by applicable State law, the Investment Adviser 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 Adviser'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.
The Investment Adviser may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in the purchase price
of its services. The Investment Adviser shall be contractually bound hereunder
by the terms of any publicly announced waiver of its fee or any limitation of
the Fund's expenses, as if such waiver or limitation were fully set forth
herein.
(5) This Agreement shall become effective on November 1, 1996 and shall
continue in effect through June 30, 1998. 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 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 Adviser no
longer acts as Investment Adviser to the Fund, the Investment Adviser reserves
the right to withdraw from the Fund the use of the name "Franklin", "Templeton"
or any name misleadingly implying a continuing relationship between the Fund and
the Investment Adviser or any of its affiliates.
(9) Except as may otherwise be provided by the 1940 Act, neither the
Investment Adviser 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 Adviser 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 Adviser's part or by reason of reckless
disregard of the Investment Adviser'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 Adviser. It is further understood and acknowledged by the Fund that
investment decisions made on behalf of the Fund by the Investment Adviser 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 Adviser will not always be profitable or prove to have been
correct.
(10) a. The Fund hereby agrees to indemnify the Investment Adviser and each
of the Investment Adviser's directors, officers, employees, and agents
(including any individual who serves at the Investment Adviser's request as
director, officer, partner, trustee or the like of another corporation) (each
such person being an "Indemnitee") against any liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees (all as provided in accordance with applicable
corporate law) reasonably incurred by such Indemnitee in connection with the
defense or disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or investigative body in which he
may be or may have been involved as a party or otherwise or with which he may be
or may have been threatened, while acting in any capacity set forth above in
this Section 10 or thereafter by reason of his having acted in any such
capacity, except with respect to any matter as to which he shall have been
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Fund and furthermore, in the case of any
criminal proceeding, so long as he had no reasonable cause to believe that the
conduct was unlawful, provided, however, that (1) no Indemnitee shall be
indemnified hereunder against any expense of such Indemnitee arising by reason
of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence or (iv)
reckless disregard of the duties involved in the conduct of his position (the
conduct referred to in such clauses (i) through (iv) being sometimes referred to
herein as "disabling conduct"), (2) as to any matter disposed of by settlement
or a compromise payment by such Indemnitee, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other expenses
shall be provided unless there has been a determination that such settlement or
compromise is in the best interests of the Fund and that such Indemnitee appears
to have acted in good faith in the reasonable belief that his action was in the
best interests of the Fund and did not involve disabling conduct by such
Indemnitee and (3) with respect to any action, suit or other proceeding
voluntarily prosecuted by any Indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or other proceeding by
such Indemnitee was authorized by a majority of the full Board of the Fund.
b. The Fund shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification
might be sought hereunder in the Fund receives a written affirmation of the
Indemnitee's good faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to reimburse the
Fund unless it is subsequently determined that he is entitled to such
indemnification and if the directors of the Fund determine that the facts
then known to them would not preclude indemnification. In addition, at
least one of the following conditions must be met: (A) the Indemnitee shall
provide a security for his undertaking, (B) the Fund shall be insured
against losses arising by reason of any lawful advance, or (C) a majority
of a quorum consisting of directors of the Fund who are neither "interested
persons" of the Fund (as defined in Section 2(a)(19) of the Act) nor
parties to the proceeding ("Disinterested Non-party Directors") or an
independent legal counsel in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Indemnitee ultimately
will be found entitled to indemnification.
c. All determinations with respect to indemnification hereunder shall
be made (1) by a final decision on the merits by a court or other body
before whom the proceeding was brought that such Indemnitees is not liable
by reason of disabling conduct or, (2) in the absence of such a decision,
by (i) a majority vote of a quorum of the Disinterested Directors of the
Fund, or (ii) if such a quorum is not obtainable or even, if obtainable, if
a majority vote of such quorum so directs, independent legal counsel in a
written opinion. All determinations that advance payments in connection
with the expense of defending any proceeding shall be authorized shall be
made in accordance with the immediately preceding clause (2) above.
The rights accruing to any Indemnitee under these provisions shall not
exclude any other right to which he may be lawfully entitled.
(11) It is understood that the services of the Investment Adviser are not
deemed to be exclusive, and nothing in this Agreement shall prevent the
Investment Adviser, 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. The Fund acknowledges that the
Investment Adviser renders services to others, that officers and employees of
the investment adviser invest for their own accounts, and the Fund is not
entitled to, and does not expect, to obtain the benefits of any investment
opportunities developed by the Investment Adviser such officers or employees in
which the Investment Adviser acting in good faith, does not cause the Fund to
invest.
(12) 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.
(13) 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.
(14) Nothing herein shall be construed as constituting the Investment
Adviser 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.
MUTUAL BEACON FUND, a series of
FRANKLIN MUTUAL SERIES FUND INC.
By:
Title:
FRANKLIN MUTUAL ADVISERS, INC.
By:
Title:
EXHBIIT 10.31
FRANKLIN VALUEMARK FUNDS
on behalf of its series
MUTUAL DISCOVERY SECURITIES FUND and
MUTUAL SHARES SECURITIES FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN VALUEMARK FUNDS, a
Massachusetts business trust (the "Trust"), on behalf of MUTUAL DISCOVERY
SECURITIES FUND and MUTUAL SHARES SECURITIES FUND (each, a "Fund"), series of
the Trust, and FRANKLIN MUTUAL ADVISERS, INC., a Delaware corporation, (the
"Manager").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its By-Laws
and its Registration Statements under the 1940 Act and the Securities Act of
1933, all as heretofore and hereafter amended and supplemented; and the Trust
desires to avail itself of the services, information, advice, assistance and
facilities of an investment manager and to have an investment manager perform
various management, statistical, research, investment advisory and other
services for each Fund; and,
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
management, investment advisory, counseling and supervisory services to
investment companies and other investment counseling clients, and desires to
provide these services to each Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
l. EMPLOYMENT OF THE MANAGER. The Trust hereby employs the Manager
to manage the investment and reinvestment of each Fund's assets, subject to the
direction of the Board of Trustees and the officers of the Trust, for the period
and on the terms hereinafter set forth. The Manager hereby accepts such
employment and agrees during such period to render the services and to assume
the obligations herein set forth for the compensation herein provided. The
Manager shall for all purposes herein be deemed to be an independent contractor
and shall, except as expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the Funds or the Trust in
any way or otherwise be deemed an agent of the Funds or the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE MANAGER. The
Manager undertakes to provide the services hereinafter set forth and to assume
the following obligations:
A. INVESTMENT MANAGEMENT SERVICES.
(a) The Manager shall manage each Fund's assets
subject to and in accordance with the investment objectives and policies of the
Fund and any directions which the Trust's Board of Trustees may issue from time
to time. In pursuance of the foregoing, the Manager shall make all
determinations with respect to the investment of each Fund's assets and the
purchase and sale of its investment securities, and shall take such steps as may
be necessary to implement the same. Such determinations and services shall
include determining the manner in which any voting rights, rights to consent to
corporate action and any other rights pertaining to each Fund's investment
securities shall be exercised. The Manager shall render or cause to be rendered
regular reports to the Trust, at regular meetings of its Board of Trustees and
at such other times as may be reasonably requested by the Trust's Board of
Trustees, of (i) the decisions made with respect to the investment of each
Fund's assets and the purchase and sale of its investment securities, (ii) the
reasons for such decisions and (iii) the extent to which those decisions have
been implemented.
(b) The Manager, subject to and in accordance
with any directions which the Trust's Board of Trustees may issue from time to
time, shall place, in the name of each Fund, orders for the execution of the
Fund's securities transactions. When placing such orders, the Manager shall seek
to obtain the best net price and execution for each Fund, but this requirement
shall not be deemed to obligate the Manager to place any order solely on the
basis of obtaining the lowest commission rate if the other standards set forth
in this section have been satisfied. The parties recognize that there are likely
to be many cases in which different brokers are equally able to provide such
best price and execution and that, in selecting among such brokers with respect
to particular trades, it is desirable to choose those brokers who furnish
research, statistical, quotations and other information to the Funds and the
Manager in accordance with the standards set forth below. Moreover, to the
extent that it continues to be lawful to do so and so long as the Board of
Trustees determines that the Funds will benefit, directly or indirectly, by
doing so, the Manager may place orders with a broker who charges a commission
for that transaction which is in excess of the amount of commission that another
broker would have charged for effecting that transaction, provided that the
excess commission is reasonable in relation to the value of "brokerage and
research services" (as defined in Section 28(e) (3) of the Securities Exchange
Act of 1934) provided by that broker.
Accordingly, the Trust and the Manager agree
that the Manager shall select brokers for the execution of each Fund's
transactions from among:
(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Fund's net assets, in such amount of
total brokerage as may reasonably be required in
light of such services; and
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its
affiliates which the Manager or its affiliates may
lawfully and appropriately use in their investment
advisory capacities, which relate directly to
securities, actual or potential, of the Fund, or
which place the Manager in a better position to
make decisions in connection with the management of
the Fund's assets and securities, whether or not
such data may also be useful to the Manager and its
affiliates in managing other portfolios or advising
other clients, in such amount of total brokerage as
may reasonably be required. Provided that the
Trust's officers are satisfied that the best
execution is obtained, the sale of shares of the
Fund may also be considered as a factor in the
selection of broker-dealers to execute the Fund's
portfolio transactions.
(c) When the Manager has determined that a
Fund should tender securities pursuant to a "tender offer solicitation,"
Franklin/Templeton Distributors, Inc. ("Distributors") shall be designated as
the "tendering dealer" so long as it is legally permitted to act in such
capacity under the federal securities laws and rules thereunder and the rules of
any securities exchange or association of which Distributors may be a member.
Neither the Manager nor Distributors shall be obligated to make any additional
commitments of capital, expense or personnel beyond that already committed
(other than normal periodic fees or payments necessary to maintain its corporate
existence and membership in the National Association of Securities Dealers,
Inc.) as of the date of this Agreement. This Agreement shall not obligate the
Manager or Distributors (i) to act pursuant to the foregoing requirement under
any circumstances in which they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to institute legal or other
proceedings to collect fees which may be considered to be due from others to it
as a result of such a tender, unless the Trust on behalf of a Fund shall enter
into an agreement with the Manager and/or Distributors to reimburse them for all
such expenses connected with attempting to collect such fees, including legal
fees and expenses and that portion of the compensation due to their employees
which is attributable to the time involved in attempting to collect such fees.
(d) The Manager shall render regular
reports to the Trust, not more frequently than quarterly, of how much total
brokerage business has been placed by the Manager, on behalf of each Fund, with
brokers falling into each of the categories referred to above and the manner in
which the allocation has been accomplished.
(e) The Manager agrees that no investment
decision will be made or influenced by a desire to provide brokerage for
allocation in accordance with the foregoing, and that the right to make such
allocation of brokerage shall not interfere with the Manager's paramount duty to
obtain the best net price and execution for each Fund.
B. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF
SECURITIES REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Manager,
its officers and employees will make available and provide accounting and
statistical information required by each Fund in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and with such information as the Fund may reasonably request for use in the
preparation of such documents or of other materials necessary or helpful for the
underwriting and distribution of the Fund's shares.
C. OTHER OBLIGATIONS AND SERVICES. The Manager shall make
its officers and employees available to the Board of Trustees and officers of
the Trust for consultation and discussions regarding the administration and
management of each Fund and its investment activities.
3. EXPENSES OF THE FUND. It is understood that each Fund will pay all
of its own expenses other than those expressly assumed by the Manager herein,
which expenses payable by the Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services, including the expenses
of issue, repurchase or redemption of its shares;
D. Expenses of obtaining quotations for calculating the value of the
Fund's net assets;
E. Salaries and other compensations of executive officers of the
Trust who are not officers, directors, stockholders or employees of the Manager
or its affiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the purchase
and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the filing of
reports with regulatory bodies and the maintenance of the Fund's and the Trust's
legal existence;
J. Legal fees, including the legal fees related to the registration
and continued qualification of the Fund's shares for sale;
K. Trustees' fees and expenses to trustees who are not directors,
officers, employees or stockholders of the Manager or any of its affiliates;
L. Costs and expense of registering and maintaining the registration
of the Fund and its shares under federal and any applicable state laws;
including the printing and mailing of prospectuses to its shareholders;
M. Trade association dues; and
N. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
However, nothing in this Agreement shall obligate the Trust or any Fund to pay
any compensation to the officers of the Trust.
4. COMPENSATION OF THE MANAGER. Each Fund shall pay a management fee in
cash to the Manager based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, as compensation for the services rendered
and obligations assumed by the Manager, during the preceding month, on the first
business day of the month in each year.
A. For purposes of calculating such fee, the value of the net
assets of each Fund shall be determined in the same manner as that Fund uses to
compute the value of its net assets in connection with the determination of the
net asset value of its shares, all as set forth more fully in the Trust's
current prospectus and statement of additional information. The rate of the
management fee payable by each Fund shall be calculated at the following annual
rates:
(a) For the Mutual Discovery Securities Fund, 0.80% of the value of
the Fund's net assets; and
(b) For the Mutual Shares Securities Fund, 0.60% of the value of the
Fund's net assets.
B. The management fee payable by each Fund shall be reduced or
eliminated to the extent that Distributors has actually received cash payments
of tender offer solicitation fees less certain costs and expenses incurred in
connection therewith and to the extent necessary to comply with the limitations
on expenses which may be borne by the Fund as set forth in the laws, regulations
and administrative interpretations of those states in which the Fund's shares
are registered. With respect to any Fund, the Manager may waive all or a portion
of its fees provided for herein, and such waiver shall be treated as a reduction
in purchase price of its services. The Manager shall be contractually bound
hereunder by the terms of any publicly announced waiver of its fees, or any
limitation of a Fund's expenses, as if such waiver or limitation were fully set
forth herein.
C. If this Agreement is terminated prior to the end of any
month, the accrued management fee shall be paid to the date of termination.
5. ACTIVITIES OF THE MANAGER. The services of the Manager to the Funds
hereunder are not to be deemed exclusive, and the Manager and any of its
affiliates shall be free to render similar services to others. Subject to and in
accordance with the Agreement and Declaration of Trust and By-Laws of the Trust
and Section 10(a) of the 1940 Act, it is understood that trustees, officers,
agents and shareholders of the Trust are or may be interested in the Manager or
its affiliates as directors, officers, agents or stockholders; that directors,
officers, agents or stockholders of the Manager or its affiliates are or may be
interested in the Trust as trustees, officers, agents, shareholders or
otherwise; that the Manager or its affiliates may be interested in any Fund as
shareholders or otherwise; and that the effect of any such interests shall be
governed by said Agreement and Declaration of Trust, By-Laws and the 1940 Act.
6. LIABILITIES OF THE MANAGER.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Manager, the Manager shall not be subject to liability to the Trust or
any Fund or to any shareholder of a Fund for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security by any Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Trust for any and all costs, expenses, and counsel and trustees'
fees reasonably incurred by the Trust in the preparation, printing and
distribution of proxy statements, amendments to its Registration Statement,
holdings of meetings of its shareholders or trustees, the conduct of factual
investigations, any legal or administrative proceedings (including any
applications for exemptions or determinations by the Securities and Exchange
Commission) which the Trust incurs as the result of action or inaction of the
Manager or any of its affiliates or any of their officers, directors, employees
or stockholders where the action or inaction necessitating such expenditures (i)
is directly or indirectly related to any transactions or proposed transaction in
the stock or control of the Manager or its affiliates (or litigation related to
any pending or proposed or future transaction in such shares or control) which
shall have been undertaken without the prior, express approval of the Trust's
Board of Trustees; or, (ii) is within the control of the Manager or any of its
affiliates or any of their officers, directors, employees or stockholders. The
Manager shall not be obligated pursuant to the provisions of this Subparagraph
6(B), to reimburse the Trust for any expenditures related to the institution of
an administrative proceeding or civil litigation by the Trust or a shareholder
seeking to recover all or a portion of the proceeds derived by any stockholder
of the Manager or any of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is in effect, the Manager
shall pay to the Trust the amount due for expenses subject to this Subparagraph
6(B) within 30 days after a bill or statement has been received by the Manager
therefor. This provision shall not be deemed to be a waiver of any claim the
Trust may have or may assert against the Manager or others for costs, expenses
or damages heretofore incurred by the Trust or for costs, expenses or damages
the Trust may hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to
protect any trustee or officer of the Trust, or director or officer of the
Manager, from liability in violation of Sections 17(h) and (i) of the 1940 Act.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years thereafter, unless sooner
terminated as hereinafter provided and shall continue in effect thereafter for
periods not exceeding one (1) year so long as such continuation is approved at
least annually (i) by a vote of a majority of the outstanding voting securities
of each Fund or by a vote of the Board of Trustees of the Trust, and (ii) by a
vote of a majority of the Trustees of the Trust who are not parties to the
Agreement (other than as Trustees of the Trust), cast in person at a meeting
called for the purpose of voting on the Agreement.
B. This Agreement:
(a) may at any time be terminated as to any Fund
without the payment of any penalty either by vote of the Board of Trustees of
the Trust or by vote of a majority of the outstanding voting securities of the
Fund on 60 days' written notice to the Manager;
(b) shall immediately terminate with respect to
any Fund in the event of its assignment as to that Fund; and
(c) may be terminated as to any Fund by the
Manager on 60 days' written notice to the Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth for any such terms in the 1940
Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed post-paid, to the other party at any office
of such party.
8. DISTRIBUTION PLAN.
A. The provisions set forth in this paragraph 8 (hereinafter
referred to as the "Plan") have been adopted pursuant to Rule 12b-1 under the
Act by the Trust, having been approved by a majority of the Trust's Board of
Trustees, including a majority of the Trustees who are not interested persons of
the Trust and who have no direct or indirect financial interest in the operation
of the Plan (the "non-interested Trustees"), cast in person at a meeting called
for the purpose of voting on such Plan. The Board of Trustees concluded that the
rate of compensation to be paid to the Manager by each Fund was fair and not
excessive, but that due solely to the uncertainty that may exist from time to
time with respect to whether payments made by the Fund to the Manager or to
other firms may nevertheless be deemed to constitute distribution expenses, it
was determined that adoption of the Plan would be prudent and in the best
interests of the Fund. The Trustees' approval included a determination that in
the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
each Fund and its shareholders or policyholders investing in the Fund.
B. No additional payments are to be made by any Fund as a
result of the Plan other than the payments the Fund is otherwise obligated to
make (i) to the Manager pursuant to paragraph 4 of this Agreement, (ii) to the
Transfer and Dividend Paying Agents, Fund Administrator or Custodian, pursuant
to their respective Agreements as in effect at any time, and (iii) in payment of
any expenses by the Fund in the ordinary course of its respective businesses
that may be deemed primarily intended to result in the sale of shares issued by
such Fund. However, to the extent any of such other payments by a Fund, to or by
the Manager or its affiliates, or to the Fund's Agents, are nevertheless deemed
to be payments for the financing of any activity primarily intended to result in
the sale of shares issued by the Fund within the context of Rule 12b-1 under the
Act, then such payments shall be deemed to have been made pursuant to the Plan
as set forth herein. The cost and activities, the payment of which are intended
to be within the scope of the Plan with respect to each Fund, shall include, but
not necessarily be limited to, the following:
(a) the costs of the preparation, printing and mailing of
all required reports and notices to shareholders or policyholders investing in
the Fund;
(b) the costs of the preparation, printing and mailing of
all prospectuses and statements of additional information;
(c) the costs of preparation, printing and mailing of any
proxy statements and proxies;
(d) all legal and accounting fees relating to the
preparation of any such reports, prospectuses, proxies and proxy statements;
(e) all fees and expenses relating to the qualification
of the Fund and/or its shares under the securities or "Blue Sky" laws of any
jurisdiction;
(f) all fees under the Securities Act of 1933 and the Act,
including fees in connection with any application for exemption relating to or
directed toward the sale of the Fund's shares;
(g) all fees and assessments of the Investment Company
Institute or any successor organization, irrespective of whether some of its
activities are designed to provide sales assistance;
(h) all costs of the preparation and mailing of
confirmations of shares sold or redeemed, and reports of share balances;
(i) all costs of responding to telephone or mail inquiries
of investors or prospective investors; and
(j) payments to dealers, financial institutions, advisers, or
other firms, any one of whom may receive monies in respect of the Fund's shares
held in accounts for policyholders for whom such firm is the dealer of record or
holder of record, or with whom such firm has a servicing relationship. Servicing
may include, among other things:
(i) answering client inquiries regarding the Fund;
(ii) assisting clients in changing account designations
and addresses;
(iii) performing sub-accounting;
(iv) establishing and maintaining shareholder or
policyholder accounts and records;
(v) processing purchase and redemption transactions;
(vi) providing periodic statements showing a client's
account balance and integrating such statements with those of other transactions
and balances in the client's other accounts serviced by such firm;
(vii) arranging for bank wires; and
(viii) such other services as the Fund may request, to
the extent such are permitted by applicable statute, rule or regulation.
C. The terms and provisions of the Plan are as follows:
(a) The Manager shall report to the Board of Trustees of the
Trust at least quarterly on payments for any of the activities in subparagraph B
of this paragraph 8, and shall furnish the Board of Trustees of the Trust with
such other information as the Board may reasonably request in connection with
such payments in order to enable the Board to make an informed determination of
whether the Plan should be continued.
(b) The Plan shall continue in effect for a period of more
than one year from the date written below only so long as such continuance is
specifically approved at least annually (from the date below) by the Trust's
Board of Trustees, including the non-interested Trustees, cast in person at a
meeting called for the purpose of voting on the Plan.
(c) The Plan may be terminated with respect to any Fund at any
time by vote of a majority of non-interested Trustees or by vote of a majority
of such Fund's outstanding voting securities on not more than sixty (60) days'
written notice to any other party to the Plan, and the Plan shall terminate
automatically with respect to any Fund in the event of any act that constitutes
an assignment of this Management Agreement as to that Fund.
(d) The Plan may not be amended to increase materially the
amount deemed to be spent for distribution without approval by a majority of
each affected Fund's outstanding shares (as defined by the Act) and all material
amendments to the Plan shall be approved by the non-interested Trustees cast in
person at a meeting called for the purpose of voting on such amendment.
(e) So long as the Plan is in effect, the selection and
nomination of the Trust's non-interested Trustees shall be committed to the
discretion of such non-interested Trustees.
(f) Any termination of the Plan shall not terminate this
Management Agreement or affect the validity of any of the provisions of this
Agreement other than this paragraph 8.
9. SEVERABILITY. 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.
10. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and effective on the 21st day of October, 1996.
FRANKLIN VALUEMARK FUNDS
By:
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN MUTUAL ADVISERS, INC.
By:
Harmon E. Burns
Executive Vice President
EXHIBIT 10.32
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
on behalf of its series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
INVESTMENT ADVISORY and ASSET ALLOCATION AGREEMENT
This INVESTMENT ADVISORY and ASSET ALLOCATION AGREEMENT ("Agreement") made
between FRANKLIN TEMPLETON FUND ALLOCATOR SERIES, a Delaware business trust (the
"Trust"), on behalf of each of its series named above (the "Funds"), and
FRANKLIN ADVISERS, INC., a California corporation, (the "Adviser").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its By-Laws
and its Registration Statements under the 1940 Act and the Securities Act of
1933, all as heretofore and hereafter amended and supplemented; and the Trust
desires to avail itself of the services, information, advice, assistance and
facilities of an investment manager and to have an investment manager perform
various management, statistical, research, investment advisory and other
services for the Funds; and,
WHEREAS, the investment policies of each Fund contemplate that the Fund
seek to achieve its investment objectives through investment of the Fund's
assets in a number of asset classes and, consequently, each Fund will require
the provision of asset allocation services, as well as traditional investment
advisory services; and
WHEREAS, each Fund currently intends to invest its assets primarily in one
or more available investment companies in the Franklin Templeton Group of Funds,
although each Fund is also permitted to and may invest some or all of its assets
directly in non-investment company securities; and
WHEREAS, the parties hereto have agreed to the respective fees for asset
allocation and investment advisory services as described below; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering asset
allocation, investment advisory, counseling and supervisory services to
investment companies and other investment counseling clients, and desires to
provide these services to the Funds.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
l. EMPLOYMENT OF THE ADVISER. The Trust hereby employs the Adviser to
provide asset allocation services to the Funds, to manage the investment and
reinvestment of the Funds' assets in investment company and non-investment
company securities and to administer certain aspects of their affairs, subject
to the direction of the Board of Trustees and the officers of the Trust, for the
period and on the terms hereinafter set forth. The Adviser hereby accepts such
employment and agrees during such period to render the services and to assume
the obligations herein set forth for the compensation herein provided. The
Adviser shall for all purposes herein be deemed to be an independent contractor
and shall, except as expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the Funds or the Trust in
any way or otherwise be deemed an agent of the Funds or the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE ADVISER. The
Adviser undertakes to provide the services hereinafter set forth and to assume
the following obligations:
A. ASSET ALLOCATION SERVICES. The Adviser shall, subject to and in
accordance with the investment objectives and policies of each Fund and any
directions which the Trust's Board may issue from time to time, (i) manage the
allocation of each Fund's assets as between different asset classes, which may
include but are not be limited to domestic equity, international, fixed income,
gold and cash; and (ii) consistent with those allocation decisions, select the
amount, if any, to be invested by each Fund in either the Franklin Templeton
Funds available for purchase by such Funds to it or such other securities as are
consistent with each Fund's investment objectives and policies.
B. INVESTMENT ADVISORY SERVICES. The Adviser shall manage each
Fund's assets subject to and in accordance with the investment objectives and
policies of each Fund and any directions which the Trust's Board may issue from
time to time. In pursuance of the foregoing, the Adviser shall make all
determinations with respect to the investment of each Fund's assets and the
purchase and sale of its investment securities, and shall take such steps as may
be necessary to implement the same.
C. This subsection 2.C applies only to any assets of the Funds
which are not invested in investment company securities.
(a) The Adviser, subject to and in accordance with any
directions which the Board may issue from time to time, shall place, in the name
of each Fund, orders for the execution of each Fund's securities transactions.
When placing such orders, the Adviser shall seek to obtain the best net price
and execution for each Fund, but this requirement shall not be deemed to
obligate the Adviser to place any order solely on the basis of obtaining the
lowest commission rate if the other standards set forth in this section have
been satisfied. The parties recognize that there are likely to be many cases in
which different brokers are equally able to provide such best price and
execution and that, in selecting among such brokers with respect to particular
trades, it is desirable to choose those brokers who furnish research,
statistical, quotations and other information to one or more Funds and the
Adviser in accordance with the standards set forth below. Moreover, to the
extent that it continues to be lawful to do so and so long as the Board
determines that the affected Funds will benefit, directly or indirectly, by
doing so, the Adviser may place orders with a broker who charges a commission
for that transaction which is in excess of the amount of commission that another
broker would have charged for effecting that transaction, provided that the
excess commission is reasonable in relation to the value of "brokerage and
research services" (as defined in Section 28(e) (3) of the Securities Exchange
Act of 1934) provided by that broker.
Accordingly, the Trust and the Adviser agree that the
Adviser shall select brokers for the execution of each Fund's transactions from
among:
(i) Those brokers and dealers who provide quotations and
other services to the Fund, specifically including the
quotations necessary to determine the Fund's net assets, in
such amount of total brokerage as may reasonably be required
in light of such services; and
(ii) Those brokers and dealers who supply research,
statistical and other data to the Adviser or its affiliates
which the Adviser or its affiliates may lawfully and
appropriately use in their investment advisory capacities,
which relate directly to securities, actual or potential, of
the Fund, or which place the Adviser in a better position to
make decisions in connection with the management of the
Fund's assets and securities, whether or not such data may
also be useful to the Adviser and its affiliates in managing
other portfolios or advising other clients, in such amount
of total brokerage as may reasonably be required. Provided
that the Trust's officers are satisfied that the best
execution is obtained, the sale of shares of the Fund may
also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
(b) When the Adviser has determined that a Fund should
tender securities pursuant to a "tender offer solicitation," Franklin/Templeton
Distributors, Inc. ("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in such capacity under the
federal securities laws and rules thereunder and the rules of any securities
exchange or association of which Distributors may be a member. Neither the
Adviser nor Distributors shall be obligated to make any additional commitments
of capital, expense or personnel beyond that already committed (other than
normal periodic fees or payments necessary to maintain its corporate existence
and membership in the National Association of Securities Dealers, Inc.) as of
the date of this Agreement. This Agreement shall not obligate the Adviser or
Distributors (i) to act pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to institute legal or other
proceedings to collect fees which may be considered to be due from others to it
as a result of such a tender, unless the Trust on behalf of the affected Fund
shall enter into an agreement with the Adviser and/or Distributors to reimburse
them for all such expenses connected with attempting to collect such fees,
including legal fees and expenses and that portion of the compensation due to
their employees which is attributable to the time involved in attempting to
collect such fees.
(c) The Adviser shall render regular reports to the Trust, not
more frequently than quarterly, of how much total brokerage business has been
placed by the Adviser, on behalf of each Fund, with brokers falling into each of
the categories referred to above and the manner in which the allocation has been
accomplished.
(d) The Adviser agrees that no investment decision will be
made or influenced by a desire to provide brokerage for allocation in accordance
with the foregoing, and that the right to make such allocation of brokerage
shall not interfere with the Adviser's paramount duty to obtain the best net
price and execution for each Fund.
D. This subsection 2.D applies to any assets of the Funds which are
invested in investment company securities. Orders for the purchase or sale of
investment company securities shall be placed directly with Franklin/Templeton
Distributors, Inc.
E. The Adviser shall render or cause to be rendered regular reports
to the Trust, at regular meetings of its Board and at such other times as may be
reasonably requested by the Board, of (i) decisions made with respect to the
allocation of each Fund's assets; (ii) to the extent each Fund's assets are
invested in investment companies in the Franklin Templeton Group of Funds,
decisions made with respect to purchases and sales of such funds within the
specific asset classes; (iii) to the extent that any portion of a Fund's assets
is invested directly in non-investment company securities, decisions made with
respect to purchase and sale of non-investment company securities; (iv) the
reasons for such decisions; and (v) the extent to which those decisions have
been implemented.
F. The Adviser shall be responsible for determining the manner in
which any voting rights, rights to consent to corporate action and any other
rights pertaining to each Fund's investment company and non-investment company
securities shall be exercised.
G. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES
REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Adviser, its
officers and employees will make available and provide accounting and
statistical information required by each Fund in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and with such information as the Fund may reasonably request for use in the
preparation of such documents or of other materials necessary or helpful for the
underwriting and distribution of the Fund's shares.
H. OTHER OBLIGATIONS AND SERVICES. The Adviser shall make its
officers and employees available to the Board and officers of the Trust for
consultation and discussions regarding the administration and management of each
Fund and its investment activities.
3. EXPENSES OF THE FUND. It is understood that each Fund will pay all of
its own expenses other than those expressly assumed by the Adviser herein, which
expenses payable by the Fund shall include, without limitation:
A. Fees and expenses paid to the Adviser as provided herein;
B. Expenses of fund administration, including without limitation
fees paid pursuant to the Fund's contract with Franklin Templeton Services, Inc.
or fees paid to any other entity which provides similar services to the Fund in
the future;
C. Expenses of all audits by independent public accountants;
D. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services, including the expenses
of issue, repurchase or redemption of its shares;
E. Expenses of obtaining quotations for calculating the value of
the Fund's net assets;
F. Salaries and other compensations of executive officers of the
Trust who are not officers, directors, stockholders or employees of the Adviser
or its affiliates;
G. Taxes levied against the Fund;
H. Brokerage fees and commissions in connection with the purchase
and sale of securities for the Fund;
I. Costs, including the interest expense, of borrowing
money;
J. Costs incident to meetings of the Board and shareholders of
the Fund, reports to the Fund's shareholders, the filing of reports with
regulatory bodies and the maintenance of the Fund's and the Trust's legal
existence;
K. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for sale;
L. Board members' fees and expenses to Board members who are not
directors, officers, employees or stockholders of the Adviser or any of its
affiliates;
M. Costs and expense of registering and maintaining the
registration of the Fund and its shares under federal and any applicable state
laws; including the printing and mailing of prospectuses to its shareholders;
N. Trade association dues; and
O. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
4. COMPENSATION OF THE ADVISER. The Adviser shall receive no fee for any
services under this Agreement, except for the Asset Allocation Services
described in subsection 2.A., above. Each Fund shall pay an asset allocation fee
in cash to the Adviser based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, as compensation for asset allocation
services rendered assumed by the Adviser, during the preceding month, on the
first business day of the month in each year.
A. For purposes of calculating such fee, the value of the net assets
of each Fund shall be determined in the same manner as that Fund uses to compute
the value of its net assets in connection with the determination of the net
asset value of its shares, all as set forth more fully in the Fund's current
prospectus and statement of additional information. The rate of the asset
allocation fee payable by the Fund shall be calculated daily at the following
annual rates:
0.25% of the Fund's average daily net assets
B. The fee payable by a Fund shall be reduced or eliminated to the
extent that Distributors has actually received cash payments of tender offer
solicitation fees less certain costs and expenses incurred in connection
therewith and to the extent necessary to comply with the limitations on expenses
which may be borne by the Fund as set forth in the laws, regulations and
administrative interpretations of those states in which the Fund's shares are
registered. The Adviser may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in purchase price of
its services. The Adviser shall be contractually bound hereunder by the terms of
any publicly announced waiver of its fee, or any limitation of a Fund's
expenses, as if such waiver or limitation were fully set forth herein.
C. If this Agreement is terminated prior to the end of any
month, the accrued asset allocation fee shall be paid to the date of
termination.
5. ACTIVITIES OF THE ADVISER. The services of the Adviser to each Fund
hereunder are not to be deemed exclusive, and the Adviser and any of its
affiliates shall be free to render similar services to others. Subject to and in
accordance with the Agreement and Declaration of Trust or Articles of
Incorporation of the Trust, the By-Laws of the Trust, and Section 10(a) of the
1940 Act, it is understood that Board members, officers, agents and shareholders
of the Trust are or may be interested in the Adviser or its affiliates as
directors, officers, agents or stockholders; that directors, officers, agents or
stockholders of the Adviser or its affiliates are or may be interested in the
Trust as Board members, officers, agents, shareholders or otherwise; that the
Adviser or its affiliates may be interested in each Fund as shareholders or
otherwise; and that the effect of any such interests shall be governed by said
Agreement and Declaration of Trust or Articles of Incorporation, By-Laws and the
1940 Act.
6. LIABILITIES OF THE ADVISER.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Trust or
any Fund or to any shareholder of any Fund for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security by any Fund.
B. Notwithstanding the foregoing, the Adviser agrees to reimburse
the Trust for any and all costs, expenses, and counsel and trustees' fees
reasonably incurred by the Trust in the preparation, printing and distribution
of proxy statements, amendments to its Registration Statement, holdings of
meetings of its shareholders or trustees, the conduct of factual investigations,
any legal or administrative proceedings (including any applications for
exemptions or determinations by the Securities and Exchange Commission) which
the Trust incurs as the result of action or inaction of the Adviser or any of
its affiliates or any of their officers, directors, employees or stockholders
where the action or inaction necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed transaction in the stock or
control of the Adviser or its affiliates (or litigation related to any pending
or proposed or future transaction in such shares or control) which shall have
been undertaken without the prior, express approval of the Board; or, (ii) is
within the control of the Adviser or any of its affiliates or any of their
officers, directors, employees or stockholders. The Adviser shall not be
obligated pursuant to the provisions of this Subparagraph 6(B), to reimburse the
Trust for any expenditures related to the institution of an administrative
proceeding or civil litigation by the Trust or a shareholder seeking to recover
all or a portion of the proceeds derived by any stockholder of the Adviser or
any of its affiliates from the sale of his shares of the Adviser, or similar
matters. So long as this Agreement is in effect, the Adviser shall pay to the
Trust the amount due for expenses subject to this Subparagraph 6(B) within 30
days after a bill or statement has been received by the Adviser therefor. This
provision shall not be deemed to be a waiver of any claim the Trust may have or
may assert against the Adviser or others for costs, expenses or damages
heretofore incurred by the Trust or for costs, expenses or damages the Trust may
hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect any
Board member or officer of the Trust, or director or officer of the Adviser,
from liability in violation of Sections 17(h) and (i) of the 1940 Act.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written below
and shall continue in effect for two (2) years thereafter, unless sooner
terminated as hereinafter provided and shall continue in effect thereafter for
periods not exceeding one (1) year so long as such continuation is approved at
least annually (i) by a vote of a majority of the outstanding voting securities
of each Fund or by a vote of the Board, and (ii) by a vote of a majority of the
Board members who are not parties to the Agreement (other than as Board
members), cast in person at a meeting called for the purpose of voting on the
Agreement.
B. This Agreement:
(i) may at any time be terminated as to a Fund without the
payment of any penalty either by vote of the Board or by vote of a majority of
the outstanding voting securities of the Fund on 60 days' written notice to the
Adviser;
(ii) shall immediately terminate as to a Fund with respect
to the Fund in the event of its assignment; and
(iii) may be terminated as to a Fund by the Adviser on 60
days' written notice to the Fund.
C. As used in this Paragraph the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the meanings set forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed post-paid, to the other party at any office
of such party.
8. SEVERABILITY. 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.
9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and effective on the 19th day of November, 1996.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
By:
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN ADVISERS, INC.
By:
Harmon E. Burns
Executive Vice President
EXHIBIT 10.33
FRANKLIN NEW YORK TAX-FREE INCOME FUND, INC.
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN NEW YORK TAX-FREE INCOME
FUND, INC., a New York Corporation, hereinafter called the "Fund" and FRANKLIN
INVESTMENT ADVISORY SERVICES, INC., a Connecticut Corporation, hereinafter
called the "Manager".
WHEREAS, the Fund has been organized and operates as an investment company
registered under the Investment Company Act of 1940 (the "1940 Act") for the
purpose of investing and reinvesting its assets in securities, as set forth in
its Articles of Incorporation, its By-Laws and its Registration Statements under
the 1940 Act and the Securities Act of 1933, all as heretofore amended and
supplemented; and the Fund desires to avail itself of the services, information,
advice, assistance and facilities of an investment manager and to have an
investment manager perform various management, statistical, research, investment
advisory and other services; and,
WHEREAS, the Manager is registered as an investment adviser under the
Investment Adviser's Act of 1940, is engaged in the business of rendering
management, investment advisory, counselling and supervisory services to
investment companies and other investment counselling clients, and desires to
provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter set
forth, it is agreed as:
1. EMPLOYMENT OF THE MANAGER. The Fund hereby employs the Manager to manage
the investment and reinvestment of the Fund's assets and to administer its
affairs, subject to the direction of the Board of Directors and the officers of
the Fund, for the period and on the terms hereinafter set forth. The Manager
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth for the compensation
herein provided. The Manager shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Fund any way or otherwise be deemed an agent of the Fund.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE MANAGER. The Manager
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
A. ADMINISTRATIVE SERVICES. The Manager shall furnish to the Fund
adequate (i) office space, which may be space within the offices of the
Manager or in such other place as may be agreed upon from time to time,
(ii) office furnishings, facilities and equipment as may reasonably
required for managing the corporate affairs and conducting the business of
the Fund, including complying with the corporate and securities reporting
requirements of the United States and the various states in which the Fund
does business, conducting correspondence and other communications with the
shareholders of the Fund, maintaining all internal bookkeeping, accounting
and auditing services and records in connection with the Fund's investment
and business activities, and computing net asset value. The Manager shall
employ or provide and compensate the executive, secretarial and clerical
personnel necessary to provide such services. The Manager shall also
compensate all officers and employees of the Fund who are officers or
employees of the Manager.
B. INVESTMENT MANAGEMENT SERVICES.
(a) The Manager shall manage the Fund's assets and portfolio
subject to and in accordance with the investment objectives and
policies of the Fund and any directions which the Fund's Board of
Directors may issue from time to time. In pursuance of the foregoing,
the Manager shall make all determinations with respect to the
investment of the Fund's assets and the purchase and sale of portfolio
securities, and shall take such steps as may be necessary to implement
the same. Such determinations and services shall also include
determining the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. The Manager shall render
regular reports to the Fund, at regular meetings of the Board of
Directors and at such other times as may be reasonably requested by
the Fund's Board of Directors, of (i) the decisions which it has made
with respect to the investment of the Fund's assets and the purchase
and sale of portfolio securities, (ii) the reasons for such decisions
and (iii) the extent to which those decisions have been implemented.
(b) The Manager, subject to and in accordance with any directions
which the Fund's Board of Directors may issue from time to time, shall
place, in the name of the Fund, orders for the execution of the Fund's
portfolio transactions. When placing such orders the Manager shall
seek to obtain the best net price and execution for the Fund but this
requirement shall not be deemed to obligate the Manager to place any
order solely on the basis of obtaining the lowest commission rate if
the other standards set forth in this section have been satisfied. The
parties recognize that there are likely to be many cases in which
different brokers are equally able to provide such best price and
execution and that, in selecting among such brokers with respect to
particular trades, it is desirable to choose those brokers who furnish
research, statistical quotations and other information to the Fund and
the Manager in accord with the standards set forth below. Moreover, to
the extent that it continues to be lawful to do so and so long as the
Board determines that the Fund will benefit, directly or indirectly,
by doing so, the Manager may place orders with a broker who charges a
commission for that transaction which is in excess of the amount of
commission that another broker would have charged for effecting that
transaction, provided that the excess commission is reasonable in
relation to the value of "brokerage and research services" (as defined
in Section 28(e)(3) of the Securities Exchange Act of 1934) provided
by that broker.
Accordingly, the Fund and the Manager agree that the Manager
shall select brokers for the execution of the Fund's portfolio transactions from
among:
(i) Those brokers and dealers who provide quotations and
other services to the Fund, specifically including the quotations
necessary to determine the Fund's net assets, in such amount of
total brokerage as may reasonably be required in light of such
services;
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its affiliates which
relate directly to portfolio securities, actual or potential, of
the Fund or which place the Manager in a better position to make
decisions in connection with the management of the Fund's assets
and portfolio, whether or not such data may also be useful to the
Manager and its affiliates in managing other portfolios or
advising other clients, in such amount of total brokerage as may
reasonably be required. Provided that the Fund's officers are
satisfied that the best execution is obtained, the sale of Fund
shares may also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
(c) When the Manager has determined that the Fund should tender
securities pursuant to a "tender offer solicitation,"
Franklin/Templeton Distributors, Inc. ("Distributors") shall be
designated as the "tendering dealer" so long as it is legally
permitted to act in such capacity under the Federal securities laws
and rules thereunder and the rules of any securities exchange or
association of which it may be a member. Neither the Manager nor
Distributors shall be obligated to make any additional commitments of
capital, expense or personnel beyond that already committed (other
than normal periodic fees or payments necessary to maintain its
corporate existence and membership in the National Association of
Securities Dealers, Inc.) as of the date of this Agreement and this
Agreement shall not obligate the Manager or Distributors (i) to act
pursuant to the foregoing requirement under any circumstances in which
they might reasonably believe that liability might be imposed upon
them as a result of so acting, or (ii) to institute legal or other
proceedings to collect fees which may be considered follows to be due
from others to it as a result of such a tender, unless the Fund shall
enter into an agreement with the Manager to reimburse them for all
expenses connected with attempting to collect such fees including
legal fees and expenses and that portion of the compensation due to
their employees which is attributable to the time involved in
attempting to collect such fees.
(d) The Manager shall render regular reports to the Fund, not
more frequently than quarterly, of how much total brokerage business
has been placed by the Manager with brokers falling into each of the
categories set forth in (b)(i) and (ii) above and the manner in which
the allocation has been accomplished.
(e) The Manager agrees that no investment decision will be made
or influenced by a desire to provide brokerage for allocation in
accordance with the foregoing, and that the right to make such
allocation of brokerage shall not interfere with the Manager's
paramount duty to obtain the best net price and execution for the
Fund.
C. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES
REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Manager, its
officers and employees will make available and provide accounting and
statistical information required by the Underwriter in the preparation of
registration statements, reports and other documents required by Federal
and state securities laws and with such information as the Underwriter may
reasonably request for use in the preparation of such documents or of other
materials necessary or helpful for the underwriting and distribution of the
Fund's shares.
D. OTHER OBLIGATIONS AND SERVICES. The Manager shall make available
its officers and employees to the Board of Directors and officers of the
Fund for consultation and discussions regarding the administrative
management of the Fund and its investment activities.
3. EXPENSES OF THE FUND. It is understood that the Fund will pay all its
expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Fund shall include:
A. Fees to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services;
D. Expenses of obtaining quotations for calculating the value of the
Fund's net assets;
E. Salaries and other compensation of any of its executive officers
who are not officers, directors, stockholders or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to corporate meetings of the Fund, reports to the
Fund to its shareholders, the filing of reports with regulatory bodies and
the maintenance of the Fund's corporate existence;
J. Legal fees, including the legal fees related to the registration
and continued qualification of the Fund shares for sale;
K. Costs of printing stock certificates representing shares of the
Fund;
L. Directors' fees and expenses to directors who are not directors,
officers, employees or stockholders of the Manager or any of its
affiliates; and
M. Its pro rata portion of the fidelity bond insurance premium.
4. COMPENSATION OF THE MANAGER. The Fund shall pay a monthly management fee
in cash to the Manager based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, on the first business day of each month
in each year as compensation for the services rendered and obligations assumed
by the Manager during the preceding month. The initial management fee under this
Agreement shall be payable on the first business day of the first month
following the effective date of this Agreement, and shall be reduced by the
amount of any advance payments made by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the net assets
of the Fund shall be the net assets computed as of the close of business on
the last business day of the month preceding the month in which the payment
is being made, determined in the same manner as the Fund uses to compute
the value of its net assets in connection with the determination of the net
asset value of Fund shares, all as set forth more fully in the Fund's
current prospectus. The rate of the monthly management fee shall be as
follows:
5/96 of 1% of the value of net assets up to and including
$100,000,000; and
1/be 24 of 1% of the value of net assets over $100,000,000 and
not over $250,000,000; and
9/240 of 1% of the value of net assets over $250,000,000 and not
over $10 billion; and
11/300 of 1% of the value of net assets over $10 billion and not
over $12.5 billion; and
7/200 of 1% of the value of net assets over $12.5 billion and not
over $15 billion; and
1/30 of 1% of the value of net assets over $15 billion and not
over $17.5 billion; and
19/600 of 1% of the value of net assets over from $17.5 billion
and not over $20 billion; and
3/100 of 1% of the value of net assets in excess of $20 billion.
B. The Management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith; and to the extent necessary to comply
with the limitations on expenses which may be borne by the Fund as set
forth in the laws, regulations and administrative interpretations of those
states in which the Fund's shares are registered. The Manager shall be
contractually bound hereunder by the terms of any publicly announced waiver
of its fee, or any limitation of the Fund's expenses, as if such waiver or
limitation were fully set forth herein.
C. If this Agreement is terminated prior to the end of any month, the
monthly management fee shall be prorated for the portion of any month in
which this Agreement is in effect which is not a complete month according
to the proportion which the number of calendar days in the fiscal quarter
during which the Agreement is in effect bears to the number of calendar
days in the month, and shall be payable within 10 days after the date of
termination.
5. ACTIVITIES OF THE MANAGER. The services of the Manager to the Fund
hereunder are not to be deemed exclusive, and the Manager and any of its
affiliates shall be free to render similar services to others. Subject to and in
accordance with the Articles of Incorporation and By-Laws of the Fund and to
Section 10(a) of the 1940 Act, it is understood that directors, officers, agents
and stockholders of the Fund are or may be interested in the Manager or its
affiliates as directors, officers, agents or stockholders, and that directors,
officers, agents or stockholders of the Manager or its affiliates are or may be
interested in the Fund as directors, officers, agents, stockholders or
otherwise, that the Manager or its affiliates may be interested in the Fund as
stockholders or otherwise; and that the effect of any such interests shall be
governed by said Articles of Incorporation, the By-Laws and the 1940 Act.
6. LIABILITIES OF THE MANAGER.
A. In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on the part of the
Manager, the Manager shall not be subject to liability to the Fund or to
any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to reimburse the
Fund for any and all costs, expenses, and counsel and directors' fees
reasonably incurred by the Fund in the preparation, printing and
distribution of proxy statements, amendments to its Registration Statement,
holdings of meetings of its shareholders or directors, the conduct of
factual investigations, any legal or administrative proceedings (including
any applications for exemptions or determinations by the Securities and
Exchange Commission) which the Fund incurs as the result of action or
inaction of the Manager or any of its affiliates or any of their officers,
directors, employees or shareholders where the action or inaction
necessitating such expenditures (i) is directly or indirectly related to
any transactions or proposed transaction in the shares or control of the
Manager or its affiliates (or litigation related to any pending or proposed
or future transaction in such shares or control) which shall have been
undertaken without the prior, express approval of the Fund's Board of
Directors; or (ii) is within the control of the Manager or any of its
affiliates or any of their officers, directors, employees or shareholders.
The Manager shall not be obligated pursuant to the provisions of this
Subsection 6(B), to reimburse the Fund for any expenditures related to the
institution of an administrative proceeding or civil litigation by the Fund
or a Fund shareholder seeking to recover all or a portion of the proceeds
derived by any shareholder of the Manager or any of its affiliates from the
sale of his shares of the Manager, or similar matters. So long as this
Agreement is in effect the Manager shall pay to the Fund the amount due for
expenses subject to this Subsection 6(B) Agreement within 30 days after a
bill or statement has been received by the Fund therefore. This provision
shall not be deemed to be a waiver of any claim the Fund may have or may
assert against the Manager or others for costs, expenses or damages
heretofore incurred by the Fund or for costs, expenses or damages the Fund
may hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect any
director or officer of the Fund, or the Manager, from liability in
violation of Sections 17(h) and (i) of the 1940 Act.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written below and
shall continue in effect for two (2) years thereafter, unless sooner
terminated as hereinafter provided and share continue in effect thereafter
for periods not exceeding one (1) year so long as such continuation is
approved at least annually (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.
B. This Agreement:
(i) may at any time be terminated without the payment of any
penalty 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 30 days' written notice to the Manager;
(ii) shall immediately terminate in the event of its assignment;
and
(iii) may be terminated by the Manager on 30 days' written notice
to the Fund.
C. As used in this Section the terms "assignment," "interested person"
and "vote of a majority of the outstanding voting securities" shall have
the meanings set forth for any such terms in the 1940 Act, as amended.
D. Any notice under this Agreement shall be given in writing addressed
and delivered, or mailed post-paid, to the other party at any office of
such party.
8. SEVERABILITY. 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.
IN WITNESS WHEREOF, the parties here to have caused this Agreement to be
executed the 1st day of October, 1996.
FRANKLIN NEW YORK TAX-FREE INCOME FUND, INC.
By:_________________________
Deborah R. Gatzek
Vice President &
Assistant Secretary
FRANKLIN INVESTMENT ADVISORY SERVICES, INC.
By:__________________________
Rupert H. Johnson, Jr.
Senior Vice President
TERMINATION OF AGREEMENT
Franklin New York Tax-Free Income Fund, Inc. and Franklin Advisers, Inc., hereby
agree that the Management Agreement between them dated May 1, 1994 is terminated
effective as of the date of the Management Agreement above.
FRANKLIN NEW YORK TAX-FREE INCOME FUND, INC.
By:_________________________
Deborah R. Gatzek
Vice President &
Assistant Secretary
FRANKLIN ADVISERS, INC.
By __________________________
Harmon E. Burns
Executive Vice President
<TABLE> <S> <C>
<CAPTION>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 502,189
<SECURITIES> 199,481
<RECEIVABLES> 188,180
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 856,263
<PP&E> 232,983
<DEPRECIATION> 71,370
<TOTAL-ASSETS> 2,374,167
<CURRENT-LIABILITIES> 182,201
<BONDS> 0
0
0
<COMMON> 8,226
<OTHER-SE> 1,392,365
<TOTAL-LIABILITY-AND-EQUITY> 2,374,167
<SALES> 0
<TOTAL-REVENUES> 1,522,568
<CGS> 0
<TOTAL-COSTS> 1,105,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,336
<INCOME-PRETAX> 456,230
<INCOME-TAX> 141,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 314,730
<EPS-PRIMARY> 3.78
<EPS-DILUTED> 3.76
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