FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1998
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 No. 1-9318
FRANKLIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2670991
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
777 Mariners Island Blvd., San Mateo, CA 94404
(Address of Principal Executive Offices)
(Zip Code)
(650) 312-2000
(Registrant's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of 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 such
filing requirements for the past 90 days.
YES X NO ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES _____ NO ______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Outstanding: 252,969,189 shares, common stock, par value $.10 per share
at April 30, 1998
<PAGE>
PART I -FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
FRANKLIN RESOURCES, INC.
Consolidated Statements of Income
Unaudited
Three months Six months
ended ended
March 31 March 31
(In thousands, except per share data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------
Operating revenues:
Investment management fees $380,948 305,586 $757,411 $578,846
Underwriting and distribution
fees 248,914 180,285 464,201 316,771
Shareholder servicing fees 39,399 28,797 77,005 53,625
Other, net 4,430 4,528 7,473 7,579
- -------------------------------------------------------------------------------
Total operating revenues 673,691 519,196 1,306,090 956,821
- -------------------------------------------------------------------------------
Operating expenses:
Underwriting and distribution 242,406 172,638 447,718 304,921
Compensation and benefits 132,744 106,783 266,035 206,354
Information systems,
technology and occupancy 45,862 29,395 92,458 55,199
Advertising and promotion 31,243 23,406 58,605 42,072
Amortization of deferred
sales commissions 26,525 11,530 50,421 22,166
Amortization of intangible
assets 8,949 9,057 17,944 16,402
Other 22,538 22,363 42,043 40,134
- -------------------------------------------------------------------------------
Total operating expenses 510,267 375,172 975,224 687,248
- -------------------------------------------------------------------------------
Operating income 163,424 144,024 330,866 269,573
Other income/(expenses):
Investment and other income 11,596 6,087 26,571 25,695
Interest expense (3,826) (5,756) (9,978) (13,929)
- -------------------------------------------------------------------------------
Other income, net 7,770 331 16,593 11,766
- -------------------------------------------------------------------------------
Income before taxes on income 171,194 144,355 347,459 281,339
Taxes on income 44,525 42,944 90,275 83,699
- -------------------------------------------------------------------------------
Net income $126,669 $101,411 $257,184 $197,640
- -------------------------------------------------------------------------------
Earnings per share:
Basic $0.50 $0.40 $1.02 $0.79
Diluted $0.50 $0.40 $1.02 $0.78
Dividends per share $0.05 $0.04 $0.10 $0.08
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FRANKLIN RESOURCES, INC.
Consolidated Balance Sheets
Unaudited
As of As of
March 31 September 30
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
ASSETS:
Current assets:
Cash and cash equivalents $537,526 $434,864
Receivables:
Fees from Franklin Templeton funds 228,467 213,547
Other 24,690 20,315
Investment securities,
available-for-sale 192,733 189,674
Prepaid expenses and other 15,507 20,039
- -----------------------------------------------------------------------------
Total current assets 998,923 878,439
- -----------------------------------------------------------------------------
Banking/Finance assets:
Cash and cash equivalents 7,956 7,877
Loans receivable, net 290,233 296,188
Investment securities,
available-for-sale 24,479 24,232
Other 3,834 3,739
- -----------------------------------------------------------------------------
Total banking/finance assets 326,502 332,036
- -----------------------------------------------------------------------------
Other assets:
Deferred sales commissions 145,110 119,537
Property and equipment, net 294,230 241,224
Intangible assets, net 1,207,504 1,224,019
Receivable from banking/finance group 205,886 203,787
Other 168,535 96,158
- -----------------------------------------------------------------------------
Total other assets 2,021,265 1,884,725
- -----------------------------------------------------------------------------
Total assets $3,346,690 $3,095,200
=============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FRANKLIN RESOURCES, INC.
Consolidated Balance Sheets
Unaudited As of As of
March 31 September 30
(In thousands except share data) 1998 1997
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Compensation and benefits $103,768 $154,222
Commissions 55,930 46,125
Income taxes 33,922 31,908
Short-term debt 128,931 118,372
Other 64,009 54,873
- -----------------------------------------------------------------------------
Total current liabilities 386,560 405,500
- -----------------------------------------------------------------------------
Banking/finance liabilities:
Deposits:
Interest bearing 82,855 91,433
Non-interest bearing 8,453 6,971
Payable to parent 205,886 203,787
Other 1,661 2,213
- -----------------------------------------------------------------------------
Total banking/finance liabilities 298,855 304,404
- -----------------------------------------------------------------------------
Other Liabilities:
Long-term debt 501,628 493,244
Other 38,681 37,831
- -----------------------------------------------------------------------------
Total other liabilities 540,309 531,075
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Total liabilities 1,225,724 1,240,979
- -----------------------------------------------------------------------------
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; 252,964,896 and
126,230,916 shares issued; 252,964,896
and 126,031,900 shares outstanding,
respectively 25,296 12,623
Capital in excess of par value 123,568 91,207
Retained earnings 1,976,797 1,757,536
Less cost of treasury stock - (11,070)
Other (4,695) 3,925
- -----------------------------------------------------------------------------
Total stockholders' equity 2,120,966 1,854,221
- -------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $3,346,690 $3,095,200
=============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FRANKLIN RESOURCES, INC.
Consolidated Statements of Cash Flows
Unaudited
Six months ended
(In thousands) March 31 March 31
1998 1997
---------------------------------------------------------------------------
Net income $257,184 $197,640
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in receivables,
prepaid expenses and other current assets (30,786) (39,322)
Increase in deferred sales commissions (75,994) (40,109)
Increase in other current liabilities 12,336 4,572
Increase in income taxes payable 2,014 5,752
Increase in commissions payable 9,805 9,603
(Decrease) increase in compensation and
benefits (15,500) 29,411
Depreciation and amortization 88,890 52,034
Gains on disposition of assets (5,530) (10,662)
- ---------------------------------------------------------------------------
Net cash provided by operating activities 242,419 208,919
- ---------------------------------------------------------------------------
Purchase of investments (91,955) (57,694)
Liquidation of investments 36,525 45,249
Purchase of banking/finance investments (215) (8,072)
Liquidation of banking/finance investments - 13,416
Originations of banking/finance loans
receivable (59,662) (53,920)
Collections of banking/finance loans
receivable 66,022 84,862
Purchase of property and equipment (80,353) (18,863)
Proceeds from sale of property 14,517 -
Acquisition of assets and liabilities of
Heine Securities Corporation (1,424) (550,717)
- ----------------------------------------------------------------------------
Net cash used in investing activities (116,545) (545,739)
- ----------------------------------------------------------------------------
Decrease in bank deposits (7,098) (17,618)
Exercise of common stock options 2,791 2,280
Dividends paid on common stock (23,979) (18,944)
Purchase of Company stock (2,942) (7,945)
Issuance of debt 55,597 371,081
Payments on debt (47,502) (101,182)
Purchase of option rights from subordinated
debenture holders - (91,685)
- ---------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (23,133) 135,987
- ---------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 102,741 (200,833)
Cash and cash equivalents, beginning of
period 442,741 502,189
- --------------------------------------------------------------------------
Cash and cash equivalents, end of period $545,482 $301,356
- ---------------------------------------------------------------------------
Supplemental disclosure of non-cash information:
Value of stock issued for Heine acuisition - $65,588
Value of stock issued for redemption of
debentures - $75,015
Value of common stock issued in other
transactions, principally for the
Company's incentive plans $36,988 $30,848
The accompanying notes are an integral part of these consolidated financial
statements.
FRANKLIN RESOURCES, INC.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
1. Basis of Presentation
----------------------
The unaudited interim financial statements of Franklin Resources, Inc. and
its consolidated subsidiaries (the "Company") included herein have been
prepared in accordance with the instructions to Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all appropriate adjustments
necessary to a fair presentation of the results of operations have been made
for the periods shown. All adjustments are of a normal recurring nature.
Certain prior year amounts have been reclassified to conform to current year
presentation. These financial statements should be read in conjunction with
the Company's audited financial statements for the fiscal year ended
September 30, 1997.
2. Debt
----
At March 31, 1998, the Company had interest-rate swap agreements, maturing in
years 1998 through 2000, which effectively fixed interest rates on $295
million of commercial paper. The fixed rates of interest ranged from 6.24% to
6.65%. 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 believed to be immaterial.
As of March 31, 1998, the Company has fixed interest rates on approximately
$515 million of its debt through its interest-rate swap agreements and its
medium-term note program. At quarter end, the weighted average effective
interest rate, including the effect of interest-rate swap agreements, was
6.25% on approximately $580 million of outstanding commercial paper and
medium-term notes.
3. Acquisition
-----------
On November 1, 1996, the Company acquired (the "Acquisition") the assets and
liabilities of Heine Securities Corporation ("Heine"), the former investment
advisor to Mutual Series Fund Inc., other funds and managed accounts
("Mutual"). One of the Company's subsidiaries, Franklin Mutual Advisers, Inc.
("FMAI"), now serves as the investment adviser to Mutual. The transaction had
an aggregate value of approximately $616 million. Heine received $551 million
in cash and 1.1 million shares of common stock (before the effects of the
stock split paid January 15, 1997 and the stock split paid January 15, 1998).
In addition to the base purchase price, the purchase agreement also provides
for contingent payments to Heine ranging from $96.25 million to $192.5
million under certain conditions if certain agreed-upon growth targets are
met. Agreed-upon growth targets range from 12.5% to 17.5% of management fee
revenues from Mutual over a five-year period and payments are pro-rated based
upon the upper and lower range of the targets. The first contingent payment
of $64 million related to these agreed-upon growth targets was made in the
third quarter of fiscal 1998. Other payments are due in fiscal 2000 and 2001
if growth targets continue to be met. These contingent payments will be
accounted for as goodwill related to additional purchase price of Heine. The
contingent payments are not expected to have a material impact on the
Company's income statement or balance sheet. The first payment was funded
from cash on hand and existing credit facilities. The Acquisition has been
accounted for using the purchase method of accounting.
4. Stockholders' Equity
--------------------
On December 12, 1997, the Board of Directors approved a two-for-one stock
split effected in the form of a 100% stock dividend that was paid to
shareholders of record on December 31, 1997. An amount equal to the par value
of the common stock issued has been transferred from retained earnings to
common stock. The number of shares used for purposes of calculating earnings
per share and all per share data have been adjusted for all periods presented
to give retroactive effect to the stock split. Stockholders' equity as of
September 30, 1997 has not been restated.
During the quarter ended December 31, 1997, the Company retired 407,730
post-split shares of treasury stock. For treasury shares retired by the
Company, common stock was charged for the par value of the shares retired and
capital in excess of par value was charged for the excess of cost over the
par value. During the quarter ended March 31, 1998, no shares were purchased
by the Company.
5. Employee Stock Investment Plan
------------------------------
The Company's shareholders have approved a qualified, non-compensatory
Employee Stock Investment Plan ("ESIP"), which allows substantially all
employees meeting certain eligibility criteria to purchase shares of the
Company's common stock at 90% of its market value on certain defined dates.
Participants will be entitled to make their first purchase of stock under
this plan on July 31, 1998. The Company's shareholders have approved
4,000,000 shares of common stock for issuance under the ESIP.
As allowed under the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the Company has
elected to apply Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations in
accounting for its stock-based plans. Accordingly, the Company will recognize
no compensation expense for the ESIP.
In connection with the ESIP, the Company, at its sole discretion, can provide
matching grants to participants in the ESIP of whole or partial shares of the
Company's common stock in a uniform and non-discriminatory manner. While
reserving the right to change such determination, the Company has initially
determined that it will provide one half-share for each share held by a
participant for a minimum holding period of eighteen months. The fair market
value of the Company's matching contribution will be recognized as
compensation expense during the eighteen month holding period.
6. Intangible Assets
-----------------
As of March 31, 1998, intangible assets, net held by the Company were as
follows:
Amortization
(In thousands) period in As of As of
years March 31, 1998 September 30, 1997
- -------------------------------------------------------------------------------
Goodwill 40 $777,255 $775,831
Management contracts 40 524,962 524,962
Other 5-15 31,546 31,546
--------------------------------------
1,333,763 1,332,339
Accumulated amortization (126,259) (108,320)
======================================
Intangible assets, net $1,207,504 $1,224,019
======================================
7. Adoption of New Statement of Financial Accounting Standards Board
-----------------------------------------------------------------
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS
128 requires that the Company retroactively restate prior period earnings per
share ("EPS") data. The impact on previously reported EPS is not material.
8. Subsequent event - Issuance of medium-term notes
------------------------------------------------
In connection with the contingent payment referred to in Note 3 above, the
Company issued an additional $50 million under its medium-term note program.
The notes bear interest at 5.96% and mature in April 2000.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
Franklin Resources, Inc. and its consolidated subsidiaries (the "Company")
derive substantially all of their revenues and net income from providing
investment management, administration, distribution and related services to the
Franklin, Templeton and Mutual Series funds, institutional accounts and other
investment products (collectively the "Franklin Templeton Group"). The Company
has a diversified base of assets under management and a full range of investment
products and services to meet the needs of a variety of individuals and
institutions.
I. Material Changes in Results of Operations
Results of operations
Three months ended Six months ended
March 31 March 31
(In millions) 1998 1997 Change 1998 1997 Change
- ------------------------------------------------------------------------
Net income $126.7 $101.4 25% $257.2 $197.6 30%
Earnings
per share
Basic $0.50 $0.40 25% $1.02 $0.79 29%
Diluted $0.50 $0.40 25% $1.02 $0.78 31%
Operating margin 24% 28% (14)% 25% 28% (11)%
- ------------------------------------------------------------------------
Net income during the periods ended March 31, 1998 increased as compared to the
same periods in the previous fiscal year primarily due to an increase in
investment management fees as a result of a 23% increase in average assets under
management. Previously reported earnings per share have been retroactively
restated to reflect the two-for-one stock split effected in the form of a stock
dividend on January 15, 1998. Operating margins decreased primarily due to
increased mutual fund distribution costs, employee and related costs, and
information systems and technology costs.
Operating revenues will continue to be 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 ongoing expansion, increased competition and the Company's
commitment to improve its products and services. These endeavors will likely
result in increased underwriting and distribution costs, employee and related
costs and information systems and technology costs.
Assets under management
As of
March 31 %
(In billions) 1998 1997 Change
- -----------------------------------------------------------------------
Franklin Templeton Group:
Equity:
Global/international $112.8 $85.8 31%
Domestic (U.S.) 57.3 38.6 48%
- ---------------------------------------------------------------------
Total equity 170.1 124.4 37%
- ---------------------------------------------------------------------
Fixed-income :
Tax-free 48.1 43.2 11%
Domestic (primarily U.S. Gov't.) 15.7 15.4 2%
Global/international 4.1 3.1 32%
- ---------------------------------------------------------------------
Total fixed-income 67.9 61.7 10%
- ---------------------------------------------------------------------
Money funds: 4.0 3.8 5%
- ---------------------------------------------------------------------
Total Franklin Templeton Group
- - end of period $242.0 $189.9 27%
=====================================================================
Average for the three-month
period $229.4 $186.8 23%
=====================================================================
Average for the six-month
period $225.6 $176.5 28%
=====================================================================
Assets under the Company's management increased by $21.0 billion (10%) from
December 31, 1997 and increased $52.1 billion (27%) from March 31, 1997.
Equity assets grew to 70% of total assets under management at March 31, 1998,
compared to 68% as of December 31, 1997 and 66% a year earlier. These increases
have been due to net sales and market appreciation.
Fixed income and money fund assets have decreased as a percentage of total
assets under management, but increased in absolute terms by $6.4 billion (10%)
since March 31, 1997. This increase is primarily the result of net cash inflows.
Operating revenue
Three months ended Six months ended
March 31 March 31
(In millions) 1998 1997 Change 1998 1997 Change
- --------------------------------------------------------------------------------
Investment
management fees $381.0 $305.6 25% $757.4 $578.8 31%
Underwriting and
distribution fees 248.9 180.3 38% 464.2 316.8 47%
Shareholder
servicing fees 39.4 28.8 37% 77.0 53.6 44%
Other, net 4.4 4.5 (2)% 7.5 7.6 (1)%
================================================================================
Total operating
revenues $673.7 $519.2 30% $1,306.1 $956.8 37%
================================================================================
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 portfolios. The
majority of fund investment management contracts are subject to periodic
approval by each fund's Board of Directors/Trustees. There have been no
significant changes in the management fee structures for the Franklin Templeton
Group in the periods under review. Investment management fees increased due to
the 23% and 28% increase in average assets in the three- and six-month periods,
respectively. Changes in composition of assets under management in the most
recent quarter led to a decline in effective investment management fee rates as
compared to the quarters ended December 31 and March 31, 1997. The composition
of assets under management will continue to change in the future in response to
investor preferences and changes in world markets.
Certain subsidiaries of the Company act as distributors for its sponsored funds
and receive commissions and distribution fees. Underwriting commissions are
earned primarily from fund sales. Distribution fees are generally based on the
level of assets under management. These distribution fees include 12b-1 fees,
paid by the funds in reimbursement for distribution expenses incurred up to a
maximum allowed by each fund. A significant portion of underwriting commissions
and distribution fees are paid to selling intermediaries.
Underwriting and distribution fees increased 38% and 47% over the same three-
and six-month periods last year primarily as a result of increased U.S. retail
mutual fund sales and assets under management.
Shareholder servicing fees are generally fixed charges per account that vary
with the particular type of fund and the service being rendered. Shareholder
servicing fees increased principally as a result of a 34% increase in retail
fund shareholder accounts to 8.2 million from 6.1 million a year ago, and also
as a result of an increase in the average per account charge.
Other, net
Three months ended Six months ended
March 31 March 31
(In millions) 1998 1997 Change 1998 1997 Change
- ----------------------------------------------------------------------------
Revenues $10.4 $9.6 8% $20.1 $19.8 2%
Provision for
loan losses (1.6) 0.2 (900)% (3.6) (1.1) 227%
Interest expense (4.4) (5.3) (17)% (9.0) (11.1) (19)%
============================================================================
Total other, net $4.4 $4.5 (2)% $7.5 $7.6 (1)%
============================================================================
Other revenues, net consist primarily of the revenues from the Company's bank
and finance subsidiaries, which are shown net of interest expense and the
provision for loan losses. Compared to the corresponding periods in the prior
year, total other revenues remained essentially the same. An increase in the
provision for loan losses was offset by a reduction in interest expense. The
provision for loan losses has increased even as charge-offs decreased due to the
Company's decision in the last quarter of fiscal 1997 to maintain a higher level
of reserves. Interest expense decreased in the period due to a reduction in the
average borrowing requirements of the banking/finance group, combined with a
reduction in the effective interest rate.
Operating expenses
Three months ended Six months ended
March 31 March 31
(In millions) 1998 1997 Change 1998 1997 Change
- -----------------------------------------------------------------------------
Underwriting and
distribution $242.4 $172.6 40% $447.7 $304.9 47%
Compensation and
benefits 132.8 106.8 24% 266.0 206.3 29%
Information systems,
technology
and occupancy 45.9 29.4 56% 92.5 55.2 68%
Advertising and
promotion 31.3 23.4 34% 58.6 42.1 39%
Amortization of
deferred sales
commissions 26.5 11.5 130% 50.4 22.2 127%
Amortization of
intangible assets 8.9 9.1 (2)% 18.0 16.4 10%
Other 22.5 22.4 0% 42.0 40.1 5%
=============================================================================
Total operating
expenses $510.3 $375.2 36% $975.2 $687.2 42%
=============================================================================
Increases in operating expenses principally resulted from the general expansion
of the Company's business, increased distribution costs and the Company's
investment in information systems and technology.
Underwriting and distribution includes sales commissions and distribution fees
paid to brokers and other third-party intermediaries. The increase in
underwriting and distribution expenses was consistent with the increase in
underwriting and distribution fee revenue.
Compensation and benefits costs increased 24% and 29% over the same three- and
six-month periods in 1997 as a result of an increase in the number of employees,
increased temporary labor costs and increased payments under the Company's
incentive plans that are based on the Company's profitability. The Company
expects to have upward pressure on compensation and benefits due to the
Company's continued growth and expansion and due to the effects of a very
competitive labor market.
Information systems, technology and occupancy costs have increased 56% and 68%
over the prior three- and six-month periods, respectively, due to the Company's
commitment to invest in its infrastructure. During the past eighteen months, the
Company has embarked upon major systems implementations, Year 2000 corrections
and European Monetary Unit preparations, and has upgraded its network, desktop
and internet environments. The Company anticipates that such major systems
undertakings will continue to have an impact on the Company's operating results
through the year 2000.
In connection with Year 2000 issues, the Company has implemented steps intended
to assure that its computer systems and processes are capable of processing in
the year 2000. A detailed assessment of all major software products has been
substantially completed. The Company is in various stages of making software
repairs and upgrades to those systems and programs that it believes will be
affected by the Year 2000 problem and presently expects that it will incur
expenses in the range of $30 to $40 million on Year 2000 compliance efforts.
This is a preliminary cost estimate comprised of third-party consulting,
software and hardware expenses that will be utilized solely to combat the Year
2000 problem. The Company has not completed its remediation efforts for all
affected systems and therefore cannot as yet specifically determine total Year
2000 expenses that will be incurred through completion of the process. Costs
incurred relating to making the Company's systems Year 2000 complaint are being
expensed in the period in which they are incurred.
Advertising and promotion expenses increased during the comparative three-month
period mainly due to increased promotional activity and new marketing campaigns.
Sales commissions on certain Franklin Templeton Group products sold without a
front-end sales charge are capitalized and amortized over periods not exceeding
six years - the period in which management estimates that they will be recovered
from distribution plan payments and from contingent deferred sales charges.
Amortization of deferred sales commissions increased 130% and 127% during the
periods under review as sales of products by the Company's Canadian subsidiary
increased.
Amortization of intangible assets increased slightly in 1998 over the six-month
period ended March 31, 1997 as a result of the Acquisition that took place in
the second month of fiscal year 1997.
The Company's effective income tax rate decreased from approximately 30% in
fiscal 1997 to approximately 26% of pretax income for the first six months of
fiscal 1998 due to the relative proportion of non-U.S. pretax income and the
effects of tax law changes. The effective tax rate will continue to be
reflective of the relative contributions of foreign earnings that are subject to
reduced tax rates and are not currently included in U.S. taxable income.
II. Material Changes in Financial Condition, Liquidity and Capital
Resources
At March 31, 1998, the Company's assets aggregated $3.3 billion, up from $3.1
billion at September 30, 1997. Stockholders' equity approximated $2.1 billion
compared to approximately $1.9 billion at September 30, 1997. The increase in
assets and stockholders' equity was primarily a result of net income. Cash
provided by operating activities for the six months ended March 31, 1998
increased 15% to $242.4 million in the six months ended March 31, 1997,
primarily as a result of net income, offset by an increase in the amount of
deferred sales commissions related to sales of non-U.S. products. The Company
invested $80.4 million in property and equipment. Net cash used in financing
activities during the period was $23.1 million as the Company used cash flows to
pay down debt and to pay dividends on common stock. During the fiscal year to
date, the Company paid $24.0 million in cash dividends to stockholders and
purchased 62,762 post-split shares of its common stock for $2.9 million. The
Company may continue from time to time to purchase its own shares in the open
market and in private transactions when it believes the market price of its
shares merits such action.
In October 1997, the Company sold and leased back an office building in San
Mateo, California. Proceeds of $14.5 million were received in this transaction.
The gain on sale was deferred and will be amortized on a straight-line basis
through June 30, 2000, the end of the lease period.
At March 31, 1998, the Company held $545.5 million in cash and cash equivalents,
as compared to $442.7 million at September 30, 1997. Liquid assets, which
consist of cash and cash equivalents, investments available-for-sale and current
receivables increased to $1,015.8 million at March 31, 1998 from $889.7 million
at September 30, 1997. Revolving credit facilities at March 31, 1998 aggregated
$500 million of which $200 million was under a 364-day revolving credit
facility. The remaining $300 million facility has a five-year term. At March 31,
1998, approximately $550.4 million was available to the Company under unused
commercial paper and medium-term note programs.
In April 1998, the Company issued $50 million in medium-term notes at a fixed
rate of 5.96% that will mature in April 2000. The cash was used to make the
contingent payment related to the Acquisition. See Note 3 to the condensed
financial statements.
Management expects that the principal needs for cash will be to advance sales
commissions, fund increased property and equipment acquisitions, pay shareholder
dividends and service debt. Management believes that the Company's existing
liquid assets, together with the expected continuing cash flow from operations,
its borrowing capacity under current credit facilities and its ability to issue
stock will be sufficient to meet its present and reasonably foreseeable cash
needs.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Two complaints were filed by the same law firm, one in January 1998 and another
in February 1998, in the U. S. District Court for the Southern District of
Florida, alleging that Templeton Asset Management, Ltd., an indirect
wholly-owned subsidiary of the Company and the investment manager of the
closed-end investment Company, Templeton Vietnam Opportunities Fund, Inc. (the
"Fund"), certain of the Fund's officers and directors, the Company and certain
other Company subsidiaries committed various violations of the Investment
Company Act of 1940, the Investment Advisers Act of 1940, and state common law.
The suits are captioned James C. Roumell, Plaintiff, on behalf of himself and
all others similarly situated v. Templeton Asset Management, Ltd., et al.,
(Civil Action No. 98-6059), and Michael J. Wetta, Plaintiff, on behalf of
himself and all others similarly situated v. Templeton Asset Management, Ltd.,
et al. (Civil Action No. 98-6170).
The complaints in both actions seek monetary damages in excess of $40 million,
an order rescinding Templeton Asset Management, Ltd.'s advisory contract with
the Fund, and the restitution of all amounts paid under such contract. The
plaintiffs have not asserted claims against the Fund, which is included only as
a "nominal defendant", and therefore do not seek damages directly against the
Fund. The plaintiff in the second-filed suit, Michael J. Wetta, has included two
claims by which he is seeking the above relief in favor of the Fund.
The Company and the other defendants have moved to dismiss both cases on various
legal grounds including the fact that the lawsuits mischaracterize the
"fundamental policies" of the Fund and fail to acknowledge the basic investment
objective of the Fund to pursue long-term capital appreciation.
Management believes that these lawsuits are without merit and intends to defend
such actions vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of Franklin Resources, Inc. was
held at 9:30 a.m., Pacific Standard Time, on January 20, 1998 at the
offices of the Company at 777 Mariners Island Boulevard, San Mateo,
California.
The three proposals presented at the meeting were:
1. The election of nine directors to hold office until the next
Annual Meeting of Stockholders or until their successors are elected
and shall qualify.
2. The ratification of the appointment by the Board of Directors
of Coopers & Lybrand L.L.P. as the Company's independent
certified public accountants for the fiscal year ending
September 30, 1998.
3. The adoption of an Employee Stock Investment Plan.
(b) Each of the nine nominees for director was elected and received the number
of votes set forth below:
Name For Against
Harmon E. Burns 114,828,689 939,812
F. Warren Hellman 107,508,999 8,259,502
Charles B. Johnson 114,899,521 868,980
Charles E. Johnson 114,852,958 915,543
Rupert H. Johnson, Jr. 114,829,636 938,865
Harry O. Kline 114,640,757 1,127,744
James A. McCarthy 115,058,431 710,070
Peter M. Sacerdote 114,813,239 955,262
Louis E. Woodworth 115,059,636 708,865
The ratification of the appointment of Coopers & Lybrand, L.L.P. as the
Company's independent certified public accountants for the fiscal year ending
September 30, 1998, was approved by a vote of 115,675,454 shares in favor,
36,772 shares against and 56,275 shares abstaining.
The adoption of an Employee Stock Investment Plan was approved by a vote of
106,024,746 shares in favor, 9,451,099 shares against and 292,656 shares
abstaining.
Item 5. Other Information
TECHNOLOGY ISSUES AND CHALLENGES
- ---------------------------------
Year 2000
Many of the world's computer systems currently record years in a two-digit
format. Such computer systems may be unable to recognize, interpret or use dates
beyond the year 1999 correctly. In addition, the fact that the Year 2000 is a
non-standard leap year may create difficulties for some systems. A few systems
may also be affected by the dates in the month of September 1999. Because the
activities of many businesses are affected by dates or are date-related, the
inability to use such date information correctly could lead to business
disruptions both in the United States and internationally (the "Year 2000
Problem"). The costs and uncertainties associated with the Year 2000 Problem
will depend upon a number of factors, including computer software, computer
hardware and the nature of the industry in which a company operates.
A substantial number of the Company's current computer systems will require
modification to avoid being affected by the Year 2000 Problem. In addition, the
Company coordinates and interacts on a daily basis with numerous other companies
and persons to exchange data electronically. These third-party systems will also
require modification to manage the Year 2000 Problem.
To help ensure that the Company's computer systems will function properly in and
after 1999 ("Year 2000 Compliant"), a team of information technology
professionals began preparing for the Year 2000 Problem in 1996. The Company has
substantially completed a review of all of its major systems and programs and
has identified those that contain two-digit year codes or other elements that
might be affected by the Year 2000 Problem. The Company is in various stages of
making software repairs and upgrades to those systems and programs that it
believes will be affected by the Year 2000 Problem.
In addition, the Company has contacted all of its major external suppliers of
goods, services and data ("Third Parties") to assess their compliance efforts
and the Company's exposure in the event of a failure of Third-Party compliance
efforts. The Company's Year 2000 compliance program also includes the
comprehensive testing and Year 2000 Compliant certification of all major Company
hardware and software systems. It is the Company's present intention to
participate in industry-wide testing of securities processing which will
commence in 1999.
Based upon current information, the Company believes that its Year 2000
expenditures for compliance efforts will be in the range of $30 to $40 million.
This is a preliminary cost estimate and only includes third-party consulting and
software and hardware expenses that will be utilized solely to combat the Year
2000 Problem. The Company has not completed its remediation efforts for all
affected systems and therefore cannot yet specifically determine total Year 2000
expenses that will be incurred through completion of the process. The amount
above does not include the allocation of the internal time of a substantial
number of employees working on the Year 2000 Problem. Such internal employee
costs principally represent the redeployment of existing personnel to the Year
2000 Problem, not the addition of new employees. Such employees have and will
spend significant administrative time and effort in addressing the Year 2000
Problem. The Company is presently unable to determine the cost of such employee
resource allocation to the Year 2000 Problem. Costs incurred relating to making
the Company's systems Year 2000 Compliant are being expensed by the Company in
the period in which they are incurred. In the event that additional cash
commitments are required in connection with the Year 2000 Problem, the Company
believes that its current cash position, cash flows and lines of credit provide
sufficient liquidity to fund any unanticipated increased expenditures.
European Monetary Unit
A single currency for the European Economic and Monetary Union is scheduled to
replace the national currency for participating member countries on January 1,
1999 (the "Euro"), which include countries in which the Company has offices or
with which it does substantial business. Many of the Company's managed funds and
financial products have substantial investments in countries whose currencies
will be replaced by the Euro. All aspects of the Company's investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custodial accounts and accounting will be affected by the implementation of the
Euro (the "Euro Issue").
The Company has created an interdepartmental team consisting of information
system and technology, accounting, administrative portfolio and investment
operations personnel to determine changes that will be required in connection
with the Euro Issue in order to process transactions accurately with minimal
disruption to business activities. The Company is also communicating with its
external partners and vendors to assess their readiness to manage the Euro Issue
without disruption to the Company's business or operations.
The Company is not presently able to assess the cost impact of the Euro Issue to
the Company, but does not presently anticipate that such impact will materially
affect the Company's cash flows, operations or operating results. Costs incurred
relating to the Euro Issue are generally being expensed by the Company during
the period in which they are incurred.
Special Concerns
The Company's expectations as to the future costs associated with the Year 2000
Problem and the Euro Issue are subject to uncertainties beyond its control that
could cause actual results to differ materially from what has been discussed
above. Factors that could influence the amount and timing of future costs
include the success of the Company in identifying systems and programs that are
affected by the Year 2000 Problem and the Euro Issue, the nature and amount of
programming, installation and system work required to upgrade or to replace each
of the affected programs or systems, the rate and magnitude of related labor and
consulting costs, and the success of the Company's external partners and
suppliers in addressing their respective Year 2000 Problems and the Euro Issue.
By way of example, industry-wide testing could uncover additional problems
within the Company or Third Parties which could require greater expenditures or
cause greater disruptions. While the Company is in the process of developing
contingency plans for the failure of Third Parties to achieve Year 2000
compliance or to manage the Euro Issue, the Company's ability to minimize the
effects of the Year 2000 Problem and the Euro Issue is highly dependent upon the
efforts of Third Parties; in particular as these issues may affect certain of
the Company's key information systems. The failure of organizations such as
securities exchanges, securities clearing organizations, vendors, clients or
domestic or foreign governmental regulatory agencies to resolve their own
processing issues with respect to the Year 2000 Problem or the Euro Issue in a
timely manner could result in a material financial risk to the Company.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed under the caption "Risk
Factors and Cautionary Statements" below, that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed below could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company will not undertake and specifically declines any obligation to
release publicly any data or information the result of which might be to revise
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
Risk Factors and Cautionary Statements
General Factors
The Company's revenues and income are derived primarily from the management of a
variety of financial services products. The level of assets under management may
be impacted by a number of factors such as general economic and market
conditions (both domestic and global); changes in interest rates and/or
inflation rates; the level of fund sales and redemptions; and competition within
the financial services industry, which also affect sales and redemptions.
Competition within the industry also impacts the level of expenses related to
fund distribution. Sales of mutual fund shares and other financial services
products can also be negatively affected by burdensome domestic or foreign
governmental regulations.
Assets Under Management
The world's securities exchanges are currently experiencing the longest "bull
market" in history with unprecedented levels of investor demand for equity
securities. As a result of this financial environment, the Company's equity
holdings under management have increased in value, which has contributed to
increased assets under management and increased revenues. The valuation of the
equity portion of the Company's assets under management is especially subject to
the securities markets, which are cyclical and subject to periodic corrections.
A downturn in these financial markets would have an adverse effect on the value
of the equity portion of the Company's assets under management, which in turn
would have a negative effect on the Company's revenues. In addition, the Company
derives higher revenues from its equity assets and therefore a future shift in
assets from equity to fixed-income would, in most instances, have an adverse
impact on the Company's income and revenues.
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. The effects of the foregoing
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. In addition, the shift in
the Company's asset mix from primarily fixed-income to a combination of
fixed-income and global equities has increased the possibility of volatility in
the value of the Company's managed portfolios due to the increased percentage of
equity investments managed.
The Company's assets under management include a significant number of global
equities, which may increase the volatility of the Company's managed portfolios
and its revenue and income streams. Certain portions of the Company's managed
portfolios are invested in various securities of corporations located or doing
business in developing regions of the world commonly known as emerging markets.
These portfolios and the Company's revenues derived from the management of such
portfolios are subject to significant risks of loss from unfavorable political
and diplomatic developments, currency fluctuations, social instability, changes
in governmental policies, expropriation, nationalization, confiscation of assets
and changes in legislation relating to foreign ownership. Foreign trading
markets, particularly in some emerging market countries are often smaller, less
liquid, less regulated and significantly more volatile.
Competition
The financial services industry is highly and increasingly competitive. Such
competition could negatively impact the Company's market share, which could
affect assets under management, from which the bulk of the Company's revenues
and income arise.
The Company is 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. In addition, there has been a trend of consolidation in the
mutual fund industry which has resulted in stronger competitors. The banking
industry also continues to expand its sponsorship of proprietary funds
distributed through third-party distributors. To the extent that any of these
financial institutions, which remain the principal distribution channel for the
Company's shares, limit or restrict the sale of Franklin, Templeton or Mutual
Series shares through their distribution systems in favor of their proprietary
products, assets under management might decline and the Company's revenues
might be adversely affected. In addition, as the number of competitors in the
investment management industry increases, greater demands are placed on existing
distribution channels, which may cause distribution costs to increase.
As investor interest in the mutual fund industry has continued to increase, the
methods and costs of distribution of mutual fund shares has become more complex
in all segments of the industry. A multiple pricing structure has become
increasingly common in what were previously two separate distribution channels,
those with sales charges and those without sales charges. This has and will have
the effect of increasing the Company's costs of distribution and has and will
increase the amount of cash required for the advancement of sales commissions
and similar charges. If the Company is unable to fund commissions on deferred
sales charge mutual fund shares using existing cash flow and debt facilities,
additional funding will be necessary. Such increased sales costs and cash
requirements could have a material adverse effect on the Company's revenues and
earnings.
Other
- -----
The Company may also be subject to a variety of risks arising out of the Year
2000 Problem and the Euro Issue as more particularly set forth above.
The Company's real estate activities are subject to fluctuations in the real
estate marketplace as well as to significant competition from companies with
much larger real estate portfolios giving them significantly greater economies
of scale.
The Company's auto loan receivables business and credit card receivable
activities are subject to significant fluctuations in those consumer
marketplaces as well as to significant competition from companies with much
larger receivable portfolios. In addition, certain of the Company's competitors
in the auto receivables marketplace finance auto loans as an adjunct to their
primary automobile manufacturing businesses and may at times provide auto loans
at significantly below then-market interest rates in order to further the sale
of their automobiles.
The consumer loan market is highly competitive. The Company competes with many
types of institutions including banks, finance companies, credit unions and the
finance subsidiaries of large automobile manufacturers. The interest rates that
the Company can charge and, therefore, the yields on such vary based on this
competitive environment. The Company is reliant on its relationships with
various automobile dealers and this relationship is highly dependent on the
rates and service that the Company provides. There is no guarantee that in this
competitive environment the Company can maintain its relationships with these
dealers. 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.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of the report:
Exhibit 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")
Exhibit 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
Exhibit 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
Exhibit 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
Exhibit(3)(ii) Registrant's By-Laws incorporated by reference to Exhibit
3(v) to the Company's Form 10-Q for the Quarterly Period ended
December 31, 1994
Exhibit 4 Indenture between the Registrant and The Chase Manhattan Bank
(formerly Chemical Bank), as trustee, dated as of May 19, 1994,
incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-3, filed on April 14, 1994
Exhibit 10.1 Representative Agreement for the Supply of Investment
Management and Administration Services, dated
February 16, 1998 by and between Templeton Funds and
Templeton Investment Management Limited
Exhibit 11 Computations of per share earnings.
Exhibit 12 Computations of ratios of earnings to fixed charges.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) Form 8-K dated January 22, 1998 reporting under Item 5 "Other
Events" the filing of an earnings press release by the Registrant
on January 20, 1998 and including said press release as an
Exhibit under Item 7 "Financial Statements and Exhibits".
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Registrant
Date: May 15, 1998 /S/ Martin L. Flanagan
-----------------------
MARTIN L. FLANAGAN
Senior Vice President,
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
Exhibit 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")
Exhibit 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
Exhibit 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
Exhibit 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
Exhibit(3)(ii) Registrant's By-Laws incorporated by reference to Exhibit
3(v) to the Company's Form 10-Q for the Quarterly Period ended
December 31, 1994
Exhibit 4 Indenture between the Registrant and The Chase Manhattan Bank
(formerly Chemical Bank), as trustee, dated as of May 19, 1994,
incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-3, filed on April 14, 1994
Exhibit 10.1 Representative Agreement for the Supply of Investment
Management and Administration Services, dated
February 16, 1998 by and between Templeton Funds and
Templeton Investment Management Limited
Exhibit 11 Computations of per share earnings.
Exhibit 12 Computations of ratios of earnings to fixed charges.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) Form 8-K dated January 22, 1998 reporting under Item 5 "Other
Events" the filing of an earnings press release by the Registrant
on January 20, 1998 and including said press release as an
Exhibit under Item 7 "Financial Statements and Exhibits".
DATED 16th February 1998
TEMPLETON FUNDS
and
TEMPLETON INVESTMENT MANAGEMENT LIMITED
AGREEMENT FOR THE SUPPLY OF
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
PRINCIPAL
INVESTMENT MANAGEMENT AND
ADMINISTRATION SERVICES AGREEMENT
between
TEMPLETON FUNDS, incorporated under the
Open-Ended Investment Companies (Investment
Companies with Variable Capital) Regulations 1996
and having its head office at Saltire Court, 20
Castle Terrace, Edinburgh EH1 2EH
(hereinafter called "the Company") of the First
Part
and
TEMPLETON INVESTMENT MANAGEMENT LIMITED,
incorporated under the Companies Acts and having
its registered office at Plumtree Court, London
EC4A 4HT (hereinafter called "the ACD") of the
Second Part
<PAGE>
CONSIDERING THAT
(A) The Company is an open ended investment company with variable capital
registered in Scotland and incorporated under the Open-Ended Investment
Companies (Investment Companies with Variable Capital) Regulations 1996
(the "ECA Regulations") and is regulated by the Financial Services
Authority (the "FSA") pursuant to The Financial Services (Open-Ended
Investment Companies) Regulations 1997 (the "FSA Regulations").
(B) The Company is an umbrella company under the FSA Regulations and has been
established with three proposed initial sub-funds, known as Templeton
Balanced Fund ("TBF") and Templeton Growth Fund ("TGF"), each with four
classes of shares, Alpha Income, Alpha Accumulation, Beta Income and Beta
Accumulation Shares, and Templeton Value Fund ("TVF") with two classes of
shares, Alpha Income and Alpha Accumulation Shares, and it is intended
that the Company establish further sub-funds
(C) The ACD is a member of the Investment Management Regulatory Organisation
Limited ("IMRO") and the Personal Investment Authority ("the PIA") and is
regulated by IMRO and the PIA in carrying on its business.
(D) As the person named in the application under Regulation 7 of the ECA
Regulations as the authorised corporate director of the Company, the ACD
is deemed by Regulation 28(1) of the ECA Regulations to be appointed as a
first authorised corporate director of the Company on the coming into
effect of the authorisation order made by the PSA in respect of the
Company under Regulation 9 of the ECA Regulations.
(E) The Company wishes the ACD to act, and the ACD is willing to act, as the
authorised corporate director of the Company on the terms and conditions
hereinafter set forth.
NOW THEREFORE THE PARTIES HAVE AGREED AND HEREBY AGREE as follows:
1. DEFINITIONS
In this Agreement including the Recitals hereto, the following words and
expressions shall, where not inconsistent in the context, have the
following meanings respectively: Associate means in relation to TWI either
(i) any person or company (a) with an interest (direct or indirect) of 20
per cent or more of the ordinary share capital of TWI or (b) who is able
to exercise, or control the exercise of 20 per cent or more of the voting
rights in TWI or (ii) any person or company controlled by a person who
meets one or both of the descriptions given in (i) above or (iii) any
company (a) 20 per cent or more of whose ordinary share capital is owned
directly or indirectly by TWI or (b) 20 per cent or more of whose voting
rights can be exercised directly or indirectly by TWI or (iv) any director
or officer of TWI or of any company falling within paragraphs (i), (ii) or
(iii) above;
Assets of the Funds means the assets of TGF, TVF and TBF and those of the
assets from time to time of any other sub-funds of the Company for which
the ACD acts as an investment manager and as detailed in the Schedule and
where there is only one sub-fund for which the ACD so acts it shall mean
that sub-fund only;
the Board means the board of directors of the Company;
Commencement Date means the 9th day of February 1998;
Depositary of the Company means Chase Manhattan Trustees Limited;
Funds means any sub-funds of the Company in respect of which the ACD acts
as an investment manager, including TGF, TVF and TBF and where there is
only one sub-fund for which the ACD so acts it shall mean that sub-fund
only;
Investment Adviser means the investment adviser of any of the sub-funds
of the Company;
Schedule means the schedule annexed and executed as relative thereto;
TWI means Templeton Worldwide, Inc.
2. COMMENCEMENT DATE
This Agreement shall commence on the Commencement Date.
3. AUTHORISED CORPORATE DIRECTOR
(A) As sole director of the Company, in terms of Regulation 28(4)(a) of the
ECA Regulations, the business of the Company is to be managed by the ACD.
(B) The Company hereby agrees that the ACD shall act as the authorised
corporate director of the Company and the ACD agrees to act as the
authorised corporate director thereof and to manage the business of the
Company in accordance with Regulation (28)(4)(a) of the ECA Regulations
and to carry out the functions described in Regulation 6.02.2 and
6.02.3 of the FSA Regulations and to exercise and discharge all the
powers, duties, discretions and functions and provide the investment
management and other services and facilities to the Company as set out
in this Agreement.
(C) The powers, discretions and functions exerciseable and the duties to be
discharged by the ACD under this Agreement shall be exercised and
discharged in accordance with the Instrument of Incorporation of the
Company and all applicable laws and regulations for the time being in
force, including the ECA Regulations and the FSA Regulations and so as to
ensure compliance with the Financial Services Act 1986 from time to time.
(D) The ACD shall continue to act as the authorised corporate director of the
Company unless and until termination in accordance with the provisions
hereof.
4. INVESTMENT MANAGER
(A) As part of its functions as the authorised corporate director of the
Company, the ACD shall, on the terms of this Agreement, act as the
investment manager of the Company in respect of the Funds subject
(where the ACD is not the sole Director of the Company) to the overall
supervision of the Board and, without prejudice to the generality of
the foregoing, to carry out the investment management of the Assets of
the Funds in accordance with the investment objectives to be followed
in respect of each of the Funds including the investment, realisation
and re-investment of any Assets of the Funds and the reclaiming of, or
enabling, the Depositary of the Company to reclaim all refunds due of
tax by way of deductions from dividends or interest or otherwise in
respect of the Assets of the Funds.
(B) The ACD shall have complete discretion, without prior reference to the
Company, to make purchases and sales of investments and otherwise to
manage the Assets of the Funds in such manner as the ACD may determine
upon.
(C) The ACD shall in carrying out its investment management of the Assets of
the Funds:
(i) act in accordance with the Instrument of Incorporation of the
Company governing each of the Funds, the ECA Regulations, the FSA
Regulations and the most recently published prospectus of the
Company;
(ii) keep under surveillance and review the Assets of the Funds and the
making of decisions as to the constituents of the Assets of the
Funds in such a way as appear to the ACD likely to secure that the
objectives of each of the Funds are attained;
(iii) instruct the Depositary of the Company from time to time in writing
as to how rights attaching to the ownership of the Assets of the
Funds are to be exercised;
(iv) give instructions to agents and the Depositary of the Company, as
appropriate, as to the acquisition, holding or disposal of the
Assets of the Funds;
(v) keep under review the investment objective and policy of each of
the Funds;
(vi) supply the Company forthwith with such information concerning the
management of the Assets of the Funds as it may reasonably
request;
(vii) take all reasonable steps and exercise all due diligence to avoid
the Assets of the Funds being used or invested contrary to the ECA
Regulations and the FSA Regulations and take action forthwith to
rectify any breach of any provision in the ECA Regulations and the
FSA Regulations.
(D) The ACD hereby agrees to act as an investment manager to the Funds and to
manage the Assets of the Funds on such terms.
5. ADMINISTRATION SERVICES
As part of its functions as the authorised corporate director of the
Company, the following administration services and facilities shall be
provided by the ACD:
(A) providing at its office premises at Saltire Court, 20 Castle Terrace,
Edinburgh EH1 2EH or at such other address as may be agreed by the Company
a room suitably equipped and furnished for any meetings of the Board (or
Committees of the Board) (but so that the Company shall not be entitled to
the exclusive use thereof);
(B) accommodating the registered office of the Company at the ACD's offices
and the safekeeping of any seal of the Company on behalf of the Company,
the receiving and dealing with all applications, notices and
correspondence and arranging for the provision of all facilities for the
holding of any meetings of directors and shareholders of the Company and
the taking of minutes thereof;
(C) the marketing and promotion of each sub-fund of the Company;
(D) acting as the registrar of the Company;
(E) keeping the records, books of account of the Company as are necessary
for compliance with ECA Regulations and the FSA Regulations, and
carrying out all financial, accountancy, secretarial, clerical and
other administrative services of any kind necessary for the conduct of
the affairs of the Company including, as the registrar of the Company,
the preparation and forwarding to shareholders of the Company of all
cheques, statements, notices and other documents which the Company is
required to issue or serve;
(F) keeping a daily record of the shares in each sub-fund of the Company,
including the type of such shares, which have been acquired or disposed
of, and of the balance of any acquisitions and disposals;
(G) keeping under review the Instrument of Incorporation and prospectus of the
Company with a view to ensuring that they are in compliance with the law,
including the ECA Regulations and the FSA Regulations and from time to
time making or proposing any changes therein that are necessary or
desirable;
(H) giving all necessary instructions to the Company for the issue and
cancellation of shares in each sub-fund of the Company and carrying out on
the Company's behalf the issue and cancellation of shares in each sub-fund
of the Company and carrying out all administration in connection with
dealing in shares in each sub-fund;
(I) promptly obtaining and preparing, or procuring the obtaining and
preparation of valuations of the assets and liabilities of the Company
and of its sub-funds and carrying out or procuring the carrying out of
valuations on each normal business day on which the London Stock
Exchange Limited is open for business of each sub-fund of the Company
and computing the prices at which shares may be issued, repurchased or
cancelled on any dealing day in accordance with the FSA Regulations and
giving notice to the Company of all such valuations, pricing and yield
calculations;
(J) keeping or causing to be kept books of account and records in respect
of all transactions for the account of the Company;
(K) at the required intervals, causing to be made up and audited a statement
showing the amount or amounts of income to be allocated and distributed;
(L) liaising with and, if requested to do so, providing all information in
connection with the management of the Company to the auditors for the time
being of the Company;
(M) carrying out such bank and other reconciliations in connection with the
Company as are required from time to time;
(N) making all returns and ensuring that all reclaim procedures are dealt with
in connection with stamp duty due or refundable for transactions in shares
in each sub-fund of the Company and ensuring that any stamp duty liability
is paid;
(O) carrying out all necessary share reconciliations and debtors' and
creditors' reconciliations as are required to be carried out;
(P) making such returns and liaising generally with the Association of Unit
Trusts and Investment Funds in respect of the Company;
(Q) in connection with share dealing carried out on the Company's behalf,
performing any identification procedures and maintaining records which are
required by virtue of the statutory and other requirements relating to
money laundering;
(R) carrying out such other accounting and administrative tasks as are
ordinarily formed by the authorised corporate director of an authorised
open-ended investment company under the ECA and FSA Regulations and
performing all other duties properly to be performed by the authorised
corporate director of an authorised open-ended investment company at law
and under the Instrument of Incorporation of Company;
(S) providing all necessary equipment and personnel with a proper and adequate
standard of proficiency and experience to enable the ACD to carry out its
functions under this Agreement;
(T) maintaining (apart from the register of shareholders of the Company) all
other statutory books in accordance with the provisions of the Instrument
of Incorporation of the Company and the provisions of the ECA Regulations
and the FSA Regulations;
(U) collating the information and preparing in compliance with the ECA
Regulations and FSA Regulations the yearly, half-yearly and any other
report and accounts and statements of the Company and of each of its
sub-funds, including TBF, TGF and TVF, as required by law and arranging
for the audit and approval by the Company of the annual, half-yearly
and any other report and accounts of the Company and of each of its
sub-funds, including TBF, TGF and TVF, and the preparation of such
other reports, entries and documents as the Company or the Investment
Adviser may from time to time require and arranging for the despatch of
the same;
(V) calculating the amounts of the allocation of income and of any
distributions payments to be made by the Company on the shares of each of
its sub-funds;
(W) in conjunction with the Depositary of the Company, the opening and
supervision of bank accounts for the Company and the granting of mandates
by the Company with regard to the operation of such accounts;
(X) arranging the payment of Value Added Tax and other taxes and the recovery
of Value Added Tax and other taxes and preparing all documentation
required in connection with Va1ue Added Tax returns relating to the
Company and preparing and delivering all other returns required by law
including the preparation and filing of the annual and any other tax
returns to be submitted by the Company to the Inland Revenue;
(Y) providing the Investment Adviser with such information as may be required
with regards to the part of the assets of any sub-funds for which it is
appointed an investment adviser, that consists of cash;
(Z) keeping the Investment Adviser informed either on a weekly or such
other basis as may be agreed between the ACD and the Investment Adviser
as to the amount of the cash comprised in the assets of any sub-funds
for which it is appointed an investment adviser, at that time and as to
any sun or sums of money that at that time shall be available for
investment by the Company and likewise giving the Investment Adviser
such details of the securities and other assets and liabilities of any
sub-funds for which it is appointed an investment adviser, as the
Investment Adviser shall reasonably require;
(AA) administering the procedures for the holding of investments of the Company
by the company, firm or institutions appointed by the Depositary of the
Company to act as custodian of its investments;
(BB) convening meetings of shareholders of the Company and taking minutes
thereof;
(CC) liaising with the Depositary of the Company and the custodian of the
Company with regard to the settlement and delivery of all purchases and
sales of investments and any issues, rights, entitlements and other
matters affecting such investments;
(DD) authorising and paying sundry invoices and expenses of the Company from
time to time;
(EE) performing such other duties as may be agreed between the parties.
6. EXPENSES OF THE ACD AS THE INVESTMENT MANAGER
(A) The ACD shall provide, for the duration of this Agreement, such staff
as may be necessary to carry out its duties as investment manager
pursuant to clause 4 hereof, it being understood that the Company shall
not be entitled to the exclusive use thereof. All costs and expenses
incurred by the ACD in relation to the carrying out of its duties as
investment manager including (without prejudice to the generality of
the foregoing) the costs and expenses of (i) research, (ii) the framing
and review of the Company's investment policy, (iii) management of the
Company's investment portfolio, (iv) selection of investments, (v)
monitoring of investments and all travel, accommodation and other
out-of-pocket expenses in connection therewith and (vi) the staff
provided by the ACD and all other such managerial outlays shall be
borne and paid by the ACD.
(B) All costs, expenses, outgoings and liabilities incurred by or on behalf
of the Company by the ACD pursuant to the carrying out of its duties
hereunder shall be borne by and paid by the Company, including (without
prejudice to the generality of the foregoing) all (i) stamp and other
duties, taxes, costs, commissions, charges and fees payable in
connection with the purchase, exchange and sale of investments, (ii)
costs, charges and expenses of the Depositary of the Company or
incurred in connection with the registration of or the holding of any
investment or with the safe custody or deposit of documents of title
thereto, (iii) costs, charges, disbursements, fees and expenses
incurred in the collection of income (including expenses incurred in
obtaining tax repayments), (iv) taxation payable in respect of income
arising from investments or the holding of or dealing with investments,
(v) fees, costs and expenses of the Company's auditors, registrars and
brokers in connection with the corporate existence and corporate and
financial structure of the Company and arising out of the relations of
the Company with its shareholders and third parties, (vi) bank and
other fees and charges, (vii) repayments of all principal amounts of
indebtedness and interest, costs and expenses in relation thereto,
(viii) costs and expenses incurred by the directors (other than the
ACD) of the Company in or about the Company's business, (ix) costs and
expenses of advertising and publicity, (x) expenses of and incidental
to the holding of board meetings and general meetings of the Company
and the preparation of the report and accounts of the Company and (xi)
all fees payable to the FSA and the Registrar of Companies in respect
of the Company.
7. SOLE EMPLOYMENT OF THE ACD: THE ACD FREE TO DO BUSINESS
(A) The Company shall, for the duration of this Agreement, exclusively
employ the services of the ACD to perform the duties and render the
services described in Clauses 3, 4 and 5 hereof.
(B) The ACD shall not be precluded from carrying on the business in Great
Britain and elsewhere or from acting as an investment manager or an
authorised corporate director for any other companies or persons, whether
or not such other companies or person carry on business of a nature
similar to that of the Company, nor shall any of the directors of the ACD
present or future be precluded from acting as directors of such companies.
8. MANAGEMENT CHARGE
(A) (i) The Company shall pay to the ACD monthly in arrears on the last
business day of each month or as soon as possible thereafter a
management charge in respect of each of the sub-funds of the
Company as remuneration for its services hereunder. The rates in
the case of TBF, TGF and TVF as the initial sub-funds of the
Company, shall be as set out in the Schedule. The rate for each
subsequent sub-fund shall be set out in an amendment to the
Schedule in each case in such terms as shall be agreed between
the Company and the ACD. The ACD shall submit monthly invoices
to the Company in respect of such remuneration for each sub-fund
of the Company and shall receive payment by way of electronic
bank transfer or by such other means as may be agreed from time
to time between the Company and the ACD.
(ii) The value of the property of each sub-fund of the Company for the
purpose of determining such remuneration in respect of each sub-fund
shall be determined by reference to the valuation of each sub-fund
carried out in accordance with the FSA Regulations at the valuation
point coinciding with or immediately before the beginning of the
first dealing day during the relevant month referred to above and
shall accrue daily.
(iii) The rates of the ACD's management charge for each of the sub-funds
as set out in the Schedule hereto can be increased to not more than
the maximum rate per annum of the value of the property of each
sub-fund as set out in the Schedule (plus any Value Added Tax, or
any equivalent tax thereon) PROVIDED THAT the ACD has given not less
than 90 days written notice to the shareholders of the particular
sub-fund of its intention to make such an increase and has revised
the prospectus of the Company to reflect the proposed increase in
that amount (and 90 days must have elapsed since such revised
prospectus has become available).
(B) The amounts of remuneration to be paid to the ACD for each of the
sub-funds to be set out in the Schedule shall, if the parties fail to
agree on the relevant amount within 14 days after the end of any
relevant month, be conclusively determined by the auditors from time to
time of the Company (who shall act as experts and not as arbiters and
shall report their determination to the Company) and the Company shall
communicate the auditors' determination to the ACD and pay the
remuneration accordingly forthwith
(C) In the event of the ACD receiving any commission (including
underwriting commission), share of brokerage or other remuneration from
transactions effected in the course of provision of the services to be
provided by the ACD hereunder, the ACD shall account for the same to
the Company by contributing the same to the relevant sub-fund of the
Company and accordingly the remuneration referred to in this Clause 8
shall be neither supplemented nor abated by reason of such commission,
brokerage or other remuneration. Provided that (i) the ACD may make
and shall be entitled to retain any preliminary charge upon a sale of
shares in the Company by the ACD whether acting as a principal or by
its issuing for the Company shares in the Company as may be provided
for under the FSA Regulations and (ii) notwithstanding the foregoing
the ACD shall be entitled to retain without abatement of its
remuneration under this Agreement any remuneration receivable by it as
investment managers or advisers of or adviser to any open-ended
investment company, investment trust company, unit trust, fund or other
similar scheme operated or advised by the ACD or by any Associate of
TWI.
9. TERMINATION BY COMPANY
(A) The Company shall be entitled to terminate the appointment of the ACD in
the following circumstances:
(i) by not less than three months' notice in writing to that effect
to the ACD; or
(ii) if the ACD, as result of any action by or omission of its board
of directors, shall cease to be or be capable of carrying on an
investment business in the United Kingdom for the purposes of the
Financial Services Act 1986 (as that Act may from time to time be
amended or re-enacted) or shall cease to be permitted under the
IMRO Rules or PIA Rules or those of any other regulatory
authority recognised under the said Financial Services Act 1986
of which the ACD is a member, to carry out its functions under
this Agreement, by written notice (effective immediately)
PROVIDED THAT in the event of the ACD temporarily ceasing to be
so entitled to carry on business or to act as an investment
adviser in circumstances previously approved in writing by the
Company, such cessation will not entitle the Company to terminate
the appointment of the ACD hereunder; or
(iii) by written notice (effective immediately) from the Company (a) if
the ACD persistently fails or persistently neglects to comply with
the reasonable instructions of the Board or is guilty of fraud or of
gross professional negligence or wilful material default or (b) if
the ACD is in breach of any of its material obligations hereunder
and has failed to remedy the same within 30 days after having been
given notice requiring it to do so or (c) if without the approval of
the Company which approval shall not be unreasonably withheld, the
ACD ceases to be a subsidiary of Franklin Resources, Inc.
(iv) forthwith upon it ceasing to be a director of the Company;
(v) if there is no director other than the ACD, if a notice of
termination (effective either immediately when the notice is given
or on any subsequent time for its effect as stated in the notice) of
that appointment is given by the Depositary of the Company to the
ACD and to the Company following any of the following events-
(a) the ACD going into liquidation (except a voluntary liquidation
for the purpose of reconstruction or amalgamation upon terms
previously approved in writing by the Depositary of the
Company); or
(b) a receiver is appointed of the undertaking of the ACD or
any part thereof; or
(c) an administration order is made in relation to the ACD under
section 8 of the Insolvency Act 1986.
(B) Any termination under this Clause shall not take effect prior to the time
at which such a termination may take effect in accordance with regulation
15 of the ECA Regulations.
(C) If the appointment of the ACD shall be determined with effect from a
date which is not the end of a month, the auditors of the Company shall
conclusively determine (on a time apportionment basis) the amount of
remuneration payable to the ACD in accordance with Clause 8(A) hereof
for the period from the commencement of the then current monthly period
to the date of termination, and the Company shall be bound to pay to
the ACD not later than 14 days after such determination being made the
amount so determined.
10. TERMINATION BY THE ACD
(A) The ACD shall be entitled to terminate its appointment hereunder in the
following circumstances:
(i) by not less than three months' notice in writing to that effect
to the Company; or
(ii) by written notice (effective immediately) from the ACD (a) if any
resolution shall be passed for the winding up of the Company or
(b) if any order shall be made by any competent court for the
winding up of the Company for the dissolution of the Company
without winding up or (c) if a receiver is appointed over the
whole or a substantial part of the assets or undertaking of the
Company or if an administrator is appointed pursuant to the
Insolvency Act 1986 or (d) if the Company is unable to pay its
debts within the meaning of Section 123 of the Insolvency Act
1986 or (e) if the Company is in breach of any of its material
obligations hereunder and has failed to remedy the same within 30
days alter having been given notice requiring it to do so.
(B) Any termination under this Clause shall not take effect prior to the time
at which such a termination may take effect in accordance with regulation
15 of the ECA Regulations.
(C) The ACD shall not voluntarily terminate its appointment as such under
sub-Clause (A) of this Clause unless the termination is coterminous with
the commencement of the appointment of a successor authorised corporate
director of the Company.
(D) The provisions of Clause 9(C) above shall apply in relation to any such
termination or resignation by the ACD.
11. EFFECT OF TERMINATION
(A) The termination of the appointment of the ACD under Clause 9 hereof or
Clause 10 hereof:
(i) shall not affect such obligations of the ACD hereunder as are
expressed to survive such termination; and
(ii) shall be without prejudice to the completion by the ACD of
transactions already initiated for the account of the Funds and in
such circumstances the parties shall use all reasonable endeavours
to complete any transactions then in progress.
(B) Upon termination hereof by either party and for whatever reason the
Company hereby agrees if requested to do so by the ACD to commence the
procedures necessary to change its name and the name of each sub-fund to a
name unconnected with the ACD or any Associate of TWI as at the date
hereof and to use its best endeavours to obtain the consent of its
shareholders to such changes of name.
12. INDEMNTY AND LIABILITY
(A) Subject to the ECA Regulations and the FSA Regulations, but without
prejudice to any indemnity to which the ACD may otherwise be entitled,
the ACD shall be held harmless and indemnified by the Company against
all costs (including without limitation, all reasonable legal,
professional and other expenses), charges, losses and liabilities
brought against, suffered or incurred by the ACD in the proper
execution or exercise, or in the purported execution or exercise
reasonably and in good faith, of its duties, powers, authorities and
discretions as the ACD, excluding:
(a) any liability for any failure by the ACD to exercise due care and
diligence in the discharge of its functions in respect of the
Company (including any liability which by virtue of any rule of law
would otherwise attach to the ACD in respect of any negligence,
default, breach of duty or breach of trust of which the ACD may be
guilty in relation to the Company); and
(b) any liability to the extent that it is recovered from another
person;
but including (without prejudice to the generality of the foregoing):
(c) any liability incurred by the ACD in defending any proceedings
(whether civil or criminal);
(i) in which judgment is given in its favour or in which it is
acquitted; or
(ii) which are otherwise disposed of without a finding or admission
of any failure to exercise due care and diligence in the
discharge of its functions in respect of the Company (or of
any liability which by virtue of any rule of law would
otherwise attach to the ACD in respect of any negligence,
default, breach of duty or breach of trust of the ACD in
relation to the Company); and
(d) in connection with any application under the ECA Regulations
pursuant to which relief is granted to it by the Court.
(B) Subject to the ECA Regulations and the FSA Regulations, the ACD shall not
be required to take any legal action in connection with the performance of
its duties under this Agreement on behalf of the Company unless fully
indemnified to its reasonable satisfaction for losses, costs and
liabilities which are incurred or suffered by the ACD.
(C) Subject to the ECA Regulations and the FSA Regulations and without
excluding or limiting any liability which by law cannot be limited or
excluded, the ACD shall not be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including, but not
limited to, lost profits) even if the ACD has been advised of the
likelihood of such loss or damage and regardless of whether any claim
for loss or damage is made in negligence, for breach of contract or
otherwise.
(D) The indemnity in this Clause 12 shall survive termination of the
appointment of the ACD.
13. CONFIDENTIALITY
Neither of the parties hereto shall during the continuance of this
Agreement or after its termination disclose to any person, firm or fund
whatsoever (except with the authority of the other party or unless ordered
to do so by a Court of competent jurisdiction) any information relating to
the business, investments, finances or other matters of a confidential
nature of the other party of which it may in the course of its duties
hereunder or otherwise become possessed and each party shall use all
reasonable endeavours to prevent any such disclosure as aforesaid.
14. NOTICES
Any notice or other writing required by this Agreement shall be deemed to
be duly given if deposited by hand at or posted (first class post prepaid)
or sent by facsimile transmission or telex by the party giving notice to
the address of the other party as set out above or to such other address
as may from time to time have been notified in writing to it by the other
party and any notice or letter so posted shall be deemed to have been duly
received at the expiration of 48 hours (if posted in the United Kingdom)
and 120 hours (if posted outside the United Kingdom using air mail) after
it is posted and any notice given by delivery or by facsimile transmission
or telex shall be deemed given upon delivery or transmission and in
proving service it shall be sufficient to prove that the envelope
containing the notice or other writing was properly addressed and posted
as a prepaid letter or that where it was delivered otherwise than by post
that it was delivered to the correct address, or that where it was sent by
facsimile transmission or telex it was transmitted to the correct number.
15. ASSIGNATION
The rights and obligations conferred by this Agreement shall not be
assignable by either party except with the written consent of the other
party.
consent of the other party.
16. VAT
All amounts to which the ACD is entitled under the terms and provisions of
this Agreement shall be calculated without taking into account any Value
Added Tax chargeable in respect thereof. The Company shall pay to the ACD
on demand a sum equal to Value Added Tax (if any) chargeable on any such
amount.
17. AMENDMENT
This Agreement may be amended on1y by written agreement of both parties.
18. HEADINGS
The headings given to Clauses of this Agreement are for the purpose of
reference only and shall not be deemed to affect the interpretation or
construction thereof.
19. WHOLE AGREEMENT
This Agreement constitutes the whole agreement between the parties and
there is no other agreement or arrangement subsisting between them with
regard to the obligations of the ACD hereunder.
20. LAW
This Agreement shall be governed by and construed in accordance with the
laws of Scotland: IN WITNESS WHEREOF this Agreement typewritten on this
and the eighteen preceding pages together with the Schedule annexed on
pages 20 to 21 is executed in duplicate as follows:
It is subscribed for and on behalf of the said Templeton Funds at Edinburgh upon
the 16th day of February Nineteen hundred and ninety eight by
/s/ D. W. Adams Director
------------------
Templeton Investment Management
Limited, the Authorised Corporate
Director of Templeton Funds
Douglas William Adams Full Name
---------------------
before this witness
Witness' Signature /s/ Sara MacIntosh
----------------------
Full Name (in capitals) SARA MACINTOSH
Address SALTIRE COURT, 20 CASTLE TERRACE
EDINBURGH, EH1 2EH, SCOTLAND
/s/ Peter K. Arthur Secretary
---------------------
Templeton Investment Management
Limited, the Authorised Corporate
Director of Templeton Funds
Peter Alistair Kennedy Arthur Full Name
------------------------------
before this witness:
Witness' Signature /s/ Sara MacIntosh
-------------------
Full Name (in capitals) SARA MACINTOSH
Address SALTIRE COURT, 20 CASTLE TERRACE
EDINBURGH, EH1 2EH, SCOTLAND
It is subscribed for and on behalf of the said Templeton Investment Management
Limited at Edinburgh upon the 16th day of February Nineteen hundred and ninety
eight by
/s/ D. B. Anderson Director
-----------------------
Dickson Brown Anderson Full Name
/s/ Alasdair Nairn Director
--------------------
Alasdair Gordon MacKenzie Nairn Full Name
<PAGE>
THE SCHEDULE
referred to in Clause 8 of the foregoing Investment Management and
Administration
Services Agreement
Templeton Ba1anced Fund
The management charge for TBF shall be payable at the rate of one and on-half
per cent per annum (plus any Value Added Tax or any equivalent tax thereon) in
respect of that part of the property of TBF as is referable to Alpha Income and
Alpha Accumulation Shares of TBF and at the rate of one per cent per annum (plus
VAT or any equivalent tax thereon) in respect of that part of the property of
TBF as is referable to Beta Income and Beta Accumulation Shares of TBF.
Templeton Growth Fund
The management charge for TGF shall be payable at the rate of one and on-half
per cent per annum (plus any Value Added Tax or any equivalent tax thereon) in
respect of that part of the property of TGF as is referable to Alpha Income and
Alpha Accumulation Shares of TGF and at the rate of one per cent per annum (plus
VAT or any equivalent tax thereon) in respect of that part of the property of
TGF as is referable to Beta Income and Beta Accumulation Shares of TGF.
Templeton Value Fund
The management charge for TVF shall be payable at the rate of one and one-half
per cent per annum (plus any Value Added Tax or any equivalent tax thereon).
The management charge for the above Funds shall be payable at the rate of
one-twelfth thereof each month and the rate for each month shall be calculated
as follows:
(i) in the case of TBF and TGF, by reference to the net assets of the parts
thereof as are referable to Alpha Income and Alpha Accumulation Shares and
to Beta Income and Beta Accumulation Shares respectively of TBF and TGF;
and
(ii) in the case of TVF, by reference to its net assets.
The above rates of the ACD's management charge for TBF, TGF and TVF can be
increased in accordance with Clause 8(A)(iii) of the foregoing Investment
Management and Administration Services Agreement as follows:
(i) in the case of TBF and TGF, to not more than two per cent per annum (plus
any Value Added Tax or any equivalent tax thereon) of the value of the
parts of the property of TBF and TGF respectively as are referable to
Alpha Income and Alpha Accumulation Shares.
(ii) in the case of TBF and TGF, to not more than one and one-half per cent per
annum (plus Value Added Tax or any equivalent tax thereon) of the value of
the parts of the property of TBF and TGF as are referable to Beta Income
and Beta Accumulation Shares; and
(iii) in the case of TVF, to not more than two per cent per annum (plus Value
Added Tax or any equivalent tax thereon) of the value of the property of
TVF.
/s/ D. W. Adams Director
---------------------
/s/ Peter K. Arthur Secretary
---------------------
/s/ D. B. Anderson Director
---------------------
/s/ Alasdair Nairn Director
---------------------
Exhibit 11
COMPUTATIONS OF PER SHARE EARNINGS
Earnings per share are based on net income divided by the average number of
shares outstanding including incremental shares from assumed conversions during
the period. The number of shares used for purposes of calculating earnings per
share and all per share data have been adjusted for both periods presented to
reflect a two-for-one stock split effected January 15, 1998.
Three months ended Six months ended
March 31 March 31
- --------------------------------------------------------------------------------
(Dollars and shares in
thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Weighted average shares
outstanding 252,860 252,278 252,682 251,612
Incremental shares from
assumed conversions 198 736 499 696
==================================================
Adjusted weighted
average shares outstanding 253,058 253,014 253,181 252,308
================================================
Net income $126,669 $101,411 $257,184 $197,640
Earnings per share:
Basic $0.50 $0.40 $1.02 $0.79
Diluted $0.50 $0.40 $1.02 $0.78
Exhibit 12
COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES
Three months ended Six months ended
March 31 March 31
(Dollars in
thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Income before taxes $171,194 $144,355 $347,459 $281,339
Add fixed charges:
Interest expense 8,218 11,053 18,965 25,061
Interest factor
on rent 2,939 2,338 5,830 4,429
----------------------------------------------------
Total fixed charges $11,157 $13,391 $24,795 $29,490
----------------------------------------------------
Earnings before fixed
charges and taxes on
income $182,351 $157,746 $372,254 $310,829
=======================================================
Ratio of earnings to
fixed charges 16.3 11.8 15.0 10.5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 537,526
<SECURITIES> 192,733
<RECEIVABLES> 253,157
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 998,923
<PP&E> 294,230
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,346,690
<CURRENT-LIABILITIES> 386,560
<BONDS> 0
0
0
<COMMON> 25,296
<OTHER-SE> 1,972,102
<TOTAL-LIABILITY-AND-EQUITY> 3,346,690
<SALES> 0
<TOTAL-REVENUES> 1,306,090
<CGS> 0
<TOTAL-COSTS> 975,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,978
<INCOME-PRETAX> 347,459
<INCOME-TAX> 90,275
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 257,184
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
