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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9318
FRANKLIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2670991
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (650) 312-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK,PAR VALUE $.10 PER SHARE NEW YORK STOCK EXCHANGE,
PACIFIC EXCHANGE, INC. AND
LONDON STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing price of $36.57 on December 1, 2000 on the
New York Stock Exchange was $4,751,245,257. Calculation of holdings by
non-affiliates is based upon the assumption, for these purposes only, that
executive officers, directors, nominees, Registrant's Profit Sharing Plan and
persons holding 5% or more of Registrant's Common Stock are affiliates. Number
of shares of the Registrant's common stock outstanding at December 1, 2000:
243,618,404
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the Registrant's proxy statement for its Annual Meeting of
Stockholders to be held on January 25, 2001, which shall be filed under cover of
Schedule 14A with the Securities and Exchange Commission (the "SEC") in
December, 2000 (the "Proxy Statement"), are incorporated by reference into Part
III of this report.
INDEX TO ANNUAL REPORT ON FORM 10-K
PAGE
NUMBER
FORM 10-K REFERENCE TO THIS
REQUIRED INFORMATION 2000 ANNUAL REPORT
- -------------------- ON FORM 10-K
--------------------
PART I
ITEM 1. BUSINESS
General Business Summary
Investment Advisory and Related Services
Banking/Finance Operations
Regulatory Considerations
Competition
Company History
Financial Information About Industry Segments
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Proxy: "Proposal 1: Election of Directors"*
ITEM 11. EXECUTIVE COMPENSATION
Proxy: "Proposal 1: Election of Directors"*
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT
Proxy: "Principal Holders of Voting Securities"
and "Security Ownership of Management"*
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Proxy: "Proposal 1: Election of Directors -
Certain Relationships and Related Transactions" *
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON
FORM 8-K
Consolidated Financial Statements
Reports on Form 8-K
List of Exhibits
* Incorporated by reference to the Proxy Statement.
Franklin Resources, Inc. files reports with the SEC. Copies of any of these
filings can be obtained from the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Information on the operation of the Public
Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
We also file reports with the SEC electronically via the Internet. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC, at http://www.sec.gov. Additional information about Franklin
Resources, Inc. can also be obtained at our website at
http://www.franklintempleton.com.
PART I
"FORWARD-LOOKING STATEMENTS." When used in this Annual Report on Form 10-K,
words or phrases about the future such as "expected to," "could have," "will
continue," "anticipates," "estimates," or similar expressions are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Statements in "Business," "Management's Discussion and
Analysis" ("MD&A"), and elsewhere in this document that speculate about future
events are "forward-looking statements." These types of statements are subject
to certain risks and uncertainties as described below, including the risk
factors explained in MD&A. These risks and uncertainties could cause our current
expectations and predictions in the forward-looking statements to be wrong.
Forward-looking statements are our best prediction at the time that they are
made, and you should not rely on them. If a circumstance occurs that causes any
of our forward-looking statements to be inaccurate, Franklin Resources, Inc.
does not have an obligation to publicly announce the change to our expectations,
or to make any revision to the forward-looking statements.
ITEM 1. BUSINESS
GENERAL BUSINESS SUMMARY
Franklin Resources, Inc. ("FRI" or the "Company") was organized in Delaware in
November 1969. FRI and its predecessors, have been engaged in the financial
services business since 1947. The common stock of FRI is traded in the United
States ("U.S.") primarily on the New York Stock Exchange and the Pacific
Exchange, Inc. under the ticker symbol "BEN" and under the ticker symbol "FKR"
in the London Stock Exchange. The term "Franklin(R) Templeton(R) Investments" as
used in this document, refers to Franklin Resources, Inc. and its consolidated
subsidiaries.
The majority of our operating revenues, operating expenses and net income are
derived from providing investment advisory and related services to retail mutual
funds, institutional and private accounts, and other investment products
globally. Related services include transfer agency, fund administration,
custodial, trustee and fiduciary services. This is our primary business activity
and operating segment. The mutual funds and other products that we advise,
collectively called our "sponsored investment products", are sold to the public
under three brand names: Franklin, Templeton, and Mutual Series (TM). Our
sponsored investment products, include 240 broad range domestic and
global/international equity, fixed-income and money market mutual funds, as well
as other investment products that meet a wide variety of investment needs of
individuals and institutions. From time to time, we also participate in various
investment management joint ventures. On a consolidated worldwide basis,
Franklin Templeton Investments provides U.S. and international individual and
institutional investors with a broad range of investment products and services
designed to meet varying investment objectives. This affords our clients the
opportunity to allocate their investment resources among various alternative
investment products as changing worldwide economic and market conditions
warrant.
Our secondary business activity and operating segment is banking/finance. Our
banking/finance group offers consumer lending and selected retail banking
services directly to the public.
Franklin Templeton Investments' equity investment products include some that are
value-oriented and others that reflect a growth style of investing. Value
investing focuses on identifying companies which our research analysts and
portfolio managers believe are undervalued based on a number of factors. Growth
investing relies on the review of macro-economic, industry and sector trends to
identify companies that exhibit superior growth potential relative to industry
peers and the broad market. Unlike other management styles that focus on
short-term market trends, our growth portfolio investment management team
invests in companies demonstrating long-term growth potential, based mainly on
proprietary in-house analysis and research.
We originated our fund business with the Franklin Funds(R) and added the other
fund brand names through acquisitions, which are described in the "Company
History" section below. When used in this report, the following terms generally
apply unless otherwise noted. Information in this report is given as of
September 30, 2000 unless otherwise noted.
"Franklin Templeton
mutual funds" or "Franklin
Templeton funds" means: All of the Franklin, Templeton and Mutual
Series mutual funds.
"sponsored investment products" means: All of the Franklin, Templeton and Mutual
Series mutual funds;closed-end investment
companies; foreign-based investment
products; and other U.S. and
international private and institutional
accounts.
Our revenues are largely dependent upon the level and relative composition of
assets under management. To a lesser degree, our revenues also depend upon the
level of mutual fund sales and the number of mutual fund shareholder accounts.
These factors are discussed below under "Investment Advisory and Related
Services - Assets Under Management."
As of September 30, 2000, total assets under management by Franklin Templeton
Investments were $229.9 billion. Assets under management included $180.9 billion
in the U.S.-registered mutual funds (including insurance dedicated funds), and
$49.0 billion in closed-end investment companies, foreign-based investment
products and U.S. and foreign private and institutional accounts. At September
30, 2000, we employed approximately 6,500 people in 29 countries, serving
customers on six different continents.
I. INVESTMENT ADVISORY AND RELATED SERVICES
Franklin Templeton Investments' principal line of business is providing
investment advisory and management services. In support of our core business, we
provide the following support services; fund administration, shareholder
processing, distribution and related services for our sponsored investment
products. Fund shares are offered to individual investors, qualified groups,
trustees, tax-deferred (such as IRA) or money purchase plans, employee benefit
and profit sharing plans, trust companies, bank trust departments and
institutional investors. In addition, various management and advisory services,
commingled and pooled accounts, wrap fee arrangements and various other private
investment management services are offered to certain private and institutional
investors.
As discussed below in "MD&A," our revenues are derived primarily from its
investment management operating segment. Our revenues and income are dependent
upon many factors, such as the level and composition of our assets under
management, the numbers and types of shareholders in our funds and our
agreements with the advisers that sell our products to the public. These factors
are described below in the following sections:
a. Assets Under Management
b. Asset Mix
c. Investment Management and Related Services
d. Types of Shares Offered by Our Funds
e. Distribution, Marketing and Related Services
f. Shareholder Servicing
g. Investment Objectives of Funds
h. Product Categorization
a. ASSETS UNDER MANAGEMENT ("AUM")
Franklin Templeton Investments' revenues depend to a large extent upon the
dollar value of assets under management because we earn most of our fees based
upon the amount of assets in the accounts that we are advising. As of September
30, 2000, the type of assets under management held by investors on a worldwide
basis was:
TYPE OF ASSETS VALUE IN BILLIONS % OF TOTAL AUM
EQUITY
$ 151.5 65.9%
Growth potential, income potential or various combinations thereof.
FIXED-INCOME
$ 63.8 27.8%
Both long and short-term.
HYBRID FUNDS
$ 9.3 4.0%
Asset allocation, balanced, flexible and income-mixed funds.
MONEY FUNDS
$ 5.3 2.3%
Short-term liquid assets.
b. ASSET MIX
As discussed above, our revenues are derived primarily from investment
management activities. Broadly speaking, the change in the net assets of the
funds depends upon two factors: (1) the level of sales of shares of the funds as
compared to redemptions of shares of the funds; and (2) the increase or decrease
in the market value of the securities owned by the funds. As our asset mix has
shifted since 1992 from predominantly fixed-income securities to a majority of
equity assets, we have become subject to an increased risk of asset, and
therefore revenue, volatility from changes in the domestic and global equity
markets. In addition, because we generally derive higher revenues and income
from our equity assets, a shift in assets from equity to fixed-income would have
a greater than proportional reduction on total income and revenues. Despite such
volatility, management believes that in the long run we are more competitive as
a result of the greater diversity of investment products available to our
customers.
Many factors affect market values, including the general condition of national
and world economics and the direction and volume of changes in interest rates
and/or inflation rates. Fluctuations in interest rates and in the yield curve
affect the value of fixed-income assets under management as well as the flow of
monies to and from fixed-income funds. In turn, this affects our revenues from
those funds. The multiplicity of factors impacting asset mix make it difficult
to predict the net effect of any particular set of conditions.
Although our assets under management are subject to political and currency risk
due to our international investment activities, our direct exposure to
fluctuations in foreign currency markets is more limited, as is discussed in
more detail in "MD&A."
c. INVESTMENT MANAGEMENT AND RELATED SERVICES
Franklin Templeton Investments provides investment advisory, portfolio
management, transfer agency, business management agent and other administrative
services to our sponsored investment products. Various Franklin Templeton
Investments subsidiary companies manage and implement the investment activities
of sponsored mutual funds and provide the business management and/or
administrative services which are necessary to the operation of each fund's
business. Subsidiary companies also conduct research and provide the investment
advisory services and determine which securities the funds will purchase, hold
or sell as directed by each fund's board of trustees, directors or
administrative managers. In addition, the subsidiary companies take all steps
necessary to implement such decisions, including selecting brokers and dealers,
executing and settling trades in accordance with detailed criteria set forth in
the management agreement for each fund, and applicable law and practice. Similar
services are rendered with respect to the closed-end investment companies,
foreign-based funds and other U.S. and international private and institutional
accounts.
The investment advisory services provided by Franklin Templeton Investments
include fundamental investment research and valuation analyses, including
original economic, political, industry and company research, company visits and
inspections, and the utilization of such sources as company public records and
activities, management interviews, company prepared information, and other
publicly available information, as well as analyses of suppliers, customers and
competitors. In addition, research services provided by brokerage firms are used
to support our findings.
In some instances, brokerage firms agree to pay third-party providers for
research provided to Franklin Templeton Investments' advisory subsidiaries in
recognition of brokerage business which may be (but is not contractually
required to be) directed to those brokerage firms by Franklin Templeton
Investments' advisory subsidiaries in accordance with regulations adopted by the
SEC. In accordance with the provisions of the Securities Exchange Act of 1934
(the " '34 Act") and as permitted by fund prospectuses and contracts with
individual accounts, the investment adviser may also direct brokerage to firms
for execution services as permitted by the National Association of Securities
Dealers (the "NASD"). Subject to receiving best execution, advisory subsidiaries
may direct trades to brokers who sell shares of the funds advised by the
advisory subsidiaries.
Fixed-income research includes economic, credit and value analysis. The economic
analysis function monitors and evaluates numerous factors that influence the
supply and demand for credit on a worldwide basis. Credit analysis researches
the creditworthiness of debt issuers and their individual short-term and
long-term debt issues. Value analysis reviews yield spread differential and the
relative value of market sectors that represent buying and selling
opportunities.
Investment management and related services are provided pursuant to agreements
in effect with each of our U.S.-registered Franklin Templeton open and
closed-end mutual funds. Comparable agreements are in effect with
foreign-registered funds and with private accounts. In general, the management
agreements for our U.S.-registered Franklin Templeton open and closed-end mutual
funds must be renewed each year, and must be specifically approved at least
annually by a vote of such funds' board of trustees or directors or by a vote of
the holders of a majority of such funds' outstanding voting securities. In
either event, renewal must be approved by a majority vote of such funds'
trustees or directors who are not parties to such agreement or interested
persons of any such party (other than as members of the board) within the
meaning of the Investment Company Act of 1940 (the " '40 Act"), cast in person
at a meeting called for that purpose. Foreign-registered funds have various
termination rights, review and renewal provisions that are not discussed in this
report.
Each U.S. management or advisory agreement between Franklin Templeton
Investments and each fund automatically terminates in the event of its
"assignment" (as defined in the '40 Act). "Assignment" is defined in the '40 Act
as including any direct or indirect transfer of a controlling block of voting
stock of the investment adviser to a fund. "Control" is defined as the power to
exercise a controlling influence over the management or policies of a company.
Therefore, if there was a change in control of Franklin Templeton Investments,
such as through a merger or an acquisition, the majority of the U.S. management
and advisory agreements with the sponsored investment products would
automatically terminate. In addition, either party may terminate the agreement
without penalty after written notice ranging from 30 to 60 days.
If management agreements representing a significant portion of our assets under
management were terminated, it would have a material adverse impact on our
company. To date, no management agreements of Franklin Templeton Investments
with any of the Franklin Templeton funds have been involuntarily terminated.
The funds themselves have no paid employees. Generally, Franklin Templeton
Investments provides and pays the salaries of personnel who serve as officers of
the Franklin Templeton funds, including the President and other administrative
personnel as necessary to conduct such funds' day-to-day business operations.
These personnel provide information, ensure compliance with securities
regulations, maintain accounting systems and controls, prepare annual reports
and perform other administrative activities. Various subsidiaries have contracts
with the funds to provide additional services including maintaining a fund's
portfolio records, answering shareholder inquiries, and creating and publishing
literature.
The funds generally pay their own expenses such as legal, custody and auditing
fees, reporting costs, board and shareholder meeting costs, SEC and state
registration fees and similar expenses. The funds also pay Franklin Templeton
Investments a fee payable monthly in arrears based upon a fund's net assets.
Annual fee rates under the various global investment management agreements
generally range from 0.15% to a maximum of 2.00% and are often reduced as net
assets exceed various threshold levels.
Our investment management agreements permit Franklin Templeton Investments to
serve as an adviser to more than one fund so long as our ability to render
services to each of the funds is not impaired, and so long as purchases and
sales appropriate for all of the advised funds are made on a proportionate or
other equitable basis. The management personnel of Franklin Templeton
Investments and the fund directors or boards of trustees regularly review the
fund advisory and other administrative fee structures in light of fund
performance, the level and range of services provided, industry conditions and
other relevant factors. Advisory and other administrative fees are generally
waived or voluntarily reduced when a new fund is established and then increased
to contractual levels within an established timeline or as net asset values
reach certain levels.
Franklin Templeton Investments uses a "master/feeder" fund structure in limited
situations. This structure allows an investment adviser to manage a single
portfolio of securities at the "master fund" level and have multiple "feeder
funds" invest all of their respective assets into the master fund. Individual
and institutional shareholders invest in the "feeder funds" which can offer a
variety of service and distribution options. An advisory fee is charged at the
master fund level, and administrative and shareholder servicing fees are charged
at the feeder fund level.
d. TYPES OF SHARES OFFERED BY OUR FUNDS
Most of the U.S.-registered Franklin Templeton funds have a multi-class share
structure. Franklin Templeton Investments adopted this share structure to
provide investors with greater sales charge alternatives for their investments.
Class A shares represent a traditional fee structure whereby the investor pays a
commission at the time of purchase to the broker/dealer. During fiscal 1999 and
continuing thereafter in fiscal 2000, we introduced Class B shares for many of
our funds, which have no front-end sales charges but instead have a declining
schedule of sales charges (called contingent deferred sales charges) if the
investor redeems within the first six (6) years. For Class B shares, the
commission is advanced by the fund's distributor to pay the broker/dealer. Class
C shares have a hybrid, level load pricing structure combining aspects of
conventional front-end, back-end and level-load pricing.
In the U.S., we also offer Advisor Class shares in Franklin and Templeton funds
and Z Class shares in Mutual Series funds on a limited basis, both of which have
no sales charges. The Advisor and Z Class shares are sold to officers, directors
and current and former employees of Franklin Templeton Investments, and are also
offered to institutions and investment advisory clients (both affiliated and
unaffiliated), as well as individuals investing $5 million or more. In addition,
shareholders who held shares of the Mutual Series funds at the time that
Franklin Templeton Investments acquired the assets of the investment advisor to
the Mutual Series funds may continue to purchase Z Class shares. Franklin
Templeton Investments also sells money market funds to investors without a sales
charge. Under the terms and conditions described in the prospectuses or the
statements of additional information for some funds, certain investors can
purchase shares at net asset value or at reduced sales charges. In addition,
investors may generally exchange their shares of a fund at net asset value for
shares within the same class of another fund in the Franklin Templeton
Investments group without having to pay additional sales charges.
The Franklin Templeton insurance product funds generally have a two class share
structure, Class 1 and Class 2, which are offered at net asset value without a
sales load directly to the insurance company separate accounts (the
shareholder). The only difference between the two classes is that Class 2 shares
pay a distribution and service ("12b-1") fee (as described below in
"Distribution, Marketing and Related Services") to Franklin Templeton
Investments, the insurance company or others for the expenses of activities that
are primarily intended to sell shares of the class or variable contracts
offering shares of the class. These 12b-1 fees are generally assessed quarterly
at an annual rate of 0.25% of the average daily net assets of the class.
The following table summarizes the U.S. retail fund sales and distribution fee
structure for various share classes. The fees below generally apply to our U.S.
registered retail funds, however, there are exceptions to this fee schedule for
some funds.
FEES PAID BY SHAREHOLDERS TO FRANKLIN TEMPLETON INVESTMENTS FOR MOST
U.S.-REGISTERED RETAIL FUNDS
- ---------------------------------------------------------------------------
U.S. RETAIL FUNDS CLASS A SHARES CLASS B SHARES (c) CLASS C SHARES
- ---------------------------------------------------------------------------
Sales Charge
At Time of Sale
Equity 5.75% (a) None. 1.00%
Fixed-income 4.25% (a) None. 1.00%
- ---------------------------------------------------------------------------
Contingent None. (b) 4% maximum 1% if
Deferred Sales declining to zero shareholder
Charge after 6 years of sells shares
each investment. within 18 months
of investment.
- ---------------------------------------------------------------------------
Maximum Yearly
12b-1 Plan Fees
Equity 0.25% 1.00% 1.00%
Fixed-income
Taxable 0.25% 0.65% 0.65%
Tax-free 0.10% 0.65% 0.65%
- ---------------------------------------------------------------------------
Types of investors Any. Any. Any.
that may purchase
this share class
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. RETAIL FUNDS ADVISOR CLASS SHARES Z CLASS SHARES (d)
- --------------------------------------------------------------------------------
Sales Charge
At Time of Sale None. None.
Equity
Fixed-income
- --------------------------------------------------------------------------------
Contingent None. None.
Deferred Sales
Charge
- --------------------------------------------------------------------------------
Maximum Yearly None. None.
12b-1 Plan Fees
- --------------------------------------------------------------------------------
Types of investors Officers, directors Officers, directors and
that may purchase and current and former current and former employees
this share class employees of Franklin of Franklin Templeton
Templeton Investments; Investments; Institutions,
Institutions, investment investment advisory clients,
advisory clients, individuals investing $5
individuals investing $5 million or more in Mutual
million or more in Franklin Series funds and
or Templeton funds. shareholders that hold
shares of the Mutual Series
funds reclassified as Z
shares.
- --------------------------------------------------------------------------------
(a) Reductions in the maximum sales charges may be available depending upon the
amount invested and the type of investor. In some cases noted in each
fund's prospectus or statement of additional information, certain investors
may invest in Class A shares at net asset value (with no load). In
connection with certain of these no-load purchases, Franklin/Templeton
Distributors, Inc. may make a payment out of its own resources to a
broker/dealer involved with that sale.
(b) For NAV purchases over $1 million, a contingent deferred sales charge of
1.0% may apply to shares redeemed within one year of investment.
(c) Class B shares convert to Class A shares after eight (8) years of
ownership.
(d) When the Company entered into management contracts for the Mutual Series
funds, the existing shares of Mutual Series funds were reclassified as Z
Class shares in exchange for the shares that they held at that time.
Shareholders who held shares of the Mutual Series funds at the time that
Franklin Templeton Investments began to advise Mutual Series may continue
to purchase Z Class shares.
e. DISTRIBUTION, MARKETING AND RELATED SERVICES
Franklin/Templeton Distributors, Inc. ("Distributors"), a wholly-owned
subsidiary of the Company, acts as the principal underwriter and distributor of
shares of the U.S.-registered open-end Franklin Templeton funds. Distributors
has entered into underwriting agreements with the funds, which generally provide
for Distributors to pay the commission expenses for sales of fund shares.
Franklin Templeton fund shares are sold primarily through a large network of
independent intermediaries, including broker/dealers, banks and other similar
investment advisers. We are heavily dependent upon these distribution channels
and business relationships. There is increasing competition for access to these
channels, which has caused our distribution costs to rise and could cause
further increases in the future as competition continues and service
expectations increase. In addition, many intermediaries also have mutual funds
offered for sale under their own names that compete directly with our products.
These intermediaries could decide to limit or restrict the sale of our fund
shares, which could lower our future sales, increase redemption rates, and cause
our revenues to decline. As of September 30, 2000, approximately 3,900 local,
regional and national securities brokerage firms offered shares of the
U.S.-registered Franklin Templeton funds for sale to the investing public. In
the United States, Franklin Templeton Investments has approximately 64 general
wholesalers and six (6) retirement plan wholesalers who interface with the
broker/dealer community.
Broker/dealers receive various fees from Distributors, including fees from
investors and the funds, for services in matching investors with funds whose
investment objectives match such investors' goals and risk profiles.
Broker/dealers may also receive fees for their assistance in explaining the
operations of the funds, in servicing the investor's account, reporting and
various other distribution services.
Most of the U.S.-registered Franklin Templeton funds, with the exception of
certain Franklin Templeton money market funds, have adopted distribution plans
(the "Plans") under Rule 12b-1 promulgated under the '40 Act ("Rule 12b-1"). The
Plans are established for an initial term of one (1) year and, thereafter, must
be approved annually by the particular fund's board and by a majority of
disinterested fund directors. All such Plans are subject to termination at any
time by a majority vote of the disinterested directors or by the particular fund
shareholders. The Plans permit the funds to bear certain expenses relating to
the distribution of their shares, such as expenses for marketing, advertising,
printing and sales promotion. Fees under the Plans for the different share
classes are shown above in the chart under "Types of Shares Offered by Our
Funds." The implementation of the Plans provided for a lower fee on Class A
shares acquired prior to the adoption of such Plans. Fees from the Plans are
paid primarily to third-party dealers who provide service to the shareholder
accounts, and engage in distribution activities. Distributors may also receive
reimbursement from the funds for various expenses that Distributors incurs
involved in distributing the funds, such as marketing, advertising, printing and
sales promotion subject to the Plans' limitations on amounts. Each fund has a
percentage limit for these type of expenses based on average assets under
management.
Class B and C shares are generally more costly to us in the year of sale, but
they allow us to be competitive by increasing our presence in various
distribution channels. Franklin Templeton Investments finances payments of the
Class B share broker commissions. The repayment of the financing advances is
limited to the cash flows generated by the funds' 12b-1 Plans and by any
contingent deferred sales charges collected in connection with early redemptions
(within six years after purchase).
The fees below generally apply to our U.S.-registered retail funds, however,
there are exceptions to this fee schedule for some funds.
FEES PAID BY FRANKLIN TEMPLETON INVESTMENTS TO BROKER/DEALERS AND OTHER
INTERMEDIARIES FOR MOST U.S.-REGISTERED RETAIL FUNDS
- -------------------------------------------------------------------------------
U.S. RETAIL FUNDS CLASS A SHARES CLASS B SHARES CLASS C SHARES
- -------------------------------------------------------------------------------
Dealer Commission
At Time of Sale
Equity 5.00% 4.00% 2.00%
Fixed-income 4.00% 3.00% 2.00%
- -------------------------------------------------------------------------------
Maximum Yearly
12b-1 Plan Fees
Equity 0.25% 1.00% (a) 1.00% (c)
Fixed-income
Taxable 0.25% 0.65% (b) 0.65% (d)
Tax-free 0.10% 0.65% (b) 0.65% (d)
- -------------------------------------------------------------------------------
(a) Franklin Templeton Investments retains a fee equal to 0.75% and pays 0.25%
to the broker/dealer of the average assets in the account. After 8 years
from the date of the investment, Class B shares are converted into Class A
shares.
(b) Franklin Templeton Investments retains a fee equal to 0.50% and pays 0.15%
to the broker/dealer of the average assets in the account. After 8 years
from the date of the investment, Class B shares are converted into Class A
shares.
(c) Franklin Templeton Investments retains a fee equal to 0.75% of the average
assets in the account for the first twelve (12) months following the sale,
after which it is paid annually to the broker/dealer.
(d) Franklin Templeton Investments retains a fee equal to 0.50% of the assets
in the account for the first twelve (12) months following the sale, after
which it is paid annually to the broker/dealer.
f. SHAREHOLDER SERVICING
Franklin/Templeton Investor Services, Inc. ("FTISI") is a Franklin Templeton
Investments subsidiary which provides shareholder record keeping services and
acts as transfer agent and dividend-paying agent for the U.S.-registered
Franklin Templeton open-end funds. FTISI is registered with the SEC as a
transfer agent under the '34 Act. FTISI is compensated under an agreement with
each fund on the basis of an annual fee per account, which varies with the fund
and the type of services being provided, and is reimbursed for out-of-pocket
expenses. In addition, certain funds reimburse FTISI based on assets under
management. Other subsidiaries provide the same services to the open-end funds
offered for sale in Canada, Europe and Asia under similar fee arrangements. As
of September 30, 2000, there were approximately 9.2 million shareholder accounts
in the Franklin Templeton Investments group worldwide.
g. INVESTMENT OBJECTIVES OF FUNDS
Franklin Templeton Investments' sponsored investment products accommodate a
variety of investment goals, including capital appreciation, growth and income,
income, tax-free income and preservation of capital. In seeking to achieve such
objectives, each portfolio emphasizes different investment securities.
Portfolios that seek capital appreciation invest primarily in equity securities
in a wide variety of international and U.S. markets; some seek broad national
market exposure, while others focus on narrower sectors such as precious metals,
health care, emerging technology, large-cap companies, small-cap companies, real
estate securities and utilities. Portfolios seeking income generally focus on
taxable and tax-exempt money market instruments, tax-exempt municipal bonds,
global fixed-income securities, fixed-income debt securities of corporations and
of the U.S. government and its agencies and instrumentalities such as the
Government National Mortgage Association, the Federal National Mortgage
Association, and the Federal Home Loan Mortgage Corporation. Still others focus
on investments in particular countries and regions, such as emerging markets. A
majority of the assets managed are equity-oriented.
Franklin Templeton Investments also provides investment management and related
services to a number of closed-end investment companies whose shares are traded
on various major U.S. and some international stock exchanges. In addition,
Franklin Templeton Investments provides investment management, marketing and
distribution services to certain sponsored investment companies organized in the
Grand Duchy of Luxembourg (called "SICAV Funds"), which are distributed in
marketplaces outside of North America, to certain investment funds and
portfolios in Canada as well as to certain other international portfolios in the
United Kingdom and elsewhere.
In addition to closed-end funds, our sponsored investment products also include
portfolios managed for some of the world's largest corporations, endowments,
charitable foundations, pension funds, wealthy individuals and other
institutions. Franklin Templeton Investments uses various investment techniques
to focus on specific client objectives for these specialized portfolios.
As of September 30, 2000, the net assets under management of our five (5)
largest funds were Franklin Small-Cap Growth - I ($15.8 billion), Templeton
Growth Fund ($13.8 billion), Franklin California Tax-Free Income Fund, Inc.
($13.3 billion), Templeton Foreign Fund ($12.3 billion), and the Templeton World
Fund ($9.4 billion). These five (5) mutual funds represented, in the aggregate,
28.0% of all Franklin Templeton Investments' assets under management.
Prior to May 1, 2000, a total of 35 funds in two trusts were available in the
United States to insurance company separate accounts as investment options for
variable annuity and variable life insurance. In February 2000, shareholders of
one trust approved an agreement and plan of reorganization and as the result of
the reorganization, including the merger of certain funds, effective May 1, 2000
the insurance product funds were consolidated into a single trust with 27 funds,
thus eliminating some duplicative expenses. Most of the funds related to
variable insurance contracts have been fashioned after some of the more popular
funds offered to the general public and are managed, in most cases, by the same
investment adviser. In November 1999, one of the trusts added a fund which
included a third class to be offered exclusively to pension plans. Two other
insurance product funds were also added in May 2000, bringing the total to 29
funds with assets of $10.1 billion as of September 30, 2000.
h. PRODUCT CATEGORIZATION
The Investment Company Institute (the "ICI"), an industry group of which
Franklin Templeton Investments is a member, has developed detailed definitions
for the investment objectives of U.S.-registered mutual funds and variable
annuity and variable life sub-accounts. In addition to the open-end mutual fund
assets described in the chart below, Franklin Templeton Investments also manages
approximately $54.9 billion, 24% of our assets, in closed-end investment
companies, foreign-based funds and other U.S. and international private and
institutional accounts. Approximately $22.7 billion of these assets are held in
separate accounts. The investment objectives of these accounts vary but are
primarily equity-oriented. Approximately $22.2 billion of these assets are held
in international-based funds whose investment objectives vary but are primarily
international and global equity-oriented. Amounts invested by our institutional
clients across product types, including mutual funds, trusts, and private
accounts, were $48.2 billion at September 30, 2000.
From time to time, as business reasons, market conditions or investor demand
warrant, Franklin Templeton Investments introduces new funds, merges existing
funds, or liquidates existing funds. The following chart shows the types of our
U.S.-registered mutual funds and dedicated insurance product funds as of
September 30, 2000. The categories used in this chart are more precise than the
broad investment objective categories used in "MD&A" and in our "Consolidated
Financial Statements." The following chart is categorized using the ICI
definitions.
FRANKLIN TEMPLETON FUNDS - U.S.-REGISTERED OPEN-END
- ----------------------------------------------------------------------------------------------------------------------------------
CATEGORY
(AND APPROXIMATE ASSETS NO. OF
UNDER MANAGEMENT, INVESTMENT OBJECTIVE NO. OF MUTUAL INSURANCE
IN BILLIONS AS OF FUNDS PRODUCT FUNDS
SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
I. EQUITY FUNDS ($106.1)
- -----------------------------------------------------------------------------------------------------------------------------------
A. Capital Appreciation Funds Seek capital appreciation; dividends are not a
($32.5) primary consideration.
- -----------------------------------------------------------------------------------------------------------------------------------
1. Aggressive Growth Funds Invest primarily in common stocks of small, growth 4 2
companies.
- -----------------------------------------------------------------------------------------------------------------------------------
2. Growth Funds Invest primarily in common stocks of 8 3
well-established companies.
- -----------------------------------------------------------------------------------------------------------------------------------
3. Sector Funds Invest primarily in common stocks of companies in 8 4
related fields.
- -----------------------------------------------------------------------------------------------------------------------------------
CATEGORY
(AND APPROXIMATE ASSETS NO. OF
UNDER MANAGEMENT, INVESTMENT OBJECTIVE NO. OF MUTUAL INSURANCE
IN BILLIONS AS OF FUNDS PRODUCT FUNDS
SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
B. World Equity Funds ($55.1) Invest primarily in stocks of foreign companies.
- -----------------------------------------------------------------------------------------------------------------------------------
1. Emerging Market Funds Invest primarily in companies based in developing 2 1
regions of the world.
- -----------------------------------------------------------------------------------------------------------------------------------
2. Global Equity Funds Invest primarily in equity securities traded 8 3
worldwide, including those of U.S. companies.
- -----------------------------------------------------------------------------------------------------------------------------------
3. International Equity Funds Must invest in equity securities of companies 3 2
located outside the U.S. and cannot invest in U.S.
company stocks.
- -----------------------------------------------------------------------------------------------------------------------------------
4. Regional Equity Funds Invest in companies based in a specific part of the 4 1
world.
- -----------------------------------------------------------------------------------------------------------------------------------
C. Total Return Funds ($18.5) Seek a combination of current income and capital
appreciation.
- -----------------------------------------------------------------------------------------------------------------------------------
1. Growth and Income Funds Invest primarily in common stocks of established 7 3
companies with the potential for growth and a
consistent record of dividend payments.
- -----------------------------------------------------------------------------------------------------------------------------------
CATEGORY
(AND APPROXIMATE ASSETS NO. OF
UNDER MANAGEMENT, INVESTMENT OBJECTIVE NO. OF MUTUAL INSURANCE
IN BILLIONS AS OF FUNDS PRODUCT FUNDS
SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
II. HYBRID FUNDS ($8.6) May invest in a mix of equity, fixed-income
securities and derivative instruments.
- -----------------------------------------------------------------------------------------------------------------------------------
A. Asset Allocation Funds ($0.7) Invest in various asset classes including, but not 3 1
limited to, equities, fixed-income securities and
money market instruments. They seek high total
return by maintaining precise weightings in asset
classes.
- -----------------------------------------------------------------------------------------------------------------------------------
B. Flexible Portfolio Funds ($0.2) Invest in common stocks, bonds and other debt
securities, and money market securities to provide 1 0
high total return. These funds may invest up to 100
percent in any one type of security and may easily
change weightings depending upon market conditions.
- -----------------------------------------------------------------------------------------------------------------------------------
C. Income-mixed Funds ($7.8) Invest in a variety of income-producing securities,
including equities and fixed-income securities. 1 1
These funds seek a high level of current income
without regard to capital appreciation.
- -----------------------------------------------------------------------------------------------------------------------------------
CATEGORY
(AND APPROXIMATE ASSETS NO. OF
UNDER MANAGEMENT, INVESTMENT OBJECTIVE NO. OF MUTUAL INSURANCE
IN BILLIONS AS OF FUNDS PRODUCT FUNDS
SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
III. TAXABLE BOND FUNDS
($12.1)
- -----------------------------------------------------------------------------------------------------------------------------------
A. High Yield Funds ($3.1) Invest two-thirds or more of their portfolios in
lower rated U.S. corporate bonds (Baa or lower by 1 1
Moody's and BBB or lower by Standard and Poor's
rating services).
- -----------------------------------------------------------------------------------------------------------------------------------
B. World Bond Funds ($0.3) Invest in debt securities offered by foreign
companies and governments. They seek the highest
level of current income available worldwide.
- -----------------------------------------------------------------------------------------------------------------------------------
CATEGORY
(AND APPROXIMATE ASSETS NO. OF
UNDER MANAGEMENT, INVESTMENT OBJECTIVE NO. OF MUTUAL INSURANCE
IN BILLIONS AS OF FUNDS PRODUCT FUNDS
SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
1. Global Bonds Funds: General Invest in worldwide debt securities with no stated
average maturity or an average maturity of five 2 1
years or more. These funds may invest up to 25% of
assets in companies located in the U. S.
- -----------------------------------------------------------------------------------------------------------------------------------
2. Global Bond Funds: Invest in debt securities worldwide with an average 2 0
Short Term maturity of one to five years. These funds may
invest up to 25% of assets in companies located in
the U.S.
- -----------------------------------------------------------------------------------------------------------------------------------
3. Other World Bonds Funds Such as international bond and emerging market debt 1 0
funds, invest in foreign government and corporate
debt instruments.
- -----------------------------------------------------------------------------------------------------------------------------------
CATEGORY
(AND APPROXIMATE ASSETS NO. OF
UNDER MANAGEMENT, INVESTMENT OBJECTIVE NO. OF MUTUAL INSURANCE
IN BILLIONS AS OF FUNDS PRODUCT FUNDS
SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
C. Government Bond Funds ($8.1) Invest in U.S. Government bonds of varying
maturities. They seek high current income.
- -----------------------------------------------------------------------------------------------------------------------------------
1. Government Bond Funds: Invest two-thirds or more of their portfolios in
Intermediate Term U.S. Government securities with an average maturity 0 1
of five to ten years. Securities utilized by
investment managers may change with market
conditions.
- -----------------------------------------------------------------------------------------------------------------------------------
2. Government Bond Funds: Invest two-thirds or more of their portfolios in
Short Term U.S. Government securities with an average maturity 1 0
of one to five years. Securities utilized by
investment managers may change with market
conditions.
- -----------------------------------------------------------------------------------------------------------------------------------
3. Mortgage-backed Funds Invest two-thirds or more of their portfolios in 3 0
pooled mortgage-backed securities.
- -----------------------------------------------------------------------------------------------------------------------------------
D. Strategic Income Funds ($0.5) Invest in a combination of U.S. fixed-income 2 4
securities to provide a high level of current income.
- -----------------------------------------------------------------------------------------------------------------------------------
CATEGORY
(AND APPROXIMATE ASSETS NO. OF
UNDER MANAGEMENT, INVESTMENT OBJECTIVE NO. OF MUTUAL INSURANCE
IN BILLIONS AS OF FUNDS PRODUCT FUNDS
SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
IV. TAX-FREE BOND FUNDS
($44.0)
- -----------------------------------------------------------------------------------------------------------------------------------
A. State Municipal Bond Funds Invest primarily in municipal bonds issued by a
($30.3) particular state. These funds seek high after-tax
income for residents of individual states.
- -----------------------------------------------------------------------------------------------------------------------------------
1. State Municipal Bond Funds: Invest primarily in the single-state municipal bonds
general with an average maturity of greater than five years 31 0
or no specific stated maturity. The income from
these funds is largely exempt from federal as
well as state income tax for residents of the
state.
- -----------------------------------------------------------------------------------------------------------------------------------
B. National Municipal Bond Funds Invest primarily in the bonds of various municipal
($13.7) issuers in the U.S. These funds seek high current
income free from federal tax.
- -----------------------------------------------------------------------------------------------------------------------------------
1. National Municipal Bond Invest primarily in municipal bonds with an average 4 0
Funds: general maturity of more than five years or no specific
stated maturity.
- -----------------------------------------------------------------------------------------------------------------------------------
CATEGORY
(AND APPROXIMATE ASSETS NO. OF
UNDER MANAGEMENT, INVESTMENT OBJECTIVE NO. OF MUTUAL INSURANCE
IN BILLIONS AS OF FUNDS PRODUCT FUNDS
SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
V. MONEY MARKET FUNDS
($4.2)
- -----------------------------------------------------------------------------------------------------------------------------------
A. Taxable Money Market Funds Invest in short-term, high-grade money market
($3.3) securities and must have average maturity of 90 days
or less. These funds seek the highest level of
income consistent with preservation of capital (i.e.
maintaining a stable share price).
- -----------------------------------------------------------------------------------------------------------------------------------
1. Taxable Money Market Invest primarily in U.S. Treasury obligations and 2 0
Funds: government other financial instruments issued or guaranteed by
the U.S. Government, its agencies or its
instrumentalities.
- -----------------------------------------------------------------------------------------------------------------------------------
2. Taxable Money Market Invest in a variety of money market instruments, 5 1
Funds: non-government including certificates of deposit from large banks,
commercial paper and bankers' acceptances.
- -----------------------------------------------------------------------------------------------------------------------------------
CATEGORY
(AND APPROXIMATE ASSETS NO. OF
UNDER MANAGEMENT, INVESTMENT OBJECTIVE NO. OF MUTUAL INSURANCE
IN BILLIONS AS OF FUNDS PRODUCT FUNDS
SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
B. Tax Exempt Money Market Invest in short-term municipal securities and must
Funds ($0.9) have average maturities of 90 days or less. These
funds seek the highest level of income - free
from federal and, in some cases, state and
local taxes - consistent with preservation of
capital.
- -----------------------------------------------------------------------------------------------------------------------------------
1. National Tax-Exempt Money Invest primarily in short-term securities of various 1 0
Market Funds U.S. municipal issuers.
- -----------------------------------------------------------------------------------------------------------------------------------
2. State Tax-Exempt Money Invest primarily in short-term securities of 2 0
Market Funds municipal issuers in a single state to achieve the
highest level of tax-free income for residents of
that state.
- -----------------------------------------------------------------------------------------------------------------------------------
i. RECENT FUND INTRODUCTIONS AND CHANGES
During the fiscal year ended September 30, 2000, a number of new funds were
introduced, both within the U.S. and internationally. In the U.S., the Franklin
Technology Fund and Franklin Small Cap Growth Fund II were added to the Franklin
Strategic Series. Additionally, the Company launched the Franklin Large Cap
Value Fund within the Franklin Value Investors Trust. The Company launched under
the Franklin Templeton Variable Insurance Products Trust the Franklin S&P 500
Index Fund, the Franklin Technology Securities Fund and the Franklin Aggressive
Growth Securities Fund. In the U.S., we also added the Templeton Overseas Growth
Fund, the Templeton Global Restructuring Fund and the Franklin Floating Rate
Trust.
Internationally, we launched several new SICAV sub-funds including: FTIF High
Yield Euro, FTIF Technology, FTIF Emerging Markets Innovations, FTIF Biotech
Discovery, FTIF Aggressive Growth and FTIF Mutual European Fund. Additionally,
in the United Kingdom we launched the Franklin Biotechnology Fund, another
sub-fund in Franklin Templeton Funds. In Asia, we launched the FTF Franklin Life
Sciences Discovery Fund, the TIF Japan Fund and the TIF Global Balanced Fund. In
Latin America, we introduced Bradesco Templeton Funds, in which there are
currently two sub-funds, the Brazilian High Income Fund and the Brazilian Equity
Fund. We have also incorporated Franklin Floating Rate Fund, a feeder fund
located in Dublin, Ireland, which invests in the Franklin Floating Rate Master
Trust. In Canada, we launched nine funds which are similar versions of Franklin
equity growth-style funds, including Franklin U.S. Large Cap Growth Fund,
Franklin U.S. Aggressive Growth Fund, Franklin World Health Sciences and Biotech
Fund, Franklin World Telecom Fund, Franklin Technology Fund, Franklin U.S. Money
Market Fund, Templeton Global Balanced RSP Fund, Franklin U.S. Small Cap Growth
RSP Fund and Mutual Beacon RSP Fund. We also introduced some country-specific
funds, including four funds that are both managed and distributed in India,
including Templeton Monthly Income Plan, Franklin India Growth Fund, Franklin
India Index Fund and Franklin India Balanced Fund.
During the fiscal year ended September 30, 2000, one (1) Templeton fund was
liquidated, seven (7) variable annuity funds merged into other variable annuity
funds, three (3) Templeton funds merged into other Templeton funds, and one (1)
Franklin Templeton fund merged into another Franklin Templeton fund.
Internationally, we liquidated one (1) Templeton fund.
II. BANKING/FINANCE OPERATIONS
Franklin Templeton Investments' second operating segment is banking/finance,
through which we offer banking products and services. A more detailed analysis
of the financial effects of loan losses and delinquency rates in Franklin
Templeton Investments' consumer lending and dealer auto loan business, as well
as the funding of this activity, is contained in Note 3 in the Notes to the
Financial Statements.
These activities are carried out by the subsidiaries described below.
Franklin Templeton Bank & Trust, F.S.B. ("Bank"), a subsidiary of FRI, with
total assets of $117.9 million, as of September 30, 2000, provides FDIC insured
deposit accounts and general customer loan products such as credit card loans
and auto loans. The Bank (formerly known as Franklin Bank) became chartered as a
federal savings bank on May 1, 2000 when the Office of Thrift Supervision
approved the Bank's application to convert from a California state banking
charter to a Federal thrift charter.
Immediately following the conversion of the Bank's state charter to a federal
thrift charter, Franklin Templeton Trust Company, a California chartered trust
company, was merged into the Bank and continues to perform its prior activities
as a division of the Bank. The Bank exercises full trust powers and through its
Trust Division serves primarily as custodian of Individual Retirement Accounts
and business retirement plans whose assets are invested in the Franklin
Templeton funds. It also serves as trustee or fiduciary of private trusts and
retirement plans.
Franklin Capital Corporation ("FCC") is a subsidiary of FRI formed to expand
Franklin Templeton Investments' lending activities related primarily to the
purchase, securitization and servicing of retail installment sales contracts
("automobile contracts") originated by independent automobile dealerships. FCC,
headquartered in Utah, conducts its business primarily in the Western region of
the United States and is a finance company organized and licensed under the laws
of Utah. As of September 30, 2000, FCC's total assets included $168.7 million of
outstanding automobile contracts. During fiscal 2000, FCC securitized
approximately $124.9 million of automobile contract receivables for which it
maintains servicing rights. FCC continues to service $193 million of receivables
that have been securitized to date. See Note 3 in the Notes to the Financial
Statements.
Our securitized consumer receivables business is subject to marketplace
fluctuation and competes with businesses with significantly larger portfolios.
Auto loan and credit card portfolio losses can be influenced significantly by
trends in the economy and credit markets which reduce borrowers' ability to
repay loans.
III. REGULATORY CONSIDERATIONS
Virtually all aspects of Franklin Templeton Investments' businesses are subject
to various foreign, and U.S. federal and state, laws and regulations. As
discussed above, Franklin Templeton Investments and a number of our subsidiaries
are registered with various foreign, and U.S. federal and state, governmental
agencies. These supervisory agencies have broad administrative powers, including
the power to limit or restrict Franklin Templeton Investments from carrying on
our business if we fail to comply with applicable laws and regulations. In the
event of non-compliance, the possible sanctions which may be imposed include
disciplinary action against individual employees, limiting Franklin Templeton
Investments' (or a subsidiary's) ability to engage in business for specified
periods of time, revoking the investment adviser or broker/dealer registrations,
or similar foreign registrations, as well as censures and fines.
Franklin Templeton Investments' compliance procedures meet the standards
outlined in the most recent guidelines of the ICI related to securities
transactions by employees, officers and directors of investment companies.
Franklin Templeton Investments' officers, directors and employees may from time
to time own securities which are also held by the funds. Franklin Templeton
Investments' internal policies with respect to individual investments by certain
employees, including officers and directors who are employed by Franklin
Templeton Investments, require prior clearance and reporting of most
transactions and restrict certain transactions to address the possibility of
conflicts of interest.
To the extent that existing or future regulations cause or contribute to reduced
sales of fund shares or investment products or impair the investment performance
of the funds or such other investment products, our assets under management and
revenues might be adversely affected. Changes in regulations affecting free
movement of international currencies might also adversely affect Franklin
Templeton Investments.
Since 1993, the NASD Conduct Rules have limited the amount of aggregate sales
charges which may be paid in connection with the purchase and holding of
investment company shares sold through brokers. The effect of the rule might be
to limit the amount of fees that could be paid pursuant to a fund's 12b-1 Plan
to Distributors, a subsidiary of FRI that earns underwriting commissions on the
distribution of fund shares. Such limitations would apply in a situation where a
fund has no, or limited, new sales for a prolonged period of time. None of the
Franklin Templeton funds are in, or close to, that situation at the present
time.
IV. COMPETITION
The financial services industry is highly competitive and has increasingly
become a global industry. There are over 8,000 open-end investment companies of
varying sizes, investment policies and objectives whose shares are being offered
to the public in the United States. Due to Franklin Templeton Investments'
international presence and varied product mix, it is difficult to assess our
market position relative to other investment managers on a worldwide basis, but
Franklin Templeton Investments believes that we are one of the more widely
diversified investment managers in the United States. Franklin Templeton
Investments believes that our equity and fixed-income asset mix coupled with our
global presence will serve our competitive needs well over the long term.
Franklin Templeton Investments continues to focus on service to customers,
performance of investment products and extensive marketing activities with our
strong broker/dealer and other financial institution distribution network.
Franklin Templeton Investments faces strong competition from numerous stock
brokerage and investment banking firms, insurance companies, banks, savings and
loan associations and other financial institutions which also offer a wide range
of financial services. In recent years, there has been a trend of consolidation
in the financial services industry, resulting in stronger competitors with
greater financial resources than Franklin Templeton Investments.
Although we rely on intermediaries to sell and distribute Franklin Templeton
fund shares, many of these intermediaries also have mutual funds under their own
names that compete directly with our products. The banking industry also
continues to expand its sponsorship of proprietary funds. These intermediaries
could decide to limit or restrict the sale of our fund shares, which could lower
our future sales and cause our revenues to decline. Franklin Templeton
Investments has and continues to pursue sales relationships with all types of
intermediaries to broaden our distribution network. We are currently expanding
our Internet e-business to compete with the rapidly developing and evolving
capabilities being offered with this technology. It is not currently possible to
predict the effect of the Internet on Franklin Templeton Investments or on the
financial services industry overall.
As investor interest in the mutual fund industry has increased, competitive
pressures have increased on sales charges of broker/dealer distributed funds.
Franklin Templeton Investments believes that, although this trend will continue,
a significant portion of the investing public still relies on the services of
the broker/dealer community, particularly during weaker market conditions.
Franklin Templeton Investments has experienced increased demand for payments to
its distribution channels and anticipates that this trend will continue.
We believe that we are well positioned to deal with changes in marketing trends
as a result of our already extensive advertising activities and broad based
marketplace recognition. Franklin Templeton Investments does significant
advertising and conducts sales promotions through various media sources to
promote brand recognition. We advertise in major national financial
publications, as well as on radio and television to promote brand name
recognition and to assist its distribution network. Such activities included
purchasing network and cable programming, sponsorship of sporting events, such
as the "Franklin Templeton Investments Shark Shoot-Out", sponsorship of The
Nightly Business Report on public television, and extensive newspaper and
magazine advertising.
Diverse and strong competition affects the banking/finance segment of our
business as well, and limits the interest rates that we can charge on consumer
loans. We compete with many types of institutions for consumer loans, including
the finance subsidiaries of large automobile manufacturers.
V. COMPANY HISTORY
In October 1992, Franklin Templeton Investments acquired substantially all of
the assets and liabilities of the investment adviser to the Templeton, Galbraith
& Hansberger Ltd. financial services business. This acquisition added the
Templeton family of funds to our company.
In November 1996, Franklin Templeton Investments acquired certain assets and
liabilities of Heine Securities Corporation, which provided investment
management services to various accounts and investment companies, including
Mutual Series Fund Inc., now known as Franklin Mutual Series Fund Inc. ("Mutual
Series"). Subsequent to the Mutual Series acquisition, Franklin Templeton
Investments has managed Mutual Series on a unified basis with its other business
operations.
The purchase price paid at the closing of the Mutual Series acquisition was
funded through a combination of available cash, securities and the sale of
commercial paper. The base purchase price consisted of $551 million in cash,
including acquisition expenses, and the delivery of 3.3 million shares of FRI
common stock. The purchase price included the deposit into escrow of $150
million to be invested in shares of Mutual Series. The escrow money shares are
being released over a five-year period from the date of the acquisition, with a
minimum $100 million retention for the full five-year period. In addition to the
base purchase price, the transaction included a contingent payment ranging from
$96.25 million to $192.5 million under certain conditions if certain agreed-upon
growth targets are met over the five years following the closing. The first
contingent payment of $64.2 million related to these agreed-upon growth targets
was made in the third quarter of fiscal 1998 and was accounted for as goodwill
related to the additional purchase price of the Mutual Series acquisition. No
payments were made in fiscal 1999 or 2000. A final contingent payment may be due
in November 2001 if agreed upon growth targets are met. See Note 10 in the Notes
to the Financial Statements.
On September 11, 1998, Franklin Templeton Investments entered into an agreement
with FEP Capital II, L.L.C. to form Lightning Finance Company Limited ("LFL"), a
private limited liability company incorporated in Ireland on March 13, 1998. LFL
is in the business of financing the up-front sales commissions paid to
distributors for the sale of open-end mutual fund shares sold on a deferred
sales charge basis globally. Franklin Templeton Investments owns 49% of LFL, and
currently finances the payment of commissions on its Class B share sales in
Canada, the United States and Europe through LFL.
On July 25, 2000, Franklin Templeton Investments purchased all of the remaining
outstanding shares of a Korean asset management company in which Franklin
Templeton Investments formerly held a 44% interest. The purchase price for the
shares was approximately $20.3 million.
On August 1, 2000, Franklin Templeton Investments entered into an agreement with
Nedcor Investment Bank Holdings, Ltd., a South African company, to form Franklin
Templeton NIB Asset Management ("FTNIB"). Franklin Templeton Investments
contributed cash and other assets with a value of approximately $27 million to
the venture in return for a 50% ownership interest in FTNIB.
On October 2, 2000, pursuant to an offer to purchase all of the outstanding
shares of Bissett & Associates Investment Management, Ltd. ("Bissett"), FTI
Acquisition Inc., a wholly-owned subsidiary of Templeton Management Limited, an
indirect, wholly-owned subsidiary of FRI, acquired 6,817,817 common shares,
representing 98.1% of the issued and outstanding shares of Bissett, for
CDN$20.50 per share (equivalent to approximately $US 13.62). On October 3, 2000,
FRI exercised its right to acquire the remaining 1.9% outstanding Bissett shares
(subject to any appraisal rights that may be asserted as to the amount to be
paid for the remaining shares). The cash transaction was valued at
approximately CDN $140 million (equivalent to approximately US $95 million).
Bissett provides investment advisory services throughout Canada to a broad range
of clients including: institutional clients such as pension and other savings
plans of corporations, municipalities, universities, endowments, and charitable
foundations; mutual funds and pooled trusts including Bissett's own family of
retail mutual funds as well as third party mutual funds; and private clients of
both Bissett and other financial institutions. Bissett had approximately $5.5
billion (CND)($US 3.8 billion) under management as of June 30, 2000.
On October 25, 2000, after the close of the fiscal year, the Company entered
into an Agreement and Plan of Share Acquisition (the "Acquisition Agreement")
with Fiduciary Trust Company International, a bank organized under the New York
State Banking Law ("Fiduciary"), providing for the acquisition by FRI of all of
the outstanding shares of common stock, par value $1.00 per share, of Fiduciary
("Fiduciary Common Stock"). The acquisition will be accomplished by way of the
exchange of shares of common stock, par value $.10 per share, of FRI ("FRI
Common Stock") for shares of Fiduciary common stock, par value $1.00 per share
of pursuant to the procedures set forth in Section 143-a of the New York State
Banking Law (the "Share Exchange"). The stock transaction is valued at
approximately $825 million. In addition, there is a provision for an $85 million
retention pool to cover, among other things, various payments aimed at retaining
certain key employees of Fiduciary. The completion of the Share Exchange is
subject to the receipt of necessary governmental approvals (including approval
of the Board of Governors of the Federal Reserve System), Fiduciary shareholder
approval and other customary closing conditions, and costs, and is expected to
close in the second quarter of fiscal 2001.
VI. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Information on Franklin Templeton Investments' operations in various geographic
areas of the world and a breakout of business segment information is contained
in Note 6 in the Notes to the Financial Statements.
ITEM 2. PROPERTIES
GENERAL DESCRIPTION
As of September 30, 2000, Franklin Templeton Investments leased its principal
executive and administrative offices located at 777 Mariners Island Boulevard,
San Mateo, California and offices and facilities in eight (8) additional
locations in the immediate vicinity of its headquarters. In addition, Franklin
Templeton Investments owns seven (7) buildings near Sacramento, California, as
well as seven (7) buildings in St. Petersburg, Florida, two (2) buildings in
Nassau, Bahamas as well as space in office buildings in Argentina, China and
Singapore. Certain properties of Franklin Templeton Investments were under
construction during fiscal 2000 as described below. Since Franklin Templeton
Investments is operated on a unified basis, corporate activities, fund related
activities, accounting operations, sales, real estate and banking operations,
auto loans and credit cards, management information system activities,
publishing and printing operations, shareholder service operations and other
business activities and operations take place in a variety of such locations.
Franklin Templeton Investments or its subsidiaries also lease office space
domestically in Florida, New York, and Utah and internationally in Australia,
Brazil, Canada, China, England, France, Germany, Holland, Hong Kong, India,
Italy, Japan, Korea, Luxembourg, Poland, Russia, Scotland, South Africa, Spain,
Switzerland, Taiwan, and Turkey.
I. LEASED PROPERTIES
As of September 30, 2000, Franklin Templeton Investments leased properties at
the locations set forth below:
Approximate Approximate
Square Current Base Expiration
LOCATION FOOTAGE MONTHLY RENTAL DATE
777 Mariners Island Boulevard
San Mateo, CA 94404 176,000 $585,000 July 2001
500 East Broward Boulevard
Ft. Lauderdale, FL 33394 135,000 $293,000 June 2011
555 Airport Boulevard
Burlingame, CA 94010 94,000 $229,000 July 2001
1800 Gateway Drive
San Mateo, CA 94404(a) 70,000 $214,000 October 2001
1810 Gateway Drive
San Mateo, CA 94404(b) 48,000 $177,000 June 2001
1950 Elkhorn Court
San Mateo, CA 94403(c) 37,000 $46,000 July 2001
901 Mariners Island Blvd.
San Mateo, CA 94404 16,000 $44,000 August 2001
951 Mariners Island Blvd. Between July 2001
San Mateo, CA 94404 9,000 $30,000 and August 2001
5130 Hacienda Drive 49,000 $111,000 May 2007
Dublin, CA 94568
2000 Alameda de las Pulgas 36,000 $125,000 February 2005
San Mateo, CA 94403
51 JFK Parkway
Short Hills, NJ 07028 28,000 $80,000 May 2005
4760 Eastgate Mall
San Diego, CA 92121(d) 47,000 $55,000 March 2009
4780 Eastgate Mall 47,000 $55,000 March 2009
San Diego, CA 92121(e)
4810 Eastgate Mall 93,321 $144,647 April 2010
San Diego, CA 92121(f)
4820 Eastgate Mall 63,532 $98,474 May 2010
San Diego, CA 92121(g)
1400 Fashion Island Boulevard
San Mateo, CA 94404 13,000 $44,000 June 2001
Other U.S. Locations 64,000 -- --
Foreign Locations 257,000 -- --
(a) Franklin Templeton Investments, at its option, may terminate the lease by
providing the lessor with six (6) months notice to terminate.
(b) Franklin Templeton Investments subleased 4,000 square feet of the 1810
Gateway Drive property to a third party until July 1, 2001.
(c) Franklin Templeton Investments subleased the 1950 Elkhorn Court property to
a third party until July 31, 2001.
(d) Franklin Templeton Investments subleased the 4760 Eastgate Mall property to
a third party until August 31, 2007.
(e) Franklin Templeton Investments subleased the 4780 Eastgate Mall property to
a third party until March 31, 2009.
(f) Franklin Templeton Investments subleased the 4810 Eastgate Mall property to
a third party until April 30, 2010.
(g) Franklin Templeton Investments subleased the 4820 Eastgate Mall Property to
a third party until May 31, 2010.
II. OWNED PROPERTIES
In Rancho Cordova, California, Franklin Templeton Investments owns five (5)
office buildings totaling approximately 424,000 square feet, plus a data
center/warehouse facility of approximately 162,000 square feet and a warehouse
building of approximately 69,000 square feet.
In St. Petersburg, Florida, Franklin Templeton Investments owns seven (7) office
buildings totaling approximately 670,000 square feet, as well as an approximate
117,000 square foot facility devoted to a computer data center, training,
warehouse and mailing operations in St. Petersburg, Florida.
Franklin Templeton Investments owns two (2) office buildings in Nassau, Bahamas,
of approximately 14,000 square feet and approximately 25,000 square feet,
respectively, as well as a nearby condominium residence. Franklin Templeton
Investments also owns three (3) separate office-building floors of approximately
1,200, 8,000 and 10,000 square feet in Shanghai, China, Buenos Aires, Argentina,
and Singapore, respectively.
III. SALE OF CORPORATE HEADQUARTERS
On July 11, 2000, Franklin Templeton Investments finalized the sale of its 60%
interest in its current headquarters in San Mateo, California to an independent
third party. The total purchase price for the property was $80.0 million of
which approximately $22.0 million was applied toward the payment of an
outstanding loan secured by the property. Franklin Templeton Investments
received proceeds from the sale of approximately $34.0 million, net of closing
costs and will record a gain on sale of approximately $32.8 million, net of the
write-off of certain leasehold improvements on the property. Franklin Templeton
Investments will recognize this gain over a 12-month period ending July 31,
2001, the anticipated period over which Franklin Templeton Investments have
agreed to leaseback the property pending completion of construction of its new
corporate headquarters in San Mateo, California.
IV. NEW CORPORATE HEADQUARTERS
In June 1999, Franklin Templeton Investments acquired approximately 32 acres of
undeveloped land ("Bay Meadows") located in San Mateo, California for a total
purchase price of $21.6 million. In connection with this purchase, Franklin
Templeton Investments deposited with the seller and the City of San Mateo $22
million representing an estimate of our share of certain off-site improvements.
A final reconciliation of the actual amount due to the seller will be made after
the improvements have been completed.
In June 2000, Franklin Templeton Investments entered into a five-year operating
lease agreement in connection with the construction of the new corporate
headquarters to be located on a portion of Bay Meadows, which Franklin Templeton
Investments has ground leased to a special purpose lessor trust. The total cost
of the corporate headquarters covered by this lease agreement is limited to $170
million. The lease provides for a substantial residual value guarantee
(approximately 85% of the total cost) by Franklin Templeton Investments which is
due on termination of the lease. The lease includes renewal options that can be
exercised at the end of the initial lease period, and purchase options that can
be exercised prior to the expiration of the lease term. Upon termination of the
lease, Franklin Templeton Investments can either exercise our purchase option,
or the property can be sold to a third party. Franklin Templeton Investments'
interest in the portion of the Bay Meadows property covered by this lease
(including our interest as owner of the fee interest in the land) is collateral
for our obligations under the lease agreement, including our obligations to pay
the residual value guaranty. FRI has provided a guaranty of the obligations of
the subsidiary that signed the lease agreement, in a manner substantially
similar to the guaranty for our revolving line of credit agreements.
ITEM 3. LEGAL PROCEEDINGS
Franklin Templeton Investments previously reported that three individual
plaintiffs, James C. Roumell, Michael J. Wetta and Richard Waksman, filed a
consolidated complaint in the U.S. District Court for the Southern District of
Florida against Templeton Vietnam Opportunities Fund, Inc. (now known as
Templeton Vietnam and Southeast Asia Fund, Inc.); Templeton Asset Management,
Ltd., an indirect wholly-owned subsidiary of FRI and the investment manager of
the closed-end investment company; certain of the fund's officers and directors;
FRI; and Templeton Worldwide, Inc., an FRI subsidiary. The plaintiffs in that
action, captioned In Re: Templeton Securities Litigation (Civil Action No.
98-6059), moved to certify a class with respect to certain claims raised in the
consolidated complaint. The court has not ruled on the motion to certify a
class.
Other than as stated above, there have been no material developments in this
litigation during the past fiscal year.
Franklin Templeton Investments is involved from time to time in litigation
relating to claims arising in the normal course of business. Management is of
the opinion that the ultimate resolution of such claims will not materially
affect Franklin Templeton Investments' business or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
INFORMATION ABOUT FRANKLIN TEMPLETON INVESTMENTS' COMMON STOCK
FRI's common stock is traded on the New York Stock Exchange ("NYSE") and the
Pacific Exchange, Inc. under the ticker symbol BEN and the London Stock Exchange
under the ticker symbol FKR. On September 30, 2000, the closing price of FRI's
common stock on the NYSE was $44.43 per share. At December 1, 2000, there were
approximately 4,900 shareholders of record. Based on nominee solicitation, we
believe that there are approximately 25,000 beneficial shareholders whose
shares are held in street name.
The following table sets forth the high and low sales prices for FRI's common
stock on the NYSE. See Note 16 in the Notes to the Financial Statements.
2000 FISCAL YEAR 1999 FISCAL YEAR
---------------- ----------------
QUARTER HIGH LOW HIGH LOW
- --------------------------------------------------------------------------------
October-December 35.00 27.44 45.62 26.50
January-March 39.19 24.63 38.38 27.00
April-June 36.25 28.19 45.00 27.12
July-September 45.63 30.00 43.44 29.75
Franklin Templeton Investments declared dividends of $0.24 per share in fiscal
2000 and $0.22 per share in fiscal 1999. Franklin Templeton Investments expects
to continue paying dividends on a quarterly basis to common stockholders
depending upon earnings and other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
in millions, except assets under
management and per share amounts
AS OF AND FOR THE
YEARS ENDED SEPTEMBER 30, 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Operating revenues $2,340.1 $2,262.5 $2,577.3 $2,163.3 $1,519.5
Net income 562.1 426.7 500.5 434.1 314.7
FINANCIAL DATA
Total assets 4,042.4 3,666.8 3,480.0 3,095.2 2,374.2
Long-term debt 294.1 294.3 494.5 493.2 399.5
Stockholders' equity 2,965.5 2,657.0 2,280.8 1,854.2 1,400.6
Operating cash flow 701.7 584.5 693.7 428.5 359.6
ASSETS UNDER MANAGEMENT
in billions
Period ending 229.9 218.1 208.6 226.0 151.6
Simple monthly average 227.7 219.8 226.9 192.0 141.1
PER COMMON SHARE
Earnings
Basic 2.28 1.69 1.98 1.72 1.30
Diluted 2.28 1.69 1.98 1.71 1.25
Cash dividends 0.24 0.22 0.20 0.17 0.15
Book value 12.17 10.59 9.06 7.36 5.82
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In this section, we discuss our results of operations and our financial
condition. We also make some statements relating to the future which are called
"forward-looking" statements. Although we do our best to make clear and accurate
forward-looking statements, the actual results and outcomes could be
significantly different from those that we discuss in this document. For this
reason, you should not rely too heavily on these forward-looking statements. We
encourage you to read the "Risk Factors" section below, where we discuss these
statements in more detail.
GENERAL
The majority of our operating revenues, operating expenses and net income are
derived from providing investment advisory and related services to retail mutual
funds, institutional and private accounts, and other investment products. This
is our primary business activity and operating segment. The mutual funds and
other products that we advise, collectively called our sponsored investment
products, are distributed to the public via three main brand names:
o Franklin
o Templeton
o Mutual Series
Our sponsored investment products include a broad range of domestic and
global/international equity, balanced, fixed-income, sector and money market
mutual funds, as well as other investment products that meet a wide variety of
specific investment needs of individuals and institutions.
In fiscal 2001, we anticipate broadening our product lines with funds currently
offered by two companies. In October 2000, the acquisition of Bissett and
Associates Investment Management Ltd. ("Bissett"), added 12 funds to our
Canadian product line, primarily in the balanced and growth asset classes. It
also brought a number of institutional and private clients to the group. In
October 2000, we also announced the proposed acquisition of Fiduciary Trust
Company International ("Fiduciary"), a bank and trust the deposits of which are
insured by the Federal Deposit Insurance Corporation. Fiduciary provides
investment management services to institutions and private clients, primarily in
the growth style. The acquisition is subject to approval by Fiduciary
shareholders and various governmental regulatory authorities, and if approved,
the acquisition is expected to be completed in the second quarter of fiscal
2001.
The level of our revenues is largely dependent upon the level and relative
composition of assets under management. To a lesser degree, our revenues are
also dependent on the level of mutual fund sales and the number of mutual fund
shareholder accounts. The fees charged for our services are based on contracts
between our subsidiary entities and our sponsored investment products or our
clients. These arrangements could change in the future.
Our secondary business activity and operating segment is banking/finance. Our
banking/finance group offers consumer lending and selected retail banking
services to individuals.
Franklin Templeton Investments operates primarily in the United States, but we
also provide services and earn revenues in Canada, the Bahamas, Europe, Asia,
South America, Africa and Australia. The majority of these revenues and
associated expenses, however, are denominated in U.S. dollars. Therefore, our
exposure to foreign currency fluctuations in our revenues and expenses is not
material at this time. This situation may change in the future as our business
continues to grow outside the United States.
At September 30, 2000, we employed approximately 6,500 people in 29 countries,
serving customers on six different continents.
Assets Under Management
(in billions)
2000 1999
as of September 30, 2000 1999 1998 vs 1999 vs 1998
- -----------------------------------------------------------------------------------------------------------------------
Equity
Global/international $97.6 $96.8 $84.8 1% 14%
Domestic (U.S.) 53.9 37.6 37.6 43% --
Total equity 151.5 134.4 122.4 13% 10%
- -----------------------------------------------------------------------------------------------------------------------
Hybrid Funds 9.3 10.2 11.2 (9)% (9)%
Fixed-income
Tax-free 44.0 48.2 50.5 (9)% (5)%
Taxable
Domestic 15.6 15.8 16.0 (1)% (1)%
Global/international 4.2 3.9 3.7 8% 5%
Total fixed-income 63.8 67.9 70.2 (6)% (3)%
- -----------------------------------------------------------------------------------------------------------------------
Money Funds 5.3 5.6 4.8 (5)% 17%
- -----------------------------------------------------------------------------------------------------------------------
Total $229.9 $218.1 $208.6 5% 5%
- -----------------------------------------------------------------------------------------------------------------------
Simple monthly average for the year/1/ $227.7 $219.8 $226.9 4% (3)%
/1/ Investment management fees from approximately 60% of our assets under
management at September 30, 2000 are calculated using a daily average assets
under management figure.
Our assets under management at the end of fiscal 2000 were $229.9 billion, 5%
higher than the prior fiscal year end. The simple monthly average value of these
assets during fiscal 2000 was $227.7 billion as compared to $219.8 billion in
fiscal 1999, a 4% increase. As was evident in fiscal 1999, the change in the
simple monthly average assets under management is generally more indicative of
investment management fee revenue trends than the period end change year over
year. Equity assets comprised 66% of our ending assets under management at
September 30, 2000, as compared to 62% at the same time last year.
The change in our assets under management was as follows.
Assets Under Management
(in billions)
2000 1999
year ended September 30, 2000 1999 1998 vs 1999 vs 1998
- -----------------------------------------------------------------------------------------------------------------------
Beginning assets under management $218.1 $208.6 $226.0 5% (8)%
Sales 51.7 41.8 56.5 24% (26)%
Reinvested dividends 8.7 3.9 4.7 123% (17)%
Redemptions (62.8) (59.5) (45.9) 6% 30%
Appreciation (depreciation) 14.2 23.3 (32.7) (39)% --
- -----------------------------------------------------------------------------------------------------------------------
Ending assets under management $229.9 $218.1 $208.6 5% 5%
During fiscal 2000 and fiscal 1999, our sponsored investment products
experienced overall net cash outflows in contrast to the net cash inflows
experienced in fiscal 1998. Gross sales increased 24% in fiscal 2000 on average
across our sponsored investment products, but sales increases were strongest in
the equity products, which accounted for 62% of total sales during the fiscal
year. In fiscal 2000 and fiscal 1999, net outflows were offset by market
appreciation. In fiscal 1998, market depreciation, principally in the fourth
quarter, offset net inflows.
RESULTS OF OPERATIONS
The table below presents the highlights of our operations for the last three
fiscal years.
(in millions except per share amounts)
2000 1999
2000 1999 1998 vs 1999 vs 1998
- -----------------------------------------------------------------------------------------------------------------------
Net Income $562.1 $426.7 $500.5 32% (15)%
Earnings Per Share
Basic $2.28 $1.69 $1.98 35% (15)%
Diluted $2.28 $1.69 $1.98 35% (15)%
Without restructuring charge $2.28 $1.86 $1.98 23% (6)%
Operating Margin
As reported 28% 24% 25% -- --
Without restructuring charge 28% 26% 25% -- --
EBITDA Margin/1/
As reported 36% 30% 30% -- --
Without restructuring charge 36% 33% 30% -- --
/1/ EBITDA margin is earnings before interest, taxes on income, depreciation and
the amortization of intangibles divided by total revenues.
Net income and diluted earnings per share for fiscal 2000 increased by 32% and
35%, respectively, principally as a result of increased investment management
fees from increased average assets under management and as a result of a
restructuring charge taken in fiscal 1999. Net income and diluted earnings per
share for fiscal 1999 decreased by 15%, principally as a result of the $58.5
million pretax restructuring charge in fiscal 1999 and decreased investment
management fee revenues.
The table below presents the percentage change in each category between fiscal
2000 and fiscal 1999 and between fiscal 1999 and fiscal 1998.
Operating Revenues
2000 1999 As a percentage of total revenues
vs 1999 vs 1998 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Investment management fees 4% (5)% 60% 59% 55%
Underwriting and distribution fees (1)% (27)% 30% 32% 38%
Shareholder servicing fees 14% 15% 9% 8% 6%
Other, net 12% (13)% 1% 1% 1%
- -----------------------------------------------------------------------------------------------------------------------
Total operating revenues 3% (12)% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------------
SUMMARY
In fiscal 2000, total operating revenues increased 3% due primarily to increased
simple monthly average assets under management and shareholder servicing fee
increases. In fiscal 1999, operating revenues fell 12% from fiscal 1998 levels
as investment management and underwriting and distribution fees declined
consistent with decreases in the simple monthly average value of our assets
under management and sales volumes.
INVESTMENT MANAGEMENT FEES
Investment management fees, the largest component of our operating revenues,
include both investment advisory and business management fees. These fees are
generally calculated under contractual arrangements with our sponsored
investment products as a percentage of the market value of assets under
management. Annual rates vary and generally decline as the average net assets of
the portfolios exceed certain threshold levels. In return for these fees, we
provide investment advisory, administrative and other management services.
Investment management fees increased 4% in fiscal 2000, primarily due to 4%
higher simple monthly average assets under management. Our effective investment
management fee rate remained relatively constant during the year at 0.61%;
however, future changes in the composition of assets under management could
affect our effective investment management fee rate. In fiscal 1999, investment
management fees decreased 5%, primarily due to 3% lower average simple assets
under management and a 2% shift in our asset mix towards lower-fee fixed-income
products.
UNDERWRITING AND DISTRIBUTION FEES
Underwriting commissions are earned from the sale of certain classes of mutual
funds that have a sales commission paid at the time of purchase. Distribution
fees are paid by our sponsored mutual funds in return for sales and marketing
efforts on their behalf. Distribution fees include 12b-1 plan fees that are
subject to maximum pay-out levels, based upon a percentage of the assets in each
fund. A significant portion of underwriting commissions and distribution fees
are paid to the brokers and other intermediaries who sell our sponsored
investment products to the investing public on our behalf. See the description
of underwriting and distribution expenses below.
Overall, underwriting and distribution fees decreased 1% in fiscal 2000, despite
a 24% increase in product sales. The decrease resulted from a decline in
commissionable sales year over year, which led to a 12% reduction in aggregate
sales commission revenues. Sales at reduced or zero commissions are offered on
certain classes of shares and for sales to shareholders or intermediaries that
exceed specified minimum amounts. Thus, as the mix of sales change, so will our
commission revenue. The decline in sales commission revenue was offset by an
increase in distribution fees during fiscal 2000. This increase was primarily
due to the increased simple monthly average assets under management.
Underwriting and distribution fees decreased 27% in fiscal 1999 primarily due to
reduced commission revenues from lower mutual fund sales and distribution fees
from the 3% decrease in simple average assets under management.
SHAREHOLDER SERVICING FEES
Shareholder servicing fees are generally fixed charges per shareholder account
that vary with the particular type of fund and the service being rendered,
although some funds are charged fees based on the level of assets under
management. Fees are received as compensation for providing transfer agency
services which include providing customer statements, transaction processing,
customer service and tax reporting. Current agreements with the sponsored
investment products provide that closed accounts in a given calendar year remain
billable through the second quarter of the following calendar year at a reduced
rate.
In fiscal 2000, shareholder servicing fees increased 14% over fiscal 1999. This
was due to increased fees from funds whose servicing fees are based on assets
under management and increases in the per account charge, partially offset by a
decrease in the average number of billable accounts for the fiscal year. In
fiscal 1999, shareholder servicing fees increased 15% over fiscal 1998 as a
result of a 2.0 million (24%) increase in average billable shareholder accounts,
a substantial portion of which were closed accounts, and an increase in the per
account charge.
OTHER, NET
Other, net consists primarily of revenues from our banking/finance operating
segment:
o operating revenues, consisting primarily of interest on loans outstanding and
servicing income
o interest expense
o provision for loan losses
Other, net has remained relatively constant during the three-year period.
Securitization of a portion of the auto loan portfolio in March 2000 resulted in
a loss that was offset by revenues from the residual portfolio. Another
securitization is planned during fiscal 2001.
We have considered the potential impact of the effect on the banking/finance
segment of a 100 basis point (1%) movement in market interest rates and we do
not expect it would have a material impact on our operating revenues or
consolidated results of operations.
Operating Expenses
2000 1999 As a percentage of total expenses
vs 1999 vs 1998 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Underwriting and distribution -- (26)% 37% 36% 43%
Compensation and benefits 4% (7)% 32% 30% 29%
Information systems, technology
and occupancy 1% 17% 13% 12% 9%
Advertising and promotion (4)% (16)% 6% 6% 7%
Amortization of deferred sales
commissions (13)% (9)% 5% 6% 5%
Amortization of intangible assets -- 1% 2% 2% 2%
Other 5% (14)% 5% 5% 5%
Restructuring charges (100)% 100% n/a 3% n/a
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses (3)% (11)% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------------
SUMMARY
In fiscal 2000, operating expenses decreased 3% primarily due to the
restructuring charge of fiscal 1999. In fiscal 1999, operating expenses fell 11%
principally due to reduced underwriting and distribution expenses offset by the
restructuring charge.
UNDERWRITING AND DISTRIBUTION
Underwriting and distribution includes sales commissions and distribution fees
paid to brokers and other third parties for selling, distributing and providing
ongoing services to investors in our sponsored investment products. During
fiscal 2000, underwriting and distribution expenses remained at 1999 levels.
Total sales increased in fiscal 2000 by 24%, but a significant number of those
additional sales were at a low or zero commission rate, resulting in a smaller
proportional increase in the commissions paid to intermediaries in fiscal 2000
compared to fiscal 1999. Distribution fees increased consistent with the growth
in simple monthly average assets under management which more than offset the
reduced commission expense.
During fiscal 1999, underwriting and distribution expenses decreased 26%,
consistent with the downward trend in underwriting and distribution revenues.
COMPENSATION AND BENEFITS
Compensation and benefits increased 4% in fiscal 2000, primarily due to annual
salary increases awarded in October 1999 and market adjustments awarded
throughout fiscal 2000 for certain employees, partially offset by a 14% decrease
in the average employee headcount during fiscal 2000 as compared to fiscal 1999.
The number of employees at September 30, 2000 was approximately 6,500 as
compared to the approximately 6,700 at the same time last year. In order to hire
and retain our key employees in the current low unemployment labor market, we
are committed to keeping our salaries and benefit packages competitive, which
means that the level of compensation and benefits may increase more quickly than
our revenues. Compensation and benefits decreased 7% in fiscal 1999, primarily
due to a reduction in the overall number of employees following the
restructuring plan of fiscal 1999 and decreased temporary labor costs and
employee overtime.
INFORMATION SYSTEMS, TECHNOLOGY AND OCCUPANCY
Information systems, technology and occupancy costs increased 1% in fiscal 2000.
This increase is not indicative of the actual increase in technology expenses,
as we have significantly increased our expenditure on technology intiatives in
fiscal 2000. However, that increase was offset by a decrease in Year 2000
expenses and increased capitalization of technology costs following the adoption
of a new accounting rule. During the past year, we embarked on a number of
significant system upgrades, successfully transitioned to the Year 2000, and
developed e-business strategies to improve our service levels, work environment
and productivity. We expect that such major system undertakings will continue to
have an impact on our overall expenditures through fiscal 2001 and beyond. In
addition, during fiscal 2000, we incurred slightly higher occupancy costs
related to our site consolidation efforts, new facilities and the pending
relocation to our San Mateo worldwide headquarters. We capitalized information
systems and technology costs of $70.5 million, $45.4 million and $101.2 million
during fiscal 2000, 1999 and 1998, respectively. Information systems, technology
and occupancy costs increased 17% in fiscal 1999 as compared to fiscal 1998,
primarily as a result of Year 2000 planning, remediation and testing
expenditures.
ADVERTISING AND PROMOTION
Advertising and promotion expenses decreased 4% in fiscal 2000. We initiated a
number of campaigns to increase the visibility of our three major Franklin
Templeton Investments brand names: Franklin, Templeton and Mutual Series. This
increased expenditure was partially offset by cost efficiencies associated with
printing and marketing material production expenditures. In fiscal 1999, we
reduced expenditures on media advertising and reduced other promotional
activities in line with our general restructuring efforts.
AMORTIZATION OF DEFERRED SALES COMMISSIONS
Amortization of deferred sales commissions decreased 13% in fiscal 2000 and 9%
in fiscal 1999, principally as a result of lower class C sales in the U.S.
Certain fund classes, namely classes B and C, are sold without a front-end sales
charge to shareholders, while, at the same time, our distribution subsidiaries
pay a commission to selling brokers and other intermediaries. Similarly, class A
shares are sold without a front-end sales charge to shareholders when certain
minimum investment criteria are met, yet our U.S. distribution subsidiaries pay
a commission on the sale. We have arranged to sell certain deferred commission
assets ("DCA") arising from our U.S. operations to Lightning Finance Company
Limited, ("LFL"). DCA that remains on our books, principally class A and C
shares, is capitalized and amortized. Our Canadian and European sponsored
investment products have arranged for financing of these sales commissions
directly with LFL. As a result of these arrangements, Canadian and European DCA
are not recorded in our financial statements. During the fiscal year, we sold or
financed sales commissions globally totaling $56.0 million to LFL, compared to
$69.3 million in fiscal 1999.
RESTRUCTURING CHARGE
During fiscal 1999, we recognized pretax restructuring charges of $58.4 million.
These charges were related to a plan announced and initiated by management in
the first quarter of fiscal 1999. We do not expect to incur any incremental
charges with respect to this plan. All of the $58.4 million total restructuring
charge was utilized at September 30, 2000. The anticipated lost revenues
associated with products discontinued in connection with such restructuring are
not expected to have a material impact on ongoing results of operations.
OTHER INCOME (EXPENSE)
Investment and other income is comprised primarily of:
o dividends from investments in our sponsored mutual funds
o interest income from investments in bonds and government securities
o realized gains and losses on investments
o foreign currency exchange gains and losses
Investment income increased 61% in fiscal 2000, due to higher average available
cash balances to invest, higher interest rates, and greater realized gains.
Realized gains of $8.2 million were included in other income related to the
$32.9 million gain on the sale of our headquarters building in San Mateo, which
is being recognized over the 12-month leaseback period. In fiscal 1999, higher
interest income was offset by lower dividend income and reduced realized gains
from the sale of investments.
Interest expense decreased 33% and 7% in fiscal 2000 and fiscal 1999,
respectively, following a reduction in our average outstanding debt.
TAXES ON INCOME
Our effective income tax rate for fiscal 2000 declined to 24% on an annual basis
compared to 26% in fiscal 1999 and fiscal 1998. The effective tax rate will
continue to be reflective of the relative contributions of foreign earnings that
are subject to reduced tax rates and that are not currently included in U.S.
taxable income.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had $746.0 million in cash and cash equivalents, as
compared to $819.2 million at September 30, 1999. Liquid assets, which consist
of cash and cash equivalents, investments available-for-sale and current
receivables increased to $1,677.1 million at September 30, 2000 from $1,490.1
million at September 30, 1999. At September 30, 2000, approximately $643.4
million was available to Franklin Templeton Investments under unused commercial
paper and medium-term note programs. Revolving credit facilities at September
30, 2000 totaled $550 million, of which $250 million was available under a
364-day facility. The remaining $300 million facility will expire in May 2003.
Cash provided by operating activities increased to $701.7 million in fiscal 2000
from $584.5 million in fiscal 1999. This increase was due mainly to higher net
income resulting from lower operating expenses, increased revenues and a reduced
effective tax rate. In fiscal 2000, we purchased $254.1 million of investments,
net of sales; invested net cash of $77.4 million in the banking/finance segment;
and used $108.4 million to purchase property and equipment, using a total of
$435.8 million in investing activities. Net cash used in financing activities
during the year was $339.1 million, compared to $348.6 million in 1999. We used
approximately $250.0 million in cash to purchase 8.4 million shares of common
stock and paid approximately $58.0 million in dividends.
Outstanding debt declined to $362.9 million at September 30, 2000, compared to
$403.2 million at September 30, 1999. Debt primarily consisted of fixed-interest
medium-term notes and commercial paper that carried interest at variable rates.
As described in Note 7 in Notes to the financial statements, we participate in
the financial derivatives markets solely to manage our exposure to variable
interest-rate fluctuations on a portion of commercial paper. Our overall
weighted average interest rate on outstanding commercial paper and medium-term
notes was 6.5% and 6.2%, at September 30, 2000 and September 30, 1999,
respectively. Through our current interest-rate swap agreements and medium-term
note program we have fixed the rates of interest we pay on 49% of our
outstanding debt. Interest-rate swaps of $90 million matured in October 2000.
Medium-term notes of $60 million mature in March 2001. Other fixed-rate debt has
various maturity dates through October 2003.
We have entered into a series of agreements to finance the construction of a new
corporate headquarters on a 32-acre site in San Mateo, California. An
owner-lessor trust has been set up to finance the construction and lease the
completed facility. The construction is substantially on target and we expect to
move into our new headquarters in the summer of 2001. The lease agreements are
not expected to impact our cash flows or financial condition materially during
the initial five-year lease period.
We have arranged with LFL for non-recourse financing of sales commissions
related to our class B shares globally. We are currently negotiating with LFL to
purchase the DCA related to class C shares in fiscal 2001. At September 30,
2000, the cumulative sales commissions advanced by us which we have sold to or
financed through LFL approximated $215.6 million.
We expect that the principal uses of cash will be to increase assets under
management through expansion, make strategic acquisitions, fund property and
equipment acquisitions, enhance our technology infrastructure, improve our
business processes, pay shareholder dividends and repay and service debt. We
expect to finance future increases in investment in our banking/finance
activities through operating cash flows, debt, or the securitization of a
portion of the receivables from consumer lending activities. We believe that our
existing liquid assets, together with the expected continuing cash flow from
operations, our borrowing capacity under current credit facilities, our sales
commission financing arrangement and our ability to issue stock will be
sufficient to meet our present and reasonably foreseeable operating cash needs.
RISK FACTORS
"FORWARD-LOOKING STATEMENTS." When used in this Annual Report, words or phrases
about the future such as "expected to," "will continue," "anticipates,"
"estimates," or similar expressions are "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Statements about key
employee compensation; financing construction of our new corporate headquarters;
financing up front sales commissions paid; the acquisition of Fiduciary; our
future cash needs and the expected sources of future cash inflows are also
"forward-looking statements." These types of statements are subject to certain
risks and uncertainties, such as the factors described in the risk factors
outlined below. These risks and uncertainties could cause our current
expectations and predictions in the forward-looking statements to be wrong.
Forward-looking statements are our best prediction at the time that they are
made, and you should not rely on them. Rather, you should read the
forward-looking statements in conjunction with the risk disclosures in this
Annual Report. If a circumstance occurs that causes any of our forward-looking
statements to be inaccurate, we have no obligation to publicly announce the
change in our expectations, or to revise the forward-looking statements.
WE FACE STRONG COMPETITION FROM NUMEROUS AND SOMETIMES LARGER COMPANIES. We
compete with numerous investment management companies, stock brokerage
investment banking firms, insurance companies, banks, online and Internet
investment sites, savings and loan associations and other financial
institutions. These companies also offer financial services and other investment
alternatives. Recent consolidation in the financial services industry has
created stronger competitors with greater financial resources and broader
distribution channels than our own. In addition, the online services that we may
offer may fail to compete effectively with other alternatives available to
investors. To the extent that existing or potential customers decide to invest
with our competitors, our market share, revenues and net income could decline.
COMPETING SECURITIES DEALERS AND BANKS COULD RESTRICT SALES OF OUR FUNDS. Many
of the securities dealers on whom we rely to sell and distribute Franklin,
Templeton and Mutual Series fund shares also have mutual funds under their own
names that compete directly with our products. The banking industry also
continues to expand its sponsorship of proprietary funds. These firms or banks
could decide to limit or restrict the sale of our fund shares, which could lower
our future sales and cause our revenues to decline.
CHANGES IN THE DISTRIBUTION CHANNELS ON WHICH WE DEPEND COULD REDUCE OUR
REVENUES AND HINDER OUR GROWTH. We derive nearly all of our sales through
broker/dealers and other similar investment advisors. Increasing competition in
these distribution channels has caused our distribution costs to rise and could
cause further increases in the future. Higher distribution costs lower our net
revenues and earnings. Additionally, if one of the major financial advisors who
distributes our products were to cease operations, even for a few days, it could
have a significant adverse impact on our revenues and earnings. Moreover, our
failure to maintain strong business relationships with these advisors would
impair our ability to distribute and sell our products, which would have a
negative effect on our level of assets under management, related revenues and
overall business and financial condition.
NEW SHARE CLASSES THAT WE HAVE INTRODUCED YIELD LOWER REVENUES AND HAVE REDUCED
OPERATING MARGINS. Although we receive reduced or no sales charge at the time of
initial investments in our class A shares that are related to tax deferred plans
and involve sales of more than $1 million, and in our class B shares and C
shares, we must nonetheless pay the related dealer commission. In addition, due
to industry competition, the dealer commissions that we pay on these types of
shares are now higher than in the past and may increase in the future. This
could have a negative effect on our liquidity and operating margins.
IF OUR ASSET MIX SHIFTS TO PREDOMINANTLY FIXED-INCOME PRODUCTS, OUR REVENUES
COULD DECLINE. We derive higher fee revenues and income from the equity assets
that we manage. Changing market conditions may cause a shift in our asset mix
towards fixed-income products and a decline in our income and revenue.
WE HAVE BECOME SUBJECT TO AN INCREASED RISK OF ASSET VOLATILITY FROM CHANGES IN
THE GLOBAL EQUITY MARKETS. As our asset mix has shifted since 1992 from
predominantly fixed-income to a majority of equity assets, we have become
subject to an increased risk of asset volatility from changes in global equity
markets. Declines in these markets have caused in the past, and would cause in
the future, a decline in our income and revenue.
THE LEVELS OF OUR ASSETS UNDER MANAGEMENT ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS. Global economic conditions, interest rates, inflation rates and
other factors that are difficult to predict affect the mix, market values, and
levels of our assets under management. Fluctuations in interest rates and in the
yield curve affect the value of fixed-income assets under management as well as
the flow of funds to and from fixed-income funds. In turn, this affects our
asset management revenues from those assets. Similarly, changes in the equity
marketplace may significantly affect the level of our assets under management.
The factors above often have opposite effects on equity funds and fixed-income
funds, making it difficult for us to predict the net effect of any particular
set of conditions on our business and to devise effective strategies to
counteract those conditions.
WE FACE RISKS ASSOCIATED WITH CONDUCTING OPERATIONS IN NUMEROUS FOREIGN
COUNTRIES. We sell mutual funds and offer investment advisory and related
services in many different regulatory jurisdictions around the world, and intend
to continue to expand our operations internationally. Regulators in these
jurisdictions could change their policies or laws in a manner that might
restrict or otherwise impede our ability to distribute or register investment
products in their respective markets, which could force us to revise our
business strategy.
GENERAL ECONOMIC AND SECURITIES MARKETS FLUCTUATIONS MAY REDUCE OUR SALES AND
MARKET SHARE. Adverse general securities market conditions, increased market
volatility, currency fluctuations, governmental regulations and recessionary
global economic conditions could reduce our mutual fund share sales and other
financial services products sales. Increased and unusual market volatility and
high valuations in the technology sector and many "new economy" stocks could
also reduce our mutual fund share sales to the extent that customers decided to
shift to predominately fixed-income products. Similarly, our securitized
consumer receivables business is subject to marketplace fluctuation. General
economic and credit market downturns could reduce the ability of our customers
to repay loans, which could cause our consumer loan portfolio losses to
increase.
OUR INABILITY TO MEET CASH NEEDS COULD HAVE A NEGATIVE EFFECT ON OUR FINANCIAL
CONDITION AND BUSINESS OPERATIONS. Our ability to meet anticipated cash needs
depends upon factors including our asset value, our creditworthiness as
perceived by lenders and the market value of our stock. Similarly, our ability
to securitize and hedge future portfolios of auto loan and credit card
receivables, and to obtain continued financing for class B shares, is also
subject to the market's perception of those assets, finance rates offered by
competitors, and the general market for private debt. If we are unable, for any
reason, to obtain these funds and financing, we may be forced to incur
unanticipated costs or revise our business plan.
WE FACE INCREASED COMPETITION IN HIRING AND RETAINING QUALIFIED EMPLOYEES. Our
continued success will depend upon our ability to attract and retain qualified
personnel. Competition to hire these employees has increased, particularly in
certain geographic locations where the majority of our workforce is employed. We
may be forced to offer compensation and benefits to these employees at a level
that exceeds inflation. With historically low unemployment in the United States,
qualified personnel are now moving between firms and starting their own
companies with greater frequency. If we are not able to attract and retain
qualified employees, our overall business condition and revenues could suffer.
OUR EMERGING MARKET PORTFOLIOS AND RELATED REVENUES ARE VULNERABLE TO POLITICAL
AND ECONOMIC RISKS ASSOCIATED WITH EMERGING MARKETS. Our emerging market
portfolios and revenues derived from managing these portfolios are subject to
significant risks of loss from political and diplomatic developments, currency
fluctuations, social instability, changes in governmental polices,
expropriation, nationalization, asset confiscation and changes in legislation
related to foreign ownership. Foreign trading markets, particularly in some
emerging market countries are often smaller, less liquid, less regulated and
significantly more volatile than the U.S. and other established markets.
DIVERSE AND STRONG COMPETITION LIMITS THE INTEREST RATES THAT WE CAN CHARGE ON
CONSUMER LOANS. We compete with many types of institutions for consumer loans,
including the finance subsidiaries of large automobile manufacturers. Some of
these competitors can provide loans at significantly below-market interest rates
in connection with automobile sales. Our inability to compete effectively
against these companies or to maintain our relationships with the various
automobile dealers through which we offer consumer loans could harm the growth
of our consumer loan business.
RISK FACTORS RELATING TO THE POOLING OF INTERESTS COMBINATION WITH FIDUCIARY
THE TRANSACTION IS SUBJECT TO REGULATORY AND SHAREHOLDER APPROVAL. Our Agreement
and Plan of Share Acquisition with Fiduciary is subject to the approval of the
share exchange by various governmental and regulatory agencies. The share
exchange is also subject to the approval of the shareholders of Fiduciary. There
is no assurance that all the necessary approvals will be obtained.
WE MAY BE SUBJECT TO A SUBSTANTIAL TERMINATION FEE IF WE CANCEL THE TRANSACTION.
The Agreement and Plan of Acquisition requires us to pay a termination fee of
$25 million if, under certain circumstances, the Agreement and Plan of
Acquisition is terminated.
THE COMBINED BUSINESSES MAY NOT BE FULLY OR SUCCESSFULLY INTEGRATED. The success
of the pooling of interests combination of Franklin Templeton Investments and
Fiduciary depends in large part on the ability of the businesses of each company
to be integrated fully and successfully. The revenue synergies and cost savings
from the transaction may not be fully realized or may take longer to achieve
than anticipated. Delays and/or disruptions arising from and during the
integration and transition in connection with the business combination could
make it more difficult for us and Fiduciary to attract and maintain business
relationships with clients, retain employees, expand and compete effectively.
FOLLOWING THE TRANSACTION, WE WILL BE SUBJECT TO FEDERAL RESERVE BOARD
REGULATION. We expect to become a bank holding company and financial holding
company that will be subject to Federal Reserve Board regulation under the Bank
Holding Company Act of 1956. Following the transaction, we and our subsidiaries
will be subject to certain banking regulations, including minimum capital
requirements. Additionally, prior approval of the Federal Reserve Board may be
required in order to effect a change in control of us.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the financial position of Franklin Templeton
Investments is subjected to a variety of risks, including market risk associated
with interest rate movements. Franklin Templeton Investments is exposed to
changes in interest rates primarily in its debt transactions. Through its
interest-rate swap agreements and its medium-term note program Franklin
Templeton Investments has effectively fixed the rate of interest it pays on 49%
of its debt outstanding at September 30, 2000. As a result, Franklin Templeton
Investments does not believe that the effect of reasonably possible near-term
changes in interest rates on Franklin Templeton Investments' financial position,
results of operations or cash flow would be material.
We have considered the potential impact of the effect on the banking/finance
segment of a 100 basis point (1%) movement in market interest rates and we do
not expect it would have a material impact on our operating revenues or results
of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index of Consolidated Financial Statements for the years ended September 30,
2000, 1999 and 1998.
CONTENTS
Consolidated Financial Statements of Franklin Resources, Inc.:
Page
Consolidated Statements of Income
for the years ended September 30, 2000, 1999, and 1998
Consolidated Balance Sheets
as of September 30, 2000 and 1999
Consolidated Statements of Stockholders' Equity
and Comprehensive Income
as of and for the years ended September 30, 2000, 1999, and 1998
Consolidated Statements of Cash Flows
for the years ended September 30, 2000, 1999, and 1998
Notes to Consolidated Financial Statements
Report of Independent Accountants
All schedules have been omitted as the information is provided in the financial
statements or in related notes thereto or is not required to be filed as the
information is not applicable.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the years ended September 30, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operating Revenues
Investment management fees $1,399,121 $1,340,612 $1,413,273
Underwriting and distribution fees 709,285 718,871 982,647
Shareholder servicing fees 211,416 184,948 160,560
Other, net 20,318 18,066 20,792
- -----------------------------------------------------------------------------------------------------------------------------
Total operating revenues 2,340,140 2,262,497 2,577,272
Operating Expenses
Underwriting and distribution 623,144 620,047 841,706
Compensation and benefits 535,710 515,137 553,085
Information systems, technology and occupancy 213,670 212,495 181,665
Advertising and promotion 101,196 105,935 125,925
Amortization of deferred sales commissions 83,627 95,948 105,405
Amortization of intangible assets 37,163 37,220 36,857
Other 82,187 78,152 90,533
Restructuring charges -- 58,455 --
- -----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,676,697 1,723,389 1,935,176
Operating income 663,443 539,108 642,096
Other Income (Expense)
Investment and other income 90,108 55,934 56,723
Interest expense (13,960) (20,958) (22,535)
- -----------------------------------------------------------------------------------------------------------------------------
Other income, net 76,148 34,976 34,188
Income before taxes on income 739,591 574,084 676,284
Taxes on income 177,502 147,373 175,834
- -----------------------------------------------------------------------------------------------------------------------------
Net Income $562,089 $426,711 $500,450
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per Share
Basic and diluted $2.28 $1.69 $1.98
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
(in thousands)
As of September 30, 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $734,071 $811,300
Receivables
Sponsored investment products 241,282 225,132
Other 27,105 33,178
Investment securities, available-for-sale 635,819 392,022
Prepaid expenses and other 18,017 24,257
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 1,656,294 1,485,889
Banking/Finance Assets
Cash and cash equivalents 11,934 7,944
Loans receivable, net 256,416 186,185
Investment securities, available-for-sale 26,851 20,484
Other 4,361 3,165
- -----------------------------------------------------------------------------------------------------------------------
Total banking/finance assets 299,562 217,778
Other Assets
Deferred sales commissions 86,754 103,289
Property and equipment, net 444,694 416,395
Intangible assets, net 1,169,485 1,202,777
Receivable from banking/finance group 168,496 107,148
Other 217,158 133,514
- -----------------------------------------------------------------------------------------------------------------------
Total other assets 2,086,587 1,963,123
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $4,042,443 $3,666,790
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
As of September 30, 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Compensation and benefits $180,743 $162,842
Current maturities of long-term debt 68,776 108,985
Accounts payable and accrued expenses 72,646 80,966
Commissions 76,965 61,971
Income taxes 61,661 57,968
Other 28,768 13,758
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 489,559 486,490
Banking/Finance Liabilities
Payable to Parent 168,496 107,148
Deposits 54,846 58,216
Other 15,612 11,042
- -----------------------------------------------------------------------------------------------------------------------
Total banking/finance liabilities 238,954 176,406
Other Liabilities
Long-term debt 294,090 294,260
Other 54,347 52,640
- -----------------------------------------------------------------------------------------------------------------------
Total other liabilities 348,437 346,900
Total liabilities 1,076,950 1,009,796
- -----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 10)
Stockholders' Equity
Preferred stock, $1.00 par value, 1,000,000 shares
authorized; none issued -- --
Common stock, $0.10 par value, 500,000,000 shares
authorized; 243,730,140 and 251,006,541 shares
issued and outstanding for 2000 and 1999, respectively 24,373 25,101
Capital in excess of par value -- 69,631
Retained earnings 2,932,166 2,566,048
Other (3,422) (3,532)
Accumulated other comprehensive income 12,376 (254)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,965,493 2,656,994
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $4,042,443 $3,666,790
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(in thousands)
Shares
- ---------------------------------------------------------------------------------
Capital in
As of and for the years ended Common Treasury Common Treasury Excess of
September 30, 2000, 1999 and 1998 Stock Stock Stock Stock Par Value
- ---------------------------------------------------------------------------------
Balance October 1, 1997 126,231 (200) $12,623 $(11,070) $91,207
Net Income
Other Comprehensive Income:
Net unrealized losses on investments
Currency translation adjustments
Market value of interest rate swaps
Total comprehensive income
Retirement of stock (205) 205 (20) 12,600 (12,580)
Issuance of 2-for-1 stock split 126,357 12,636
Purchase of stock (1,279) (31) (129) (2,941) (39,522)
Cash dividends on common stock
Issuance of restricted shares, net 397 (3) 40 (116) 37,773
Other 241 29 24 1,527 16,155
Balance September 30, 1998 251,742 -- 25,174 -- 93,033
- ---------------------------------------------------------------------------------
Net Income
Other Comprehensive Income:
Net unrealized gains on investments
Currency translation adjustments
Total comprehensive income
Purchase of stock (2,064) (206) (64,128)
Cash dividends on common stock
Issuance of restricted shares, net1,036 104 30,560
Employee stock plan (ESIP) shares 299 30 9,002
Other (6) (1) 1,164
Balance September 30, 1999 251,007 -- 25,101 -- 69,631
- ---------------------------------------------------------------------------------
Net Income
Other Comprehensive Income:
Net unrealized gains on investments
Currency translation adjustments
Total comprehensive income
Purchase of stock (8,442) (844) (112,046)
Cash dividends on common stock
Issuance of restricted shares, net 989 99 30,081
Employee stock plan (ESIP) shares 349 34 11,030
Other (173) (17) 1,304
Balance September 30, 2000 243,730 -- $24,373 -- --
- ---------------------------------------------------------------------------------
Table continued...
- --------------------------------------------------------------------------------------------------------
Accumulated
Other Total Total
As of and for the years ended Retained Comprehensive Stockholders' Comprehensive
September 30, 2000, 1999 and 1998 Earnings Other Income Equity Income
- --------------------------------------------------------------------------------------------------------
Balance October 1, 1997 $1,757,536 $(5,895) $9,820 $1,854,221
Net Income 500,450 500,450 $500,450
Other Comprehensive Income:
Net unrealized losses on investments (17,647) (17,647) (17,647)
Currency translation adjustments (14,580) (14,580) (14,580)
Market value of interest rate swaps (5,638) (5,638) (5,638)
---------
Total comprehensive income $462,585
Retirement of stock --
Issuance of 2-for-1 stock split (12,636) --
Purchase of stock (42,592)
Cash dividends on common stock (50,515) (50,515)
Issuance of restricted shares, net 1,665 39,362
Other 17,706
Balance September 30, 1998 2,194,835 (4,230) (28,045) 2,280,767
- --------------------------------------------------------------------------------------------------------
Net Income 426,711 426,711 $426,711
Other Comprehensive Income:
Net unrealized gains on investments 24,061 24,061 24,061
Currency translation adjustments 3,730 3,730 3,730
--------
Total comprehensive income $454,502
Purchase of stock (64,334)
Cash dividends on common stock (55,498) (55,498)
Issuance of restricted shares, net 698 31,362
Employee stock plan (ESIP) shares 9,032
Other 1,163
Balance September 30, 1999 2,566,048 (3,532) (254) 2,656,994
- --------------------------------------------------------------------------------------------------------
Net Income 562,089 562,089 $562,089
Other Comprehensive Income:
Net unrealized gains on investments 22,511 22,511 22,511
Currency translation adjustments (9,881) (9,881) (9,881)
--------
Total comprehensive income $574,719
Purchase of stock (137,152) (250,042)
Cash dividends on common stock (58,819) (58,819)
Issuance of restricted shares, net 110 30,290
Employee stock plan (ESIP) shares 11,064
Other 1,287
Balance September 30, 2000 $2,932,166 $(3,422) $12,376 $2,965,493
- --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the years ended September 30, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $562,089 $426,711 $500,450
Adjustments to reconcile net income to net cash
provided by operating activities
Increase in receivables, prepaid expenses and other (63,098) (55,039) (15,711)
Advances of deferred sales commissions (67,091) (75,729) (109,376)
Increase in other current liabilities 33,229 25,676 54,031
(Decrease) increase in income taxes payable (2,079) (9,351) 35,411
Increase in commissions payable 14,996 8,797 7,049
Increase in accrued compensation and benefits 44,999 34,822 37,728
Depreciation and amortization 199,639 200,014 191,374
(Decrease) increase in restructuring liabilities (2,564) 28,965 --
Gains on disposition of assets (18,407) (399) (7,293)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 701,713 584,467 693,663
Purchase of investments (628,206) (731,798) (494,495)
Liquidation of investments 374,102 909,110 88,310
Purchase of banking/finance investments (32,788) (24,891) (23,863)
Liquidation of banking/finance investments 26,449 31,557 26,277
Proceeds from securitization of loans receivable 123,048 106,375 131,362
Net (originations) collections of loans receivable (194,100) (131,979) 5,930
Addition of property and equipment (108,432) (135,168) (162,181)
Proceeds from sale of property 4,088 4,083 14,517
Acquisition -- -- (64,333)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (435,839) 27,289 (478,476)
Decrease in bank deposits (3,372) (29,566) (10,623)
Exercise of common stock options 1,142 1,456 2,891
Dividends paid on common stock (57,953) (54,279) (49,274)
Purchase of stock (250,042) (64,334) (42,592)
Issuance of debt 497,118 64,140 168,927
Payments on debt (526,006) (265,972) (171,214)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (339,113) (348,555) (101,885)
(Decrease) increase in cash and cash equivalents (73,239) 263,201 113,302
Cash and cash equivalents, beginning of year 819,244 556,043 442,741
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $746,005 $819,244 $556,043
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest, including banking/finance group interest $26,370 $30,361 $40,801
Income taxes $180,098 $163,425 $104,306
Acquisition of Korean asset management company,
primarily cash and cash equivalents $20,253 -- --
Supplemental disclosure of non-cash information
Value of common stock issued in other transactions,
principally restricted stock $30,181 $30,664 $37,697
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Franklin Resources, Inc. and its consolidated subsidiaries ("Franklin Templeton
Investments") 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 and
private accounts and other investment products (our "Sponsored Investment
Products"). Our primary business is in the United States but we also operate in
Canada, the Bahamas, Europe, Asia, South America, Africa and Australia under
various rules and regulations set forth from time to time by the Securities and
Exchange Commission, individual state agencies and foreign governments. Services
to our Sponsored Investment Products are provided under contracts that set forth
the fees to be charged for these services. The majority of these contracts are
subject to periodic review and approval by each Mutual Fund's Board of
Directors/Trustees and/or its shareholders. Currently, no one Sponsored
Investment Product's revenues represent more than 10% of total revenues. Our
revenues are largely dependent on the total value and composition of assets
under management, which include domestic and global/international equity and
debt portfolios. Accordingly, fluctuations in financial markets and in the
composition of assets under management impact our revenues and operating
results.
BASIS OF PRESENTATION. The consolidated financial statements are prepared in
accordance with generally accepted accounting principles that require us to
estimate certain amounts. Actual amounts may differ from these estimates.
Certain 1998 amounts have been reclassified to conform to current year
presentation.
The consolidated financial statements include the accounts of Franklin
Resources, Inc. and its majority-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated except the intercompany payable
from the banking/finance group to the parent to fund auto and credit card loans.
Operating revenues of the banking/finance group are included in Other, net and
are presented net of related interest expense and the provision for loan losses.
Accordingly, reported interest expense excludes interest expense attributable to
the banking/finance group.
CASH AND CASH EQUIVALENTS include cash on hand, demand deposits with banks, debt
instruments with original maturities of three months or less and other highly
liquid investments, including money market funds, which are readily convertible
into cash.
INVESTMENT SECURITIES, AVAILABLE-FOR-SALE are carried at fair value. Fair values
for investments in our sponsored investment products are based on the last
reported net asset value. Fair values for other investments are based on the
last reported price on the exchange on which they are traded. Realized gains and
losses are included in investment income currently based on specific
identification. Unrealized gains and losses are recorded net of tax as part of
Accumulated other comprehensive income until realized.
DERIVATIVES. Franklin Templeton Investments does not hold or issue derivative
financial instruments for trading purposes. We enter into interest-rate swap
agreements to reduce variable interest-rate exposure with respect to our
commercial paper. Under these contracts Franklin Templeton Investments agrees to
exchange, at specified intervals, the difference between fixed- and
variable-interest amounts calculated by reference to an agreed-upon notional
principal amount. The interest-rate differential between the fixed pay-rate and
the variable receive-rate is reflected as an adjustment to interest expense over
the life of the swaps. Interest-rate swaps are carried at an estimate of their
termination costs.
Unrealized gains and losses on these instruments are recorded net of tax as a
part of Accumulated other comprehensive income. These unrealized gains and
losses would be recognized only on early termination of the agreements. We have
not, and do not intend to, terminate these agreements prior to their normal
expiration.
LOANS RECEIVABLE. We accrue interest on auto installment loans principally using
the rule of 78s method. If interest had been recorded using the interest method,
revenues would not be materially different from those presented. Interest on all
other loans is accrued using the simple interest method. An allowance for loan
losses is established monthly based on historical experience, including
delinquency and loss trends. Securitized loans and the associated allowance for
loan losses are excluded from the balance sheet and the associated interest
revenues and provision for loan losses are excluded from our results of
operations. A loan is charged to the allowance for loan losses when it is deemed
to be uncollectible, taking into consideration the value of the collateral, the
financial condition of the borrower and other factors. Recoveries on loans
previously charged off as uncollectible are credited to the allowance for loan
losses.
DEFERRED SALES COMMISSIONS. Sales commissions paid to brokers and other
investment advisors in connection with the sale of shares of our mutual funds
sold without a front-end sales charge are capitalized and amortized over periods
not exceeding six years - the periods in which we estimate that they will be
recovered from distribution plan payments and from contingent deferred sales
charges.
PROPERTY AND EQUIPMENT are recorded at cost and are depreciated on the
straight-line basis over their estimated useful lives. Expenditures for repairs
and maintenance are charged to expense when incurred. Leasehold improvements are
amortized on the straight-line basis over their estimated useful lives or the
lease term, whichever is shorter.
SOFTWARE DEVELOPED FOR INTERNAL USE. Certain internal and external costs
incurred in connection with developing or obtaining software for internal use
are capitalized in accordance with the American Institute of Certified Public
Accountants' Statement of Position No.98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." These capitalized costs are
included in Property and Equipment, net on the Consolidated Balance Sheets and
are amortized when the software project is complete, over the estimated useful
life of the software that was put into production.
INTANGIBLE ASSETS, consisting principally of the estimated value of mutual fund
management contracts and goodwill resulting from our acquisition of the assets
of Templeton, Galbraith & Hansberger Ltd. and Heine Securities Corporation, are
being amortized on a straight-line basis over various lives ranging from five to
40 years. We have evaluated the potential impairment of our intangible assets on
the basis of the expected future undiscounted operating cash flows without
interest charges to be derived from these assets in relation to the carrying
values and determined that there is no impairment. At some future period, if
such evaluations indicate that the carrying value of these assets cannot be
recovered using this test, the assets will be adjusted to their fair values.
RECOGNITION OF REVENUES. Investment management fees, shareholder servicing fees,
investment income and distribution fees are all recognized as earned.
Underwriting commissions related to the sale of shares of our sponsored
investment products are recorded on the trade date.
ADVERTISING AND PROMOTION. We expense costs of advertising and promotion as
incurred.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of foreign subsidiaries are
translated at current exchange rates as of the end of the accounting period, and
related revenues and expenses are translated at average exchange rates in effect
during the period. Net exchange gains and losses resulting from translation are
excluded from income and are recorded as part of Accumulated other comprehensive
income. Foreign currency transaction gains and losses are reflected in income
currently.
STOCK SPLIT. All common shares and per share amounts have been adjusted to give
retroactive effect to a two-for-one stock split in January 1998.
DIVIDENDS. During the years ended September 30, 2000, 1999 and 1998, we declared
dividends to common stockholders of $0.24, $0.22 and $0.20 per share,
respectively.
STOCK-BASED COMPENSATION. As allowed under the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), we have elected to apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for our stock-based plans. Accordingly, no
compensation costs are recognized with respect to stock options granted, or with
respect to shares issued under the Employee Stock Investment Plan. Compensation
expense is recognized for the matching contribution that we may elect to make in
connection with the Employee Stock Investment Plan over the 18-month holding
period and for the full cost of restricted stock grants in the year that they
are earned.
COMPREHENSIVE INCOME. Total comprehensive income is reported in the consolidated
statements of stockholders equity and includes net income and unrealized gains
on investment securities available-for-sale, net of income taxes.
The changes in net unrealized gains (losses) on investments include
reclassification adjustments relating to the net realized gains on investment
sales of $9.9 million, $0.1 million and $6.1 million during fiscal 2000, 1999
and 1998, respectively. The tax effect of the change in unrealized gains
(losses) on investments was $7.1 million, $4.8 million and $(8.4) million during
fiscal 2000, 1999 and 1998, respectively.
EARNINGS PER SHARE. Earnings per share were computed as follows:
(in thousands except per share amounts)
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Net income $562,089 $426,711 $500,450
- -----------------------------------------------------------------------------------------------------------------------
Weighted-average shares outstanding - basic 246,116 252,122 252,723
Incremental shares from assumed conversions 508 635 218
- -----------------------------------------------------------------------------------------------------------------------
Weighted-average shares outstanding - diluted 246,624 252,757 252,941
- -----------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic and diluted $2.28 $1.69 $1.98
NOTE 2 - INVESTMENT SECURITIES
Investment securities, available-for-sale at September 30, 2000 and 1999,
consisted of the following:
(in thousands)
Gross unrealized
Amortized ---------------- Fair
cost Gains Losses value
- -----------------------------------------------------------------------------------------------------------------------
2000
Sponsored investment products $208,125 $55,685 $(2,763) $261,047
Debt (primarily U.S. Government) 397,611 71 (256) 397,426
Equities 1,552 2,658 (13) 4,197
- -----------------------------------------------------------------------------------------------------------------------
Total $607,288 $58,414 $(3,032) $662,670
- -----------------------------------------------------------------------------------------------------------------------
1999
Sponsored investment products $160,159 $25,630 $(4,083) $181,706
Debt (primarily U.S. Government) 227,168 2 (496) 226,674
Equities 3,113 1,034 (21) 4,126
- -----------------------------------------------------------------------------------------------------------------------
Total $390,440 $26,666 $(4,600) $412,506
- -----------------------------------------------------------------------------------------------------------------------
At September 30, 2000, substantially all of our debt securities mature within
one year.
NOTE 3 - Banking/Finance Group Loans and Allowance for Loan Losses
The banking/finance segment's loans receivable primarily consist of auto loan
and credit card receivables from individuals that are collectively described
below as installment loans. Changes in these loans and in the associated
allowance for loan losses during 2000 and 1999 are shown in the following
tables.
(in thousands)
2000 2000
beginning Charge- Loans ending
balance Additions Paydowns offs Recoveries securitized balance
- ---------------------------------------------------------------------------------------------------------------------------
Installment loans $189,771 $311,725 $(109,685) $(5,622) $1,830 $(126,632) $261,387
Allowance for loan losses (3,586) (6,925) -- 5,622 (1,830) 1,748 (4,971)
- ---------------------------------------------------------------------------------------------------------------------------
Loans receivable, net $186,185 $304,800 $(109,685) -- -- $(124,884) $256,416
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
1999 1999
beginning Charge- Loans ending
balance Additions Paydowns offs Recoveries securitized balance
- ---------------------------------------------------------------------------------------------------------------------------
Installment loans $167,455 $194,626 $(58,823) $(4,793) $1,520 $(110,214) $189,771
Allowance for loan losses (2,381) (5,271) -- 4,793 (1,520) 793 (3,586)
- ---------------------------------------------------------------------------------------------------------------------------
Loans receivable, net $165,074 $189,355 $(58,823) -- -- $(109,421) $186,185
- ---------------------------------------------------------------------------------------------------------------------------
For the fiscal years ended September 30, 2000, 1999 and 1998, the interest
expense of the banking/finance segment included in other operating revenues, net
was $11.4 million, $9.7 million and $17.8 million, respectively.
The following table presents delinquency and loss information for fiscal 2000,
1999 and 1998.
(in thousands)
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Charge-offs as a percentage of average loans 1.7% 2.1% 1.7%
Installment loans, 90 days or more delinquent $683 $785 $2,188
In March 2000, May 1999 and September 1998, the banking/finance segment sold
portions of its auto loans receivable to securitization trusts. The table below
shows the assumptions that were used to calculate the gain on sale and the
details of the transactions.
(in millions)
March 2000 May 1999 September 1998
- -----------------------------------------------------------------------------------------------------------------------
Proceeds $123.0 $106.4 $131.4
Book value of loans sold $124.9 $109.4 $134.3
(Loss)/gain on sale $(0.9) $1.2 --
Discount rate 12% 12% 12%
Cumulative credit loss rate 3.66% 3.44% 2.02%
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at September 30, 2000 and
1999:
(in thousands)
Useful lives
in years 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Furniture, software and equipment 3-5 $428,501 $343,798
Premises and leasehold improvements 5-35 202,978 196,440
Land -- 69,625 64,078
- -----------------------------------------------------------------------------------------------------------------------
701,104 604,316
Less: Accumulated depreciation and amortization (256,410) (187,921)
- -----------------------------------------------------------------------------------------------------------------------
Property and equipment, net $444,694 $416,395
- -----------------------------------------------------------------------------------------------------------------------
NOTE 5 - INTANGIBLE ASSETS
The following is a summary of intangible assets at September 30, 2000 and 1999:
(in thousands)
Amortization
period in years 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Goodwill 20-40 $846,017 $842,178
Management contracts 40 510,490 510,490
Other intangibles 5-15 31,546 31,546
- -----------------------------------------------------------------------------------------------------------------------
1,388,053 1,384,214
Less: Accumulated amortization (218,568) (181,437)
- -----------------------------------------------------------------------------------------------------------------------
Intangible assets, net $1,169,485 $1,202,777
NOTE 6 - SEGMENT INFORMATION
We have two operating segments: investment management and banking/finance. The
investment management segment derives substantially all of its revenues and net
income from providing investment advisory, fund administration, distribution and
related services to our sponsored investment products. The banking/finance
segment offers consumer lending and selected retail banking services to
individuals.
Financial information for our two operating segments for the years ended
September 30, 2000, 1999 and 1998 is presented in the table below. Operating
revenues of the banking/finance segment are reported net of interest expense.
See Note 3.
(in thousands)
Operating Interest Income
Assets revenues expense before taxes
- -----------------------------------------------------------------------------------------------------------------------
2000
Investment management $3,742,881 $2,320,755 $13,960 $739,030
Banking/finance 299,562 19,385 n/a 561
Company Totals $4,042,443 $2,340,140 $13,960 $739,591
- -----------------------------------------------------------------------------------------------------------------------
1999
Investment management $3,449,012 $2,246,767 $20,958 $570,120
Banking/finance 217,778 15,730 n/a 3,964
Company Totals $3,666,790 $2,262,497 $20,958 $574,084
- -----------------------------------------------------------------------------------------------------------------------
1998
Investment management $3,269,282 $2,558,449 $22,535 $671,632
Banking/finance 210,767 18,823 n/a 4,652
Company Totals $3,480,049 $2,577,272 $22,535 $676,284
- -----------------------------------------------------------------------------------------------------------------------
The investment management segment incurs substantially all of our depreciation
and amortization costs and expenditures on long-lived assets.
We conduct operations in five principal geographic areas of the world: the
United States, Canada, the Bahamas, Europe, Asia, South America, Africa and
Australia. For segment reporting purposes, we have combined Asia, South America,
Africa and Australia into one category - Other. Revenues by geographic area
include fees and commissions charged to customers and fees charged to
affiliates.
Information is summarized below:
(in thousands)
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Operating revenues:
United States $1,596,712 $1,591,093 $1,814,458
Canada 250,778 233,013 228,834
Bahamas 284,518 281,437 305,612
Europe 126,111 122,744 135,026
Other 191,095 144,657 159,391
Eliminations (109,074) (110,447) (66,049)
- -----------------------------------------------------------------------------------------------------------------------
Total $2,340,140 $2,262,497 $2,577,272
- -----------------------------------------------------------------------------------------------------------------------
(in thousands)
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Property and equipment, net:
United States $387,197 $356,050 $288,733
Canada 7,096 5,890 5,216
Bahamas 8,126 8,723 9,070
Europe 6,692 7,478 8,784
Other 35,583 38,254 37,426
- -----------------------------------------------------------------------------------------------------------------------
Total $444,694 $416,395 $349,229
- -----------------------------------------------------------------------------------------------------------------------
NOTE 7 - DEBT
Debt at September 30, 2000 and 1999 was as follows:
(in thousands)
2000 Weighted
average interest rate 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Commercial paper 6.47% $254,381 $186,842
Medium-term notes 6.56% 60,000 160,000
Other -- 48,485 56,403
- -----------------------------------------------------------------------------------------------------------------------
362,866 403,245
- -----------------------------------------------------------------------------------------------------------------------
Less current maturities 68,776 108,985
Long-term debt $294,090 $294,260
- -----------------------------------------------------------------------------------------------------------------------
As of September 30, 2000, maturities of long-term debt are as follows:
2001 $265,556
2002 10,802
2003 2,967
2004 2,883
2005 3,065
Thereafter 8,817
- ----------------------------------------------------------------------------
Long-term debt $294,090
We have revolving credit agreements with a group of commercial banks that will
allow us, at our option, to refinance commercial paper borrowings through May
2003. In accordance with our intention and ability to refinance these
obligations on a long-term basis, all of our commercial paper borrowings at
September 30, 2000 were classified long-term. The credit agreements include
various restrictive covenants, including: a capitalization ratio, interest
coverage ratio, minimum working capital and limitation on additional debt. We
were in compliance with all covenants as of September 30, 2000. At September 30,
2000, amounts available for issuance under the commercial paper program were
$293.4 million.
At September 30, 2000, we held interest-rate swap agreements maturing through
October 2000, which effectively fixed interest rates on $90 million of
commercial paper. Our primary objective of holding these swap agreements is to
hedge volatility in interest rates on our commercial paper. These financial
instruments are placed with major financial institutions. The creditworthiness
of the counterparties is subject to continuous review and full performance is
anticipated. Any potential loss from failure of the counterparties to perform is
deemed to be immaterial.
During 2000, $100 million of medium-term notes at an average interest rate of
6.08% were retired at maturity. The interest rate on all of our outstanding
notes at September 30, 2000 was 6.56%. These notes mature in March 2001. At
September 30, 2000, the amount available for issuance under our medium-term note
program was $350 million.
NOTE 8 - INVESTMENT INCOME
(in thousands)
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Dividends $12,294 $12,473 $16,540
Interest 57,025 40,845 29,969
Realized gains, net 19,718 2,323 8,271
Foreign exchange losses, net (1,311) (1,924) (978)
Other 2,382 2,217 2,921
- -----------------------------------------------------------------------------------------------------------------------
Investment income $90,108 $55,934 $56,723
- -----------------------------------------------------------------------------------------------------------------------
Substantially all of our dividend income was generated by investments in our
sponsored investment products.
We realized a gain of $32.9 million on the sale of our headquarters building in
San Mateo in July 2000. That gain is being amortized over 12 months, the period
of our leaseback on the building. Accordingly, $24.7 million of the gain is
recorded in deferred income and is included within Other current liabilities and
$8.2 million has been recognized within Other income at September 30, 2000.
NOTE 9 - TAXES ON INCOME
Taxes on income for the years ended September 30, 2000, 1999 and 1998 were as
follows:
(in thousands)
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Current
Federal $96,074 $91,141 $87,148
State 18,558 24,797 30,903
Foreign 59,590 45,193 45,797
Deferred expense (benefit) 3,280 (13,758) 11,986
- -----------------------------------------------------------------------------------------------------------------------
Total provision $177,502 $147,373 $175,834
- -----------------------------------------------------------------------------------------------------------------------
Included in income before taxes was $446.0 million, $356.9 million and $387.5
million of foreign income for the years ended September 30, 2000, 1999 and 1998,
respectively.
The major components of the net deferred tax liability/asset as of September 30,
2000 and 1999 were as follows:
(in thousands)
2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Deferred tax assets
State taxes $6,511 $4,400
Loan loss reserves 3,165 1,864
Deferred compensation 6,006 6,926
Restricted stock compensation plan 37,094 40,766
Net operating loss and foreign tax carry-forwards 53,627 45,336
Deferred gain on sale of headquarters 10,511 --
Other 10,874 19,478
- -----------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 127,788 118,770
Valuation allowance for tax carry-forwards (53,627) (45,336)
- -----------------------------------------------------------------------------------------------------------------------
Deferred tax assets, net of valuation allowance 74,161 73,434
- -----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities
Investments 12,750 3,768
Depreciation on fixed assets 18,148 13,591
Prepaid expenses 2,068 9,031
Amortization of goodwill 38,085 28,597
Deferred commissions 8,473 8,152
Other 1,662 3,151
- -----------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 81,186 66,290
- -----------------------------------------------------------------------------------------------------------------------
Net deferred tax (liability) asset $(7,025) $7,144
- -----------------------------------------------------------------------------------------------------------------------
At September 30, 2000, there were approximately $44 million of foreign net
operating loss carry-forwards, approximately $36 million of which expire between
2001 and 2008 with the remaining carry-forwards having an indefinite life. In
addition, there are approximately $525 million in state net operating loss
carry-forwards that expire between 2008 and 2020. A valuation allowance has been
recognized to offset the related deferred tax assets due to the uncertainty of
realizing the benefit of the loss carry-forwards.
We have made no provision for U.S. taxes on $1,431 million of cumulative
undistributed earnings of foreign subsidiaries as those earnings are intended to
be reinvested for an indefinite period of time. Determination of the potential
amount of unrecognized deferred U.S. income tax liability related to such
reinvested income is not practicable because of the numerous assumptions
associated with this hypothetical calculation; however, foreign tax credits
would be available to reduce some portion of this amount.
The following is a reconciliation between the amount of tax expense at the
federal statutory rate and taxes on income as reflected in operations for the
years ended September 30, 2000, 1999 and 1998:
(in thousands)
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
U.S. federal statutory rate 35% 35% 35%
Federal taxes at statutory rate $258,857 $200,929 $236,699
State taxes, net of federal tax effect 17,586 15,819 20,973
Foreign earnings subject to reduced tax rates for which
no U.S. tax is provided (96,260) (83,954) (78,826)
Other (2,681) 14,579 (3,012)
- -----------------------------------------------------------------------------------------------------------------------
Actual tax provision $177,502 $147,373 $175,834
Effective tax rate 24% 26% 26%
NOTE 10 - COMMITMENTS AND CONTINGENCIES
We lease office space and equipment under long-term operating leases expiring at
various dates through fiscal year 2017. Lease expense aggregated $43.1 million,
$38.7 million and $37.2 million for the fiscal years ended September 30, 2000,
1999 and 1998, respectively. Future minimum lease payments under non-cancelable
operating leases are not material.
We have entered into an operating lease for the construction of our new
corporate headquarters in San Mateo, California. In connection with this lease,
we are contingently liable under residual guarantees, for approximately $145
million, representing approximately 85% of the estimated total construction
costs of $170 million.
At September 30, 2000, the banking/finance segment had commitments to extend
credit aggregating $242.2 million, principally under its credit card lines.
We are involved in various claims and legal proceedings that are considered
normal in our business. While it is not feasible to predict or determine the
final outcome of these proceedings, we do not believe that they should have a
material adverse effect on our financial position, results of operations or
liquidity.
In connection with the acquisition of Heine Securities Corporation in November
1996, we agreed to make contingent payments ranging from $96.25 to $192.5
million if certain agreed-upon growth targets are met. Agreed-upon growth
targets range from 12.5% to 17.5% of management fee revenues over a five-year
period from the date of the acquisition. We made the first contingent payment of
$64.2 million in 1998 and accounted for that payment as goodwill related to
additional purchase price of the acquisition. No payments were made in fiscal
1999 or 2000. A final payment is due in November 2001 if growth targets are met.
NOTE 11 - EMPLOYEE STOCK AWARD AND OPTION PLANS
Franklin Templeton Investments sponsors two universal stock plans and an Annual
Incentive Compensation Plan ("AICP"). Under the terms of these plans, eligible
employees may receive cash and stock awards. Under the terms of the AICP,
restricted stock awards are based on our pretax operating income. The universal
stock plans provide for the issuance of up to 16 million shares of the common
stock for various stock-related awards, including those related to the AICP. As
of September 30, 2000, we had approximately 6.9 million shares remaining
available for grant under the universal stock plans, including those related to
the AICP. In addition to the annual award of stock under the plans, we may award
options and other forms of stock-based compensation to certain employees.
Currently, only restricted stock and stock options have been granted. The
Compensation Committee of the Board of Directors determines the terms and
conditions of awards under the plans. Total compensation cost recognized for
stock-based compensation during fiscal 2000, 1999 and 1998 was $28.9 million,
$37.9 million and $30.3 million, respectively.
Information regarding stock options is as follows:
(shares in thousands)
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 1,315 $32.02 193 $29.32 333 $15.21
Granted 1,108 $32.60 1,243 $31.39 73 $47.16
Exercised/cancelled (201) $29.73 (121) $21.24 (213) $13.25
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 2,222 $32.52 1,315 $32.02 193 $29.32
Exercisable, end of year 437 $34.44 117 $34.44 119 $23.65
The range of exercise prices for these options at September 30, 2000, was from
$28.19 to $47.16. Of these, 82% were exercisable at prices ranging from $29.61
to $33.25. The weighted-average remaining contractual life for the options was
five years.
If we had determined compensation costs for our stock option plans and our
Employee Stock Investment Plan (See Note 12) based upon fair values at the grant
dates in accordance with the provisions of FAS 123, our net income and earnings
per share would have been reduced to the pro forma amounts indicated below. For
pro forma purposes, the estimated fair value of options is amortized to expense
over the options' vesting period.
For the years ended September 30, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Net income (in millions)
As reported $562.1 $426.7 $500.5
Pro forma $553.4 $422.5 $499.1
- -----------------------------------------------------------------------------------------------------------------------
Basic earnings per share
As reported $2.28 $1.69 $1.98
Pro forma $2.25 $1.67 $1.97
- -----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share
As reported $2.28 $1.69 $1.98
Pro forma $2.24 $1.67 $1.97
- -----------------------------------------------------------------------------------------------------------------------
The weighted-average estimated fair value of options granted on the date of
grant using Black-Scholes option-pricing model was as follows:
For the years ended September 30, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Weighted-average fair value of options granted $15.31 $11.33 $12.08
Assumptions made:
Dividend yield 1% 1% 1%
Expected volatility 38% 36% 27%
Risk-free interest rate 6% 5% 6%
Expected life 6 months- 6 months- 6 months-
8 years 8 years 8 years
NOTE 12 - EMPLOYEE STOCK INVESTMENT PLAN
We have a qualified, non-compensatory Employee Stock Investment Plan ("ESIP")
which allows participants who meet certain eligibility criteria to purchase
shares of our common stock at 90% of their market value on certain defined
dates. The ESIP is open to substantially all employees of U.S. subsidiaries and
certain employees of non-U.S. subsidiaries. Participants made their first
purchase of stock under this plan effective as of July 31, 1998. Our
stockholders approved 4 million shares of common stock for issuance under the
ESIP. At September 30, 2000, approximately 651,000 shares had been purchased on
a cumulated basis under the ESIP at a weighted average price of $31.53.
In connection with the ESIP, we may provide matching grants to participants in
the ESIP of whole or partial shares of common stock. While reserving the right
to change such determination, we have initially indicated that we will provide
one half-share for each share held by a participant for a minimum period of 18
months. During 2000, we made our first matching grants and issued approximately
84,000 shares at an average market price of $35.52.
NOTE 13 - RESTRUCTURING
In December 1998, we adopted a restructuring plan estimated to cost
approximately $58.4 million and designed to reduce costs, improve service levels
and reprioritize our business activities. All of the total estimated charges
were utilized at September 30, 2000.
NOTE 14 - FAIR VALUES
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. The methods and assumptions used to
estimate fair values of our financial instruments are described below.
Due to the short-term nature and liquidity of Cash and cash equivalents and
Receivables, the carrying amounts of these assets in the consolidated balance
sheets approximated fair value.
Investment securities, available-for-sale are carried at fair market value as
required by generally accepted accounting principles. See Note 1.
Loans receivable, net are valued using interest rates that consider the current
credit and interest rate risk inherent in the loans and the current economic and
lending conditions. The amounts in the consolidated balance sheets approximated
fair value.
Deposits of the banking/finance segment are valued using interest rates offered
by comparable institutions on deposits with similar remaining maturities. The
amounts in the consolidated balance sheets approximated fair value.
Interest-rate swap agreements that expire in October 2000 are carried at their
fair value of approximately zero as of September 30, 2000.
Debt is valued using publicly-traded debt with similar maturities, credit risk
and interest rates. The amounts in the consolidated balance sheet approximate
fair values.
NOTE 15 - ACQUISITIONS
On July 25, 2000, we purchased all of the remaining outstanding shares of a
Korean asset management company in which we formerly held a 44% interest. The
purchase price for the shares was approximately $20 million. Goodwill of $3.8
million with an estimated life of 20 years was created as a result of the
transaction.
On August 1, 2000, we entered into an agreement with Nedcor Investment Bank
Holdings, Ltd., a South African company, to form Franklin Templeton NIB Asset
Management ("FTNIB"). We contributed cash and other assets with a value of
approximately $27 million to the venture in return for a 50% ownership interest
in FTNIB. We are accounting for our investment using the equity method.
On October 2, 2000, we acquired all of the issued and outstanding shares of
Bissett & Associates Investment Management Ltd., a Canadian asset management
company. The all-cash transaction was valued at approximately $95 million.
Intangible assets of approximately $89 million with lives ranging from 5-20
years were created as a result of the acquisition.
On October 25, 2000, we announced a definitive agreement with Fiduciary Trust
Company International (OTC: FCNY) ("Fiduciary"), under which Franklin Templeton
Investments will acquire Fiduciary in an all-stock transaction valued at
approximately $825 million. In addition to the purchase price, there is also
provision for an $85 million retention pool to cover various payments aimed at
retaining certain key employees of Fiduciary. The transaction, which is subject
to Fiduciary shareholder and regulatory approvals and other customary closing
conditions and costs, is expected to be completed in the second quarter of
fiscal 2001.
NOTE 16 - QUARTERLY INFORMATION (UNAUDITED)
(in thousands)
Quarter First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------------------
2000
Revenues $565,667 $612,526 $568,897 $593,050
Operating income $167,635 $172,077 $168,832 $154,899
Net income $137,522 $143,374 $140,370 $140,823
Earnings per share:
Basic $0.55 $0.58 $0.58 $0.58
Diluted $0.55 $0.58 $0.58 $0.58
Dividend per share $0.06 $0.06 $0.06 $0.06
Common stock price per share:
High $35.00 $39.19 $36.25 $45.63
Low $27.44 $24.63 $28.19 $30.00
- ---------------------------------------------------------------------------------------------------------------------------
1999
Revenues $567,679 $554,071 $566,775 $573,972
Operating income $90,765 $131,120 $156,506 $160,717
Net income $68,492 $102,471 $123,307 $132,441
Earnings per share:
Basic $0.27 $0.41 $0.49 $0.53
Diluted $0.27 $0.41 $0.49 $0.52
Dividend per share $0.055 $0.055 $0.055 $0.055
Common stock price per share:
High $45.62 $38.38 $45.00 $43.44
Low $26.50 $27.00 $27.12 $29.75
- ---------------------------------------------------------------------------------------------------------------------------
1998
Revenues $632,399 $673,691 $672,596 $598,586
Operating income $167,442 $163,424 $168,219 $143,011
Net income $130,515 $126,669 $131,013 $112,253
Earnings per share:
Basic $0.52 $0.50 $0.52 $0.44
Diluted $0.52 $0.50 $0.52 $0.44
Dividend per share $0.05 $0.05 $0.05 $0.05
Common stock price per share:
High $51.88 $57.25 $57.88 $54.88
Low $39.75 $38.00 $47.56 $25.75
- ---------------------------------------------------------------------------------------------------------------------------
Our common stock is traded on the New York Stock Exchange ("NYSE") and the
Pacific Exchange, Inc. under the ticker symbol BEN and the London Stock Exchange
under the ticker symbol FKR. On September 30, 2000, the closing price of our
common stock on the NYSE was $44.43 per share. At November 1, 2000, there were
approximately 4,800 stockholders of record.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Franklin Resources, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and comprehensive income
and cash flows present fairly, in all material respects, the consolidated
financial position of Franklin Resources, Inc. and its subsidiaries at September
30, 2000 and 1999, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended September 30, 2000,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 25, 2000
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS OF REGISTRANT
The following information on the executive officers of Franklin Templeton
Investments, including their principal occupations for the past five (5) years,
is given as of December 1, 2000.
JENNIFER J. BOLT
AGE 36
Vice President of FRI since June 1994; officer and/or director of other Company
subsidiaries; employed by FRI or subsidiaries in various other capacities for
more than the past six (6) years.
HARMON E. BURNS
AGE 55 DIRECTOR SINCE 1991
Vice Chairman and Director of FRI, formerly Executive Vice President and
director of the Company for more than the past six (6) years; officer and/or
director of many other Company subsidiaries; officer and/or director or trustee
of 52 of the investment companies in the Franklin Templeton group of funds.
MARTIN L. FLANAGAN
AGE 40
President, Member - Office of the President, Chief Financial Officer and Chief
Operating Officer of FRI; formerly Senior Vice President; Chief Financial
Officer of FRI since December 1995; officer and/or director of many other
Company subsidiaries; officer, director and/or trustee of 52 of the investment
companies in the Franklin Templeton group of funds.
BARBARA GREEN
AGE 53
Vice President and Deputy General Counsel of FRI since January 2000; Vice
President, Franklin Templeton Companies, Inc. since March 2000; Senior Vice
President, Templeton Worldwide, Inc.; officer of 53 of the investment companies
in the Franklin Templeton group of funds.
ALLEN J. GULA, JR.
AGE 46
President, Member - Office of the President, formerly Senior Vice President and
Chief Information Officer of FRI since September 1999; officer of two other
Company subsidiaries since August 1999. Previously, Executive Vice President and
Chief Technology Officer of KeyCorp, a bank holding company, from October 1998
to August 1999. Chairman and Chief Executive Officer of Key Services, a
subsidiary of KeyCorp, and Executive Vice President of KeyCorp from February
1994 to October 1998.
DONNA S. IKEDA
AGE 44
Vice President of FRI since October 1993. Previously employed by FRI from 1982
to 1990 as Director of Human Resources.
CHARLES B. JOHNSON
AGE 67
DIRECTOR SINCE 1969
Chairman of the Board, Chief Executive Officer and director of the Company;
officer and/or director of many other Company subsidiaries; officer and/or
director or trustee of 49 of the investment companies in the Franklin Templeton
group of funds.
CHARLES E. JOHNSON
AGE 44
DIRECTOR SINCE 1993
President, Member - Office of the President, and director of the Company;
formerly Senior Vice President and director of the Company for more than the
past five (5) years; officer and/or director of many other Company subsidiaries;
officer and/or director or trustee of 33 of the investment companies in the
Franklin Templeton group of funds.
GREGORY E. JOHNSON
AGE 39
President, Member - Office of the President; formerly Vice President of FRI for
more than the past five (5) years; officer of many other Company subsidiaries
and of one investment company in the Franklin Templeton group of funds.
RUPERT H. JOHNSON, JR.
AGE 60
DIRECTOR SINCE 1969
Vice Chairman, formerly Executive Vice President and director of the Company for
more than the past five (5) years; officer and/or director of many other Company
subsidiaries; officer and/or director or trustee of 52 of the investment
companies in the Franklin Templeton group of funds.
LESLIE M. KRATTER
AGE 55
Senior Vice President of FRI since January 2000 and Secretary since March 1998;
formerly Vice President of FRI since March 1993; officer of many other Company
subsidiaries.
KENNETH A. LEWIS
AGE 39
Vice President of FRI since September 1996; formerly Corporate Controller of
FRI; officer of many other Company subsidiaries. Prior to the Templeton
acquisition, employed by various Templeton entities since 1989.
WILLIAM J. LIPPMAN
AGE 75
Senior Vice President of FRI since March 1990; officer and/or director or
trustee of other Company subsidiaries and of six of the investment companies in
the Franklin Templeton group of funds. Until June 1988, President, Chief
Executive Officer and director of L.F. Rothschild Fund Management, Inc.,
Director of L.F. Rothschild Asset Management, Inc., Administrative Managing
Director and director of L.F. Rothschild & Co., Incorporated.
CHARLES R. SIMS
AGE 39
Vice President of Finance, Chief Accounting Officer and Treasurer of FRI since
June 2000; and Treasurer of FRI and various subsidiaries since September 1997;
and assistant treasurer of 53 of the investment companies in the Franklin
Templeton group of funds. Prior to September 1997, employed as Vice President
and Chief Financial Officer of Franklin Templeton Investments Corp. formerly
know as Templeton Management Limited. Employed by Franklin Templeton Investments
since 1989.
MURRAY L. SIMPSON
AGE 63
Executive Vice President and General Counsel of FRI since January 2000; Officer
of 53 of the investment companies of the Franklin Templeton group of funds.
Previously Managing Director and Chief Executive Officer Templeton Franklin
Investment Services (Asia), Limited from 1994-2000.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. Peter M. Sacerdote,
a director of FRI, is a brother-in-law of Charles B. Johnson and Rupert H.
Johnson, Jr. Charles E. Johnson is the son of Charles B. Johnson, the nephew of
Rupert H. Johnson, Jr. and Peter Sacerdote and the brother of Gregory E. Johnson
and Jennifer Bolt. Gregory E. Johnson is the son of Charles B. Johnson, the
nephew of Rupert H. Johnson, Jr. and Peter Sacerdote and the brother of Jennifer
Bolt and Charles E. Johnson. Jennifer Bolt is the daughter of Charles B.
Johnson, the niece of Rupert H. Johnson, Jr. and Peter Sacerdote and the sister
of Charles E. Johnson and Gregory E. Johnson.
Information regarding the biographies of the directors of FRI and compliance
with Section 16(a) of the Exchange Act is incorporated by reference to the Proxy
Statement section entitled "Proposal 1: Election of Directors."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Proxy Statement section entitled "Proposal 1:
Election of Directors."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Proxy Statement section entitled "Principal
Holders of Voting Securities" and "Security Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Proxy Statement section entitled "Proposal 1:
Election of Directors - Certain Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Please see the index in Item 8 for a list of the financial statements
filed as part of this report
(2) Please see the index in Item 8 for a list of the financial statement
schedules filed as part of this report
(3) The following exhibits are filed as part of this report:
(3)(i)(a) Registrant's Certificate of Incorporation, as filed
November 28, 1969, incorporated by reference to Exhibit
(3)(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994 (the "1994 Annual
Report")
(3)(i)(b) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985, incorporated by
reference to Exhibit (3)(ii) to the 1994 Annual Report
(3)(i)(c) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987, incorporated by
reference to Exhibit (3)(iii) to the 1994 Annual Report
(3)(i)(d) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994, incorporated by
reference to Exhibit (3)(iv) to the 1994 Annual Report
(3)(ii) Registrant's Amended and Restated By-laws adopted
December 10, 1999
(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
10.1 Representative Distribution Plan between Templeton Growth Fund, Inc.
and Franklin/Templeton Investor Services, Inc. incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993 (the "1993 Annual
Report")
10.2 Representative Transfer Agent Agreement between Templeton Growth Fund,
Inc. and Franklin/Templeton Investor Services, Inc. incorporated by
reference to Exhibit 10.3 to the 1993 Annual Report
10.3 Representative Investment Management Agreement between Templeton
Growth Fund, Inc. and Templeton, Galbraith & Hansberger Ltd.
incorporated by reference to Exhibit 10.5 to the 1993 Annual Report
10.4 Representative Management Agreement between Advisers and the Franklin
Group of Funds incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992 (the "1992 Annual Report")
10.5 Representative Distribution 12b-1 Plan between Distributors and the
Franklin Group of Funds incorporated by reference to Exhibit 10.3 to
the 1992 Annual Report
10.6 Amended Annual Incentive Compensation Plan approved January 24, 1995
incorporated by reference to the Company's Proxy Statement filed under
cover of Schedule 14A on December 28, 1994 in connection with its
Annual Meeting of Stockholders held on January 24, 1995 *
10.7 Universal Stock Plan approved January 19, 1994 incorporated by
reference to the Company's 1995 Proxy Statement filed under cover of
Schedule 14A on December 29, 1993 in connection with its Annual
Meeting of Stockholders held on January 19, 1994 *
10.8 Representative Amended and Restated Distribution Agreement between
Franklin/Templeton Distributors, Inc. and Franklin Federal Tax-Free
Income Fund, incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995 (the "June 1995 Quarterly Report")
10.9 Distribution 12b-1 Plan for Class II shares between Franklin/Templeton
Distributors, Inc. and Franklin Federal Tax-Free Income Fund,
incorporated by reference to Exhibit 10.2 to the June 1995 Quarterly
Report
10.10 Representative Investment Management Agreement between Templeton
Global Strategy SICAV and Templeton Investment Management Limited,
incorporated by reference to Exhibit 10.3 to the June 1995 Quarterly
Report
10.11 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and BAC Corp. Securities, incorporated by
reference to Exhibit 10.4 to the June 1995 Quarterly Report
10.12 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to Exhibit
10.5 to the June 1995 Quarterly Report
10.13 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (ERISA), incorporated by reference
to Exhibit 10.6 to the June 1995 Quarterly Report
10.14 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (NON-ERISA), incorporated by
reference to Exhibit 10.7 to the June 1995 Quarterly Report
10.15 Representative Amended and Restated Transfer Agent and Shareholder
Services Agreement between Franklin/Templeton Investor Services, Inc.
and Franklin Custodian Funds, Inc., dated July 1, 1995, incorporated
by reference to Exhibit 10.16 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995 (the "1995 Annual
Report")
10.16 Representative Amended and Restated Distribution Agreement between
Franklin/Templeton Distributors, Inc. and Franklin Custodian Funds,
Inc., incorporated by reference to Exhibit 10.17 to the 1995 Annual
Report
10.17 Representative Class II Distribution Plan between Franklin/Templeton
Distributors, Inc. and Franklin Custodian Funds, Inc., on behalf of
its Growth Series, incorporated by reference to Exhibit 10.18 to the
1995 Annual Report
10.18 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to Exhibit
10.19 to the 1995 Annual Report
10.19 Representative Mutual Fund Purchase and Sales Agreement for Accounts
of Bank and Trust Company Customers, effective July 1, 1995,
incorporated by reference to Exhibit 10.20 to the 1995 Annual Report
10.20 Representative Management Agreement between Franklin Value Investors
Trust, on behalf of Franklin MicroCap Value Fund, and Franklin
Advisers, Inc., incorporated by reference to Exhibit 10.21 to the 1995
Annual Report
10.21 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and Sub-Distributor, incorporated by
reference to Exhibit 10.22 to the 1995 Annual Report
10.22 Representative Non-Exclusive Underwriting Agreement between Templeton
Growth Fund, Inc. and Templeton Franklin Investment Services (Asia)
Limited, dated September 18, 1995, incorporated by reference to
Exhibit 10.23 to the 1995 Annual Report
10.23 Representative Shareholder Services Agreement between
Franklin/Templeton Investor Services, Inc. and Templeton Franklin
Investment Services (Asia) Limited, dated September 18, 1995,
incorporated by reference to Exhibit 10.24 to the 1995 Annual Report
10.24 Agreement to Merge the Businesses of Heine Securities Corporation,
Elmore Securities Corporation and Franklin Resources, Inc., dated June
25, 1996, incorporated by reference to Exhibit 2 to Registrant's
Report on Form 8-K dated June 25, 1996
10.25 Subcontract for Transfer Agency and Shareholder Services dated
November 1, 1996 by and between Franklin Investor Services, Inc. and
PFPC Inc., incorporated by reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1996 (the "1996 Annual Report")
10.26 Representative Sample of Franklin/Templeton Investor Services, Inc.
Transfer Agent and Shareholder Services Agreement, incorporated by
reference to Exhibit 10.26 to the 1996 Annual Report
10.27 Representative Administration Agreement between Templeton Growth
Fund, Inc. and Franklin Templeton Services, Inc., incorporated by
reference to Exhibit 10.27 to the 1996 Annual Report
10.28 Representative Sample of Fund Administration Agreement with Franklin
Templeton Services, Inc., incorporated by reference to Exhibit 10.28
to the 1996 Annual Report
10.29 Representative Subcontract for Fund Administrative Services between
Franklin Advisers, Inc. and Franklin Templeton Services, Inc.,
incorporated by reference to Exhibit 10.29 to the 1996 Annual Report
10.30 Representative Investment Advisory Agreement between Franklin Mutual
Series Fund Inc. and Franklin Mutual Advisers, Inc., incorporated by
reference to Exhibit 10.30 to the 1996 Annual Report
10.31 Representative Management Agreement between Franklin Valuemark Funds
and Franklin Mutual Advisers, Inc., incorporated by reference to
Exhibit 10.31 to the 1996 Annual Report
10.32 Representative Investment Advisory and Asset Allocation Agreement
between Franklin Templeton Fund Allocator Series and Franklin
Advisers, Inc., incorporated by reference to Exhibit 10.32 to the 1996
Annual Report
10.33 Representative Management Agreement between Franklin New York
Tax-Free Income Fund, Inc. and Franklin Investment Advisory Services,
Inc., incorporated by reference to Exhibit 10.33 to the 1996 Annual
Report
10.34 1998 Employee Stock Investment Plan approved January 20, 1998,
incorporated by reference to the Company's Proxy Statement filed under
cover of Schedule 14A on December 17, 1997 in connection with its
Annual Meeting of Stockholders held on January 20, 1998
10.35 System Development and Services Agreement dated as of August 29, 1997
by and between Franklin/Templeton Investor Services, Inc. and Sungard
Shareholder Systems, Inc., incorporated by reference to Exhibit 10.35
to the 1997 Annual Report
10.36 1998 Universal Stock Incentive Plan approved October 16, 1998 by the
Board of Directors, incorporated by reference to the Company's Proxy
Statement filed under cover of Schedule 14A on December 23, 1998 in
connection with its Annual Meeting of Stockholders to be held on
January 28, 1999 *
10.37 Amendment No. 3 to the Agreement to Merge the Businesses of Heine
Securities Corporation, Elmore Securities Corporation and Franklin
Resources, Inc., dated December 17, 1997, incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1997
10.38 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,
incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1998
10.39 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (ERISA), as amended, incorporated
by reference to Exhibit 10.39 to the Company's Annual Report on Form
10-K/A for the fiscal year ended September 30, 1998 (the "1998 Annual
Report")
10.40 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (NON-ERISA), as amended,
incorporated by reference to Exhibit 10.40 to the 1998 Annual Report
10.41 Representative Variable Insurance Fund Participation Agreement among
Templeton Variable Products Series Fund or Franklin Valuemark Fund,
Franklin/Templeton Distributors, Inc. and an insurance company
incorporated by reference from Exhibit 10.1 to the form 10-Q for the
quarter ended December 31, 1998
10.42 Purchase Agreement between Mariners Island Co-Tenancy and Keynote
Systems, Inc. dated April 25, 2000 incorporated by reference to
Exhibit 10 to the Company's Report on Form 10-Q for the quarterly
period ended June 30, 2000
10.43 Acquisition Agreement dated July 26, 2000 among Franklin Resources,
Inc., FTI Acquisition and Bissett & Associates Investment Management,
Ltd., incorporated by reference to Registrant's Report on Form 8-K
dated August 1, 2000
10.44 Agreement and Plan of Share Acquisition between Franklin Resources,
Inc. and Fiduciary Trust Company International dated October 25, 2000,
incorporated by reference to Registrant's Report on Form 8-K/A
(Amendment No. 1) dated October 25, 2000 and filed on October 26, 2000
10.45 Representative Amended and Restated Distribution Agreement among
Templeton Emerging Markets Fund, Templeton Canadian Bond Fund,
Templeton International Stock Fund, Templeton Canadian Stock Fund,
Templeton Global Smaller Companies Fund, Templeton Global Bond Fund,
Templeton Treasury Bill Fund, Templeton Global Balanced Fund,
Templeton International Balanced Fund, Templeton Canadian Asset
Allocation Fund, Mutual Beacon Fund, Franklin U.S. Small Cap Growth
Fund, Templeton Balanced Fund, Templeton Growth Fund, Ltd., Templeton
Management Limited and FEP Capital, L.P. dated December 31, 1998
10.46 Representative Purchase and Sales Agreement by and among
Franklin/Templeton Distributors, Inc., Franklin Resources, Inc. and
Lightning Finance Company Limited dated August 1, 1999
10.47 Representative Advisory Agreement between Templeton Global Advisers
Limited and Templeton Asset Management Limited dated December 21, 1999
10.48 Representative Amended and Restated Commission Paying Agreement
between Templeton Global Strategy Funds, Templeton Global Advisors
Limited, Templeton Global Strategic Services S.A., and Lightning
Finance Company Limited dated January 31, 2000
10.49 Representative Variable Insurance Fund Participation Agreement among
Franklin Templeton Variable Insurance Products Trust (formerly
Franklin Valuemark Funds), Franklin/Templeton Distributors, Inc. and
CUNA Mutual Life Insurance Company dated May 1, 2000
10.50 Stock Purchase Agreement between Good Morning Securities Co., Ltd.
and Templeton Investment Counsel, Inc. dated June 29, 2000
10.51 Agreement entered into between NEDCOR Investment Bank Holdings
limited, NEDCOR Investment Bank Limited, Templeton International,
inc., Franklin Templeton Asset Management (Proprietary) Limited and
Templeton Global Advisors Limited dated August 1, 2000
10.52 Representative Amended and Restated Distribution Agreement between
Franklin-Templeton Distributors, Inc. and Franklin Growth and Income
Fund dated August 10, 2000
12 Computation of Ratios of Earnings to Fixed Charges
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
* Compensatory Plan
(b)(1) Report on Form 8-K dated July 11, 2000 was filed on July 13, 2000
under Items 5 and 7
(b)(2) Report on Form 8-K dated July 26, 2000 was filed on August 1, 2000
under Items 5 and 7
(b)(3) Report on Form 8-K dated July 27, 2000 was filed on August 2, 2000
attaching Registrant's press release dated July 27, 2000 under Items 5
and 7
(b)(4) Report on Form 8-K dated and filed on October 25, 2000 under Items 5
and 7
(b)(5) Report on Form 8-K/A (Amendment No. 1) dated October 25, 2000 was
filed on October 26, 2000 under Items 5 and 7
(c) See Item 14(a)(3) above
(d) No separate financial statements are required; schedules are included
in Item 8
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
FRANKLIN RESOURCES, INC.
Date: December 7, 2000 By: /S/ CHARLES B. JOHNSON
----------------------
Charles B. Johnson, Chairman, Chief
Executive Officer, and Member-Office of the
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Date: December 7, 2000 By: /S/ CHARLES B. JOHNSON
----------------------
Charles B. Johnson,
Chairman, Chief Executive Officer,
Member-Office of the Chairman, and Director
Date: December 7, 2000 By: /S/ HARMON E. BURNS
-------------------
Harmon E. Burns,
Vice Chairman, Member - Office of the
Chairman, and Director
Date: December 7, 2000 By: /S/ MARTIN L. FLANAGAN
----------------------
Martin L. Flanagan,
President, Member-Office of the President,
and Chief Financial Officer
Date: December 7, 2000 By: /S/ ALLEN J. GULA, JR.
----------------------
Allen J. Gula, Jr.,
President, and Member-Office of the
President
Date: December 7, 2000 By: /S/ CHARLES E. JOHNSON
----------------------
Charles E. Johnson,
President, Member-Office of the
President, and Director
Date: December 7, 2000 By: /S/ GREGORY E. JOHNSON
----------------------
Gregory E. Johnson,
President, and Member-Office of the
President
Date: December 7, 2000 By: /S/ RUPERT H. JOHNSON, JR.
--------------------------
Rupert H. Johnson, Jr.,
Vice Chairman, Member - Office of
the Chairman, and Director
Date: December 7, 2000 By: /S/ HARRY O. KLINE
------------------
Harry O. Kline, Director
Date: December 7, 2000 By: /S/ JAMES A. MCCARTHY
---------------------
James A. McCarthy, Director
Date: December 7, 2000 By: /S/ PETER M. SACERDOTE
----------------------
Peter M. Sacerdote, Director
Date: December 7, 2000 By: /S/ CHARLES R. SIMS
-------------------
Charles R. Sims, Vice President - Finance,
Chief Accounting Officer, and Treasurer
Date: December 7, 2000 By: /S/ LOUIS E. WOODWORTH
----------------------
Louis E. Woodworth, Director
Exhibits (other than 12, 21 and 23) deleted, but filed with the Securities and
Exchange Commission.
EXHIBIT INDEX
EXHIBIT NO.
(3)(i)(a) Registrant's Certificate of Incorporation, as filed
November 28, 1969, incorporated by reference to Exhibit
(3)(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994 (the "1994 Annual
Report")
(3)(i)(b) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985, incorporated by
reference to Exhibit (3)(ii) to the 1994 Annual Report
(3)(i)(c) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987, incorporated by
reference to Exhibit (3)(iii) to the 1994 Annual Report
(3)(i)(d) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994, incorporated by
reference to Exhibit (3)(iv) to the 1994 Annual Report
(3)(ii) Registrant's Amended and Restated By-laws adopted
December 10, 1999
(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
10.1 Representative Distribution Plan between Templeton Growth Fund, Inc.
and Franklin/Templeton Investor Services, Inc. incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993 (the "1993 Annual
Report")
10.2 Representative Transfer Agent Agreement between Templeton Growth Fund,
Inc. and Franklin/Templeton Investor Services, Inc. incorporated by
reference to Exhibit 10.3 to the 1993 Annual Report
10.3 Representative Investment Management Agreement between Templeton
Growth Fund, Inc. and Templeton, Galbraith & Hansberger Ltd.
incorporated by reference to Exhibit 10.5 to the 1993 Annual Report
10.4 Representative Management Agreement between Advisers and the Franklin
Group of Funds incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992 (the "1992 Annual Report")
10.5 Representative Distribution 12b-1 Plan between Distributors and the
Franklin Group of Funds incorporated by reference to Exhibit 10.3 to
the 1992 Annual Report
10.6 Amended Annual Incentive Compensation Plan approved January 24, 1995
incorporated by reference to the Company's Proxy Statement filed under
cover of Schedule 14A on December 28, 1994 in connection with its
Annual Meeting of Stockholders held on January 24, 1995 *
10.7 Universal Stock Plan approved January 19, 1994 incorporated by
reference to the Company's 1995 Proxy Statement filed under cover of
Schedule 14A on December 29, 1993 in connection with its Annual
Meeting of Stockholders held on January 19, 1994 *
10.8 Representative Amended and Restated Distribution Agreement between
Franklin/Templeton Distributors, Inc. and Franklin Federal Tax-Free
Income Fund, incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995 (the "June 1995 Quarterly Report")
10.9 Distribution 12b-1 Plan for Class II shares between Franklin/Templeton
Distributors, Inc. and Franklin Federal Tax-Free Income Fund,
incorporated by reference to Exhibit 10.2 to the June 1995 Quarterly
Report
10.10 Representative Investment Management Agreement between Templeton
Global Strategy SICAV and Templeton Investment Management Limited,
incorporated by reference to Exhibit 10.3 to the June 1995 Quarterly
Report
10.11 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and BAC Corp. Securities, incorporated by
reference to Exhibit 10.4 to the June 1995 Quarterly Report
10.12 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to Exhibit
10.5 to the June 1995 Quarterly Report
10.13 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (ERISA), incorporated by reference
to Exhibit 10.6 to the June 1995 Quarterly Report
10.14 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (NON-ERISA), incorporated by
reference to Exhibit 10.7 to the June 1995 Quarterly Report
10.15 Representative Amended and Restated Transfer Agent and Shareholder
Services Agreement between Franklin/Templeton Investor Services, Inc.
and Franklin Custodian Funds, Inc., dated July 1, 1995, incorporated
by reference to Exhibit 10.16 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995 (the "1995 Annual
Report")
10.16 Representative Amended and Restated Distribution Agreement between
Franklin/Templeton Distributors, Inc. and Franklin Custodian Funds,
Inc., incorporated by reference to Exhibit 10.17 to the 1995 Annual
Report
10.17 Representative Class II Distribution Plan between Franklin/Templeton
Distributors, Inc. and Franklin Custodian Funds, Inc., on behalf of
its Growth Series, incorporated by reference to Exhibit 10.18 to the
1995 Annual Report
10.18 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to Exhibit
10.19 to the 1995 Annual Report
10.19 Representative Mutual Fund Purchase and Sales Agreement for Accounts
of Bank and Trust Company Customers, effective July 1, 1995,
incorporated by reference to Exhibit 10.20 to the 1995 Annual Report
10.20 Representative Management Agreement between Franklin Value Investors
Trust, on behalf of Franklin MicroCap Value Fund, and Franklin
Advisers, Inc., incorporated by reference to Exhibit 10.21 to the 1995
Annual Report
10.21 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and Sub-Distributor, incorporated by
reference to Exhibit 10.22 to the 1995 Annual Report
10.22 Representative Non-Exclusive Underwriting Agreement between Templeton
Growth Fund, Inc. and Templeton Franklin Investment Services (Asia)
Limited, dated September 18, 1995, incorporated by reference to
Exhibit 10.23 to the 1995 Annual Report
10.23 Representative Shareholder Services Agreement between
Franklin/Templeton Investor Services, Inc. and Templeton Franklin
Investment Services (Asia) Limited, dated September 18, 1995,
incorporated by reference to Exhibit 10.24 to the 1995 Annual Report
10.24 Agreement to Merge the Businesses of Heine Securities Corporation,
Elmore Securities Corporation and Franklin Resources, Inc., dated June
25, 1996, incorporated by reference to Exhibit 2 to Registrant's
Report on Form 8-K dated June 25, 1996
10.25 Subcontract for Transfer Agency and Shareholder Services dated
November 1, 1996 by and between Franklin Investor Services, Inc. and
PFPC Inc., incorporated by reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1996 (the "1996 Annual Report")
10.26 Representative Sample of Franklin/Templeton Investor Services, Inc.
Transfer Agent and Shareholder Services Agreement, incorporated by
reference to Exhibit 10.26 to the 1996 Annual Report
10.27 Representative Administration Agreement between Templeton Growth
Fund, Inc. and Franklin Templeton Services, Inc., incorporated by
reference to Exhibit 10.27 to the 1996 Annual Report
10.28 Representative Sample of Fund Administration Agreement with Franklin
Templeton Services, Inc., incorporated by reference to Exhibit 10.28
to the 1996 Annual Report
10.29 Representative Subcontract for Fund Administrative Services between
Franklin Advisers, Inc. and Franklin Templeton Services, Inc.,
incorporated by reference to Exhibit 10.29 to the 1996 Annual Report
10.30 Representative Investment Advisory Agreement between Franklin Mutual
Series Fund Inc. and Franklin Mutual Advisers, Inc., incorporated by
reference to Exhibit 10.30 to the 1996 Annual Report
10.31 Representative Management Agreement between Franklin Valuemark Funds
and Franklin Mutual Advisers, Inc., incorporated by reference to
Exhibit 10.31 to the 1996 Annual Report
10.32 Representative Investment Advisory and Asset Allocation Agreement
between Franklin Templeton Fund Allocator Series and Franklin
Advisers, Inc., incorporated by reference to Exhibit 10.32 to the 1996
Annual Report
10.33 Representative Management Agreement between Franklin New York
Tax-Free Income Fund, Inc. and Franklin Investment Advisory Services,
Inc., incorporated by reference to Exhibit 10.33 to the 1996 Annual
Report
10.34 1998 Employee Stock Investment Plan approved January 20, 1998,
incorporated by reference to the Company's Proxy Statement filed under
cover of Schedule 14A on December 17, 1997 in connection with its
Annual Meeting of Stockholders held on January 20, 1998
10.35 System Development and Services Agreement dated as of August 29, 1997
by and between Franklin/Templeton Investor Services, Inc. and Sungard
Shareholder Systems, Inc., incorporated by reference to Exhibit 10.35
to the 1997 Annual Report
10.36 1998 Universal Stock Incentive Plan approved October 16, 1998 by the
Board of Directors, incorporated by reference to the Company's Proxy
Statement filed under cover of Schedule 14A on December 23, 1998 in
connection with its Annual Meeting of Stockholders to be held on
January 28, 1999 *
10.37 Amendment No. 3 to the Agreement to Merge the Businesses of Heine
Securities Corporation, Elmore Securities Corporation and Franklin
Resources, Inc., dated December 17, 1997, incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1997
10.38 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,
incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1998
10.39 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (ERISA), as amended, incorporated
by reference to Exhibit 10.39 to the Company's Annual Report on Form
10-K/A for the fiscal year ended September 30, 1998 (the "1998 Annual
Report")
10.40 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (NON-ERISA), as amended,
incorporated by reference to Exhibit 10.40 to the 1998 Annual Report
10.41 Representative Variable Insurance Fund Participation Agreement among
Templeton Variable Products Series Fund or Franklin Valuemark Fund,
Franklin/Templeton Distributors, Inc. and an insurance company
incorporated by reference from Exhibit 10.1 to the form 10-Q for the
quarter ended December 31, 1998
10.42 Purchase Agreement between Mariners Island Co-Tenancy and Keynote
Systems, Inc. dated April 25, 2000 incorporated by reference to
Exhibit 10 to the Company's Report on Form 10-Q for the quarterly
period ended June 30, 2000
10.43 Acquisition Agreement dated July 26, 2000 among Franklin Resources,
Inc., FTI Acquisition and Bissett & Associates Investment Management,
Ltd., incorporated by reference to Registrant's Report on Form 8-K
dated August 1, 2000
10.44 Agreement and Plan of Share Acquisition between Franklin Resources,
Inc. and Fiduciary Trust Company International dated October 25, 2000,
incorporated by reference to Registrant's Report on Form 8-K/A
(Amendment No. 1) dated October 25, 2000 and filed on October 26, 2000
10.45 Representative Amended and Restated Distribution Agreement among
Templeton Emerging Markets Fund, Templeton Canadian Bond Fund,
Templeton International Stock Fund, Templeton Canadian Stock Fund,
Templeton Global Smaller Companies Fund, Templeton Global Bond Fund,
Templeton Treasury Bill Fund, Templeton Global Balanced Fund,
Templeton International Balanced Fund, Templeton Canadian Asset
Allocation Fund, Mutual Beacon Fund, Franklin U.S. Small Cap Growth
Fund, Templeton Balanced Fund, Templeton Growth Fund, Ltd., Templeton
Management Limited and FEP Capital, L.P. dated December 31, 1998
10.46 Representative Purchase and Sales Agreement by and among
Franklin/Templeton Distributors, Inc., Franklin Resources, Inc. and
Lightning Finance Company Limited dated August 1, 1999
10.47 Representative Advisory Agreement between Templeton Global Advisers
Limited and Templeton Asset Management Limited dated December 21, 1999
10.48 Representative Amended and Restated Commission Paying Agreement
between Templeton Global Strategy Funds, Templeton Global Advisors
Limited, Templeton Global Strategic Services S.A., and Lightning
Finance Company Limited dated January 31, 2000
10.49 Representative Variable Insurance Fund Participation Agreement among
Franklin Templeton Variable Insurance Products Trust (formerly
Franklin Valuemark Funds), Franklin/Templeton Distributors, Inc. and
CUNA Mutual Life Insurance Company dated May 1, 2000
10.50 Stock Purchase Agreement between Good Morning Securities Co., Ltd.
and Templeton Investment Counsel, Inc. dated June 29, 2000
10.51 Agreement entered into between NEDCOR Investment Bank Holdings
limited, NEDCOR Investment Bank Limited, Templeton International,
inc., Franklin Templeton Asset Management (Proprietary) Limited and
Templeton Global Advisors Limited dated August 1, 2000
10.52 Representative Amended and Restated Distribution Agreement between
Franklin-Templeton Distributors, Inc. and Franklin Growth and Income
Fund dated August 10, 2000
12 Computation of Ratios of Earnings to Fixed Charges
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
* Compensatory Plan
(b)(1) Report on Form 8-K dated July 11, 2000 was filed on July 13, 2000
under Items 5 and 7
(b)(2) Report on Form 8-K dated July 26, 2000 was filed on August 1, 2000
under Items 5 and 7
(b)(3) Report on Form 8-K dated July 27, 2000 was filed on August 2, 2000
attaching Registrant's press release dated July 27, 2000 under Items 5
and 7
(b)(4) Report on Form 8-K dated and filed on October 25, 2000 under Items 5
and 7
(b)(5) Report on Form 8-K/A (Amendment No. 1) dated October 25, 2000 was
filed on October 26, 2000 under Items 5 and 7
(c) See Item 14(a)(3) above
(d) No separate financial statements are required; schedules are included
in Item 8