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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1996
OR
[ ]
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9318
FRANKLIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2670991
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (415 312-2000)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, PAR VALUE $.10 PER SHARE NEW YORK STOCK EXCHANGE
COMMON STOCK, PAR VALUE $.10 PER SHARE PACIFIC STOCK EXCHANGE
COMMON STOCK, PAR VALUE $.10 PER SHARE LONDON STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
(Title of class)
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing price of $64.750 on December 13, 1996 on the
New York Stock Exchange was $2,684,730,286. Calculation of holdings by
non-affiliates is based upon the assumption, for these purposes only, that
officers, directors, nominees, Registrant's Profit Sharing Plan and persons
holding 5% or more of Registrant's Common Stock are affiliates. Number of shares
of the registrant's common stock outstanding at December 13, 1996: 83,739,711.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant's proxy statement for its Annual Meeting
of Stockholders to be held January 23, 1997, which will be filed with the
Commission before, on or subsequent to the date hereof, are incorporated by
reference into Part III of this report.
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Franklin Resources, Inc. ("FRI") and its predecessors have been engaged in the
financial services business since 1947. FRI was organized in Delaware in
November 1969. The term "Company" as used herein, unless the context otherwise
requires, refers to Franklin Resources, Inc. and its subsidiaries. The Company's
principal executive and administrative offices are at 777 Mariners Island
Boulevard, San Mateo, California 94404. As of September 30, 1996, the Company
employed approximately 4,960 employees on a worldwide basis, consisting of
officers,
investment management, distribution, administrative, sales and clerical support
staff. The Company also employs additional temporary help as necessary to meet
unusual requirements. Management believes that its relations with its employees
are excellent.
On October 30, 1992, the Company and certain of its direct and indirect
subsidiaries consummated the Templeton acquisition (the "Templeton Acquisition")
of substantially all of the assets and liabilities of Templeton, Galbraith &
Hansberger Ltd., a corporation organized under the laws of the Cayman Islands
and based in Nassau, Bahamas ("Old TGH"), which provided diversified investment
management and related services on a worldwide basis directly and through
subsidiaries to various domestic open-end and closed-end investment companies as
well as to a variety of international investment portfolios and to domestic and
international private and institutional accounts. Unless the context otherwise
requires, references herein to "Templeton" are deemed to refer to the business
operations acquired by the Company in connection with the Templeton Acquisition.
Subsequent to the Templeton Acquisition, the Company has operated the Franklin
and Templeton businesses on a unified basis.
In November 1993, the Company consummated an agreement to manage and advise the
Huntington Funds of Pasadena, California, now called the Franklin Templeton
Global Trust. This open-end investment company of several currency portfolio
series includes the Franklin Templeton Global Currency Fund, the Franklin
Templeton Hard Currency Fund and the Franklin Templeton High Income Currency
Fund, which invests in high quality foreign equivalent money market instruments
in various global currencies, as well as the Franklin Templeton German
Government Bond Fund, which invests in German government bonds and equivalents.
In November 1996, after the close of the fiscal year, the Company and its
wholly-owned subsidiary, Franklin Mutual Advisers, Inc. ("FMAI") acquired (the
"Mutual Acquisition") certain assets and liabilities of Heine Securities
Corporation ("Heine"). FMAI became the investment adviser to Heine's principal
client, Mutual Series Fund Inc., an open-end investment company with five (5)
series funds ("Mutual Series").
The base purchase price consisted of a $400 million cash payment, the delivery
of 1.1 million shares (the "Shares") of the Company's Common Stock and the
deposit into escrow of $150 million to be invested in shares of Mutual Series.,
which shares will be released over a five year period, with a minimum $100
million retention for the full five year period. In addition to the base
purchase price, the transaction included a contingent payment ranging from
$96.25 million to $192.5 million if certain agreed upon growth targets are met
over the next five years.
For a two-year period following the closing of the Mutual Acquisition, Heine and
its chief executive officer, Michael F. Price must limit their ownership of the
Company's common stock to no more than 4.9% and have also agreed to certain
limitations on the transferability of the Shares. In addition, the Shares must
be voted in accordance with the recommendations of the Company's Board of
Directors. The Company has also granted certain registration rights with respect
to the Shares. Mr. Price and five senior executives of Heine entered into
employment agreements assumed by FMAI upon the consummation of the transaction.
The purchase price paid at the closing, which took place effective as of
November 1, 1996, was funded through a combination of the Company's available
cash, securities and the sale of commercial paper.
The description of the Company's business does not include matters relating to
the Mutual Acquisition which occurred after the close of the fiscal year.
FRI is principally a parent company primarily engaged, through various
subsidiaries, in providing investment management, marketing, distribution,
transfer agency and administrative services to the open-end investment companies
of the Franklin Templeton Group of Funds and to domestic and international
managed and institutional accounts. The Company also provides investment
management and related services to a number of Franklin and Templeton closed-end
investment companies whose shares are traded on various major domestic and some
international stock exchanges. In addition, the Company provides investment
management, marketing and distribution services to certain sponsored investment
companies organized in the Grand Duchy of Luxembourg (hereinafter referred to as
"SICAV Funds"), which are distributed in marketplaces outside of North America
and to certain investment funds and portfolios in Canada (hereinafter referred
to as "Canadian Funds") as well as to certain other international portfolios in
the United Kingdom and elsewhere. The Franklin Group of Funds("R") consists of
thirty-five (35) open-end investment companies (mutual funds) with multiple
portfolios. The Templeton Family of Funds includes fourteen (14) open-end
investment companies (mutual funds) with multiple portfolios.
The Franklin Group of Funds and the Templeton Family of Funds are hereinafter
referred to individually as a "Franklin fund" or a "Templeton fund" and
collectively as the "Franklin funds" or the "Templeton funds", or, when
applicable to both fund groups, individually as a "Fund" and collectively as the
"Franklin and Templeton funds" or the "Funds". The closed-end investment
companies, the foreign based funds and the other domestic and international
managed and institutional accounts are collectively referred to as the "Other
Assets". The Franklin and Templeton funds along with the Other Assets are
collectively referred to as the "Franklin Templeton Group".
As of September 30, 1996, (which excludes assets under management after the
close of the fiscal year resulting from the Mutual Acquisition) total assets
under management in the Franklin Templeton Group were $151.6 billion, the
make-up of which was approximately as follows: for the open-end investment
companies in the Franklin Group of Funds (excluding variable annuities), $73.5
billion; for the open-end investment companies in the Templeton Family of Funds
(excluding variable annuities), $41.7 billion; for all the Other Assets
(including variable annuities), $36.4 billion. This makes the Franklin Templeton
Group one of the largest investment management complexes in the United States.
The mix of assets under management by a large financial services complex such as
the Franklin Templeton Group can be segregated by type of assets, type of
investment vehicle, type of investor or geographic location of assets held.
International and domestic equity assets under management, whether held for
growth potential, income potential or various combinations thereof by all types
of investors, including institutional and separate accounts on a worldwide
basis, were approximately $86.7 billion at September 30, 1996 and represent
approximately 57% of total assets under management. Fixed-income assets (both
long and short-term), including money market fund assets, held by all types of
investors on a worldwide basis were approximately $64.9 billion and represented
43% of total assets under management at fiscal year end. Equity growth and
equity income assets in funds primarily sold to non institutional investors were
$66.4 billion and represented 44% of total assets under management at fiscal
year end. A significant portion of these equity assets ($47.2 billion) held in
funds sold primarily to non institutional investors were in global and
international equity funds. Assets under management for institutional accounts,
whether in institutional mutual funds, separate accounts or other types of
investment products, were approximately $21.3 billion or 14% of total assets
under management at fiscal year end and were primarily invested in global and
international equities. Assets under management by U.S. based closed-end funds
were $4.2 billion at September 30, 1996.
The Company, through certain subsidiaries, also provides advisory services,
variable annuity products, and sponsors and manages public and private real
estate programs. Other subsidiaries offer consumer banking services, insured
deposits, dealer auto loans, and credit cards. The Company also provides
custodial, trustee and fiduciary services to IRA and profit sharing or money
purchase plans and to qualified retirement plans and private trusts. From time
to time, the Company also participates in various investment management joint
ventures. On a consolidated worldwide basis, the Company provides domestic and
international individual and institutional investors with a broad range of
investment products and services designed to meet varying investment objectives,
which affords its clients the opportunity to allocate their investment resources
among various alternative investment products as changing worldwide economic and
market conditions warrant.
SUBSIDIARIES-INVESTMENT MANAGEMENT, ADMINISTRATION, DISTRIBUTION AND RELATED
SERVICES
The Company's principal line of business is providing investment management,
administration, distribution and related services for the Franklin and Templeton
funds and for the Other Assets. This business is primarily conducted through the
principal wholly-owned direct and indirect subsidiary companies described below.
Revenues are generated primarily by subsidiaries that provide advisory and
management services. Revenues are derived primarily from investment management
fees calculated on a sliding scale fund-by-fund basis in relation to fund assets
under management.
FRANKLIN ADVISERS, INC.
Franklin Advisers, Inc. ("Advisers") is a California corporation formed in 1985
and is based in San Mateo, California. Advisers is registered as an investment
advisor with the Securities and Exchange Commission ( the "SEC") under the
Investment Advisers Act of 1940 (the "Advisers Act") and is also registered as
an investment advisor in the States of California and New Jersey. Advisers
provides investment advisory, portfolio management and administrative services
under management agreements with most of the Funds in the Franklin Group of
Funds. Advisers manages approximately $81.3 billion, representing approximately
54% of the Company's total assets under management, and generates approximately
25% of total Company revenues.
FRANKLIN ADVISORY SERVICES, INC.
Franklin Advisory Services, Inc. ("FASI") is a Delaware corporation formed in
1996 and is based in Fort Lee, New Jersey. FASI is registered as an investment
advisor with the SEC under the Advisers Act and is also registered as an
investment advisor in the State of New Jersey. FASI provides investment advisory
and portfolio management services under management agreements with certain funds
in the Franklin Group of Funds.
TEMPLETON GLOBAL ADVISORS LIMITED.
Templeton Global Advisors Limited "TGAL" is a Bahamian corporation located in
Nassau, Bahamas formed in connection with the Templeton Acquisition and is the
successor company to Old TGH. TGAL is registered as an investment advisor with
the SEC under the Advisers Act. TGAL provides investment advisory, portfolio
management and administrative services under various agreements with certain of
the Templeton funds and Other Assets. TGAL is the principal investment advisor
to the Templeton funds and manages approximately $34.8 billion, representing
approximately 23% of the Company's total assets under management.
FRANKLIN INVESTMENT ADVISORY SERVICES, INC.
Franklin Investment Advisory Services, Inc. ("FIASI") is a Delaware corporation
formed in 1996 and is based in Norwalk, Connecticut. FIASI is registered as an
investment advisor with the SEC under the Advisers Act.
FRANKLIN TEMPLETON SERVICES, INC.
Franklin Templeton Services, Inc. ("FTSI") is a Delaware corporation formed in
1996 and is based in San Mateo, California. FTSI provides business management
services, including fund accounting, securities pricing, trading, compliance and
other related administrative activities under various management agreements to
certain of the Franklin and Templeton funds.
TEMPLETON INVESTMENT COUNSEL, INC.
Templeton Investment Counsel, Inc. ("TICI") is a Florida corporation formed in
October, 1979, based in Ft. Lauderdale, Florida TICI is the principal investment
advisor to managed and institutional accounts. In addition, it provides
investment advisory portfolio management services to certain of the Templeton
funds and subadvisory services to certain of the Franklin funds. TICI manages
approximately $13.9 billion, representing 9% of the Company's total assets under
management.
TEMPLETON ASSET MANAGEMENT LTD.
Templeton Asset Management Ltd. ("Templeton Singapore") is a corporation
organized under the laws of and based in Singapore. It is registered as the
foreign equivalent of an investment advisor in Singapore with the Monetary
Authority of Singapore and is also registered with the SEC under the Advisers
Act. A representative office of Templeton Singapore is registered as the foreign
equivalent of an investment advisor in Hong Kong. Templeton Singapore provides
investment advisory and related services to certain Templeton funds and
portfolios. Templeton Singapore is principally an investment advisor to emerging
market equity portfolios.
TEMPLETON/FRANKLIN INVESTMENT SERVICES (ASIA) LIMITED
Templeton/Franklin Investment Services (Asia) Limited is a corporation organized
under the laws of, and is based in, Hong Kong. It was formed in late 1993 to
distribute and service the Company's financial products in Asia.
TEMPLETON MANAGEMENT LIMITED
Templeton Management Limited is a Canadian corporation formed in October 1982,
and is registered in Canada as the foreign equivalent of an investment advisor
and a mutual fund dealer with the Ontario Securities Commission. It provides
investment advisory, portfolio management, distribution and administrative
services under various management agreements with the Canadian Funds and with
private and institutional accounts.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
Franklin/Templeton Distributors, Inc. ("Distributors") is a New York corporation
formed in 1947. It is registered with the SEC as a broker-dealer and as an
investment advisor and is a member of the National Association of Securities
Dealers, Inc. (the "NASD"). As the underwriter of the shares of most of the
Franklin and Templeton funds, it earns underwriting commissions on the
distribution of shares of the Funds.
TEMPLETON/FRANKLIN INVESTMENT SERVICES, INC.
Templeton/Franklin Investment Services, Inc. ("TFIS") is a Delaware corporation
formed in October 1987 and is registered with the SEC as a broker-dealer and an
investment advisor. Its principal business activities include: (i) through its
Templeton Portfolio Advisory division, serving as a sponsor of a comprehensive
fee (wrap account) program, in which it provides investment advisory and
broker-dealer services, as well as serving as investment adviser in other
broker-dealer wrap account programs and directly as an adviser for separate
accounts; and (ii) serving as a direct marketing broker-dealer for institutional
investors in Franklin Templeton Funds.
FRANKLIN/TEMPLETON INVESTOR SERVICES, INC.
Franklin/Templeton Investor Services, Inc. ("FTIS") is a California corporation
formed in 1981 which provides shareholder record keeping services and acts as
transfer agent and dividend-paying agent for the Franklin and Templeton funds.
FTIS is registered with the SEC as a transfer agent under the Securities
Exchange Act of 1934 (the "Exchange Act"). FTIS is compensated under an
agreement with each Franklin and Templeton open-end mutual fund on the basis of
a fixed annual fee per account, which varies with the Fund and the type of
services being provided.
OTHER TEMPLETON INVESTMENT ADVISORY, DISTRIBUTION, RESEARCH AND RELATED
SUBSIDIARIES are organized and/or located in California, Florida, Australia, the
Bahamas, France, Germany, India, Italy, Luxembourg, and the United Kingdom, and
provide investment advisory and related services to other subsidiaries of the
Company and to various domestic and foreign portfolios and private and
institutional accounts. In addition, the Company, through various Templeton
subsidiaries, has opened or is in the process of opening branch offices or in
some instances forming subsidiaries in various other international locations,
including Argentina, Cyprus, Hungary, Japan, Mauritius, Russia, South Africa,
and Vietnam.
FRANKLIN TEMPLETON TRUST COMPANY
Franklin Templeton Trust Company ("FTTC"), a California corporation formed in
October 1983, is a trust company licensed by the California Superintendent of
Banks. FTTC serves primarily as custodian for Individual Retirement Accounts and
profit sharing or money purchase plans whose assets are invested in the Franklin
and Templeton funds, and as trustee or fiduciary of private trusts and
retirement plans.
TEMPLETON FUNDS TRUST COMPANY
Templeton Funds Trust Company ("TFTC"), a Florida corporation formed in
December, 1985, is a trust company licensed by the Florida Office of the
Comptroller. TFTC provides sub-administration services through Franklin
Templeton Trust Company to Individual Retirement Accounts and profit sharing or
money purchase whose assets are invested in the Templeton Family of Funds, and
serves as trustee of commingled trusts for qualified retirement plans.
FRANKLIN MANAGEMENT, INC.
Franklin Management, Inc. ("FMI"), a California corporation organized in
February 1978, is a registered investment advisor for private accounts. FMI also
provides advisory services to third party broker-dealer wrap fee programs.
FRANKLIN INSTITUTIONAL SERVICES CORPORATION
Franklin Institutional Services Corporation ("FISCO") is a California
corporation organized in August 1991. FISCO is a registered investment advisor
and provides services to bank trust departments, municipalities, corporate and
public pension plans and pension consultants.
FRANKLIN AGENCY, INC.
Franklin Agency, Inc. ("Agency") is a California corporation organized in
December 1971. Agency provides insurance agency services for the Franklin
Valuemark annuity products.
TEMPLETON FUNDS ANNUITY COMPANY
Templeton Funds Annuity Company ("TFAC") is a Florida corporation formed in
January 1984 which offers variable annuity products. TFAC is principally
regulated by the Florida Department of Insurance and Treasurer.
TEMPLETON WORLDWIDE, INC.
Templeton Worldwide, Inc. is a Delaware corporation organized in July 1992 as
the parent holding company for all of the Templeton companies .
SUBSIDIARIES-OTHER FINANCIAL SERVICES
In addition to its principal business activity of providing investment
management and related services, during all or portions of the fiscal year, the
Company was also engaged in two (2) other lines of business in the financial
services marketplace conducted through the subsidiaries described below:
consumer lending services and the management of public and private real estate
programs.
Consumer Lending Services
FRANKLIN BANK (the "Bank"), a 98.2%-owned subsidiary of the Company, is a
non-Federal Reserve member California State chartered bank. The Bank was formed
in 1974 and was acquired by the Company in December 1985. The Bank, with total
assets of $152.3 million as of September 30, 1996, provides consumer banking
products and services such as credit cards, auto loans, deposit accounts and
consumer loans. The Bank does not exercise its commercial lending powers in
order to maintain its status as a "non-bank bank" pursuant to the provisions of
the Competitive Equality Banking Act of 1987 ("CEBA") which permits the Company,
a "non banking company" prior to CEBA, to remain exempt from the Bank Holding
Company Act under the "grandfathering" provisions of CEBA. As a non-bank bank,
it is subject to various regulatory limitations, including limits on the
increase in its asset growth to 7% on an annual basis as well as a prohibition
on engaging in any activity in which it was not engaged in March of 1987.
FRANKLIN CAPITAL CORPORATION
Franklin Capital Corporation ("FCC") is a Utah corporation formed in June 1993
to expand the Company's auto lending activities. FCC conducts its business
primarily in the Western region of the United States and originates its loans
through a network of auto dealerships representing a wide variety of makes and
models. FCC offers several different loan programs to finance new and used
vehicles. FCC also acquires credit card receivables from the Bank. As of
September 30, 1996, FCC's total assets included $174.6 million of gross
automobile contracts and $70.4 million of gross credit card receivables.
Real Estate Subsidiaries
The Company's real estate related line of business is conducted primarily
through two (2) principal subsidiary corporations. Franklin Properties, Inc.
("FPI") is a real estate investment and management company organized in
California in April 1988, which managed three (3) publicly traded real estate
investment trusts, until May 7, 1996, at which time two of the real estate
investment trusts were merged into the third real estate investment trust, and
renamed Franklin Select Realty Trust, Inc. Franklin Select Realty Trust, Inc.
continues to be managed by FPI under an advisory agreement and is publicly
traded on the American Stock Exchange Property Resources, Inc. ("PRI"), a
California corporation organized in April 1967 and acquired by the Company in
December 1985, serves as general partner or advisor for certain other real
estate investment programs.
INVESTMENT MANAGEMENT
The Franklin Templeton Group accommodates a variety of investment objectives,
including, capital appreciation, growth and income, income, tax-free income and
stability of principal. In seeking to achieve such objectives, each portfolio
emphasizes different investment securities. Portfolios seeking income focus on
taxable and tax-exempt money market instruments, tax-exempt municipal bonds,
fixed-income debt securities of corporations and of the United States government
and its agencies and instrumentalities such as the Government National Mortgage
Association ("GNMA" or "Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae"), and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
Portfolios that seek capital appreciation invest primarily in equity securities
in a wide variety of international and domestic markets, some seek broad
national market exposure, while others focus on narrower sectors such as
precious metals, health care, emerging technology, mid-cap companies, small-cap
companies, real estate securities and utilities. Still others focus on
investments in particular emerging market countries and regions. A majority of
the assets managed are equity oriented.
In addition to closed-end funds, many of which are described below, the Other
Assets include portfolios managed for the world's largest corporations,
endowments, charitable foundations, pension funds, wealthy individuals and other
institutions. Investment management services for such portfolios focus on
specific client objectives utilizing the various investment techniques offered
by the Franklin Templeton Group.
During the fiscal year ended September 30, 1996, except for the Company's money
market funds, and funds specifically designed for institutional investors, whose
shares are sold without a sales charge at all purchase levels, shares of the
open-end funds in the Franklin and Templeton funds were generally sold at their
respective net asset value per share plus a sales charge, which varies depending
upon the type of share, the individual fund and the amount purchased. In
accordance with certain terms and conditions described in the prospectuses for
such Funds, certain investors are eligible to purchase shares at net asset value
or at reduced sales charges, and investors may generally exchange their shares
of a fund at net asset value for shares of another fund in the Franklin
Templeton Group when they believe such an investment decision is appropriate
without the payment of additional sales charges.
As of September 30, 1996, the net asset holdings of the five largest funds in
the Franklin Templeton Group (some of which are investment companies and some of
which are series of other investment companies) were Franklin California
Tax-Free Income Fund, Inc. ($13.6 billion), Franklin U.S. Government Securities
Fund ($10.2 billion), Templeton Foreign Fund ($10.5 billion), Templeton Growth
Fund ($9.0 billion) and the Franklin Federal Tax-Free Income Fund ($7.1
billion). At September 30, 1996, these five mutual funds represented, in the
aggregate, 33% of all assets under management in the Franklin Templeton Group.
General Fund Description
Set forth in the tables below is a brief description of the Funds and of the
principal investments and investment strategies of such Funds or portfolios
comprising most of the principal Funds or portfolios in the Franklin Templeton
Group separated into 21 different general categories as follows:
(i) Franklin Funds Seeking Preservation of Capital
and Income
(ii) Franklin Funds Seeking Current Income
(iii) Franklin Funds Seeking Tax-Free Income
(iv) Franklin Funds Seeking Growth and Income
(v) Franklin Funds Seeking Capital Growth
(vi) Franklin Funds for Tax-Deferred Investments
(Valuemark variable annuity)
(vii) Franklin Closed-End Funds
(viii)Franklin Funds for Institutional Investors
(ix) Franklin Templeton International Currency
Funds
(x) Templeton Funds Seeking Preservation of
Capital and Income
(xi) Templeton Funds Seeking Capital Growth from
Global Portfolios
(xii) Templeton Funds Seeking Capital Growth from
Domestic Portfolios
(xiii)Templeton Funds Seeking High Current Income
from Global Portfolios
(xiv) Templeton Funds Seeking High Total Return from
Global Portfolios
(xv) Templeton Funds for Tax-Deferred Investments
(xvi) Templeton Contractual Plans
(xvii)Templeton SICAV Funds
(xviii)Templeton Canadian Funds
(xix) Templeton Closed-End Funds
(xx) Templeton Funds for Institutional Investors
(xxi) Representative Templeton International
Portfolios
(i) Franklin Funds Seeking Preservation of Capital and Income
Name of Fund Inception Principal
Date Investments/Strategy
Franklin California 9/3/85 Seeks double tax-free income
Tax-Exempt Money Fund (free from federal and state
personal income taxes) by
investing in short-term
California municipal securities.
Franklin Federal 5/13/80 Seeks high current income by
Money Fund investing in short-term
instruments backed by U.S.
government securities.
Franklin Money Fund 5/1/76 Seeks capital preservation, liquidity and
dividends by investing in short-term
securities (money market instruments).
Franklin New York 9/3/85 Seeks triple tax-free income
Tax-Exempt Money Fund (free from federal, N.Y. state
and N.Y. city taxes) by
investing in short-term New York
municipal securities.
Franklin Tax-Exempt 2/18/82 Seeks income free from federal
Money Fund taxes by investing in short-term
municipal securities.
Franklin Templeton 5/1/95 Seeks capital preservation,
Money Fund II liquidity and dividends, by
investing in short-term securities. Open only
to shareholders exchanging out of Class II
shares in other Franklin Templeton Funds.
(ii) Franklin Funds Seeking Current Income
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Adjustable 12/26/91 Seeks high current income and
Rate Securities Fund increased price stability by
investing in Double A rated mortgage-backed
securities: ARMS created by private issuers as
well as Ginnie Mae, Fannie Mae and Freddie
Mac.
Franklin Adjustable 10/20/87 Seeks income with lower
U.S. Government volatility of principal by
Securities Fund investing in government or
government agency guaranteed
adjustable rate mortgage-backed
securities.
Franklin Corporate 1/14/87 Seeks high after-tax income for
Qualified Dividend corporations by investing in
Fund preferred securities and by
maximizing the amount of
dividend income it receives that
qualifies for the
dividends-received deduction.
Franklin Global 3/15/88 Seeks high current income by
Government Income investing primarily in
Fund fixed-income securities issued
by both domestic and foreign
governments.
Franklin Investment 1/14/87 Seeks high current income by
Grade Income Fund investing in debt securities,
most of which will be intermediate term
investment grade issues and dividend paying
common and preferred stocks.
Franklin 4/15/87 Seeks income and relative
Short-Intermediate stability of principal by
U.S. Government investing in less volatile,
Securities Fund shorter term securities of U.S.
government securities carrying
the full faith and credit
guarantee of the U.S. government.
Franklin Tax- 5/4/87 Seeks high current income by
Advantaged U.S. investing in a portfolio limited
Government to securities that are
Securities Fund obligations of the U.S.
government, exempt from
non-resident alien taxation
(Ginnie Mae securities).
Designed for non-U.S. investors.
Franklin 5/4/87 Seeks high current income by
Tax-Advantaged High investing in high yield
Yield Securities Fund corporate bonds, exempt from
non-resident alien taxation.
Designed for non-U.S. investors.
Franklin 6/9/90 Seeks high current income by
Tax-Advantaged investing in qualifying debt
International Bond securities and foreign currency
Fund denominated debt securities of
non-U.S. issuers, not subject to
U.S. federal income tax or U.S.
tax withholding requirements.
Designed for non-U.S. investors.
Franklin Templeton 12/31/92 Seeks total return by investing
German Government in a managed portfolio of German
Bond Fund government bonds.
Franklin's AGE High 12/31/69 Seeks high current income by
Income Fund investing in high yielding lower
rated corporate bonds.
U.S. Government 5/31/70 Seeks high current income by
Securities Series (a investing in a portfolio limited
series of Franklin to securities that are
Custodian Funds, obligations of the U.S.
Inc.) government or its
instrumentalities (Ginnie Mae
securities).
(iii) Franklin Funds Seeking Tax-Free Income
Federal Tax-Free
Funds
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Federal 9/21/92 Seeks high current income by
Intermediate-Term investing in nationally
Tax-Free Income Fund diversified municipal bonds with
an average maturity of three to
ten years.
Franklin Federal 10/7/83 Seeks federal tax-free income by
Tax-Free Income Fund investing in nationally
diversified, investment quality municipal
bonds.
Franklin High Yield 3/18/86 Seeks federal tax-free income by
Tax-Free Income Fund investing in nationally
diversified, high yield, medium
and lower rated municipal bonds.
Franklin Insured 4/1/85 Seeks federal tax-free income by
Tax-Free Income Fund investing in nationally
diversified, insured municipal
bonds.
Franklin Puerto Rico 8/3/85 Seeks to provide a maximum level
Tax-Free Income Fund of income exempt from federal
income tax and the personal
income taxes of the majority of
the states by investing in
municipal securities. For U.S.
citizens and residents.
State Tax-Free Funds
The Company manages insured state tax-free funds established from 1985 to 1996
in the states of Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New York and Ohio whose principal investments and strategy are the
purchase of insured municipal bonds exempt from federal and specified state
personal income taxes providing an investment vehicle for double tax-free
income from long-term municipal securities. In addition, the Company manages 26
non-insured state tax-free income funds established from 1977 to 1996 providing
double tax-free income from long-term municipal securities to residents of 21
states.
(iv) Franklin Funds Seeking Growth and Income
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Asset 12/5/51 Seeks total return by investing
Allocation Fund in common stocks, investment
grade corporate and U.S.
government bonds, short-term
money market instruments,
securities of foreign issuers
and real estate securities.
Franklin Balance 4/2/90 Seeks high total return by
Sheet Investment Fund investing in common and
preferred stocks, secured or unsecured bonds,
and commercial paper or notes, which have
per-share current market values believed to be
below their net asset or book values.
Franklin Convertible 4/15/87 Seeks to maximize total return
Securities Fund by investing in convertible
bonds and convertible preferred
stock.
Franklin Equity 3/15/88 Seeks capital appreciation and
Income Fund high current dividend income by
investing in high yielding
common stocks for greater price
stability.
Franklin Global 7/2/92 Seeks total return by investing
Utilities Fund in equity and debt securities
issued by foreign and domestic
utilities companies.
Franklin MicroCap 12/12/95 Seeks high total return by
Value Fund investing primarily in
securities of companies with market
capitalization under $100 million at the time
of purchase and which are believed to be
undervalued in the marketplace.
Franklin Natural 6/5/95 Seeks high total return by
Resources Fund investing primarily in stocks of
companies that own, produce,
refine, process and market
natural resources.
Franklin Rising 4/2/90 Seeks capital appreciation by
Dividends Fund investing in stocks with
consistent, substantial dividend
increases for capital growth.
Franklin Strategic 5/24/94 Seeks high current income and
Income Fund capital appreciation, by
investing in domestic and
foreign fixed-income securities.
Franklin Value Fund 3/11/96 Seeks total return by
investing in equity and debt securities of
undervalued companies worldwide.
Income Series (a 3/31/48 Seeks to maximize income by
series of Franklin investing in a diversified
Custodian Funds, portfolio of high yielding lower
Inc.) rated corporate bonds, preferred
stocks and dividend paying
common stocks.
Utilities Series (a 9/30/48 Seeks capital appreciation and
series of Franklin current income by investing in
Custodian Funds, utility companies located in
Inc.) high growth areas.
(v) Franklin Funds Seeking Capital Growth
Name of Fund Inception Principal
Date Investments/Strategy
DynaTech Series (a 1/1/68 Seeks capital appreciation by
series of Franklin investing in the volatile stocks
Custodian Funds, of companies engaged in dramatic
Inc.) break-through areas such as
medicine, telecommunications and
electronics or who have
proprietary advantages in their
field.
Franklin Blue Chip 5/28/96 Seeks capital appreciation by
Fund investing in securities of
well-established,large capitalization
companies ("blue chip companies") with a long
record of revenue growth and profitability.
Franklin California 10/30/91 Seeks capital appreciation by
Growth Fund investing primarily in growth
stocks or securities of
companies headquartered in or
conducting a majority of
operations in California.
Franklin Equity Fund 1/1/33 Seeks capital appreciation
and current income by investing primarily in
common stocks of seasoned companies with low
prices in relation to earnings growth.
Franklin Global 2/14/92 Seeks capital appreciation by
Health Care Fund investing primarily in equity
securities of health care companies worldwide
with potential for above average growth.
Franklin Gold Fund 5/19/69 Seeks capital appreciation
and current income by investing in securities
of companies engaged in mining, processing or
dealing in gold or other precious metals.
Franklin MidCap 6/1/96 Seeks long-term capital growth
Growth Fund by investing in equity
securities of medium
capitalization companies
believed to be positioned for
rapid growth.
Franklin Real Estate 1/3/94 Seeks to maximize total return
Securities Fund by investing primarily in the
equity securities of companies
operating in the real estate
industry.
Franklin Small Cap 2/14/92 Seeks long-term capital growth
Growth Fund by investing primarily in equity
securities of small
capitalization growth companies.
Growth Series (a 3/31/48 Seeks capital appreciation by
series of the investing in well-known
Franklin Custodian companies with demonstrated
Funds, Inc.) growth characteristics.
(vi) Franklin Funds for Tax-Deferred Investments
Franklin Valuemark Funds is an open-end management investment company currently
consisting of twenty-three (23) separate series or portfolios which offer a wide
range of investment objectives, strategies, and risks. Shares are currently sold
only to separate accounts of the Allianz Life Insurance Company of North America
and its affiliates to fund the benefits under variable life insurance policies
and variable annuity contracts. Products presently offered include two flexible
premium deferred variable annuities ("Valuemark II" in New York and "Valuemark
III" in all other states), an immediate variable annuity ("Valuemark Income
Plus"), single premium variable life insurance ("Franklin Valuemark Life"), and
flexible premium variable life insurance ("ValueLife"). The portfolios are
managed by Advisers, Franklin Advisory Services, Inc., Franklin Mutual Advisers,
Inc., TICI, TGAL, and Templeton Singapore. The investment objectives and
policies of most of the portfolios are similar to those of corresponding
Franklin and Templeton funds, although differences in portfolio size,
investments held, and insurance and expense related differences will cause the
performance of the Valuemark portfolio to differ.
(vii) Franklin Closed-End Funds
Name of Fund Inception Principal
Date Investments/Strategy
Franklin 10/24/89 Seeks high current income by
Multi-Income Trust investing primarily in high
(listed on the NYSE) yielding, fixed-income corporate
securities as well as
dividend-paying stocks of
companies engaged in the public
utilities industry.
Franklin Universal 9/23/88 Seeks high current income by
Trust (listed on the investing in fixed-income debt
NYSE) securities and dividend paying
stocks and securities of
precious metals and natural
resources companies.
Principal Maturity 1/19/89 Seeks to return investors' original
Trust (listed on the capital of $10 per share on or before May 31,
New York Stock Exchange 2001, while providing high monthly
("NYSE") income by investing in mortgage-backed
securities, zero coupon securities and high
income producing debt securities.
(viii) Franklin Funds for Institutional Investors
Name of Fund Inception Principal
Date Investments/Strategy
Adjustable Rate 11/5/91 Seeks high current income by
Securities Portfolio investing
(sold only to other in mortgage-backed securities
investment companies) (ARMS).
Franklin Cash 7/1/94 Seeks high current income by
Reserves Fund investing
in domestic and foreign
short-term securities.
Franklin 1/2/92 Seeks high current income by
Institutional investing
Adjustable Rate in a portfolio of
Securities Fund mortgage-backed securities,
pooled adjustable rate mortgage
securities.
Franklin 11/1/91 Seeks high current income and
Institutional increased price stability by
Adjustable U.S. investing
Government in a portfolio of adjustable
Securities Fund U.S. government or guaranteed
agency mortgage-backed securities, (ARMS
created by Ginnie Mae, Fannie Mae and Freddie
Mac).
Franklin Strategic 2/1/93 Seeks a high level of total
Mortgage Portfolio return by investing primarily in
mortgage-backed securities, pooled mortgages
issued or guaranteed by Ginnie Mae, Fannie Mae
or Freddie Mac.
Franklin U. S. 2/8/94 Seeks high current income
Government Agency consistent with capital
Money Market Fund preservation and liquidity by
investing in short-term
instruments backed by U.S.
government securities.
Franklin U.S. 1/19/88 Seeks high current income
Government consistent with capital
Securities Money preservation and liquidity by
Market Portfolio investing in short-term
instruments backed by U.S.
government securities.
Franklin U.S. 8/20/91 Seeks high current income
Treasury Money consistent with capital
Market Portfolio preservation and liquidity by
investing in short-term U.S.
Treasury obligations.
Money Market 7/17/85 Seeks high current income
Portfolio consistent with capital
preservation and liquidity by
investing all of its assets in
money market instruments.
The Money Market 7/28/92 Seeks high current income
Portfolio (sold only consistent with capital
to other investment preservation and liquidity by
companies) investing all of its assets in
money market instruments.
The U.S.Government 7/28/92 Seeks high current income
Securities Money consistent with capital
Market Portfolio preservation and liquidity by (sold
only to other investing in short-term
investment companies) instruments backed
by U.S. government securities.
U.S. Government 5/20/91 Seeks high current income and
Adjustable Rate increased price stability by
Mortgage Portfolio investing
(sold only to other in mortgage-backed securities,
investment companies) (ARMS created by Ginnie Mae,
Fannie Mae and Freddie Mac).
(ix) Franklin Templeton International Currency Funds
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Templeton 6/30/86 Seeks to maximize total return,
Global Currency Fund by investing in interest-earning
money market instruments denominated in three
or more of 16 major world currencies.
Franklin Templeton 11/17/89 Seeks to protect against U.S.
Hard Currency Fund dollar depreciation by investing
in high-quality money market instruments
denominated in three or more of the five major
currencies of lowest inflation countries and
the Swiss Franc.
Franklin Templeton 11/17/89 Seeks current income higher than
High Income Currency that of U.S. dollar money market
Fund instruments by investing in
interest-bearing money market
instruments denominated in Major
and Non-Major Currencies.
(x) Templeton Funds Seeking Preservation of Capital and Income
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Money Fund 10/2/87 Seeks current income, stability
of principal and liquidity by
investing in high quality money
market instruments with
maturities not exceeding 397
days, consisting primarily of
short-term U.S. Government
Securities, bank certificates of
deposit, time deposits, bankers'
acceptances, commercial paper
and repurchase agreements.
(xi) Templeton Funds Seeking Capital Growth from Global Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Templeton 7/28/94 Seeks long-term capital growth
Japan Fund by investing primarily in the
equity securities of companies
domiciled in Japan and traded in
Japanese securities markets.
Templeton Developing 10/17/91 Seeks long-term capital
Markets Trust appreciation by investing
primarily in equity securities
of issuers in countries with
developing markets.
Templeton Foreign 10/5/82 Seeks long-term capital growth
Fund by investing in stocks and debt
obligations of companies and
governments outside the U.S.
Templeton Foreign 9/20/91 Seeks long-term capital growth
Smaller Companies by investing in a diverse
Fund portfolio of equity securities
that trade on markets in
countries other than the U.S.
Templeton Global 3/14/94 Seeks long-term capital growth
Infrastructure Fund by investing in securities of
domestic and foreign companies that are
principally engaged in or related to the
development, operation or rehabilitation of
the physical and social infrastructures of
various nations throughout the world.
Templeton Global 2/28/90 Seeks long-term capital growth
Opportunities Trust by investing in securities
issued by companies and
governments of any nation.
Templeton Greater 5/8/95 Seeks long-term capital
European Fund appreciation by investing
primarily in equity securities
of companies Western, Central
and Eastern Europe and in
Russia.
Templeton Growth Fund 11/29/54 Seeks long-term capital
growth by investing in stocks and bonds issued
by companies and governments of any nation.
Templeton Latin 5/8/95 Seeks long-term capital
America Fund appreciation by investing
primarily in equity securities
and debt obligations of issuers
in Latin American countries.
Templeton Pacific 9/20/91 Seeks long-term capital growth
Growth Fund by investing primarily in equity
securities that trade on markets
in the Pacific Rim.
Templeton Global 9/18/89 Seeks long-term capital growth
Real Estate Fund by investing in securities of
domestic and foreign companies
engaged in or related to the
real estate industry..
Templeton Global 6/1/81 Seeks long-term capital growth
Smaller Companies by investing in common and
Fund, Inc. preferred stocks, rights and
warrants of companies of various
nations throughout the world.
Templeton World Fund 1/17/78 Seeks long-term capital growth by investing
in stocks and debt obligations of foreign
and domestic companies.
(xii) Templeton Funds Seeking Capital Growth From Domestic
Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Templeton American 3/27/91 Seeks long-term total return by
Trust investing no less than 65% of
assets in stocks and debt
obligations of U.S. companies
and the U.S. government.
(xiii) Templeton Funds Seeking High Current Income from Global
Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Americas 6/27/94 Seeks high current income, with
Government total return as a secondary
Securities Fund objective, by investing
primarily in debt securities issued or
guaranteed by governments, government
agencies, political subdivisions, and other
government entities of countries located in
North, South and Central America and the
surrounding waters.
Templeton Income Fund 9/24/86 Seeks current income by
investing primarily in debt
securities, preferred stock,
common stocks which pay
dividends and income producing
securities convertible into
common stock of companies,
governments and government
agencies of various nations
throughout the world.
(xiv) Templeton Funds Seeking High Total Return from Global
Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Growth and 3/14/94 Seeks high total return by
Income Fund investing primarily in equity
(formerly Templeton and debt securities of domestic
Global Rising and foreign companies.
Dividends Fund)
(xv) Templeton Funds for Tax-Deferred Investments
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Asset 8/31/88 Seeks a high level of total
Allocation Fund return by investing in stocks of
companies in any nation, debt obligations of
companies and governments of any nation, and
in money market instruments.
Templeton Bond Fund 8/31/88 Seeks high current income by
investing primarily in debt
securities of companies,
governments and government
agencies of various nations
throughout the world, and in
debt securities which are
convertible into common stock of
such companies.
Templeton 5/1/92 Seeks long-term capital growth
International Fund by investing in stocks and debt
obligations of companies and
governments outside the United
States.
Templeton Money 8/31/88 Seeks current income, stability
Market Fund of principal and liquidity by
investing in money market instruments with
maturities not exceeding 397 days, consisting
primarily of short-term U.S. Government
securities, certificates of deposit, time
deposits, bankers' acceptances, commercial
paper and repurchase agreements.
Templeton Stock Fund 8/31/88 Seeks capital growth by
investing primarily in common stocks issued by
companies, large and small, in various nations
throughout the world.
Templeton Variable 2/16/88 Seeks long-term capital growth
Annuity Fund by investing primarily in stocks
and debt obligations of
companies and governments of any
nation, including the United
States.
(xvi) Templeton Contractual Plans
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Capital 3/1/91 Seeks long-term capital growth
Accumulator Fund, by investing in stocks and debt
Inc. obligations of companies and
governments of any nation.
(xvii) Templeton SICAV Funds
Templeton Global Strategy SICAV)
Equity Funds (denominated in U.S. Dollars unless otherwise noted)
Name of Fund Inception Principal
Date Investments/Strategy
Templeton 4/26/91 Seeks long-term capital growth
Deutschemark Global by investing mainly in shares of
Growth Fund companies of any size found in
any nation (denominated in
Deutschemarks).
Templeton Emerging 2/28/91 Seeks long-term capital growth
Markets Fund by investing in the shares and
debt obligations of corporations
and governments of developing or
emerging nations.
Templeton European 4/17/91 Seeks long-term capital growth
Fund by investing mainly in shares of
companies of all sizes based in
European countries (denominated
in Swiss francs).
Templeton Far East 6/30/91 Seeks long-term capital growth
Fund by investing mainly in shares of
companies of all sizes which are based in or
which derive significant profits from the Far
East.
Templeton Global 2/28/91 Seeks long-term capital growth
Growth Fund by investing primarily in the
shares of companies of any size
found in any nation.
Templeton Pan 2/28/91 Seeks long-term capital growth
American Fund by investing primarily in shares
of companies of all sizes based
in the North or South American
continents.
Templeton Smaller 7/8/91 Seeks long-term capital growth
Companies Fund by investing primarily in shares
of companies with a market capitalization of
less than $1 billion found in any nation.
Fixed Income Funds (denominated in U.S. Dollars unless otherwise
noted)
Name of Fund Inception Principal
Date Investments/Strategy
Templeton 2/28/91 Seeks to maximize total
Deutschemark Global investment return by investing
Bond Fund in a wide variety of
fixed-interest securities, including those
issued by supranational bodies such as The
World Bank (denominated in Deutschemarks).
Templeton Emerging 7/5/91 Seeks to maximize total
Markets Fixed Income investment return by investing
Fund primarily in dollar and
non-dollar denominated debt
obligations of emerging markets.
Templeton Global 2/28/91 Seeks to maximize current income
Income Fund by investing primarily in
fixed-interest securities of
governments and companies
worldwide.
Templeton Haven Fund 7/8/91 Seeks to maintain a stable
share price by investing in short-term high
quality transferable debt
securities (denominated in Swiss francs).
Templeton US 2/28/91 Seeks security of capital and
Government Fund income by investing in bonds
issued by the U.S. government
and its agencies.
Templeton Worldwide Investments SICAV
Growth Portfolio 8/21/89 Seeks long term capital
growth by investing in all types of securities
issued by companies or governments of any
nation.
Income Portfolio 8/21/89 Seeks high current income
and relative stability of net asset value by
investing in high quality money market
instruments and debt securities with remaining
maturities in excess of two years.
(xviii) Templeton Canadian Funds
Non-Institutional
Funds
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Balanced 04/07/83 Seeks long-term capital
Fund appreciation by investing
primarily in a combination of Canadian common
and preferred shares, bonds, and debentures;
managed to comply with eligibility
requirements under Canadian law regarding
retirement and other tax deferred plans.
Templeton Canadian 9/14/94 Seeks high level of total return
Asset Allocation Fund by investing primarily in
Canadian shares, debt obligations and
short-term instruments; managed to comply with
eligibility requirements under Canadian law
regarding retirement and other tax-deferred
plans.
Templeton Canadian 01/02/90 Seeks high current income and
Bond Fund capital appreciation by
investing primarily in publicly traded debt
securities issued or guaranteed by Canadian
governments or their agencies, or issued by
Canadian municipalities or corporations.
Templeton Canadian 01/03/89 Seeks capital appreciation by
Stock Fund investing in a diversified
portfolio of Canadian equity securities
primarily managed to comply with eligibility
requirements of the Canadian law regarding
retirement and other tax deferred plans.
Templeton Emerging 09/20/91 Seeks long-term capital
Markets Fund appreciation by investing
primarily in emerging country
equity securities.
Templeton Global 9/14/94 Seeks high level of total return
Balanced Fund by investing in shares, debt
obligations and short-term
instruments of companies and
governments of any nation,
including Canada and the United
States.
Templeton Global 06/07/88 Seeks high current income by
Bond Fund investing primarily in a
portfolio of fixed income
securities of issuers throughout
the world.
Templeton Global 01/03/89 Seeks capital appreciation by
Smaller Companies investing primarily in equity
Fund securities of emerging growth
companies throughout the world.
Templeton Growth 09/01/54 Seeks long-term capital growth
Fund, Ltd. by investing in stock and debt
obligations of companies and
governments of any nation.
Templeton 9/14/94 Seeks high level of total return
International by investing in shares, debt
Balanced Fund obligations and short-term
instruments of companies and
governments of any nation other
than Canada and the United
States.
Templeton 01/03/89 Seeks long-term total return by
International Stock investing in shares and debt
Fund obligations of companies and
governments outside of Canada
and the United States.
Templeton Treasury 02/29/88 Seeks a high level of current
Bill Fund income consistent with
preservation of capital and liquidity by
investing in Canadian government or agency
debt obligations and high quality short-term
money market instruments.
Funds for
Institutional
Investors
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Global 07/06/90 Seeks long-term capital
Equity Trust appreciation by investing in
(non-taxable) stocks and bonds issued by
companies and governments of any
nation.
Templeton 07/06/90 Seeks long-term capital
International Equity appreciation by investing in
Trust(non-taxable) stocks and bonds issued by
companies and governments
outside of Canada and the United
States.
Templeton 07/06/90 Seeks long-term total return by
International Stock investing in stocks and bonds
Trust (taxable) issued by companies and
governments outside of Canada
and the United States.
Closed-End Funds
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Emerging 6/21/94 Seeks long-term capital
Markets Appreciation appreciation, by investing in
Fund (listed on equity securities and debt
Toronto Stock obligations of issuers in
Exchange and emerging market countries.
Montreal Stock
Exchange)
(xix) Templeton Closed-End Funds
Name of Fund Inception Principal
Date Investments/Strategy
Templeton China 9/9/93 Seeks long-term capital
World Fund, Inc. appreciation, by investing
(listed on the NYSE) primarily in equity securities
of companies organized under the laws of or
with a principal office in the People's
Republic of China ("PRC"), Hong Kong or Taiwan
collectively "Greater China", for which the
principal trading market is in Greater China,
and which derive at least 50% of their
revenues from goods or services sold or
produced in, or have at least 50% of their
assets in, the PRC.
Templeton Dragon 9/21/94 Seeks long-term capital
Fund, Inc. (Listed appreciation by investing at
on NYSE and Osaka least 45% of its total assets in
Securities Exchange) the equity securities of
companies (i) organized under the laws of, or
with a principal office in, the People's
Republic of China or Hong Kong, or the
principal business activities of which are
conducted in China or Hong Kong or for which
the principal equity securities trading market
is in China or Hong Kong, and (ii) that derive
at least 50% of their revenues from goods or
services sold or produced, or have at least
50% of their assets in China or Hong Kong.
Templeton Emerging 4/29/94 Seeks capital appreciation by
Markets Appreciation investing substantially all of
Fund, Inc. (Listed its assets in a portfolio of
on NYSE) equity securities and debt
obligations of issuers in
emerging market countries.
Templeton Emerging 2/26/87 Seeks long-term capital
Markets Fund, Inc. appreciation by investing
(listed on the NYSE primarily in emerging markets
and Pacific Stock equity securities.
Exchange "PSE")
Templeton Emerging 9/23/93 Seeks high current income, with
Markets Income Fund, a secondary investment objective
Inc. (listed on the of capital appreciation, by
NYSE) investing primarily in a
portfolio of high yielding debt obligations of
sovereign or sovereign-related entities and
private sector companies in emerging market
countries.
Templeton Global 11/22/88 Seeks high current income
Governments Income consistent with the preservation
Trust (listed on the of capital achieved by investing
NYSE) at least 65% of its total assets
in debt securities issued or guaranteed by
governments, government agencies supranational
entities, political subdivisions and other
government entities of various nations
throughout the world.
Templeton Global 3/17/88 Seeks high current income, with
Income Fund, Inc. a secondary investment objective
(listed on the NYSE of capital appreciation, by
and PSE) investing primarily in a
portfolio of fixed-income
securities (including debt
securities and preferred stock)
of U.S. and foreign issuers.
Templeton Global 5/23/90 Seeks high level of total return
Utilities, Inc. (income plus capital
(listed on the AMEX appreciation),without undue
and the Midwest risk, by investing at least 65%
Stock Exchange) of its total assets in equity
and debt securities issued by
domestic and foreign companies
in the utility industries.
Templeton Russia 6/15/95 Seeks long-term capital
Fund, Inc. (Listed appreciation by investing
on NYSE) primarily in equity securities
of Russian Companies.
Templeton Vietnam 9/15/94 Seeks long-term capital
Opportunities Fund, appreciation by investing in the
Inc. (Listed on equity securities of Vietnam
NYSE) Companies.
(xx) Templeton Funds for Institutional Investors
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Emerging 5/3/93 Seeks long-term capital growth
Markets Series by investing in securities of
issuers of countries having
emerging markets.
Templeton Foreign 10/18/90 Seeks long-term capital growth
Equity Series by investing in stocks and debt
obligations of companies and
governments outside the United
States.
Templeton Foreign 5/3/93 Seeks long-term capital growth
Equity (South Africa by investing in stocks and debt
Free) Series obligations of companies and
governments outside both the
U.S. and South Africa.
Templeton Growth 5/3/93 Seeks long-term capital growth
Series by investing in stocks and debt
obligations of companies and
governments of any nation.
(xxi) Representative Templeton International Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Asian Development 01/22/88 Seeks to maximize overall
Equity Fund long-term return by investing,
directly or indirectly, primarily in shares,
convertible bonds, warrants, and other equity
related securities of entities in the Asian
developing countries.
Templeton Asia Fund 11/14/89 Seeks to achieve long-term
capital appreciation by
investing primarily in equity
securities of entities which
either are listed on recognized
exchanges in capital markets of
the Asia/Oceania Region or which
have their area of primary
activity in those same capital
markets.
Templeton Emerging 06/24/93 Seeks to achieve long-term
Asia Fund capital appreciation by
investing primarily in equity securities of
companies which are either listed on
recognized exchanges in capital markets in
emerging Asian countries or companies which
have their primary activity in those same
capital markets.
Templeton Emerging 06/19/89 Seeks long term capital
Markets Investment appreciation by investing in
Trust Plc. companies operating or trading
in emerging market countries.
(Closed End)
Templeton Global 08/29/88 Seeks to provide income by
Balanced Trust investing in an internationally
diversified portfolio of
equities, fixed interest, and
convertible stocks. (Unit Trust)
Templeton Global 08/29/88 Seeks to maximize total
Growth Trust investment return by investing
in an internationally
diversified portfolio of equity
shares and convertible stocks.
(Unit Trust)
Templeton Global 07/13/88 Seeks to achieve high current
Income Portfolio, income by investing primarily in
Ltd. a portfolio of fixed income
securities (including debt
securities and preferred stock)
of issuers throughout the world.
Templeton Latin 5/3/94 Seeks long-term capital growth
America Investment by investing in companies listed
Trust Plc. on stock exchanges in Latin
America or that have substantial
trading interests in that
region. (Closed End)
Templeton Value Trust 06/08/89 Seeks maximum total
investment return by investing in all
geographic and economic sectors.
Templeton/National 04/06/93 Growth Portfolio - Seeks long
Bank of Greece term capital growth by investing
Trans-European Fund in stock and debt securities of
companies and governments primarily located in
the European Economic Community.
Income Portfolio - Seeks high current income
and relative stability of principal by
investing in debt securities of companies and
governments located primarily in the European
Economic Community.
Recent Fund Introductions
The funds referenced above include three (3) new funds introduced by the
Franklin Templeton Group during the fiscal year ended September 30, 1996:
Franklin Blue Chip Fund, Franklin MidCap Growth Fund and Franklin Value Fund.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Information on the Company's operations in various geographic areas of the world
and a breakout of business segment information is contained in Footnote 5 to the
Consolidated Financial Statements contained in Item 8. herein.
(C) NARRATIVE DESCRIPTION OF BUSINESS
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES
The Company, through its various subsidiaries described above, provides
investment advisory, portfolio management, transfer agency, business management
agent and administrative services to the Franklin Templeton Group. Such services
are provided pursuant to agreements in effect with each of the U.S. registered
Franklin and Templeton open and closed-end investment companies. Comparable
agreements are in effect with foreign registered Funds and with other managed
accounts. The management agreements for the U.S. registered Franklin and
Templeton funds continue in effect for successive annual periods, providing such
continuance is specifically approved at least annually by a majority vote cast
in person at a meeting of such Funds' Boards of Trustees or Directors called for
that purpose, or by a vote of the holders of a majority of the Funds'
outstanding voting securities, and in either event, by a majority of such Funds'
trustees or directors who are not parties to such agreement or interested
persons of the Funds or the Company within the meaning of the Investment Company
Act of 1940 (the "40 Act"). Trustees and directors of Funds' boards are
hereinafter referred to as "directors". Foreign registered Funds have various
termination rights and provisions.
Each such agreement automatically terminates in the event of its "assignment"
(as defined in the 40 Act) and either party may terminate the agreement without
penalty after written notice ranging from 30 to 60 days. "Assignment" is defined
in the 40 Act as including any direct or indirect transfer of a controlling
block of voting stock. Control is defined as the power to exercise a controlling
influence over the management or policies of a company.
If there were to be a termination of a significant number of the management
agreements between the Franklin and Templeton funds and the Company's
subsidiaries or with respect to a significant portion of the Other Assets, such
termination would have a material adverse impact upon the Company. To date, no
management agreements of the Company or any of its subsidiaries with any of the
Franklin and Templeton funds have been involuntarily terminated. Changes in the
customer base of institutional investors occur on a regular basis. Since the
Templeton Acquisition to date, assets under management in the category of Other
Assets set forth above have in the aggregate continued to grow.
As of September 30, 1996, substantially all of the shares of the various
directly and indirectly owned subsidiary companies were owned directly by the
Company or subsidiaries thereof, except for nominal numbers of shares with
respect to certain foreign entities required to be owned by nationals of such
countries in accordance with foreign law and certain other limited minority
ownership of and Franklin Bank. As of December 13, 1996, Charles B. Johnson,
Rupert H. Johnson, Jr. and R. Martin Wiskemann beneficially owned approximately
19.2%, 15.3% and 9.4%, respectively, of the outstanding voting common stock of
the Company. Charles B. Johnson and his brother Rupert H. Johnson, Jr. serve on
the Board of Directors of the Company as well as on most of the Franklin funds'
boards and some of the Templeton funds' boards. Charles E. Johnson, the son of
Charles B. Johnson and the nephew of Rupert H. Johnson, Jr. serves on the Board
of Directors of the Company and on some of the Franklin and Templeton funds'
boards.
Under the terms of the management agreements with the Franklin and Templeton
funds, the various subsidiary companies described above generally supervise and
implement such Funds' investment activities and provide the administrative
services and facilities which are necessary to the operation of such Funds'
business. Such subsidiary companies also conduct research and provide investment
advisory services and, subject to and in accordance with any directions such
Funds' boards may issue from time to time, such subsidiary companies determine
which securities such Funds will purchase, hold or sell. In addition, such
subsidiary companies take all steps necessary to implement such decisions,
including the selection of brokers and dealers to execute transactions for such
Funds, in accordance with detailed criteria set forth in the management
agreement for such Funds and applicable law and practice. Similar services are
rendered with respect to the Other Assets.
Generally, the Company or a subsidiary provides and pays the salaries of
personnel who serve as officers of the Franklin and Templeton funds, including
the President and such other administrative personnel as are necessary to
conduct such Funds' day-to-day business operations, including maintaining a
Fund's portfolio records, answering shareholder inquiries, providing
information, creating and publishing literature, compliance with securities
regulations, accounting systems and controls, preparation of annual reports and
other administrative activities.
The Funds generally pay their own expenses such as legal and auditing fees,
reporting and board and shareholder meeting costs, SEC and state registration
and similar expenses. Generally, the Funds pay advisory companies a fee payable
monthly based upon a Fund's net assets. Annual rates under the various
investment management agreements range from .15% to a maximum of 2.00% and are
generally reduced as average net assets exceed various threshold levels.
The investment management agreements permit advisory companies to act as an
advisor to more than one Fund so long as such companies' ability to render
services to each of such Funds is not impaired, and so long as purchases and
sales appropriate for all such Funds are made on a proportionate or other
equitable basis. Management of the Company and the directors of the Funds
regularly review the Fund fee structures in light of Fund performance, the level
and range of services provided, industry conditions and other relevant factors.
Advisory fees are generally waived or voluntarily reduced when a new Fund is
first established and then increased to contractual levels with the growth in
net assets.
The investment advisory services provided by such advisory companies include
fundamental investment research and valuation analyses, encompassing original
country, industry and company research, company visits and inspections, and the
utilization of such sources as company public records and activities, management
interviews, company prepared information, and other publicly available
information, as well as analyses of suppliers, customers and competitors. In
addition, research services provided by brokerage firms are used to support
other research. In this regard, some brokerage business from the Funds is
allocated in recognition of value-added research services received.
Fixed-income research includes economic analysis, credit analysis and value
analysis. The economic analysis function monitors and evaluates numerous factors
that influence the supply and demand for credit on a worldwide basis. Credit
analysts research the credit worthiness of debt issuers and their individual
short-term and long-term debt issues. Yield spread differential analysis reviews
the relative value of market sectors that represent buying and selling
opportunities.
Additional shareholder administrative services are provided by FTIS, which
receives administrative fees from the Funds for providing shareholder record
keeping services and for acting as transfer and dividend-paying agent for the
Funds. As of September 30, 1996, such compensation was based upon an annual fee
per shareholder account, ranging between $10.00 and $23.50, a pro-rated portion
of which was paid monthly.
DISTRIBUTION AND MARKETING
Distributors acts as the principal underwriter and distributor of shares of the
Franklin and Templeton open-end funds. Pursuant to underwriting agreements with
the Funds, Distributors generally pays the expenses of distribution of Fund
shares. Although the Company does significant advertising and sales promotions
through media sources, Fund shares are sold primarily through a large network of
independent participating securities dealers. As of September 30, 1996,
approximately 3,674 local, regional and national securities brokerage firms
offered shares of the Franklin and Templeton funds for sale to the investing
public. The Company has approximately 55 "wholesalers" who interface with the
broker-dealer community. Fund shares are offered to individual investors,
qualified groups, trustees, IRA and profit sharing or money purchase plans,
employee benefit plans, trust companies, bank trust departments and
institutional investors. In addition, various management and advisory services,
commingled and pooled accounts, wrap fee arrangements and various other private
investment management services are offered to certain private and institutional
investors.
Broker-dealers are paid various fees for services in matching investors with
Funds whose investment objectives match such investors' goals. Broker-dealers
also assist in explaining the operations of the Funds, in servicing the account
and in various other distribution services.
Most of the Franklin and Templeton Funds have a multi-class share structure
whereby Class I shares are sold with a maximum front-end sales charge which
ranges from a low of 1.50% to a high of 5.75%. Reductions in the maximum sales
charges may be available depending upon the amount invested and the type of
investor. Class II shares, which were introduced during the 1995 fiscal year,
have a hybrid, level load structure combining aspects of conventional front-end,
back-end and level-load pricing. Class II shares are subject to an initial sales
charge of 1% and are generally subject to a 1% contingent deferred sales charge
on redemptions within 18 months of purchase and to higher on-going Rule 12b-1
fees described below. The multi-class structure was adopted to provide investors
greater payment alternatives in implementing their investment programs. The
Company's money market and institutional funds are sold to investors without a
sales charge.
Most of the U.S registered Templeton funds and most of the U.S. registered
Franklin funds, with the exception of certain Franklin and Templeton money
market funds, have also adopted distribution plans (the "Plans") under Rule
12b-1 promulgated under the 40 Act ("Rule 12b-1"). Class II shares generally
have higher on-going Rule 12b-1 fees. The Plans are established for an initial
term of one year and, thereafter, must be approved annually by the Fund boards
and by a majority of disinterested directors. All such Plans are subject to
termination at any time by a majority vote of the disinterested directors or by
the Funds' shareholders. The Plans permit the Funds to bear certain expenses
relating to the distribution of their shares.
Fees under the Plans for Class I shares range in amount from a low of .10% per
annum of average daily net assets to a high of .50% while Class II share fees
range between .65% to 1 %. The implementation of the Plans provided for a lower
fee on Class I shares acquired prior to the adoption of such Plans. Fees from
the Plans are paid primarily to third party dealers who provide service to their
shareholder accounts, as well as engage in distribution activities. Distributors
may also receive reimbursement from the Funds for expenses involved in
distributing the Funds, such as advertising and reimbursement for a 1% payment
to dealers on sales of Class II shares, subject to the Plans' limitations on
amounts.
The financial effects on the Company of the distribution of the new class of
shares is discussed in more detail under Item 7, "Management's Discussion of
Analysis of Financial Condition and Results of Operation" (the "MD&A"), below.
As of September 30, 1996, there were approximately 5.4 million shareholder
accounts in the Franklin and Templeton Funds.
REVENUES
As shown in the table below, the Company's revenues are derived primarily from
its investment management activities. Total operating revenues are set forth in
the table below. Revenues from investment management fees have comprised
approximately 58%, 58% and 48% in 1996, 1995 and 1994 respectively, of total
operating revenue for each of the three fiscal years reported. Underwriting
commissions, from gross sales and reinvestments of products subject to
commissions contributed to revenues approximately 36%, 36% and 47% in 1996, 1995
and 1994 respectively. Shareholder servicing fees from mutual fund activities
contributed 6%, 5% and 4% in 1996, 1995 and 1994 respectively.
OPERATING REVENUES
YEARS ENDED SEPTEMBER 30,
($ IN MILLIONS)
1996 1995 1994
Investment management fees $883.8 $731.3 $647.7
Underwriting and distribution fees 545.0 449.1 626.3
Shareholder servicing fees 88.7 68.7 54.6
Banking/finance, net and other 5.0 8.7 13.9
-------- --------- --------
Totals $1,522.6 $1,257.8 $1,342.5
======== ========= ========
OTHER FINANCIAL SERVICES
The Company's consumer lending, dealer auto loan and real estate businesses do
not as yet contribute significantly to either the revenues or the net income of
the Company. Franklin Bank's operations are limited by national banking laws and
no immediate significant increase in revenues is anticipated. The real estate
operations have incurred net losses since inception and the Company does not
anticipate any immediate improvement in this line of business. The Company's
dealer auto loan business has required the infusion of significant working
capital during the prior two fiscal years, either in the form of inter-company
loans or by contributions to the capital of FCC by the Company. During portions
of this period, the Company experienced an increase in delinquency rates in such
loans and, in response, expanded its auto loan collection efforts and tightened
its underwriting policies. Delinquency rates were reduced between fiscal 1995
and 1996. A more detailed financial analysis of the financial effects of loan
losses and delinquency rates, as well as the funding of this activity, is
contained in the MD&A.
REGULATORY CONSIDERATIONS
Virtually all aspects of the Company's businesses are subject to various
foreign, federal and state laws and regulations. As discussed above, the Company
and a number of its subsidiaries are registered with various foreign, federal
and state governmental agencies. Foreign, federal and state laws and regulations
grant such supervisory agencies broad administrative powers, including the power
to limit or restrict the Company from carrying on its business if it fails to
comply with such laws and regulations. In such event, the possible sanctions
which may be imposed include the suspension of individual employees, limitations
on the Company's (or a subsidiary's) engaging in business for specified periods
of time, the revocation of the investment advisor or broker-dealer registrations
of subsidiaries and censures and fines.
The Company's officers, directors and employees may from time to time own
securities which are also held by the Funds. The Company's internal policies
with respect to individual investments require prior clearance and reporting of
transactions and restrict certain transactions so as to reduce the possibility
of conflicts of interest.
To the extent that existing or future regulations affecting the sale of Fund
shares or other investment products or their investment strategies cause or
contribute to reduced sales of Fund shares or investment products or impair the
investment performance of the Funds or such other investment products, the
Company's aggregate assets under management and its revenues might be adversely
affected. Changes in regulations affecting free movement of international
currencies might also adversely affect the Company.
In 1993, the NASD received SEC approval for a new Rule of Fair Practice which
limits the amount of aggregate sales charges which may be paid in connection
with the purchase and holding of investment company shares sold through brokers.
The Rule provides that funds with an asset-based sales charge (most commonly
provided in Distribution Plans pursuant to SEC 40 Act Rule 12b-1) may impose no
more than 6.25% - 7.25% (depending upon whether or not the fund also pays
"service fees") in combined front-end, deferred sales charges and asset-based
sales charges. The effect of that Rule might be to limit the amount of fees that
could be paid pursuant to a fund's 12b-1 Plan in a situation where a fund has
no, or limited new sales for a prolonged period of time. In that event, it is
possible that a fund which was experiencing weak sales would have the situation
exacerbated by the fact that it would have to limit fees to brokers under its
12b-1 Plan, or reduce its up front sales charge. None of the Franklin or
Templeton funds are in, or close to, that situation at the present time.
COMPETITION
The financial services industry is highly competitive. In the United States,
there are over 6,100 mutual funds of varying sizes, investment policies and
objectives whose shares are being offered to the public. During the past three
fiscal years, assets under management in the mutual fund industry increased by
over $1.35 trillion, a 68.5% growth rate. Over this same time period, the
Company experienced an approximate approximately 1.13% decline in overall market
share. While the Company's assets and associated revenues still grew
substantially during this time period, substantial asset under management growth
occurred for other fund management companies whose asset bases were more heavily
oriented to domestic equities. Such growth was due to record domestic equity
market appreciation during this period as well as increased asset flows into
domestic equity products. The substantial returns available in the domestic
equity marketplace had a negative effect on sales of fixed-income products. The
combined effect of these two events were a significant factor in the Company's
market share decline. The Company believes that its strong fixed-income base
coupled with its strong global presence will serve its competitive needs well
over time. The Company continues its focus on service to customers, performance
on investments and extensive marketing activities with its strong broker-dealer
and other financial institution distribution network.
The Company advertises the Franklin Templeton Group in major national financial
publications, as well as on radio and television to promote name recognition and
to assist its distribution network. Such activities included purchasing network
and cable programming, sponsorship of sporting events, sponsorship of The
Nightly Business Report on public television and extensive newspaper and
magazine advertising.
Competition for sales of Fund shares is influenced by various factors, including
general securities market conditions, government regulations, global economic
conditions, portfolio performance, advertising and sales promotional efforts,
share distribution channels and the type and quality of dealer and shareholder
services. Many securities dealers, whose large retail distribution systems play
an important role in the sale of shares in the Franklin and Templeton funds,
also sponsor competing proprietary mutual funds. The Company believes that such
securities dealers value the ability to offer customers a broad selection of
investment alternatives and will continue to sell Franklin and Templeton funds,
notwithstanding the availability of proprietary products. However, to the extent
that these firms limit or restrict the sale of Franklin and Templeton funds
shares through their brokerage systems in favor of their proprietary mutual
funds, assets under management might decline and the Company's revenues might be
adversely affected.
Although the Company believes that it has substantially improved its competitive
position and has substantially benefited from the Templeton Acquisition and the
wide variety of global investment products now available to its customers, the
shift in asset mix from primarily a fixed-income base to a combination of
fixed-income and global equities has increased the possibility of volatility in
the Company's managed portfolios due to the increased percentage of equity
investments held.
Another element of competition among mutual funds is the rates at which fees and
sales charges are imposed. The Company believes that its investment management
and other fee structures are already relatively competitive and does not
presently anticipate significant competitive pressures for further reductions.
However, a number of mutual fund sponsors presently market their funds without
sales charges. As investor interest in the mutual fund industry has increased,
competitive pressures have increased on sales charges of broker-dealer
distributed funds. The Company believes that, although this trend will continue,
a significant portion of the investing public still relies on the services of
the broker-dealer community, particularly during weaker market conditions.
However, in response to competitive pressures or for other similar reasons, the
Company might be forced to lower or further adjust sales charges which are
currently substantially reallowed to broker-dealers. The reduction in such sales
charges could make the sale of shares of the Franklin and Templeton funds
somewhat less attractive to the broker-dealer community, which could in turn
have a material adverse effect on the Company's revenues. The Company believes
that it is well positioned to deal with such changes in marketing trends as a
result of its already extensive advertising activities and broad based
marketplace recognition.
In addition to competition from other investment company managers and investment
advisors, the Company and the investment company industry are in competition
with the financial services and other investment alternatives offered by stock
brokerage and investment banking firms, insurance companies, banks, savings and
loan associations and other financial institutions. Many of these competitors
have substantially greater resources than the Company. Although the banking
industry continues to expand its sponsorship of proprietary funds distributed
through third party distributors, the Company has and continues to actively
pursue sales relationships with banks and insurance companies to broaden its
distribution network in response to such competitive pressures. However, as with
proprietary products offered by the Company's broker-dealer network, to the
extent that banks limit or restrict the sale of Franklin and Templeton share
through their distribution systems in favor of their proprietary mutual funds,
assets under management might decline and the Company's revenues might be
adversely affected. In addition, competitive pressures have led to increased
demands for distribution costs for broker-dealer distributed funds, which could
have a negative impact on the Company's profit margins and net income.
SPECIAL CONSIDERATIONS
GENERAL
As discussed above, the Company's revenues are derived primarily from investment
management activities. Broadly speaking, the direction and amount of change in
the net assets of the Funds are dependent upon two factors: (1) the level of
sales of shares of the funds as compared to redemptions of shares of the funds;
and (2) the increase or decrease in the market value of the securities owned by
the Funds. A significant portion of the Company's assets under management are
fixed-income securities. Fluctuations in interest rates and in the yield curve
will have an effect on fixed-income assets under management as well as on the
flow of monies to and from fixed-income funds and, therefore, on the Company's
revenues from such funds. In addition, the impact of changes in the equity
marketplace may significantly affect assets under management. Management
believes, however, that diversity of the Franklin Templeton Group is more
competitive as a result of a greater diversity of product mix available to its
customers. Market values are affected by many things, including the general
condition of national and world economics and the direction and volume of
changes in interest rates and/or inflation rates. The effects of these factors
on equity funds and fixed-income funds often operate inversely and it is,
therefore, difficult to predict the net effect of any particular set of
conditions on the level of assets under management.
Although the Company and its assets under management are subject to political
and currency risks, due to its international activities, as is discussed in more
detail in the MD&A, its exposure to fluctuations in foreign currency markets and
to fixed-asset value depreciation is limited.
ITEM 2. PROPERTIES
GENERAL
The Company owns or leases offices and facilities in nine (9) locations in the
immediate vicinity of its principal executive and administrative offices located
at 777 Mariners Island Boulevard, San Mateo, California. In addition, the
Company owns four (4) buildings near Sacramento, California, as well as two (2)
buildings in St. Petersburg, Florida, one (1) building in Phoenix, Arizona, one
(1) building in Nassau, Bahamas and a floor of a high rise office building in
Singapore. The Company also is currently in the process of constructing three
(3) new buildings in St. Petersburg, Florida and one (1) new building in Nassau,
Bahamas. The Company also leases facilities in various locations on a national
and worldwide basis. Since the Company is operated on a unified basis, corporate
activities, fund related activities, accounting operations, sales, real estate
and banking operations, auto loans and credit cards, management information
system activities, publishing and printing operations, shareholder service
operations and other business activities and operations take place in a variety
of such locations. The Company or its subsidiaries lease office space in
Florida, New York, and Utah and in several other states. In addition, the
Company or its subsidiaries lease office space in Argentina, Australia, Bermuda,
Canada, France, Germany, Hong Kong, India, Italy, Japan, Luxembourg, Poland,
Russia, Scotland, South Africa, and Vietnam. The Company is in the process of
leasing new office space in Hungary.
PROPERTY DESCRIPTION
LEASED
The Company leases properties at the locations set forth below:
Approxi-mate Approxi-mate
LOCATION SQUARE FOOTAGE MONTHLY RENTAL EXPIRATION DATE
---------------------- ----------- ----------- ----------------
777 Mariners Island Blvd.
San Mateo, CA 94404 177,000 $433,000 February 16, 2001
1147 & 1149 Chess Drive
Foster City, CA 94404 121,000 $132,000 June, 2000
1810 Gateway Drive
San Mateo, CA 49,000 $79,000 Late 1997
901 & 951 Mariners Island Blvd. Between March, 1999
San Mateo, CA 34,000 $60,000 & April, 2000
2 Waters Drive
San Mateo, CA 49,000 $74,000 July, 1999
1850 Gateway Drive
San Mateo, CA 23,000 $34,000 July, 2000
Ft. Lauderdale, FL (Templeton) 83,000 $185,000 December, 2000
Other U.S. Locations 47,000
Foreign Operations 110,000
OWNED
The Company maintains a customer service facility in the property that it owns
at 10600 White Rock Road, Rancho Cordova, California, near Sacramento,
California. The Company occupies 75,000 square feet in this property and has
leased out 46,000 square feet to a third party until February, 2000 at an
approximate monthly rental of $65,000. The Company owns an additional
twenty-seven acres of adjoining land on which it has constructed two office
buildings of approximately 67,000 square feet each and a data center/warehouse
facility of approximately 162,000 square feet. The Company plans to develop
additional facilities on this property, but has not yet commenced construction.
The Company also owns and occupies an office building with approximately 69,000
square feet of office space at 1800 Gateway Drive, San Mateo, California.
The Company owns two facilities in St. Petersburg, Florida: an approximately
90,000 square foot office building primarily devoted to shareholder servicing
activities; and an approximately 117,000 square foot facility devoted to a
computer data center and training and mailing operations. The Company has
purchased approximate twenty-eight acres of land in St. Petersburg on which it
has commenced construction of three office buildings of approximately 70,000
square feet each. The Company plans to develop additional facilities on this
property in the future. The Company also owns an approximately 14,000 square
foot office building in Nassau, Bahamas, as well as a nearby condominium
residence. The Company has commenced construction of a second office building,
adjacent to the existing office building, of approximately 25,000 square feet.
Completion of the building is expected by early 1997.
OTHER
The Company is the sole limited partner with a 60% partnership interest in
Mariner Partners, a California limited partnership formed in 1984 to develop,
operate and hold the property occupied by the Company at 777 Mariners Island
Boulevard. Mariner Partners obtained 30 year non-recourse financing for the
property from Metropolitan Life Insurance Company at an interest rate of 8-7/8%.
The principal balance outstanding as of September 30, 1996, was $25.6 million.
The loan was due in November, 1996. In December, 1996, Mariner Partners extended
the loan with Metropolitan Life Insurance Company until November, 2002. Interest
rate on the loan during the extension period is 8.10% per annum.
ITEM 3. PENDING LEGAL PROCEEDINGS
There are no material pending legal proceedings which the Company or any of its
subsidiaries was a party, or of which any of their property is the subject; nor
are any such proceedings known to be contemplated by any governmental
authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY OWNERS
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders.
EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company are:
NAME AGE PRINCIPAL OCCUPATION
Charles B. Johnson 63 President, Chief Executive Officer and Director of
the Company; Chairman and Director, Franklin
Advisers, Inc. and Franklin/Templeton Distributors,
Inc.; Director, Templeton Worldwide, Inc., Franklin
Bank, Franklin/Templeton Investor Services, Inc.,
Franklin Mutual Advisers, Inc. and General Host
Corporation; officer and/or director, as the case
may be, of most other principal domestic
subsidiaries of the Company; officer and/or
director, trustee or managing general partner, as
the case may be, of 56 of the investment companies
in the Franklin Templeton Group of Funds.
Harmon E. Burns 51 Executive Vice President, Director and Secretary of
the Company; Executive Vice President and Director
of Franklin/Templeton Distributors, Inc., Executive
Vice President of Franklin Advisers, Inc.;
Director, Templeton Worldwide, Inc.,
Franklin/Templeton Investor Services, Inc.,
Franklin Bank and Franklin Mutual Advisers, Inc.;
officer and/or director, as the case may be, of
most other principal domestic subsidiaries of the
Company; officer and/or director, trustee or
managing general partner, as the case may be, of 60
of the investment companies in the Franklin
Templeton Group of Funds.
Rupert H. Johnson, Jr. 56 Executive Vice President and Director of the
Company; Director and President, Franklin Advisers,
Inc.; Director and Executive Vice President,
Franklin/Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc.,
Templeton Worldwide, Inc., Franklin Bank and
Franklin Mutual Advisers, Inc.; officer and/or
director, trustee or managing partner, as the case
may be, of most other principal domestic
subsidiaries of the Company; and of 60 of the
investment companies in the Franklin Templeton
Group of Funds.
Kenneth V. Domingues 64 Senior Vice President of the Company, Franklin
Advisers, Inc. and Franklin/Templeton Distributors,
Inc.; Chief Financial Officer and Chief Accounting
Officer from August 1986 to March 1993; officer
and/or director, as the case may be, of other
subsidiaries of the Company; and officer and/or
managing general partner, as the case may be, of 37
of the investment companies in the Franklin
Templeton Group of Funds.
Martin L. Flanagan 36 Senior Vice President, Chief Financial and
Accounting Officer and Treasurer of the Company;
Senior Vice President of Franklin Advisers, Inc.,
Executive Vice President and Director of Templeton
Worldwide, Inc.; President, Chief Executive Officer
and Director of Templeton Global Investors, Inc.;
officer of most of the subsidiaries of the Company
since March, 1993; and officer and/or director,
trustee or managing partner, as the case may be, of
most other principal domestic subsidiaries of the
Company; and of 60 of the investment companies in
the Franklin Templeton Group of Funds.
Deborah R. Gatzek 48 Senior Vice President of the Company since March
1990; General Counsel since January 1996; Vice
President of the Company from March, 1986 to March
1990; Senior Vice President, Franklin/Templeton
Distributors, Inc.; Vice President, Franklin
Advisers, Inc.; and an officer of most other
principal domestic subsidiaries of the Company; and
officer of 60 of the investment companies in the
Franklin Templeton Group of Funds.
Charles E. Johnson 40 Senior Vice President of the Company; President and
Director, Templeton Worldwide, Inc.; President,
Franklin Institutional Services Corporation and
Franklin Mutual Advisers, Inc.; Senior Vice
President, Franklin/Templeton Distributors Inc.;
Chairman, Franklin Agency, Inc.; Vice President,
Franklin Advisers, Inc.; officer and/or director,
as the case may be, of other domestic and
international subsidiaries of the Company; officer,
director, trustee or managing general partner, as
the case may be, of 39 of the investment companies
in the Franklin Templeton Group of Funds.
William J. Lippman 71 Senior Vice President since March 1990;
Director, Templeton Worldwide, Inc.; and officer
and/or director or trustee of seven of the
investment companies in the Franklin Group of
Funds. Until June 1988, President, Chief Executive
Officer, and Director of L.F. Rothschild Fund
Management, Inc., Director of L.F. Rothschild Asset
Management, Inc., Administrative Managing Director
and Director of L.F. Rothschild & Co., Incorporated.
Jennifer J. Bolt 32 Vice President of the Company since June 1994;
Executive Vice President, Franklin Bank since
August 1993; President, Franklin Capital
Corporation, since November 1993; employed by the
Company in various other capacities for more than
the past five (5) years.
Loretta Fry 64 Vice President of the Company; Vice
President, Franklin Advisers, Inc. and
Franklin/Templeton Distributors, Inc.; employed by
the Company in various administrative and
operations capacities for more than five years.
Donna S. Ikeda 40 Vice President since October 1993;
re-joined the Company in August 1993.
Previously employed from 1982 to 1990 as Director
of Human Resources and also held position as
Manager/AVP of Shareholder Services, Retirement
Plan Phone Service and Customer New Accounts. From
1990 until August 1993, Vice President, Human
Resources for G.T. Capital Management, Inc. and
G.T. Global Financial Services, Inc., mutual fund
management and financial services companies.
Gregory E. Johnson 35 Vice President of the Company since June 1994;
President, Franklin/Templeton Distributors, Inc.
since September 1994; Vice President, Franklin
Advisers, Inc. Prior to that time, Senior Vice
President and Assistant National Sales Manager,
Franklin/Templeton Distributors, Inc.; Employee of
Franklin Resources, Inc. and its subsidiaries in
administrative and portfolio management capacities
since January 1986; officer of one investment
company in the Franklin Group of Funds.
Gordon F. Jones 49 Vice President and Chief Information Officer of the
Company since March 1995. From March 1990 to March
1995, Vice President of Novell, Inc., a worldwide
network systems company; Vice President and Chief
Information Officer of Novell, Inc. from March 1994
to March 1995.
Leslie M. Kratter 51 Vice President of the Company since March 1993.
Employed by the Company since January 1992.
Secretary of Franklin Advisers, Inc.,
Franklin/Templeton Distributors, Inc., Templeton
Worldwide, Inc., and a number of the Company's
subsidiaries. For more than five (5) years prior
to that time, Mr. Kratter served as Executive Vice
President and General Counsel of IASCO, a privately
held company engaged in providing aviation
services, municipal governmental services and
agricultural investments.
Kenneth A. Lewis 35 Vice President and Corporate Controller of the
Company, Senior Vice President and Controller of
Templeton Worldwide, Inc., and an officer of
several other domestic subsidiaries of the Company.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. Peter M. Sacerdote,
a director of the Company, is a brother-in-law of Charles B. Johnson and Rupert
H. Johnson, Jr. Charles E. Johnson is the son of Charles B. Johnson and the
nephew of Rupert H. Johnson, Jr. and Peter Sacerdote. Gregory E. Johnson is the
son of Charles B. Johnson, the nephew of Rupert H. Johnson, Jr. and Peter
Sacerdote and the brother of Jennifer Bolt and Charles E. Johnson. Jennifer Bolt
is the daughter of Charles B. Johnson, the niece of Rupert H. Johnson, Jr. and
Peter Sacerdote, and the sister of Charles E. Johnson and Gregory E. Johnson.
Leslie M. Kratter is the spouse of Deborah R. Gatzek.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information About the Company`s Common Stock
The Company's common stock is traded on the New York Stock Exchange ("NYSE") and
the Pacific Stock Exchange under the ticker symbol BEN and the London Stock
Exchange under the ticker symbol FKR. On September 30, 1996, the closing price
of the Company's common stock on the NYSE was $66 3/8 per share. At December 2,
1996, there were approximately 2,000 shareholders of record. In addition, the
Company estimates that there are approximately 15,000 beneficial shareholders
whose shares are held in street name. The high and low sales prices by quarter
for the 1996 and 1995 fiscal years, as traded on the NYSE Composite Tape, were
as follows:
1996 Fiscal Year 1995 Fiscal Year
Quarter High Low High Low
- ------------------- -------- -------- -------- ---------
October-December 58 46 3/4 41 3/8 34
January-March 59 1/8 46 3/8 40 33
April-June 61 3/4 53 5/8 46 1/8 38 1/4
July-September 68 5/8 51 3/4 58 42 1/2
The Company declared dividends of $0.44 per share in fiscal 1996 and $0.40 per
share in fiscal 1995. The Company expects to continue paying dividends on a
quarterly basis to common stockholders depending upon earnings and other
relevant factors.
ITEM 6. SELECTED FINANCIAL HIGHLIGHTS
(in 000's, except Assets under Management and per share amounts )
SELECTED FINANCIAL HIGHLIGHTS
As of and for the years ended September 30,
In thousands,except assets under
management and per share amounts
1996 1995 1994 1993 1992
- ------------------- ----------- ----------- ---------- ----------- ----------
Summary of Operations
Operating revenues $1,522,568 $1,257,797* $1,342,541* $1,176,519* $ 749,974*
Net income $ 314,730 $ 268,945 $251,308 $ 175,522 $ 124,051
Financial Data
Total assets $2,374,167 $2,244,681 $1,968,758 $1,581,534 $ 834,287
Long-term debt $ 399,462 $ 382,367 $383,668 $ 454,820 $ 155,541
Stockholders'
equity $1,400,591 $1,161,043 $930,815 $ 720,378 $ 467,209
Assets Under
Management
(in millions) $ 151,552 $ 130,837 $ 118,172 $ 170,490 $ 69,218
Per Common Share
Earnings
Primary $3.78 $3.24 $3.00 $2.12 $1.59
Fully diluted $3.76 $3.20 $3.00 $2.10 $1.59
Cash dividends $0.44 $0.40 $0.32 $0.28 $0.26
Average stockholders' equity $15.92 $13.82 $11.09 $8.77 $5.99
*Reflects reclassification of underwriting and distribution expense.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Franklin Resources, Inc. and its majority-owned subsidiaries (the "Company")
derives substantially all of its revenue and net income from providing
investment management, administration, distribution and related services to the
Franklin Templeton funds, institutional accounts and other investment products.
The Company's revenues are derived largely from the amount and composition of
assets under its management. The Company has a diversified base of assets under
management and a full range of investment products and services to meet the
needs of most individuals and institutions.
During 1996, assets under the Company's management grew to $151.6 billion, an
increase of $20.8 billion (16%) over September 30, 1995, as a result of both net
sales and market appreciation.
The Company operates in five geographic areas of the world: the United States,
Canada, the Bahamas, Europe and Asia/Pacific. At September 30, 1996, the Company
had offices in 17 countries.
The contributions to the Company's operating profits from non-U.S. operations
increased in 1996 principally as a result of an increase in fee revenue from
investment management services provided by its foreign subsidiaries. In the
future, the contribution to operating revenue and operating profit from non-U.S.
operations will be dependent upon the amount and composition of assets managed
by the Company's non-U.S. subsidiaries.
Despite the Company's global presence, its exposure to adverse fluctuations in
foreign currency markets is limited because a material portion of the foreign
subsidiaries' revenues and the majority of their monetary assets are U.S. and
Canadian dollar denominated. Furthermore, custody of a material portion of the
foreign subsidiaries' monetary assets are held with U.S. financial institutions.
Approximately 98% of the Company's operating revenues were earned in U.S. and
Canadian dollars in both 1996 and 1995. The Company has not deemed it necessary
to enter into foreign currency hedging transactions.
The Company participates in the financial derivatives markets to manage its
exposure to interest-rate fluctuations. The Company has entered into
interest-rate swap agreements to convert interest payment obligations
under-variable rate debt instruments to fixed-rate interest payment obligations.
(See Note 6 to the financial statements.)
Results of Operations
For the years ended September 30,
In millions, except
per share amounts % %
and percentages 1996 1995 change 1995 1994 change
- ------------------- ------ ------ ------ ------- ------ -----
Net income $314.7 $268.9 17% $268.9 $251.3 7%
Earnings per share:
Primary $3.78 $3.24 17% $3.24 $3.00 8%
Fully-diluted $3.76 $3.20 18% $3.20 $3.00 7%
Operating margin 27% 29% - 29% 27% -
Net income for 1996 increased 17% primarily due to a 21% increase in investment
management, underwriting and distribution fee revenue generated by increased
assets under management. Operating expenses increased at a higher rate than
operating revenues during 1996, resulting in a decline in the operating margin.
Underwriting and distribution expenses increased 32%, reflecting increased sales
of retail mutual funds as well as overall increases in costs associated with
distributing the Company's products. Employment costs increased 25%, reflecting
the Company's commitment to reward excellent performance of its employees. Net
income for 1995 increased 7% primarily as a result of a 13% increase in
investment management fee revenue.
Results of operations will continue to be dependent upon general economic
growth, the strength of capital markets and the Company's ability to meet market
demands with competitive products and services. Operating revenues will be
specifically dependent upon the amount and composition of assets under
management, mutual fund sales, and the number of mutual fund investors and
institutional clients. Operating expenses are expected to increase with the
Company's continued expansion, the increase in competition and the Company's
continued commitment to improving its products and services. These endeavors
will likely result in an increase in selling expenses, employment costs, and
other general and administrative expenses.
ASSETS UNDER MANAGEMENT
As of the years ended September 30,
In billions 1996 1995 1994
- ---------------------------------- ------- -------- -------
Franklin Templeton Group:
Fixed-income funds:
Tax-free income $42.5 $40.4 $39.4
U.S. government fixed-income
(primarily GNMAs) 15.6 14.7 14.7
Taxable and tax-free money funds 2.8 2.8 2.6
Global/international
fixed-income 2.9 2.8 2.5
- ---------------------------------- ------- -------- -------
Total fixed-income funds 63.8 60.7 59.2
Equity/income funds:
Global/international equity 47.2 36.0 28.1
U.S. equity/income 19.2 17.2 17.5
- ---------------------------------- ------- -------- -------
Total equity/income funds 66.4 53.2 45.6
Total Franklin Templeton
fund assets 130.2 113.9 104.8
Franklin Templeton
institutional assets 21.4 16.9 13.4
- ---------------------------------- ------- -------- -------
Total Franklin Templeton Group $151.6 $130.8 $118.2
Changes in Assets Under Management
As of and for the years ended September 30,
In billions 1996 1995 1994
- ---------------------------------- ------- -------- -------
Assets under management - beginning $130.8 $118.2 $107.5
Sales and reinvestments,
net of underwriting commissions 35.7 27.9 41.1
Redemptions (21.5) (22.5) (28.8)
Market appreciation/(depreciation) 6.6 7.2 (1.6)
- ---------------------------------- ------- -------- -------
Assets under management - ending $151.6 $130.8 $118.2
Assets under the Company's management increased by $20.8 billion (16%) in fiscal
1996, $12.6 billion (11%) in fiscal 1995 and $10.7 billion (10%) in fiscal 1994,
respectively.
As shown in the previous table, the composition of assets under management has
changed over the past three years. This development is a result of changes in
relative sales, redemptions and market value among the specific asset classes.
Fixed-income funds represented 42% of assets under management at September 30,
1996 as compared to 46% and 50% at September 30, 1995 and 1994, respectively.
This trend reflects investors' recent preference for equity/income funds and the
relatively higher level of market appreciation of those funds during the periods
under review. Equity/income funds represented 44% of assets under management at
September 30, 1996, as compared to 41% and 39% at September 30, 1995 and 1994,
respectively.
Institutional assets under management, comprised of predominantly
global/international equity portfolios, represented 14%, 13% and 11% of the
Company's assets under management at September 30, 1996, 1995 and 1994,
respectively, and is consistent with the growth rate experienced with the
Company's other equity products. The Company continues to expand the services it
provides in this area.
Operating Revenues
Investment management fees:
For the years ended September 30,
In millions 1996 1995 1994
- --------------------------- -------- --------- --------
Revenues $883.8 $731.3 $647.7
12- month average assets
under management $141,078 $121,666 $115,443
The Company's revenues from investment management fees are derived primarily
from contractual fixed-fee arrangements that are based upon the level of assets
under management with open-end and closed-end investment companies and managed
accounts. Under the various investment management agreements, annual rates vary
and generally decline as the average net assets of the portfolios exceed certain
threshold levels. Investment management services provided to Franklin Templeton
funds are reviewed and approved annually by each fund's Board of
Directors/Trustees. There have been no significant changes in the investment
management fee structures for the Franklin Templeton funds in the periods under
review.
Investment management fees for 1996 increased $152.5 million (21%) over 1995,
which increased $83.6 million (13%) over 1994. Management fees grew at a faster
rate than average assets under management in both 1996 and 1995. This was the
result of a shift in composition of average assets under management to higher
fee equity and income funds during the years under consideration.
Underwriting and distribution fees:
For the years ended September 30,
In millions 1996 1995 1994
Revenues $545.0 $449.1 $626.3
Gross fund sales of products
subject to commissions $23,018 $15,458 $22,460
Revenues from underwriting commissions are earned primarily from fund sales.
Most sales of Franklin Templeton funds include a sales commission, of which a
significant portion is reallowed to selling intermediaries. Certain subsidiaries
of the Company act as distributors for its sponsored mutual funds and receive
distribution fees, including 12b-1 fees, from those funds in reimbursement for
distribution expenses incurred. A significant portion of distribution fees are
reallowed to selling intermediaries. Distribution fees are generally based on
the level of assets under management.
Underwriting and distribution fees increased 21% in 1996 largely due to
increased retail mutual fund sales partially offset by a decrease in effective
commission rates. Effective commission rates declined as relative sales of
products with lower commission rates such as Class II shares and annuity
products increased. Underwriting and distribution fees for 1995 decreased 28%
due to lower retail mutual fund sales and changes made to fund commission
structures.
Shareholder servicing fees:
For the years ended September 30,
In millions 1996 1995 1994
- ----------------------------- -------- -------- --------
Revenues $88.7 $68.7 $54.6
Number of accounts 5.4 4.7 4.4
Shareholder servicing fees are generally fixed charges per account which vary
with the particular type of fund and the service being rendered.
Shareholder servicing fees for 1996 increased $20.0 million (29%). This increase
was in part the result of a 15% increase in retail fund shareholder accounts.
Also, effective July 1, 1995, approximately 85 of the Company's U.S. mutual
funds consisting of approximately 2.5 million shareholder accounts implemented
an average annual increase of $4 per shareholder account.
Shareholder servicing fees for 1995 increased $14.1 million (26%). The increase
was due to an increase in retail shareholder accounts and the fee increase
described above.
Banking/finance, net and other:
For the years ended September 30,
In millions, except percentages 1996 1995 1994
- ----------------------------------- ------- ------- --------
Revenues $ 47.3 $ 54.5 $ 31.5
Provision for loan losses (16.7) (17.2) (5.4)
Interest expense (25.6) (28.6) (12.2)
- ----------------------------------- ------- ------- --------
$ 5.0 $ 8.7 $ 13.9
Yield on average earning assets 8.8% 9.0% 9.6%
Cost of average interest-bearing liabilities 6.4% 5.9% 4.7%
Banking/finance, net and other decreased 43% in 1996 as compared to a 37%
decrease in 1995. 1996 revenues and related interest expense decreased in large
part due to a 23% reduction in the net loan receivable balance as the Company's
more stringent underwriting policies have resulted in a decrease in the number
of new loans written. The provision for loan losses has decreased in 1996 due to
a reduction in delinquency rates, with 4.0% past due at the end of 1996 as
compared to 5.3% at the end of 1995. Actual charge-offs have increased 24% in
1996 as the Company has aggressively written off accounts it deems
uncollectible.
The Company substantially increased its auto loan portfolio during fiscal year
1994 as it expanded this business activity. Because a substantial portion of the
portfolio was new, the impact of delinquency and loss trends was not fully
reflected in the financial performance of the Company until fiscal 1995. The
decrease in banking/finance, net and other in 1995 was due primarily to an
increase in the provision for loan losses and interest expense attributable to
the banking/finance group.
Commencing in 1994, a portion of the banking/finance group's loans receivable
were financed through the Company. The interest expense on the amount funded by
the Company was $8.5 million and $18.3 million in 1996 and 1995, respectively.
The decrease during 1996 was a result of decreased borrowings needed to fund the
auto loan and credit card portfolios.
Operating Expenses
For the years ended September 30,
In millions 1996 1995 1994
- ------------------------------ --------- -------- --------
Underwriting and distribution $542.4 $412.0 $529.8
Employee related 325.1 260.1 251.3
General and administrative 148.0 129.1 107.3
Advertising and promotion 71.7 70.1 69.1
Amortization of intangible assets 18.3 18.3 18.3
- ------------------------------ --------- -------- --------
$1,105.5 $889.6 $975.8
Underwriting and distribution includes sales commissions and distribution fees
paid to brokers and other third party intermediaries. During 1995, many of the
U.S. Franklin and Templeton funds introduced a new class of shares, called Class
II shares, which pay brokers sales commissions and distribution fees that are
only partially recovered by the Company through distribution fee revenues.
During 1996, distribution expenses increased at a greater rate than distribution
revenues because of the relatively higher growth in the sales of Class II shares
and similar products sold primarily by the Company's Canadian subsidiary. In
1995, underwriting and distribution expenses decreased primarily due to the
decrease in the sales of retail mutual fund shares.
While Class II shares will increase distribution expenses of the Company and
will utilize the Company's capital resources over the short term, the Company
believes that Class II shares will result in an overall increase in assets under
management by expanding distribution of fund shares. Sales of Class II shares
represented 12% and 8% of total U.S.-based long-term mutual fund new sales for
1996 and 1995, respectively.
In 1994, the Company implemented an annual incentive plan which provides
eligible employees payment of both cash and restricted stock. The value of the
stock associated with the annual incentive plan is charged to income currently
and is determined by the Company's Board of Directors based on individual
performance and the Company's profit. Costs associated with restricted stock
awards granted prior to the adoption of the annual incentive plan are amortized
over the contract period. These deferred incentives vest through 1997. Employee
related costs increased 25% and 4% in 1996 and 1995, respectively, reflecting
changes in profitability of the corporation and in the number of full-time
employees. The number of full-time employees increased 9% and 10% in 1996 and
1995, respectively.
General and administrative expense increased in all periods under review due
principally to higher technology and occupancy costs related to the general
expansion of the business.
Other Income (Expenses)
The 1996 and 1995 increases in investment and other income resulted from
increases in the average levels of interest-bearing assets, as well as $17.3
million and $2.5 million in capital gains realized on the sale of investments,
in 1996 and 1995, respectively.
The Company's effective interest rate at September 30, 1996, including interest
on the banking/finance group debt, was 6.53% on $399.2 million of outstanding
commercial paper, medium-term notes and subordinated debentures as compared to
6.17% on $465.9 million of debt outstanding at September 30, 1995.
Taxes on Income
The Company's effective tax rate was 31%, 30% and 31% in 1996, 1995 and 1994,
respectively. The Company's effective tax rate differs from the U.S. statutory
rates due to the Company's non-U.S. subsidiaries' relative contributions to
taxable income. The Company does not provide taxes on these earnings, as they
have been reinvested and are not expected to be remitted to the parent Company.
The effective tax rate will continue to be reflective of the relative
contribution of foreign earnings which are subject to reduced tax rates and are
not currently included in U.S. taxable income.
Financial Condition, Liquidity and Capital Resources
As of September 30, 1996, stockholders' equity approximated $1.4 billion, double
that of three years earlier, principally as the result of increased net income.
Cash provided by operating activities increased to $359.6 million in 1996, up
from $296.5 million and $274.8 million in 1995 and 1994, respectively, primarily
from increased net income. Net cash provided by investing activities in 1996
increased principally due to a decrease in loan originations, an increase in the
collections of banking/finance loans receivable and from proceeds from the
liquidation of investments in preparation for the acquisition of the assets and
liabilities of Heine Securities Corporation as discussed below. The Company used
net cash of $193.7 million in 1996 for financing activities. The issuance of
$134.4 million in medium-term notes and commercial paper was offset by $203.1
million in payments on debt. The Company paid $34.7 million in dividends to
stockholders. During the year, the Company purchased 1.0 million shares of its
common stock for $53.4 million. As of September 30, 1996, the Company had 3.9
million shares remaining under its authorized repurchase program. The Company
will continue from time to time to purchase its own shares in the open market
and in private transactions for use in connection with various corporate
employee incentive programs and when it believes the market price of its shares
merits such action.
The Company's auto loan and credit card receivables business activities are
subject to significant fluctuations in those consumer market places as well as
to significant competition from companies with much larger receivable
portfolios. Auto loan and credit card portfolio losses can also be influenced
significantly by trends in the economy and credit markets which negatively
impact borrowers' ability to repay loans. As of September 30, 1996,
banking/finance loans receivable decreased due to net paydowns of existing loans
and a decrease in funding of new loans. A portion of the proceeds from net
paydowns of loans was used to reduce the receivable from the banking/finance
group. As of September 30, 1996, the auto loan portfolio consisted of
approximately 55% new and 45% used cars. Approximately 75% of the auto loans
outstanding were in California, approximately 10% in New Mexico and the balance
distributed throughout the western United States. The Company has experienced a
decrease in delinquency rates since September 30, 1995, in response to its
expanded auto loan collection efforts and enhanced systems supporting those
activities. Future increases in the Company's investment in dealer auto loan and
credit card portfolios will be funded through existing debt facilities and
operating cash flows.
At September 30, 1996, the Company held liquid assets of $889.9 million,
including $502.2 million of cash and cash equivalents, as compared to $643.2
million and $261.7 million, respectively, at September 30, 1995. During 1996 the
Company maintained a $400 million commercial paper program and a $300 million
medium-term note program. The Company has also established two revolving credit
and competitive auction facilities as back-up for the commercial paper program.
At September 30, 1996, total back-up credit facilities were $400 million of
which, $150 million was under a 364-day revolving credit facility. The remaining
$250 million back-up facility has a five-year term. At September 30, 1996,
approximately $750 million was available to the Company under unused credit
facilities. In October 1996, the Company increased the amounts available for
issuance under its medium-term note program from $100 million to $500 million.
In November 1996, the holders of the subordinated debentures exercised their
option to receive approximately 2.4 million shares of the Company's common stock
in return for the surrender of approximately $75 million of debentures. The
holders of the subordinated debentures also agreed to sell to the Company the
remaining option rights and surrender the remaining debentures for cash of
approximately $170 million. The transaction will be funded through available
cash and the issuance of medium-term notes.
On November 1, 1996, the Company and Heine Securities Corporation announced they
had merged their businesses in a transaction with an approximate aggregate value
of $615 million. The Company financed the transaction with 1.1 million shares of
the Company's common stock and a cash payment of $550 million from cash and
securities on hand, as well as its available commercial paper.
In addition to the aforementioned Heine Securities Corporation acquisition and
subordinated debenture option exercise, management expects that the principal
needs for cash will be to fund increased property and equipment acquisitions,
pay shareholder dividends, repurchase shares of the Company's common stock and
repay debt and advance sales commissions for Class II shares and Canadian
products. Management believes that the Company's existing liquid assets,
together with the expected continuing cash flow from operations, its ability to
issue stock, and its borrowing capacity under current credit facilities, will be
sufficient to meet its present and reasonably foreseeable cash needs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index Of Consolidated Financial Statements for the years
ended September 30, 1996, 1995 and 1994
CONTENTS
Consolidated Financial Statements of Franklin Resources, Inc.:
Pages
Report of Independent Accountants
Consolidated Balance Sheets
September 30, 1996 and 1995
Consolidated Statements of Income, for the years ended
September 30, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity,
for the years ended September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows,
for the years ended September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
All schedules have been omitted as the information is provided in the financial
statements or in related notes thereto or is not required to be filed as the
information is not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Franklin Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Franklin
Resources, Inc. and subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Franklin
Resources, Inc. and subsidiaries as of September 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
San Francisco, California
October 23, 1996, except for Note 14,
for which the date is November 26, 1996
CONSOLIDATED STATEMENTS OF INCOME
For the years ended September 30,
- ----------------------------------------------- ------------------ ----------------- ------------------
In thousands, except share data 1996 1995 1994
- ----------------------------------------------- ------------------ ----------------- ------------------
Operating Revenues:
Investment management fees $883,779 $731,252 $647,675
Underwriting and distribution fees 545,039 449,141 626,341
Shareholder servicing fees 88,715 68,701 54,613
Banking/finance, net and other 5,035 8,703 13,912
- ----------------------------------------------- ------------------ ----------------- ------------------
Total operating revenues 1,522,568 1,257,797 1,342,541
- ----------------------------------------------- ------------------ ----------------- ------------------
Operating Expenses:
Underwriting and distribution 542,359 411,994 529,771
Employee related 325,135 260,097 251,337
General and administrative 147,963 129,122 107,348
Advertising and promotion 71,655 70,138 69,073
Amortization of intangible assets 18,348 18,305 18,311
- ----------------------------------------------- ------------------ ----------------- ------------------
Total operating expenses 1,105,460 889,656 975,840
- ----------------------------------------------- ------------------ ----------------- ------------------
Operating income 417,108 368,141 366,701
Other Income (Expenses):
Investment and other income 50,458 29,673 22,703
Interest expense (11,336) (11,159) (26,883)
- ----------------------------------------------- ------------------ ----------------- ------------------
Other income (expenses), net 39,122 18,514 (4,180)
- ----------------------------------------------- ------------------ ----------------- ------------------
Income before taxes on income 456,230 386,655 362,521
Taxes on income 141,500 117,710 111,213
- ----------------------------------------------- ------------------ ----------------- ------------------
Net income $314,730 $268,945 $251,308
- ----------------------------------------------- ------------------ ----------------- ------------------
Earnings per Share:
Primary $3.78 $3.24 $3.00
Fully diluted $3.76 $3.20 $3.00
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
As of the years ended September 30,
- ------------------------------------------------------------ -------------------
In thousands 1996 1995
- ------------------------------------------------------------- ---------------
Assets
Current Assets:
Cash and cash equivalents $483,975 $246,184
Receivables:
Fees from Franklin Templeton funds 133,453 110,972
Other 54,727 38,407
Investment securities, available-for-sale 174,156 208,478
Prepaid expenses and other 9,952 7,167
- ------------------------------------------------------------- ---------------
Total current assets 856,263 611,208
- ------------------------------------------------------------- ---------------
Banking/Finance Assets:
Cash and cash equivalents 18,214 15,515
Loans receivable, net 345,399 450,013
Investment securities, available-for-sale 25,325 23,655
Other 4,660 6,876
- ------------------------------------------------------------- ---------------
Total banking/finance assets 393,598 496,059
- ------------------------------------------------------------- ---------------
Other Assets:
Deferred sales commissions, net 24,316 8,473
Property and equipment, net 161,613 118,628
Intangible assets, net of $74,027 and $56,375
accumulated amortization, respectively 641,983 660,363
Receivable from banking/finance group 236,532 302,273
Other 59,862 47,677
Total other assets 1,124,306 1,137,414
- ------------------------------------------------------------- ---------------
Total assets $2,374,167 $2,244,681
- ------------------------------------------------------------- ---------------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
As of the years ended September 30,
In thousands 1996 1995
- ------------------------------------- --------- ----------
Liabilities and Stockholders' Equity
Current Liabilities:
Accrued employee related $77,935 $53,238
Commissions payable 28,067 21,280
Income taxes payable 27,673 8,221
Short-term debt 427 87,204
Other 48,099 43,128
- ----------------------------------------- ---------- -----------
Total current liabilities 182,201 213,071
- ----------------------------------------- ---------- -----------
Banking/Finance Liabilities:
Deposits:
Interest bearing 125,124 159,627
Non-interest bearing 6,095 9,747
Payable to parent 236,532 302,273
Other 1,725 2,076
- ----------------------------------------- ---------- -----------
Total banking/finance liabilities 369,476 473,723
- ----------------------------------------- ---------- -----------
Other Liabilities:
Long-term debt 399,462 382,367
Other 22,437 14,477
- ----------------------------------------- ---------- -----------
Total other liabilities 421,899 396,844
- ----------------------------------------- ---------- -----------
Total liabilities 973,576 1,083,638
- ----------------------------------------- ---------- -----------
Stockholders' Equity:
Preferred stock, $1.00 par value,
1,000,000 shares authorized; none issued - -
Common stock, $.10 par value, 500,000,000
shares authorized; 82,264,982 shares
issued in both years; and 80,272,131 and
80,939,611 shares outstanding, for 1996
and 1995, respectively 8,226 8,226
Capital in excess of par value 101,226 92,190
Retained earnings 1,370,513 1,091,204
Less cost of treasury stock (90,301) (48,519)
Other 10,927 17,942
- ----------------------------------------- ---------- -----------
Total stockholders' equity 1,400,591 1,161,043
- ----------------------------------------- ---------- -----------
Total liabilities and stockholders' equity $2,374,167 $2,244,681
- ----------------------------------------- ---------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
As of and for the years ended September 30, 1996, 1995 and 1994
Capital in Treas-
Common Stock Excess of Retained ury Stock
In thousands Shares Amount Par Value Earnings Shares Amount Other Total
- ---------------- ------ ------ -------- ---------- ------- -------- ------- ----------
Balance,
October 1, 1993 82,099 $8,210 $83,683 $630,399 - - $(1,914) $720,378
Net income 251,308 251,308
Unrealized
gain on
investment
securities, 1,836 1,836
net of tax
Foreign currency
translation 352 352
adjustment
Purchase of
treasury stock (672) $(26,410) (26,410)
Cash dividends
on common stock (26,194) (26,194)
Issuance of
restricted
shares, net 119 11 6,797 5 1,001 (72) 7,737
Other 47 5 1,803 1,808
- ---------------- ------ ------ -------- ---------- ------- -------- ------- ---------
Balance,
September 30,
1994 82,265 8,226 92,283 855,513 (667) (25,409) 202 930,815
Net income 268,945 268,945
Unrealized gain
on investment
securities,
net of tax 13,745 13,745
Foreign currency
translation 835 835
adjustment
Purchase of
treasury stock (1,126) (41,749) (41,749)
Cash dividends
on common stock (33,254) (33,254)
Issuance of
restricted
shares, net (48) 431 17,121 3,160 20,233
Other (45) 37 1,518 1,473
- ---------------- ------ ------ -------- ---------- ------- -------- ------- ----------
Balance,
September 30,
1995 82,265 8,226 92,190 1,091,204 (1,325) (48,519) 17,942 1,161,043
Net income 314,730 314,730
Unrealized loss
on investment
securities,
net of tax (10,644) (10,644)
Foreign currency
translation
adjustment (752) (752)
Purchase of
treasury stock (1,001) (53,413) (53,413)
Cash dividends
on common stock (35,421) (35,421)
Issuance of
restricted
shares, net 9,672 280 9,777 4,381 23,830
Other (636) 53 1,854 1,218
Balance,
September 30,
1996 82,265 $8,226 $101,226 $1,370,513 (1,993) $(90,301) $10,927 $1,400,591
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30,
In thousands 1996 1995 1994
- ----------------------------------- ---------- --------- ----------
Net Income $314,730 $268,945 $251,308
Adjustments to reconcile net income to
net cash provided by operating
activities:
Decrease (increase) in receivables
prepaid expenses and other (33,405) (9,525) 1,339
Increase in deferred sales
commissions, net (15,843) (5,422) (1,197)
Increase (decrease) in other
current liabilities 3,315 (2,529) (54,670)
Increase (decrease) in income
taxes payable 19,452 (9,405) 12,115
Increase in commissions payable 6,787 19,191 498
Increase (decrease) in accrued
employee related 41,328 (3,137) 30,117
Depreciation and amortization 40,491 40,940 36,693
Gains on disposition of assets (17,272) (2,604) (1,396)
- --------------------------------------- --------- -------- --------
Net cash provided by operating
activities 359,583 296,454 274,807
- --------------------------------------- --------- --------- ---------
Purchase of investments (70,768) (130,194) (39,660)
Liquidation of investments 107,287 90,869 30,654
Purchase of banking/finance investments (60,936) (110,163) (97,570)
Liquidation of banking/finance
investments 59,316 113,265 140,547
Originations of banking/finance loans
receivable (103,532) (222,341) (310,744)
Collections of banking/finance loans
receivable 207,664 146,963 42,529
Purchase of property and equipment (64,419) (40,365) (39,153)
- --------------------------------------- --------- -------- --------
Net cash provided by (used in)
investing activities 74,612 (151,966) (273,397)
- --------------------------------------- --------- -------- --------
Decrease in bank deposits (38,155) (21,525) (3,937)
Dividends paid on common stock (34,650) (31,688) (25,415)
Purchase of treasury stock (53,413) (41,749) (26,410)
Issuance of debt 134,377 34,254 399,431
Payments on debt (203,083) (32,832) (437,813)
Other 1,219 375 158
- --------------------------------------- --------- -------- --------
Net cash used in financing
activities (193,705) (93,165) (93,986)
- --------------------------------------- --------- -------- --------
Increase (decrease) in cash and (92,576)
cash equivalents 240,490 51,323
Cash and cash equivalents, beginning
of year 261,699 210,376 302,952
Cash and cash equivalents, end of year $502,189 $261,699 $210,376
- --------------------------------------- --------- -------- --------
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the year for:
Interest, including banking/finance
group interest $36,619 $28,129 $31,004
Income taxes $122,486 $125,496 $98,691
Supplemental Disclosure of Non-Cash Information:
Value of common stock issued $18,667 $18,546 $8,044
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Resources, Inc. and its consolidated subsidiaries (the Company) derives
substantially all of its revenues and net income from providing investment
management, administration, distribution and related services to the Franklin
Templeton funds, institutional accounts and other investment products that
operate in the United States, Canada, Europe and other international markets
under various rules and regulations set forth by the Securities and Exchange
Commission, individual state agencies and foreign governments. Services to the
Franklin Templeton funds are provided under contracts that definitively set
forth the fees to be charged for these services. The majority of these contracts
are subject to periodic review and approval by each fund's Board of
Directors/Trustees and shareholders. Currently, no fund represents more than 10%
of total revenues. Company revenues are largely dependent on the total value and
composition of assets under management, which include domestic and international
equity and debt portfolios; accordingly, fluctuations in financial markets and
in the composition of assets under management impact revenues and results of
operations.
BASIS OF PRESENTATION
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles which require the use of estimates made by the
Company's management. Certain 1995 and 1994 amounts have been reclassified to
conform to 1996 presentation.
The consolidated financial statements include the accounts of Franklin
Resources, Inc. and its majority-owned subsidiaries. All material intercompany
accounts and transactions are eliminated except the intercompany payable from
the banking/finance group to the parent to fund auto and credit card loans.
Operating revenues of the banking/finance group are presented net of interest
expense and the provision for loan losses. Reported interest expense excludes
interest expense attributable to the banking/finance group.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits with banks or
other high credit quality financial institutions, debt instruments with original
maturities of three months or less, and other highly liquid investments,
including money market funds, which are readily convertible into cash. Due to
the relatively short-term nature of these instruments, the carrying value
approximates fair value.
INVESTMENT SECURITIES
The Company's investments in the Franklin Templeton funds and other securities
available-for-sale are carried at fair value. Fair values for investments in
Franklin Templeton funds are based on the last reported net asset value. Fair
values for other investments are based on the last reported price on the
exchange on which they are traded. Investments not traded on an exchange are
carried at management's estimate of fair value.
Realized gains and losses are included in investment income currently based on
specific identification. Unrealized gains and losses are reported net of tax as
a separate component of stockholders' equity until realized.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to interest-rate swap agreements in effect on a portion
of its long-term debt. The differential to be paid or received is accrued as the
interest rates change and is recognized over the term of the agreements. The
carrying value of these instruments approximated fair value (see Note 6).
LOANS RECEIVABLE
Interest on auto installment loans is accrued principally using the rule of 78s
method, which approximates the interest method. Interest on all other loans is
accrued using the simple interest method. An allowance for loan losses is
established monthly based on historical experience, including delinquency and
loss trends. A loan is charged to the allowance when it is deemed to be
uncollectible, taking into consideration the value of the collateral, the
financial condition of the borrower and other factors. Recoveries on loans
previously charged off as uncollectible are credited to the allowance for loan
losses.
DEFERRED SALES COMMISSIONS
Sales commissions paid to financial intermediaries in connection with the sale
of certain share classes of open-end Franklin Templeton funds are deferred and
amortized on a straight-line basis over a period of up to eighteen months for
U.S.-based funds, forty months for Canadian-based funds and four years for
European funds.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated on the
straight-line basis over their estimated useful lives. Expenditures for repairs
and maintenance are charged to expense when incurred. Leasehold improvements are
amortized on the straight-line basis over their estimated useful lives or the
lease term, whichever is shorter.
INTANGIBLE ASSETS
At September 30, 1996 and 1995, intangible assets consist principally of the
excess of cost over fair market value of the Company's acquisition of Templeton,
which is being amortized on a straight-line basis over a period of forty years.
The Company has evaluated the potential impairment of goodwill on the basis of
the expected future operating cash flows to be derived from this intangible
asset in relation to the Company's carrying value and has determined that there
is no impairment. Periodically, the Company will review the carrying value of
goodwill for potential impairment.
RECOGNITION OF REVENUES
Investment management, shareholder servicing fees, investment income and
distribution fees are all accrued as earned. Underwriting commissions related to
the sale of Franklin Templeton fund shares are recorded on the trade date.
ADVERTISING AND PROMOTION
Costs of advertising and promotion are expensed as the advertising appears in
the media.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated at current
exchange rates as of the end of the accounting period, and related revenues and
expenses are translated at average exchange rates in effect during the period.
Net exchange gains and losses resulting from translation are excluded from
income and are recorded as a separate component of stockholders' equity. Foreign
currency transaction gains and losses are reflected in income currently.
EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents (principally
restricted stock and debenture option rights) considered outstanding during each
year. The weighted average number of shares and common stock equivalents used in
computing earnings per share in 1996, 1995, and 1994 were 83,313,000,
83,114,000, and 83,709,000 for primary and 83,761,000, 84,031,000, and
83,709,000 for fully diluted, respectively.
2. INVESTMENT SECURITIES
Investments at September 30, 1996 and 1995 consisted of the following:
1996
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- ------------------------ -------- --------- --------- ---------
Investment securities
available-for-sale:
Franklin Templeton funds $116,146 $12,993 $- $129,139
Debt 10,841 240 - 11,081
Equities 1,578 2,332 (61) 3,849
Other 30,068 19 - 30,087
-------- -------- --------- ---------
$158,633 $15,584 $(61) $174,156
Banking/finance group
investment portfolio:
U.S. treasury and other
U.S. government agency $25,267 $38 $(91) $25,214
Other 110 1 - 111
-------- -------- --------- ---------
$25,377 $39 $(91) $25,325
1995
------------------ ----------------- ------------------ -------------------
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- --------------------------------------------- ------------------ ----------------- ------------------ -------------------
Investment securities
available-for-sale:
Franklin Templeton funds $125,253 $14,638 $(5,957) $133,934
Debt 21,031 638 (563) 21,106
Equities 2,366 23,895 (68) 26,193
Other 26,991 255 (1) 27,245
-------------- ----------------- ------------------ -------------------
$175,641 $39,426 $(6,589) $208,478
-------------- ----------------- ------------------ -------------------
Banking/finance group
investment portfolio:
U.S. treasury and other
U.S. government agency $23,675 $91 $(222) $23,544
Other 110 1 - 111
-------------- ----------------- ------------------ -------------------
$23,785 $92 $(222) $23,655
Investments in the Franklin Templeton funds are shares of investment companies
for which the Company acts as investment manager.
At September 30, 1996, debt securities, at fair value which approximates
amortized cost, are as follows:
Banking/ Other
Finance Debt
In thousands Group Securities
- ---------------------------- -------- --------
Maturity:
0-1 year $23,190 $2,476
1-5 years 2,024 4,776
Greater than 5 years - 3,829
-------- ---------
$25,214 $11,081
3. BANKING/FINANCE GROUP LOANS AND ALLOWANCE FOR LOAN LOSSES The banking/finance
group's loans at September 30, 1996 and 1995 consisted of the following:
In thousands 1996 1995
- ------------------------------- -------- ---------
Auto $284,141 $400,867
Credit card 87,527 95,040
Other 6,387 6,000
-------- ---------
378,055 501,907
Unearned fees and discounts (23,092) (42,813)
Allowance for loan losses (9,564) (9,081)
-------- ---------
Loans receivable, net $345,399 $450,013
Activity in the banking/finance group's allowance for loan losses for the years
ended September 30, 1996, 1995, and 1994 was as follows:
In thousands 1996 1995 1994
- ---------------------------- --------- --------- ---------
Beginning balance $9,081 $3,170 $1,472
Provision for loan losses 16,691 17,189 5,415
Loans charged off (18,485) (14,879) (4,390)
Recoveries 2,277 3,601 673
- ---------------------------- --------- --------- ---------
Ending balance $9,564 $9,081 $3,170
For the years ended September 30, 1996, 1995, and 1994, the interest expense of
the banking/finance group included in banking/finance, net and other revenues
was $25.6 million, $28.6 million, and $12.2 million, respectively.
The fair value of consumer loans is estimated using interest rates that consider
the current credit and interest rate risk inherent in the loans and current
economic and lending conditions. At September 30, 1996 and 1995, the carrying
value of loans receivable approximated fair value.
The fair values of the banking subsidiary's deposits subject to immediate
withdrawal are equal to the amount payable on demand at the reporting date. Fair
values for fixed-rate certificates of deposit are estimated using interest rates
currently offered on time deposits with similar remaining maturities. At
September 30, 1996 and 1995, the carrying values of deposits subject to
immediate withdrawal and of fixed-rate certificates of deposit approximated fair
value.
4. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at September 30, 1996 and
1995:
Estimated
Useful Lives
In thousands in Years 1996 1995
- ---------------------------- ----------- -------- ---------
Furniture and equipment 3-5 $114,228 $88,769
Premises and leasehold
improvements 5-35 92,493 70,011
Leased equipment 5 2,451 7,456
Land -- 23,811 9,984
-------- ---------
232,983 176,220
Less: Accumulated depreciation
and amortization (71,370) (57,592)
-------- ---------
$161,613 $118,628
5. SEGMENT INFORMATION
The Company conducts operations in five principal geographic areas of
the world: USA, Canada, the Bahamas, Europe and Asia/Pacific. Revenue
by geographic area includes fees and commissions charged to customers
and fees charged to affiliates. Identifiable assets are those assets
used exclusively in the operations of each geographic area.
Information is summarized below:
1996
Adjustment
and
Asia/ Elimin- Consol-
In thousands USA Canada Bahamas Europe Pacific ation idated
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Revenues from:
Unaffiliated
customers $1,107,255 $100,602 $174,250 $31,753 $108,708 -- $1,522,568
Affiliates 34,452 509 1,773 13,742 5,982 $(56,458) --
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total $1,141,707 $101,111 $176,023 $45,495 $114,690 $(56,458) $1,522,568
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Operating
income/
(loss) $193,821 $29,131 $115,826 $742 $77,588 -- $417,108
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Identifiable
assets $848,156 $69,547 $432,088 $24,912 $154,503 -- $1,529,206
Corporate
assets -- -- -- -- -- $844,961 844,961
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total
assets $848,156 $69,547 $432,088 $24,912 $154,503 $844,961 $2,374,167
- ------------ ---------- -------- -------- -------- -------- --------- ----------
1995
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Adjust-ment
and
Asia/ Elimin- Consol-
In thousands USA Canada Bahamas Europe Pacific ation idated
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Revenues from:
Unaffiliated
customers $948,728 $67,326 $133,545 $25,471 $82,727 -- $1,257,797
Affiliates 17,080 492 1,606 10,903 7,160 $(37,241) --
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total $965,808 $67,818 $135,151 $36,374 $89,887 $(37,241) $1,257,797
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Operating
income/(loss) $199,615 $22,362 $90,393 $(1,770) $57,541 -- $368,141
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Identifiable
assets $819,287 $43,589 $438,859 $23,681 $138,213 -- $1,463,629
Corporate
assets -- -- -- -- -- $781,052 781,052
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total
assets $819,287 $43,589 $438,859 $23,681 $138,213 $781,052 $2,244,681
- ------------ ---------- -------- -------- -------- -------- --------- ----------
1994
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Adjust-ment
and
Asia/ Elimin- Consol-
In thousands USA Canada Bahamas Europe Pacific ation idated
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Revenues from:
Unaffiliated
customers $1,099,405 $50,919 $103,677 $33,509 $55,031 -- $1,342,541
Affiliates 8,699 510 1,040 567 6,214 $(17,030) --
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total $1,108,104 $51,429 $104,717 $34,076 $61,245 $(17,030) $1,342,541
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Operating
income/
(loss) $242,137 $15,978 $70,161 $(1,711) $40,136 -- $366,701
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Identifiable
assets $726,224 $39,500 $448,205 $22,443 $139,748 -- $1,376,120
Corporate
assets -- -- -- -- -- $592,638 592,638
- ------------ ---------- -------- -------- -------- -------- --------- ----------
Total
assets $726,224 $39,500 $448,205 $22,443 $139,748 $592,638 $1,968,758
Summarized below are the business segments:
1996
---------- ---------- ---------
Operating
Identifi-able Income
In thousands Assets Revenue (Loss)
- ----------------------------- ---------- ---------- ---------
Investment management $1,124,229 $1,517,533 $429,348
Banking/finance 393,598 3,179 (11,090)
Other 11,379 1,856 (1,150)
---------- ---------- ---------
Company totals $1,529,206 $1,522,568 $417,108
1995
---------- ---------- ---------
Investment management $958,200 $1,249,094 $379,288
Banking/finance 496,059 6,841 (10,217)
Other 9,370 1,862 (930)
---------- ---------- ---------
Company totals $1,463,629 $1,257,797 $368,141
1994
---------- ---------- ---------
Investment management $923,894 $1,328,629 $365,566
Banking/finance 443,420 12,625 2,537
Other 8,806 1,287 (1,402)
---------- ---------- ---------
Company totals $1,376,120 $1,342,541 $366,701
The investment management segment's assets are primarily receivables from, and
investments in, Franklin Templeton funds and goodwill from the acquisition of
Templeton. The banking/finance segment's assets are primarily investment
securities and consumer loans.
6. DEBT
Debt at September 30, 1996 and 1995 was as follows:
1996
Weighted
Average
Effective
Interest
In thousands Rate 1996 1995
------- ------- -------
Short-Term Debt:
Current maturities of other notes
and capital lease obligations -- $427 $1,283
Commercial paper -- -- 85,921
------- ------- -------
Total short-term debt $427 $87,204
------- ------- -------
Long-Term Debt:
Notes payable 6.57% $120,000 $80,000
Commercial paper issued under
long-term borrowing agreements 6.04% 128,731 150,000
Subordinated debentures 6.69% 150,000 150,000
Other notes and capital lease
obligations 731 2,367
------- -------
Total long-term debt $399,462 $382,367
Maturities of long-term debt excluding other notes and capital lease obligations
are as follows (in thousands):
1997 $128,731
1998 60,000
2001 60,000
Thereafter 150,000
---------
$398,731
The Company has two back-up credit agreements with a group of commercial banks
that will allow it at its option to refinance the commercial paper up to five
years from the closing date, May 17, 1996. In accordance with the Company's
intention and ability to refinance these obligations on a long-term basis, the
outstanding balance of $128.7 million at September 30, 1996 has been classified
long-term. The credit agreements include various restrictive covenants,
including: a capitalization ratio, interest coverage ratio, minimum working
capital and limitation on additional debt. The Company was in compliance with
all covenants as of September 30, 1996.
At September 30, 1996, the Company had interest-rate swap agreements maturing
August through September 1999 which effectively fixed interest rates on $125
million of commercial paper. The fixed rates of interest ranged from 6.240% to
6.451%. These financial instruments are placed with major financial
institutions. The creditworthiness of the counterparties is subject to
continuous review and full performance is anticipated. Any potential loss from
failure of the counterparties to perform is deemed to be immaterial. Subsequent
to year end, the Company entered into agreements to fix interest rates on an
additional $170 million of commercial paper at rates between 6.350% and 6.645%,
maturing in years 1998 through 2000 (see Note 14).
During 1994, the Company initiated a $300 million medium-term note program.
Notes totaling $120 million were issued during fiscal year 1996. These notes
mature at various times from 1998 through 2001. On October 9, 1996, the Company
increased the amounts available for issuance under its medium-term note program
from $100 million to $500 million.
The subordinated debentures mature on August 3, 2002 and have a fixed interest
rate of 6.25% per annum. Under certain circumstances, all or a portion of the
debentures could pay additional interest, increasing to a maximum rate of 7.77%.
The subordinated debentures have option rights which allow the holder to
purchase common shares of the Company at any time during the term of the
debentures, for cash or in redemption of the debentures. The Company may redeem
the debentures any time after August 3, 1997, or sooner, to the extent options
are exercised. The maximum number of shares purchasable under the option rights
was 4,721,435 shares at September 30, 1996. The option price ranges from $29.44
to $31.77 per share and the redemption price ranges from 92.68% to 100% of face
value, over the remaining term of the debentures (see Note 14).
The fair values of long-term debt are estimated using interest rates currently
offered to the Company for debt with similar remaining maturities. The fair
value of the option rights attached to the subordinated debentures is calculated
based on the Company's closing stock price and the option and redemption prices
at the reporting date. At September 30, 1996 and 1995, the fair value of
long-term debt approximated its carrying value.
7. INVESTMENT INCOME
In thousands 1996 1995 1994
- ---------------------------- --------- --------- ---------
Dividends $15,683 $12,873 $10,969
Interest 16,787 12,029 6,538
Realized gains, net 17,271 2,499 1,396
Foreign exchange losses, net (394) (355) (420)
Other income 1,111 2,627 4,220
- ---------------------------- --------- --------- ---------
$50,458 $29,673 $22,703
Substantially all of the Company's dividend income was generated by investments
in the Franklin Templeton funds.
8. Taxes on Income
Taxes on income for the years ended September 30, 1996, 1995,
and 1994 were comprised of the following:
In thousands 1996 1995 1994
- ----------------------------- --------- --------- ---------
Current:
Federal $98,803 $76,350 $87,951
State 23,118 19,969 22,257
Foreign 25,558 20,018 13,717
Deferred (benefit) expenses (5,979) 1,373 (12,712)
- ----------------------------- --------- --------- ---------
Total provision $141,500 $117,710 $111,213
Included in income before taxes was $225.7 million, $161.7 million, and $115.3
million of foreign income for the years ended September 30, 1996, 1995, and
1994, respectively.
The major components of the net deferred tax asset (liability) as of September
30, 1996 and 1995 were as follows:
In thousands 1996 1995
- --------------------------------------------- -------- ---------
Deferred Tax Assets:
State taxes expensed currently, deductible
in following year $6,608 $5,543
Temporary differences on investment losses 2,124 3,278
Loan loss reserves 3,760 3,868
Deferred compensation 1,983 486
Restricted stock compensation plan 20,016 17,700
Net operating loss carryforwards 18,203 16,180
Other 5,077 1,478
-------- ---------
Total deferred tax assets 57,771 48,533
-------- ---------
Valuation allowance for net operating loss
carryforwards (18,203) (16,180)
-------- ---------
Deferred tax assets, net of valuation allowance 39,568 32,353
-------- ---------
Deferred Tax Liabilities:
Temporary differences on partnership
earnings $5,504 $5,516
Capitalized compensation costs 7,503 6,992
Net unrealized gains on securities 4,622 11,942
Depreciation on fixed assets 6,244 4,963
Prepaid expenses 6,019 3,309
Other 1,315 1,899
-------- ---------
Total deferred tax liabilities 31,207 34,621
-------- ---------
Net deferred tax asset (liability) $8,361 $(2,268)
At September 30, 1996, there were approximately $20.1 million of foreign net
operating loss carryforwards of which approximately $2.8 million expire in 2003
and the remaining have an indefinite life. In addition, there are approximately
$192.4 million in state net operating loss carryforwards that expire between
2006 and 2011. A valuation allowance has been recognized to offset the related
deferred tax assets due to the uncertainty of realizing the benefit of the loss
carryforwards.
A substantial portion of the undistributed earnings of the Company's foreign
subsidiaries has been reinvested and is not expected to be remitted to the
parent company. Accordingly, no U.S. federal or state income taxes have been
provided thereon. At September 30, 1996, the cumulative amount of reinvested
income for which no U.S. taxes have been provided was approximately $369
million. Determination of the amount of unrecognized deferred U.S. income tax
liability related to such reinvested income is not practicable because of the
numerous assumptions associated with this hypothetical calculation; however,
foreign tax credits would be available to reduce some portion of this amount.
The following is a reconciliation between the amount of tax expense at the
federal statutory rate and taxes on income as reflected in operations for the
years ended September 30, 1996, 1995, and 1994, respectively:
In thousands 1996 1995 1994
- ------------------------------------------------------------------------------
- ----------------------------------- --------- -------- --------
U.S. federal statutory rate 35% 35% 35%
Federal taxes at statutory rate $159,786 $135,329 $126,882
State taxes, net of federal tax
effect 18,167 12,747 12,944
Foreign earnings subject to reduced
tax rates for which no U.S. tax is
provided (43,159) (32,956) (25,194)
Other 6,706 2,590 (3,419)
- ----------------------------------- --------- -------- --------
Actual tax provision $141,500 $117,710 $111,213
- ----------------------------------- --------- -------- --------
Effective tax rate 31% 30% 31%
9. COMMITMENTS
The Company leases office space (including space from an unconsolidated
affiliate) and equipment under long-term operating leases expiring at various
dates through fiscal year 2001. Lease expenses were $24.3 million, $21.8
million, and $15.1 million for the fiscal years ended September 30, 1996, 1995,
and 1994, respectively.
At September 30, 1996, remaining operating lease commitments were as follows (in
thousands):
1997 $16,970
1998 14,501
1999 13,177
2000 10,362
2001 4,037
Thereafter 10,591
--------
$69,638
At September 30, 1996, the Company's banking/finance group had commitments to
extend credit aggregating $481 million principally under its credit card lines.
The Company through certain subsidiaries acts as fiduciary for retirement and
employee benefit plans. At September 30, 1996, assets held in trust were
approximately $12.8 billion.
10. Dividends
During the years ended September 30, 1996, 1995, and 1994, the Company declared
dividends to common stockholders of $0.44, $0.40, and $0.32 per share,
respectively.
11. Employee Stock Award and Option Plans
In 1994, the Company implemented an annual incentive plan which provides
eligible employees payment of both cash and restricted stock. The costs
associated with the annual incentive plan awards are charged to income
currently.
The Company has adopted stock option plans which provide for the grant of
options to officers and other key employees of the Company to purchase up to
2,358,250 shares of the Company's common stock of which 1,046,513 and 1,099,123
shares were authorized but unissued as of September 30,1996 and 1995,
respectively. Terms and conditions (including price, exercise date and number of
shares) are determined by the Board of Directors, which administers the plans.
At September 30, 1996, options to purchase 188,007 shares were outstanding at
prices ranging from $11.82 to $56.44 of which 38,411 shares were exercisable.
During 1996, 24,247 shares were granted and 52,610 were exercised.
Beginning with the financial statements for 1997, the Company will be required
to make certain additional disclosures as if the fair value-based method of
accounting, defined in SFAS 123 "Accounting for Stock-Based Compensation," had
been applied to the Company's stock option grants made subsequent to September
30, 1995.
12. Employee Benefit and Incentive Plans
On January 1, 1996, the Company merged its two defined contribution plans. The
resulting defined contribution profit sharing 401(k) plan covers eligible U.S.
employees. Contributions are based on the Company's prior year's results of
operations and are made at the discretion of the Company's Board of Directors.
The Company's contribution, including both profit sharing and matching
components, was $15.9 million, $13.9 million, and $10.1 million during 1996,
1995, and 1994, respectively.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarter
------------------------------------------------
In thousands First Second Third Fourth
- ------------------- ------- ------- ------- --------
1996
Revenues $342,614 $393,801 $395,402 $390,751
Net income $73,951 $75,212 $81,066 $84,501
Earnings per share:
Primary $0.89 $0.91 $0.98 $1.01
Fully diluted $0.89 $0.91 $0.97 $1.01
1995
Revenues $303,711 $298,033 $319,826 $336,227
Net income $63,304 $63,040 $69,029 $73,572
Earnings per share:
Primary $0.76 $0.76 $0.84 $0.89
Fully diluted $0.76 $0.76 $0.83 $0.88
1994
Revenues $342,313 $365,329 $316,463 $318,436
Net income $59,001 $68,601 $60,023 $63,683
Earnings per share:
Primary $0.70 $0.82 $0.72 $0.76
Fully diluted $0.70 $0.82 $0.72 $0.76
14. Subsequent Events
Acquisition
On November 1, 1996, the Company acquired the assets and liabilities of Heine
Securities Corporation, Inc. (Heine), the investment advisor to Mutual Series
Fund Inc. (Mutual). The transaction has an aggregate value of approximately $615
million. The shareholder of Heine received $550 million in cash and 1.1 million
shares of Franklin Resources, Inc. common stock which may not be sold for two
years and which are subject to other restrictions. The shareholder will
initially invest $150 million of the cash proceeds in Mutual with a minimum
balance of $100 million for five years. The Company financed the cash payment
from cash and securities on hand, as well as its available commercial paper. As
part of the financing for this transaction, the Company entered into swap
agreements with major financial institutions which became effective on October
31, 1996 and mature through October 31, 2000. (See Note 6.)
Subordinated Debentures
On November 26, 1996, the holders of the option rights related to the Company's
subordinated debentures (see Note 6) have entered into an agreement with the
Company to exercise their option rights to receive approximately 2.4 million
shares of the Company's common stock in return for approximately $75 million of
the subordinated debentures. In addition, the Company has agreed to purchase the
remaining $75 million of subordinated debentures and option rights from the
holders for approximately $170 million. The Company intends to finance the
purchase of the option rights from the proceeds of a new issuance of medium-term
notes and cash on hand.
PART III
Items 10-13 are incorporated by reference to the Company's definitive proxy
statement to be mailed to stockholders in connection with the Annual Meeting of
Stockholders to be held January 23, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Please see the index in Item 8 for a list of the financial statements
filed as part of this report.
(2) Please see the index in Item 8 for a list of the financial statement
schedules filed as part of this report.
(3) The following exhibits are filed as part of this report:
(3)(i)(a) Registrant's Certificate of Incorporation, as filed November 28,
1969, incorporated by reference to Exhibit (3)(i) to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 (the "1994 Annual Report")
(3)(i)(b) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985, incorporated by reference
to Exhibit (3)(ii) to the 1994 Annual Report
(3)(i)(c) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987, incorporated by reference
to Exhibit (3)(iii) to the 1994 Annual Report
(3)(i)(d) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994, incorporated by
reference to Exhibit (3)(iv) to the 1994 Annual Report
(3)(ii) Registrant's By-Laws are incorporated by reference to Form 10
(File No. 06952), incorporated by reference to Exhibit (3)(v)
to the 1994 Annual Report
10.1 Representative Distribution Plan between Templeton Growth Fund,
Inc. and Franklin/Templeton Investor Services, Inc. incorporated
by reference to Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993 (the
"1993 Annual Report")
10.2 Representative Transfer Agent Agreement between Templeton Growth
Fund, Inc. and Franklin/Templeton Investor Services, Inc.
incorporated by reference to Exhibit 10.3 to the 1993 Annual
Report
10.3 Representative Investment Management Agreement between Templeton
Growth Fund, Inc. and Templeton, Galbraith & Hansberger Ltd.
incorporated by reference to Exhibit 10.5 to the 1993 Annual
Report
10.4 Representative Management Agreement between Advisers and the
Franklin Group of Funds incorporated by reference to Exhibit
10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992 (the "1992 Annual Report")
10.5 Representative Distribution 12b-1 Plan between Distributors and
the Franklin Group of Funds incorporated by reference to Exhibit
10.3 to the 1992 Annual Report
10.6 Registrant's Amended Annual Incentive Compensation Plan approved
January 24, 1995 incorporated by reference to the Company's
Proxy Statement filed under cover of Schedule 14A on December
28, 1994 in connection with its Annual Meeting of Stockholders
held on January 24, 1995.
10.7 Registrant's Universal Stock Plan approved January 19, 1994
incorporated by reference to the Company's 1995 Proxy Statement
filed under cover of Schedule 14A on December 29, 1993 in
connection with its Annual Meeting of Stockholders held on
January 19, 1994.
10.8 Representative Amended and Restated Distribution Agreement
between Franklin/Templeton Distributors, Inc. and Franklin
Federal Tax-Free Income Fund, incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1995 (the "June 1995
Quarterly Report")
10.9 Representative Distribution 12b-1 Plan for Class II shares
between Franklin/Templeton Distributors, Inc. and Franklin
Federal Tax-Free Income Fund, incorporated by reference to
Exhibit 10.2 to the June 1995 Quarterly Report
10.10 Representative Investment Management Agreement between Templeton
Global Strategy SICAV and Templeton Investment Management
Limited, incorporated by reference to Exhibit 10.3 to the June
1995 Quarterly Report
10.11 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and BAC Corp. Securities,
incorporated by reference to Exhibit 10.4 to the June 1995
Quarterly Report
10.12 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to
Exhibit 10.5 to the June 1995 Quarterly Report
10.13 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (ERISA), incorporated by
reference to Exhibit 10.6 to the June 1995 Quarterly Report
10.14 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (NON-ERISA), incorporated by
reference to Exhibit 10.7 to the June 1995 Quarterly Report
10.15 Representative Amended and Restated Transfer Agent and
Shareholder Services Agreement between Franklin/Templeton
Investor Services, Inc. and Franklin Custodian Funds, Inc.,
dated July 1, 1995, incorporated by reference to Exhibit 10.16
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995 (the "1995 Annual Report")
10.16 Representative Amended and Restated Distribution Agreement
between Franklin/Templeton Distributors, Inc. and Franklin
Custodian Funds, Inc.,incorporated by reference to Exhibit 10.17
to the 1995 Annual Report.
10.17 Representative Class II Distribution Plan between
Franklin/Templeton Distributors, Inc. and Franklin Custodian
Funds, Inc., on behalf of its Growth Series, incorporated by
reference to Exhibit 10.18 to the 1995 Annual Report.
10.18 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to
Exhibit 10.19 to the 1995 Annual Report.
10.19 Representative Mutual Fund Purchase and Sales Agreement for
Accounts of Bank and Trust Company Customers, effective July 1,
1995, incorporated by reference to Exhibit 10.20 to the 1995
Annual Report.
10.20 Representative Management Agreement between Franklin Value
Investors Trust, on behalf of Franklin MicroCap Value Fund, and
Franklin Advisers, Inc., incorporated by reference to Exhibit
10.21 to the 1995 Annual Report.
10.21 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and Sub-Distributor, incorporated by
reference to Exhibit 10.22 to the 1995 Annual Report.
10.22 Representative Non-Exclusive Underwriting Agreement between
Templeton Growth Fund, Inc. and Templeton Franklin Investment
Services (Asia) Limited, dated September 18, 1995, incorporated
by reference to Exhibit 10.23 to the 1995 Annual Report.
10.23 Representative Shareholder Services Agreement between
Franklin/Templeton Investor Services, Inc. and Templeton
Franklin Investment Services (Asia) Limited, dated September 18,
1995, incorporated by reference to Exhibit 10.24 to the 1995
Annual Report.
10.24 Agreement to Merge the Businesses of Heine Securities
Corporation, Elmore Securities Corporation and Franklin
Resources, Inc., dated June 25, 1996, incorporated by reference
to Exhibit 2 to Registrant's Report on Form 8-K dated June 25,
1996.
10.25 Subcontract for Transfer Agency and Shareholder Services
dated November 1, 1996 by and between Franklin Investor
Services, Inc. and PFPC Inc.
10.26 Representative Sample of Franklin/Templeton Investor Services,
Inc. Transfer Agent and Shareholder Services Agreement.
10.27 Representative Administration Agreement between Templeton
Growth Fund, Inc. and Franklin Templeton Services, Inc.
10.28 Representative Sample of Fund Administration Agreement with
Franklin Templeton Services, Inc.
10.29 Representative Subcontract for Fund Administrative Services
between Franklin Advisers, Inc. and Franklin Templeton Services,
Inc.
10.30 Representative Investment Advisory Agreement between Franklin
Mutual Series Fund Inc. and Franklin Mutual Advisers, Inc.
10.31 Representative Management Agreement between Franklin Valuemark
Funds and Franklin Mutual Advisers, Inc.
10.32 Representative Investment Advisory and Asset Allocation
Agreement between Franklin Templeton Fund Allocator Series and
Franklin Advisers, Inc.
10.33 Representative Management Agreement between Franklin New York
Tax-Free Income Fund, Inc. and Franklin Investment Advisory
Services, Inc.
12 Computation of Ratios of Earnings to Fixed
Charges
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
(b) (1) A Current Report on Form 8-K dated July 25, 1996 was filed on
July 26, 1996 attaching Registrant's press release dated July 25,
1996 under Items 5 and 7.
(2) A Current Report on Form 8-K dated October 24, 1996 was filed on
October 25, 1996 attaching Registrant's press release dated October
24, 1996 under Items 5 and 7.
(3) A Current Report on Form 8-K dated November 27, 1996 was filed on
November 27, 1996 attaching Registrant's press release dated November
27, 1996 under Items 5 and 7.
(c) See Item 14(a)(3) above.
(d) No separate financial statements are required; schedules are included
in Item 8.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FRANKLIN RESOURCES, INC.
Date: December 26, 1996 By /S/ CHARLES B. JOHNSON
Charles B. Johnson, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Date: December 26, 1996 By /S/ CHARLES B. JOHNSON
Charles B. Johnson, Principal
Executive Officer and Director
Date: December 26, 1996 By /S/ HARMON E. BURNS
Harmon E. Burns, Executive Vice
President-Legal and Adminis-
trative,Secretary and Director
Date: December 26, 1996 By /S/ MARTIN L. FLANAGAN
Martin L. Flanagan, Treasurer
and Chief Financial Officer
Date: December 26, 1996 By /S/ KENNETH A. LEWIS
Kenneth A. Lewis, Controller
Date: December 26, 1996 By /S/ JUDSON R. GROSVENOR
Judson R. Grosvenor, Director
Date: December 26, 1996 By /S/ F. WARREN HELLMAN
F. Warren Hellman, Director
Date: December 26, 1996 By /S/ CHARLES E. JOHNSON
Charles E. Johnson, Director
Date: December 26, 1996 By /S/ RUPERT H. JOHNSON, JR.
Rupert H. Johnson, Jr., Director
Date: December 26, 1996 By /S/ HARRY O. KLINE
Harry O. Kline, Director
Date: December 26, 1996 By /S/ LOUIS E. WOODWORTH
Louis E. Woodworth, Director
Date: December 26, 1996 By /S/ PETER M. SACERDOTE
Peter M. Sacerdote, Director
INDEX OF EXHIBITS
(3)(i)(a) Registrant's Certificate of Incorporation, as filed November 28,
1969, incorporated by reference to Exhibit (3)(i) to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 (the "1994 Annual Report")
(3)(i)(b) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985, incorporated by reference
to Exhibit (3)(ii) to the 1994 Annual Report
(3)(i)(c) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987, incorporated by reference
to Exhibit (3)(iii) to the 1994 Annual Report
(3)(i)(d) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994, incorporated by
reference to Exhibit (3)(iv) to the 1994 Annual Report
(3)(ii) Registrant's By-Laws are incorporated by reference to Form 10
(File No. 06952), incorporated by reference to Exhibit (3)(v)
to the 1994 Annual Report
10.1 Representative Distribution Plan between Templeton Growth Fund,
Inc. and Franklin/Templeton Investor Services, Inc.
incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1993 (the "1993 Annual Report")
10.2 Representative Transfer Agent Agreement between Templeton Growth
Fund, Inc. and Franklin/Templeton Investor Services, Inc.
incorporated by reference to Exhibit 10.3 to the 1993 Annual
Report
10.3 Representative Investment Management Agreement between Templeton
Growth Fund, Inc. and Templeton, Galbraith & Hansberger Ltd.
incorporated by reference to Exhibit 10.5 to the 1993 Annual
Report
10.4 Representative Management Agreement between Advisers and the
Franklin Group of Funds incorporated by reference to Exhibit
10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992 (the "1992 Annual Report")
10.5 Representative Distribution 12b-1 Plan between Distributors and
the Franklin Group of Funds incorporated by reference to Exhibit
10.3 to the 1992 Annual Report
10.6 Registrant's Amended Annual Incentive Compensation Plan approved
January 24, 1995 incorporated by reference to the Company's
Proxy Statement filed under cover of Schedule 14A on December
28, 1994 in connection with its Annual Meeting of Stockholders
held on January 24, 1995.
10.7 Registrant's Universal Stock Plan approved January 19, 1994
incorporated by reference to the Company's 1995 Proxy Statement
filed under cover of Schedule 14A on December 29, 1993 in
connection with its Annual Meeting of Stockholders held on
January 19, 1994.
10.8 Representative Amended and Restated Distribution Agreement
between Franklin/Templeton Distributors, Inc. and Franklin
Federal Tax-Free Income Fund, incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1995 (the "June 1995
Quarterly Report")
10.9 Representative Distribution 12b-1 Plan for Class II shares
between Franklin/Templeton Distributors, Inc. and Franklin
Federal Tax-Free Income Fund, incorporated by reference to
Exhibit 10.2 to the June 1995 Quarterly Report
10.10 Representative Investment Management Agreement between Templeton
Global Strategy SICAV and Templeton Investment Management
Limited, incorporated by reference to Exhibit 10.3 to the June
1995 Quarterly Report
10.11 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and BAC Corp. Securities,
incorporated by reference to Exhibit 10.4 to the June 1995
Quarterly Report
10.12 Representative Dealer Agreement between Franklin/Templeton
Distributors,Inc. and Dealer, incorporated by reference to
Exhibit 10.5 to the June 1995 Quarterly Report
10.13 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (ERISA), incorporated by
reference to Exhibit 10.6 to the June 1995 Quarterly Report
10.14 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (NON-ERISA), incorporated
by reference to Exhibit 10.7 to the June 1995 Quarterly Report
10.15 Representative Amended and Restated Transfer Agent and
Shareholder Services Agreement between Franklin/Templeton
Investor Services, Inc. and Franklin Custodian Funds, Inc.,
dated July 1, 1995, incorporated by reference to Exhibit 10.16
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995 (the "1995 Annual Report")
10.16 Representative Amended and Restated Distribution Agreement
between Franklin/Templeton Distributors, Inc. and Franklin
Custodian Funds, Inc.,incorporated by reference to Exhibit 10.17
to the 1995 Annual Report.
10.17 Representative Class II Distribution Plan between
Franklin/Templeton Distributors, Inc. and Franklin Custodian
Funds, Inc., on behalf of its Growth Series, incorporated by
reference to Exhibit 10.18 to the 1995 Annual Report.
10.18 Representative Dealer Agreement between Franklin/Templeton
Distributors,Inc. and Dealer, incorporated by reference to
Exhibit 10.19 to the 1995 Annual Report.
10.19 Representative Mutual Fund Purchase and Sales Agreement for
Accounts of Bank and Trust Company Customers, effective July 1,
1995, incorporated by reference to Exhibit 10.20 to the 1995
Annual Report.
10.20 Representative Management Agreement between Franklin Value
Investors Trust, on behalf of Franklin MicroCap Value Fund, and
Franklin Advisers, Inc., incorporated by reference to Exhibit
10.21 to the 1995 Annual Report.
10.21 Representative Sub-Distribution Agreement between Templeton,
Galbraith & Hansberger Ltd. and Sub-Distributor, incorporated by
reference to Exhibit 10.22 to the 1995 Annual Report.
10.22 Representative Non-Exclusive Underwriting Agreement between
Templeton Growth Fund, Inc. and Templeton Franklin Investment
Services (Asia) Limited, dated September 18, 1995, incorporated
by reference to Exhibit 10.23 to the 1995 Annual Report.
10.23 Representative Shareholder Services Agreement between
Franklin/Templeton Investor Services, Inc. and Templeton
Franklin Investment Services (Asia) Limited, dated September 18,
1995, incorporated by reference to Exhibit 10.24 to the 1995
Annual Report.
10.24 Agreement to Merge the Businesses of Heine Securities
Corporation, Elmore Securities Corporation and Franklin
Resources, Inc., dated June 25, 1996, incorporated by reference
to Exhibit 2 to Registrant's Report on Form 8-K dated June 25,
1996.
10.25 Subcontract for Transfer Agency and Shareholder Services
dated November 1,1996 by and between Franklin Investor Services,
Inc. and PFPC Inc.
10.26 Representative Sample of Franklin/Templeton Investor Services,
Inc. Transfer Agent and Shareholder Services Agreement.
10.27 Representative Administration Agreement between Templeton Growth
Fund, Inc. and Franklin Templeton Services, Inc.
10.28 Representative Sample of Fund Administration Agreement with
Franklin Templeton Services, Inc.
10.29 Representative Subcontract for Fund Administrative Services
between Franklin Advisers, Inc. and Franklin Templeton Services,
Inc.
10.30 Representative Investment Advisory Agreement between Franklin
Mutual Series Fund Inc. and Franklin Mutual Advisers, Inc.
10.31 Representative Management Agreement between Franklin Valuemark
Funds and Franklin Mutual Advisers, Inc.
10.32 Representative Investment Advisory and Asset Allocation
Agreement between Franklin Templeton Fund Allocator Series and
Franklin Advisers, Inc.
10.33 Representative Management Agreement between Franklin New York
Tax-Free Income Fund, Inc. and Franklin Investment Advisory
Services, Inc.
12 Computation of Ratios of Earnings to Fixed
Charges
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
(b) (1) A Current Report on Form 8-K dated July 25, 1996 was filed on
July 26, 1996 attaching Registrant's press release dated July 25,
1996 under Items 5 and 7.
(2) A Current Report on Form 8-K dated October 24, 1996 was filed on
October 25, 1996 attaching Registrant's press release dated October
24, 1996 under Items 5 and 7.
(3) A Current Report on Form 8-K dated November 27, 1996 was filed on
November 27, 1996 attaching Registrant's press release dated
November 27, 1996 under Items 5 and 7.
(c) See Item 14(a)(3) above.
(d) No separate financial statements are required; schedules are included
in Item 8.