FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 Mariners Island Blvd. San Mateo, CA 94404
(Address of principal and executive offices) (Zip Code)
Registrant's telephone number, including Area Code (415) 312-3000
Securities registered pursuant
to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock, par value $.10 per share New York Stock Exchange
Common Stock, par value $.10 per share Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
the filing requirements for at least the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of 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. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon a closing price of $38 on November 28, 1994 on the
New York Stock Exchange was $1,639,730,552. Number of shares of the
registrant's common stock outstanding at November 28, 1994: 81,583,208
Documents Incorporated by Reference:
Certain portions of the registrant's proxy statement for its Annual
Meeting of Stockholders to be held January 24, 1995, which will be filed
with the Commission on or subsequent to the date hereof, are incorporated
by reference into Part III of this report.
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, 1994, on a worldwide basis the Company employed approximately
4,100 employees, consisting of officers, investment management,
distribution, administrative, sales and clerical support staff. The Company
also employs additional temporary help as necessary to meet unusual
requirements. Management believes that its relations with its employees
are excellent.
On October 30, 1992, the Company and certain of its direct and indirect
subsidiaries consummated the acquisition (the "Acquisition") of
substantially all of the assets and liabilities of Templeton, Galbraith &
Hansberger Ltd., a corporation organized under the laws of the Cayman
Islands and based in Nassau, Bahamas ("Old TGH"), which provided
diversified investment management and related services on a worldwide basis
directly and through subsidiaries to various domestic open-end and closed-
end investment companies as well as to a variety of international
investment portfolios and to domestic and international private and
institutional accounts. At the time of the Acquisition, assets under
management by Old TGH and related companies exceeded $20 billion. As of
the close of the fiscal year 1994, such assets exceeded $42.4 billion.
Unless the context otherwise requires, references herein to "Templeton" are
deemed to refer to the business operations acquired by the Company in
connection with the Acquisition. Subsequent to the Acquisition, the Company
has operated the Franklin and Templeton businesses on a unified basis.
The Company and its subsidiaries paid to Old TGH an aggregate of $731.6
million in addition to the assumption of certain liabilities, which with
certain other adjustments, had the effect of increasing the purchase price
for financial reporting purposes to approximately $786 million. The
Acquisition was funded by a $360 million term loan facility with a
syndicate of financial institutions; the issuance in August 1992 in
anticipation of such Acquisition of $150 million of 6.25% subordinated
debentures of Templeton Worldwide, Inc., a newly formed subsidiary holding
company formed by the Company; $189 million in cash; and an $87 million
issuance of the Company's $.10 par value Common Stock to certain Old TGH
major stockholders and to Templeton employees. Ownership of certain of such
Company shares by Templeton employees vests over time, subject to continued
employment by such employees with the Company or a subsidiary thereof.
In November 1993, the Company consummated an agreement to manage and advise
the approximate $150 million Huntington Funds of Pasadena, California, now
called the Franklin/Templeton Global Trust. This open-end investment
company of several currency portfolio series, includes the Global Currency
Fund, The Hard Currency Fund and The High Income Currency Fund, which
invests in high quality foreign equivalent money market instruments in
various global currencies as well as the German Government Bond Fund, which
invests in German government bonds and equivalents.
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 in the Franklin Group of Funds and the Templeton Family of Funds
and to domestic and international managed and institutional accounts. The
Company also provides investment management and related services to a
number of closed-end investment companies whose shares are traded on
various major stock exchanges. In addition, the Company provides
investment management, marketing and distribution services to certain
sponsored investment companies organized in the Grand Duchy of Luxembourg
(hereinafter referred to as "SICAV Funds"), which are distributed in market-
places outside of North America and to certain investment funds and
portfolios in Canada (hereinafter referred to as "Canadian Funds") as well
as to certain other international portfolios in the United Kingdom and
elsewhere. The Franklin Group of Funds consists of thirty-two (32) open-
end investment companies (mutual funds) with multiple portfolios. The
Templeton Family of Funds includes twenty-one (21) open-end investment
companies (mutual funds) with multiple portfolios. Certain investment
companies in the Franklin Group of Funds and the Templeton Family of Funds
are registered as such under the Investment Company Act of 1940 (the "40
Act").
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 as the "Franklin Templeton Funds", the
"Funds," or a "Fund". The domestic and international managed and
institutional accounts are collectively referred to as the "Institutional
Assets". The Franklin Templeton Funds along with the Institutional Assets
are collectively referred to as the "Franklin Templeton Group".
As of September 30, 1994, total assets under management in the Franklin
Templeton Group were $118.2 billion, the make-up of which was approximately
as follows: for the Franklin Group of Funds, $74.3 billion; for the
Templeton Family of Funds, $30.6 billion; for the Institutional Assets,
$13.3 billion. This makes the Franklin Templeton Group one of the largest
investment management complexes in the United States.
The Company, through certain subsidiaries, also provides advisory services,
variable annuity products, and sponsors and manages public and private real
estate programs. Other subsidiaries offer consumer banking services,
insured deposits, auto loans, and credit cards. The Company also provides
custodial, trustee and fiduciary services to IRA and Keogh plans and to
qualified retirement plans and private trusts. On a consolidated worldwide
basis, the Company provides domestic and international individual and
institutional investors with a broad range of investment products and
services designed to meet varying investment objectives, which affords its
clients the opportunity to allocate their investment resources among
various alternative investment products as changing worldwide economic and
market conditions warrant.
Subsidiaries-Investment Management, Administration, Distribution and
Related Services
The Company's principal line of business is providing investment
management, administration, distribution and related services to the
Franklin Templeton Funds and to the Institutional Assets. This business is
primarily conducted through the wholly owned direct and indirect subsidiary
companies described below. Revenues are generated primarily by subsidiaries
that provide advisory and management services.
Franklin Advisers, Inc.
Franklin Advisers, Inc. ("Advisers") is a California corporation formed in
1985 and is based in San Mateo, California. Advisers is registered as an
investment advisor with the Securities and Exchange Commission ( the "SEC")
under the Investment Advisers Act of 1940 (the "Advisers Act") and is also
registered as an investment 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 more than 60% of the
Company's total assets under management and generates more than 40% of
total Company revenues.
Templeton, Galbraith & Hansberger Ltd.
Templeton, Galbraith & Hansberger Ltd. ("New TGH") is a Bahamian
corporation located in Nassau, Bahamas formed in connection with the
Acquisition and is the successor company to Old TGH. New TGH is registered
as an investment advisor with the SEC under the Advisers Act. New TGH
provides investment advisory, portfolio management and administrative
services under various management agreements with certain of the Templeton
Funds and Institutional Assets. New TGH is the principal investment advisor
to the Templeton Funds. Revenues are derived primarily from investment
management fees calculated on a sliding scale fund-by-fund basis in
relation to Templeton Fund assets under management.
Templeton Investment Counsel, Inc.
Templeton Investment Counsel, Inc. ("TICI") is a Florida corporation formed
in October, 1979, based in Ft. Lauderdale, Florida and was acquired by the
Company in connection with the Acquisition. TICI is the principal
investment advisor to the Institutional Assets. In addition, it provides
investment advisory portfolio management services to certain of the
Templeton Funds and subadvisory services to certain of the Franklin Funds.
Templeton Global Investors, Inc.
Templeton Global Investors, Inc. ("TGII") is a Delaware corporation formed
in October 1987, based in Ft. Lauderdale, Florida and was acquired by the
Company in connection with the Acquisition. TGII provides business
management services, including fund accounting, securities pricing,
trading, compliance and other related administrative activities under
various management agreements to certain of the Franklin Templeton Funds.
Revenues are derived from business management fees calculated on a sliding
scale, fund-by-fund basis in relation to assets under management.
Templeton Investment Management (Hong Kong) Limited
Templeton Investment Management (Hong Kong) Limited ("Templeton Hong Kong")
is a corporation organized under the laws of and is based in Hong Kong. It
was formed as a successor company to an Old TGH subsidiary in connection
with the Acquisition. Templeton Hong Kong is registered as the foreign
equivalent of an investment advisor in Hong Kong and is also registered
with the SEC under the Advisers Act. Revenues are derived from investment
management fees calculated on a fund-by-fund basis in relation to assets
under management. Templeton Hong Kong is principally an investment advisor
to emerging market equity portfolios.
Templeton Investment Management (Singapore) Pte. Ltd.
Templeton Investment Management (Singapore) Pte. Ltd. ("Templeton
Singapore") is a corporation organized under the laws of and based in
Singapore and was formed in connection with the Acquisition. It is
registered as the foreign equivalent of an investment advisor in Singapore
with the Monetary Authority of Singapore and is also registered with the
SEC under the Advisers Act. Templeton Singapore provides investment
advisory and related services to certain Templeton Funds and portfolios.
Revenues are derived from investment management fees calculated on a fund-
by-fund basis in relation to assets under management. 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
Hong Kong and Southeast Asia.
Templeton Management Limited
Templeton Management Limited is a Canadian corporation formed in October
1982, which, with its subsidiaries, was purchased in the Acquisition, and
is registered in Canada as the foreign equivalent of an investment advisor
and a mutual fund dealer with the Ontario Securities Commission. It
provides investment advisory, portfolio management, distribution and
administrative services under various management agreements with the
Canadian Funds and with private and institutional accounts.
Franklin/Templeton Distributors, Inc.
Franklin/Templeton Distributors, Inc. ("Distributors") is a New York
corporation formed in 1947 whose name was changed from Franklin
Distributors, Inc. in connection with the post-Acquisition unification of
the Templeton and Franklin organizations. It is registered with the SEC as
a broker/dealer and as an investment 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 Templeton Funds, it
earns underwriting commissions on the distribution of shares of the Funds.
Templeton Quantitative Advisors, Inc.
Templeton Quantitative Advisors, Inc. ("TQA") is a Delaware corporation
formed in July 1990 and was acquired in the Acquisition. TQA is registered
with the SEC as an investment advisor to institutional accounts, including
limited partnerships. TQA also offers sophisticated financial research
services to third parties through its DAIS division.
Templeton/Franklin Investment Services, Inc.
Templeton/Franklin Investment Services, Inc. ("TFIS") is a Delaware
corporation formed in October 1987 and was acquired in the Acquisition.
TFIS is registered with the SEC as an investment advisor and broker/dealer
and is a member of the NASD. TFIS provides advisory services to wrap fee
and comprehensive fee accounts.
Franklin/Templeton Investor Services, Inc.
Franklin/Templeton Investor Services, Inc. ("FTIS") is a California
corporation formed in 1981 whose name was changed from Franklin
Administrative Services, Inc. in connection with the post Acquisition
unification of operations of the Templeton and Franklin organizations.
FTIS provides shareholder record keeping services and acts as transfer
agent and dividend-paying agent for the Franklin Templeton funds. FTIS is
registered with the SEC as a transfer agent under the Securities Exchange
Act of 1934 (the "Exchange Act"). FTIS is compensated under an agreement
with each Franklin and Templeton open-end mutual fund on the basis of a
fixed annual fee per account, which varies with the Fund and the type of
services being provided.
Other Templeton Investment Advisory and Related Subsidiaries were acquired
or formed in connection with the Acquisition and are organized and located
in Florida, California, England, Scotland, Luxembourg, Germany and
Australia and provide investment advisory and related services to various
domestic and foreign portfolios and private and institutional accounts.
Franklin Templeton Trust Company
Franklin Templeton Trust Company, a California corporation formed in
October 1983, ("FTTC") is a trust company licensed by the California
Superintendent of Banks. FTTC serves primarily as custodian for Individual
Retirement Accounts and Keogh Plans whose assets are invested in the
Franklin Templeton Funds, and as trustee or fiduciary of private trusts and
retirement plans.
Templeton Funds Trust Company
Templeton Funds Trust Company, a Florida corporation formed in December,
1985, ("TFTC") is a trust company licensed by the Florida Office of the
Comptroller. TFTC provides services to Individual Retirement Accounts and
Keogh Plans 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., a California corporation organized in February
1978 ("FMI"), 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 and purchased in the Acquisition 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 a holding company for all of the Templeton companies acquired or formed
in connection with the Acquisition.
Subsidiaries-Other Financial Services
The Company is also engaged in three other lines of business in the
financial services marketplace conducted through the subsidiaries described
below: consumer lending services, the sponsorship and management of public
and private real estate programs and the marketing and distribution of
primarily investment related insurance products.
Consumer Lending Services
Franklin Bank (the "Bank"), formerly Pacific Union Bank & Trust Company, an
in-excess-of-90% 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 $208.9 million as of September 30, 1994, 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
November 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 approximately two hundred
(200) auto dealerships representing a wide variety of makes and models.
FCC offers several different loan programs to finance new and used
vehicles. Since its formation in November 1993, FCC has originated
approximately $200 million in consumer auto loans. FCC also acquires
credit card receivables from the Bank.
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 sponsors and manages three (3) real
estate investment trusts, which are traded publicly on the American Stock
Exchange. Property Resources, Inc. ("PRI"), a California corporation
organized in April 1967 and acquired by the Company in December 1985, is a
real estate syndication company, serving as general partner or advisor for
real estate investment programs.
Insurance Services
ILA Financial Services, Inc. ("ILA") is an Arizona corporation that is 80%
owned by the Company. It was formed in June 1969 as an insurance holding
company. Its principal subsidiary is Arizona Life Insurance Company
("Arizona Life") based in Phoenix, Arizona. After the close of the 1994
fiscal year, substantially all of the operating assets of Arizona Life,
consisting of term life policies, were sold and Arizona Life's liabilities
thereunder were assumed by the purchaser of such assets. ILA is presently
pursuing the sale of Arizona Life's insurance charter and licenses. ILA
specializes in marketing annuity products. ILA is licensed to sell life
and disability insurance in Arizona. Arizona Life is an Arizona domestic,
Legal Reserve Insurance Company licensed to conduct business in seven (7)
states, including Arizona.
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, real estate securities and utilities. Still others focus on
investments in particular emerging market countries and regions. A
majority of the assets managed are income-oriented. Domestic and
international assets such as common stocks represent approximately 50% of
total assets managed.
The Institutional Assets include many of the world's largest corporations,
endowments, charitable foundations, pension funds and other institutions.
Investment management services for such portfolios focus on specific client
objectives utilizing the various investment techniques offered by the
Franklin Templeton Group.
During the fiscal year ended September 30, 1994, except for the Company's
money market funds, and funds specifically designed for institutional
investors, whose shares are sold without a sales charge at all purchase
levels, shares of the open end funds in the Franklin Templeton Funds were
generally sold at their respective net asset value per share plus a sales
charge which varies depending on the individual fund and the amount
purchased. In accordance with certain terms and conditions described in
the prospectuses for such Funds, certain investors are eligible to purchase
shares at net asset value or at reduced rates, and investors may generally
exchange their shares of a fund at net asset value for shares of another
fund in the Franklin Templeton Group when they believe such an investment
decision is appropriate.
As of September 30, 1994, the net asset holdings of the four largest funds
in the Franklin Templeton Group were Franklin Custodian Funds, Inc. ($19.7
billion), Franklin California Tax-Free Income Fund, Inc. ($13.1 billion),
Franklin Federal Tax-Free Income Fund ($6.8 billion), and the Templeton
Growth Fund ($5.6 billion). At September 30, 1994, these four mutual funds
represented, in the aggregate, 38% of all assets under management in the
Franklin Templeton Group.
The Franklin Custodian Funds, Inc. ("Custodian") consists of five separate
series, each representing a separate portfolio with its own investment
objectives and policies. The largest of these is the U.S. Government
Securities Series which is invested almost exclusively in GNMA obligations.
As of September 30, 1994, the aggregate net assets of the U.S. Government
Securities Series exceeded $11.7 billion.
The Company believes that among the factors contributing to investor demand
for shares of the Franklin U.S. Government Securities Series is its yield
and the government's guarantee of timely payment of principal and interest
on the GNMA certificates in the portfolio of such fund.
The Franklin California Tax-Free Income Fund, Inc. and the Franklin Federal
Tax-Free Income Fund emphasize investments in a diversified portfolio of
municipal securities, the interest on which is exempt from federal income
tax. The Franklin California Tax-Free Income Fund, Inc. has the further
investment objective of paying dividends to its shareholders which are
exempt from California personal income taxes. The Franklin California Tax-
Free Income Fund, Inc. is believed to be the largest municipal bond mutual
fund in the nation.
The Templeton Growth Fund seeks long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and
governments of any nation.
General Fund Description
Set forth in the tables below is a brief description of the Funds and of
the principal investments and investment strategies of such Funds or
portfolios comprising most of the principal Funds or portfolios in the
Franklin Templeton Group separated into 16 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 Capital Growth from Global
Portfolios
(xi) Templeton Funds Seeking Capital Growth from Domestic
Portfolios
(xii) Templeton Funds Seeking High Current Income from Global
Portfolios
(xiii)Templeton SICAV Funds
(xiv) Templeton Canadian Funds
(xv) Templeton Closed-End Funds
(xvi) Representative Templeton International Portfolios
(i) Franklin Funds Seeking Preservation of Capital and Income
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Money Fund 5/1/76 Money Market Instruments.
Invests in short-term securities
for capital preservation,
liquidity and dividends.
Franklin Federal 5/13/80 Short-term Instruments backed by
Money Fund U.S. government securities.
Invests in repurchase agreements
collateralized by U.S.
government securities.
Franklin Tax- 2/18/82 Invests in short-term municipal
Exempt Money Fund securities for federally tax-
free dividends.
Franklin California 9/3/85 Invests in short-term California
Tax-Exempt Money municipal securities for double
Fund tax-free dividends.
Franklin New York 9/3/85 Invests in short-term New York
Tax-Exempt Money municipal securities for triple
Fund tax-free dividends (free from
federal, N.Y. state and N.Y.
city taxes).
(ii) Franklin Funds Seeking Current Income
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Adjustable 12/26/91 Double A rated mortgage-backed
Rate Securities securities. ARMS created by
Fund private issuers as well as
Ginnie Mae, Fannie Mae and
Freddie Mac. Seeks high current
income and increased price
stability.
Franklin Adjustable 10/20/87 Government or government agency
U.S. Government guaranteed adjustable rate
Securities Fund mortgage-backed securities.
Pooled adjustable rate mortgage
securities (ARMS). Seeks income
with lower volatility of
principal.
Franklin's AGE High 12/31/69 High yielding lower rated
Income Fund corporate bonds. Seeks high
current income.
Franklin Global 3/15/88 Global government fixed-income
Government Income securities. Seeks high current
Fund income.
Franklin/Templeton 12/31/92 German government bonds.
German Government
Bond Fund
Franklin Investment 1/14/87 High grade corporate and U.S.
Grade Income Fund government securities. Seeks
high current income.
Franklin Short- 4/15/87 U.S. government securities.
Intermediate U.S Seeks income and relative
Government stability of principal by
Securities Fund investing in less volatile,
shorter term securities of U.S.
government securities carrying
the full faith and credit
guarantee of the U.S.
government.
Franklin Tax- 5/4/87 High yielding corporate bonds.
Advantaged High Designed for non-U.S. investors
Yield Securities seeking income from high yield
Fund corporate bonds, exempt from non-
resident alien taxation.
Franklin Tax- 6/9/90 Foreign debt securities.
Advantaged Invests in qualifying debt
International Bond securities and foreign currency
Fund denominated debt securities of
non-U.S. issuers that are not
subject to U.S. federal income
tax or U.S. tax withholding
requirements. Designed for non-
U.S. investors.
Franklin Tax- 5/4/87 Ginnie Mae securities. Seeks
Advantaged U.S. high current income by investing
Government primarily in Ginnie Mae
Securities Fund securities carrying the full
faith and credit guarantee of
the U.S. government, exempt from
non-resident alien taxation.
U.S. Government 5/31/70 Ginnie Mae Securities. Seeks
Securities Series high current income by investing
(a series of primarily in Ginnie Mae
Franklin Custodian securities carrying the full
Funds, Inc.) faith and credit guarantee of
the U.S. government.
Franklin Corporate 1/14/87 Preferred securities. Seeks
Qualified Dividend high after-tax income for
Fund corporations eligible for the
dividend received deduction.
(iii) Franklin Funds Seeking Tax-Free Income
Federal Tax-Free
Funds
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Federal 9/21/92 Diversified municipal bonds with
Intermediate-Term an average maturity of three to
Tax-Free Income ten years.
Fund
Franklin Federal 10/7/83 Diversified municipal bonds.
Tax-Free Income Seeks federal tax-free income by
Fund investing in nationally
diversified, investment quality
municipal bonds.
Franklin High Yield 3/18/86 High yielding municipal bonds.
Tax-Free Income Seeks federal tax-free income by
Fund investing in nationally
diversified, high yield, medium
and lower rated municipal bonds.
Franklin Puerto 8/3/85 For U.S. citizens and residents.
Rico Tax-Free Seeks to provide a maximum level
Income Fund of income exempt from federal
income tax and personal income
taxes of the majority of the
states.
Franklin Insured 4/1/85 Diversified portfolio of insured
Tax-Free Income municipal bonds. Seeks federal
Fund tax-free income by investing in
nationally diversified, insured
municipal bonds.
State Tax-Free
Funds
The Company manages insured state tax-free funds established
from 1985 to 1994 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 27 non-insured state tax-free income funds
established from 1977 to 1994 providing double tax-free income
from long-term municipal securities to residents of 23 states.
(iv) Franklin Funds Seeking Growth and Income
Name of Fund Inception Principal
Date Investments/Strategy
Franklin Balance 4/2/90 Undervalued securities of closed-
Sheet Investment end funds and common stocks
Fund which have per-share current
market values believed to be
below their net asset or book
values.
Franklin 4/15/87 Convertible bonds and
Convertible convertible preferred stock.
Securities Fund Seeks high current income,
potential capital growth and
downside protection in declining
markets.
Franklin Global 7/2/92 Equity and debt securities
Utilities Fund issued by foreign and domestic
utilities companies.
Income Series (a 3/31/48 High yielding stocks and bonds.
series of Franklin Invests in a diversified
Custodian Funds, portfolio of high yielding lower
Inc.) rated corporate bonds, preferred
stocks and dividend paying
common stocks.
Franklin Rising 4/2/90 Growth stocks with increasing
Dividends Fund dividends. Invests in stocks
with consistent, substantial
dividend increases for capital
growth.
Franklin Equity 3/15/88 Common stocks with high dividend
Income Fund yields. Invests in high
yielding common stocks for
greater price stability, capital
appreciation and high current
dividend income.
Utilities Series (a 9/30/48 Growth utilities stocks.
series of Franklin Invests in utility companies
Custodian Funds, located in high growth areas.
Inc.)
Franklin Premier 12/5/51 Common stocks and options.
Return Fund Invests in established dividend-
paying stocks and writes covered
call options on many of these
stocks to generate additional
return.
Franklin Strategic 5/24/94 Domestic and foreign fixed-
Income Fund income securities.
(v) Franklin Funds Seeking Capital Growth
Name of Fund Inception Principal
Date Investments/Strategy
Franklin California 10/30/91 Primarily in growth stocks or
Growth Fund securities of companies
headquartered in or conducting a
majority of operations in
California.
DynaTech Series (a 1/1/68 Established and emerging growth
series of Franklin stocks. Invests in the volatile
Custodian Funds, stocks of companies engaged in
Inc.) dramatic break-through areas
such as medicine,
telecommunications and
electronics or who have
proprietary advantages in their
field.
Franklin Global 2/14/92 Common stocks of health care
Health Care Fund companies worldwide.
Franklin Gold Fund 5/19/69 Securities of companies engaged
in mining, processing or dealing
in gold or other precious
metals.
Franklin Equity 1/1/33 Undervalued common stocks.
Fund Invests in common stocks of
seasoned companies with low
prices in relation to earnings
growth.
Growth Series (a 3/31/48 Leading growth stocks. Invests
series of the in well-known companies with
Franklin Custodian demonstrated growth
Funds, Inc.) characteristics.
Franklin 9/20/91 Common stocks of companies
International outside the U.S.
Equity Fund
Franklin Pacific 9/20/91 Common stocks of companies in
Growth Fund the Pacific Rim.
Franklin Small Cap 2/14/92 Common Stocks of small
Growth Fund capitalization companies.
Franklin Real 1/3/94 Equity securities of companies
Estate Securities engaged in the real estate
Fund industry, primarily real estate
investment trusts.
(vi) Franklin Funds for Tax-Deferred Investments
Franklin Valuemark Funds is a diversified, open-end management
investment company currently consisting of twenty 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 single premium variable life
insurance ("Valuemark I"), flexible premium variable life
insurance ("ValueLife"), two flexible premium variable annuities
("Valuemark II" in California and New York and "Valuemark III"
in all other states), and an immediate variable annuity
("Valuemark Income Plus"). The portfolios are managed by
Advisers, TICI, New TGH, TQA and Templeton Hong Kong. The
investment objectives and policies of most of the portfolios are
similar to those of other portfolios in the Franklin Templeton
Funds, although certain 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
Principal Maturity 1/19/89 Mortgage-backed securities, zero
Trust (listed on coupon securities and high
the New York Stock income producing debt
Exchange "NYSE") securities. Seeks to return
investors' original capital of
$10 per share on or before May
31, 2001, while providing high
monthly income.
Franklin Universal 9/23/88 Fixed-income debt securities,
Trust (listed on dividend paying stocks and
the NYSE) securities of precious metals
and natural resources companies.
Seeks high current income
consistent with preservation of
capital.
Franklin Multi- 10/24/89 High yielding, fixed-income
Income Trust corporate securities as well as
(listed on the dividend-paying stocks of
NYSE) companies engaged in the public
utilities industry. Seeks high
current income consistent with
preservation of capital as well
as growth of income through
dividend increases and capital
appreciation.
(viii) Franklin Funds for Institutional Investors
Name of Fund Inception Principal
Date Investments/Strategy
Money Market 7/17/85 Money Market Instruments.
Portfolio Invests in short-term securities
for capital preservation,
liquidity and dividends.
Franklin Late Day 1/19/88 Money Market Instruments,
Money Market including repurchase agreements
Portfolio which allow for investor
purchases later in the day than
generally available from other
money funds.
Franklin U.S. 1/19/88 Short-term instruments backed by
Government U.S. government securities.
Securities Money Invests in repurchase agreements
Market Portfolio collateralized by U.S.
government securities.
Franklin U.S. 8/20/91 U.S. Treasury securities.
Treasury Money Invests in short-term U.S.
Market Portfolio Treasury obligations.
Franklin 1/2/92 A portfolio of mortgage-backed
Institutional securities. Pooled adjustable
Adjustable Rate rate mortgage securities
Securities Fund ("ARMS").
Franklin Strategic 2/1/93 Mortgage-back securities.
Mortgage Portfolio Pooled mortgages issued or
guaranteed by Ginnie Mae, Fannie
Mae or Freddie Mac.
FISCO MidCap Growth 8/17/93 Medium capitalization stocks.
Fund Seeks total return exceeding the
total return of aggregate U.S.
medium capitalization stocks as
measured by a benchmark.
Franklin 11/1/91 Invests in a portfolio of
Institutional adjustable U.S. government or
Adjustable U.S. guaranteed agency mortgage-
Government backed securities. ARMS created
Securities Fund by Ginnie Mae, Fannie Mae and
Freddie Mac. Seeks high current
income and increased price
stability.
U.S. Government 5/20/91 Mortgage-backed securities.
Adjustable Rate ARMS created by Ginnie Mae,
Mortgage Portfolio Fannie Mae and Freddie Mac.
(sold only to other Seeks high current income and
investment increased price stability.
companies)
Adjustable Rate 11/5/91 Mortgage-backed securities.
Securities ARMS.
Portfolio (sold
only to other
investment
companies)
The Money Market 7/28/92 Money Market instruments.
Portfolio (sold Invests in short-term securities
only to other for capital preservation,
investment liquidity and dividends.
companies)
The U.S. Government 7/28/92 Short-term Instruments backed by
Securities Money U.S. government securities.
Market Portfolio Invests in repurchase
(sold only to other agreements, collateralized by
investment U.S. government securities.
companies)
Franklin Cash 7/1/94 Money market instruments.
Reserves Fund Invests in short-term securities
for capital preservation,
liquidity, and dividends.
Franklin U. S. 2/8/94 Short-term instruments backed by
Government Agency U.S. government securities.
Money Market Fund Invests in repurchase agreements
collateralized by U. S.
government securities.
AEA Cash Management 2/8/94 Money market instruments.
Fund Invests in short-term securities
for capital preservation,
liquidity, and dividends.
(ix) Franklin Templeton International Currency Funds
Name of Fund Inception Principal
Date Investments/Strategy
Franklin/Templeton 6/30/86 High quality money market
Global Currency instruments denominated in three
Fund or more of 16 major world
currencies seeking to maximize
total return.
Franklin/Templeton 11/17/89 High quality money market
Hard Currency Fund instruments denominated in three
or more of the five major
currencies of lowest inflation
countries and the Swiss Franc,
seeking to protect against U.S.
dollar depreciation.
Franklin/Templeton 11/17/89 High quality money market
High Income instruments denominated in three
Currency Fund or more of the ten highest
yielding major currencies,
seeking higher current income
than that of U.S. dollar money
market instruments.
(x) Templeton Funds Seeking Capital Growth from Global
Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Templeton 10/17/91 Invests in stock of issuers in
Developing Markets countries with developing
Trust markets.
Templeton Foreign 10/5/82 Invests in stocks and bonds of
Fund foreign issuers
Templeton Global 2/28/90 Invests in securities issued by
Opportunities Trust companies and governments of any
nation
Templeton Growth 11/29/54 Invests in stocks and bonds
Fund issued by companies and
governments of any nation.
Templeton Real 9/18/89 Invests in securities of
Estate Securities domestic and foreign companies
Fund engaged in or related to the
real estate industry
Templeton Smaller 6/1/81 Invests in common stocks of
Companies Growth smaller companies of any nation.
Fund
Templeton World 1/17/78 Invests in stocks and bonds of
Fund foreign and domestic companies.
(xi) Templeton Funds Seeking Capital Growth From Domestic
Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Templeton American 3/27/91 Invests no less than 65% of
Trust assets in stocks and bonds of
U.S. companies and the U.S.
government
(xii) Templeton Funds Seeking High Current Income from Global
Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Income 9/24/86 Invests in bonds and dividend
Fund paying stocks of companies and
governments of any nation.
(xiii) 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 Global 2/28/91 Seeks long-term capital growth
Growth Fund by investing mainly in the
shares of companies of any size
found in any nation.
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 Smaller 7/8/91 Seeks long-term capital growth
Companies Fund by investing mainly in shares of
companies with a market
capitalization of less than $1
billion found in any nation.
Templeton Pan 2/28/91 Seeks long-term capital growth
American Fund by investing mainly in shares of
companies of all sizes based in
the North or South American
continents.
Templeton Far East 6/30/91 Seeks long-term capital growth
Fund by investing mainly in shares of
companies of all sizes which are
based or derive significant
profits from the Far East.
Templeton Emerging 2/28/91 Seeks long-term capital growth
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).
Fixed Income Funds (denominated in U.S. Dollars unless otherwise
noted)
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Global 2/28/91 Seeks to maximize current income
Income Fund by investing mainly in fixed-
interest securities of
governments and companies
worldwide.
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 US 2/28/91 Seeks security of capital and
Government Fund income by investing in bonds
issued by the US government and
its agencies.
Templeton Emerging 7/5/91 Seeks to maximize total
Markets Fixed investment return by investing
Income Fund mainly in dollar and non-dollar
denominated debt obligations of
emerging markets.
Templeton Haven 7/8/91 Seeks to maintain a stable share
Fund price by investing in short-term
high quality transferable debt
securities (denominated in Swiss
francs).
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.
(xiv) Templeton Canadian Funds
Non-Institutional
Funds
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Balanced 04/07/83 Seeks to achieve long term
Fund capital appreciation consistent
with reasonable security of
capital. It invests primarily
in a combination of common and
preferred shares, bonds, and
debentures; managed to comply
with eligibility requirements
under Canadian law regarding
retirement and deferred profit
sharing plans.
Templeton Emerging 09/20/91 Seeks long-term capital
Markets Fund appreciation by investing
primarily in emerging country
equity securities.
Templeton Global 06/07/88 Seeks to provide high current
Bond Fund income by investing primarily in
a portfolio of fixed income
securities of issuers throughout
the world.
Templeton Global 01/03/89 Seeks capital appreciation by
Smaller Companies investing primarily in equity
Fund securities of emerging growth
companies throughout the world.
Templeton Growth 09/01/54 Seeks long term capital growth
Fund, Ltd. through a flexible policy of
investing in stock and debt
obligations of companies and
governments of any nation.
Templeton Canadian 01/02/90 Seeks high current income by
Bond Fund investing primarily in publicly
traded debt securities issued or
guaranteed by Canadian
governments or their agencies,
or issued by Canadian
municipalities or corporations.
Templeton Canadian 01/03/89 Seeks capital appreciation
Stock Fund through investment in a
diversified portfolio of
Canadian equity securities
selected with a view to
offsetting inflation and sharing
in the growth of the Canadian
economy. Managed to meet the
eligibility requirements of the
Canadian law regarding
retirement and deferred profit
sharing plans.
Templeton 01/03/89 Seeks long term total return
International Stock through a flexible policy of
Fund investing in shares and debt
obligations of companies and
governments outside of Canada
and the United States.
Templeton Treasury 02/29/88 Seeks a high level of current
Bill Fund income consistent with
preservation of capital and
liquidity through investments in
Canadian government or agency
debt obligations and high
quality money market
instruments.
Funds for
Institutional
Investors
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Canadian 07/06/90 Seeks capital appreciation by
Equity Trust investing in Canadian equity
growth securities.
Templeton Emerging 07/06/90 Seeks long term capital
Markets Trust appreciation by investing
primarily in emerging country
equity securities.
Templeton Global 07/06/90 Seeks long term capital
Equity Trust appreciation by investing in
stocks and bonds issued by
companies and governments of any
nation.
Templeton 07/06/90 Seeks long term capital
International appreciation by investing in
Equity Trust stocks and bonds issued by
companies and governments of any
nation.
Templeton 07/06/90 Seeks long term total return
International Stock through a flexible policy of
Trust investing in shares and debt
obligations of 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 Long-term capital appreciation,
Markets by investing in equity
Appreciation Fund securities debt obligations of
(listed on Toronto issuers in emerging market
Stock Exchange and countries.
Montreal Stock
Exchange)
(xv) Templeton Closed-End Funds
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Emerging 2/26/87 Long-term capital appreciation
Markets Fund, Inc. achieved by investing primarily
(listed on the NYSE in emerging markets equity
and Pacific Stock securities.
Exchange "PSE")
Templeton Global 3/17/88 High current income with a
Income Fund, Inc. secondary investment objective
(listed on the NYSE of capital appreciation when
and PSE) consistent with its principal
objective by investing primarily
in a portfolio of fixed-income
securities (including debt
securities and preferred stock)
of U.S. and foreign issuers.
Templeton Global 11/22/88 High level of current income
Governments Income consistent with the preservation
Trust (listed on of capital achieved by investing
the 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 5/23/90 High level of total return
Utilities, Inc. (income plus capital
(listed on the AMEX appreciation),without undue
and the Midwest risk, through investment of at
Stock Exchange) least 65% of its total assets in
equity and debt securities
issued by domestic and foreign
companies in the utility
industries.
Templeton Emerging 9/23/93 High current income with a
Markets Income secondary investment objective
Fund, Inc. (listed of capital appreciation achieved
on the NYSE) by 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 China 9/9/93 Long-term capital appreciation,
World Fund, Inc. by investing primarily in equity
(listed on the securities of companies
NYSE) 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 Vietnam 9/15/94 Long-term capital appreciation
Opportunities Fund, achieved by investing in the
Inc. (Listed on equity securities of Vietnam
NYSE) Companies.
Templeton Emerging 4/29/94 Capital appreciation achieved by
Markets investing substantially all of
Appreciation Fund, its assets in a portfolio of
Inc. (Listed on equity securities and debt
NYSE) obligations of issuers in
emerging market countries.
Templeton Dragon 9/21/94 Long-term capital appreciation
Fund, Inc. (Listed achieved by investing at least
on NYSE and Osaka 45% of its total assets in the
Securities equity securities of companies
Exchange) (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.
(xvi) Representative Templeton International Portfolios
Name of Fund Inception Principal
Date Investments/Strategy
Templeton Emerging 06/19/89 Seeks long term capital
Markets Investment appreciation through investing
Trust Plc. in companies operating or
trading in emerging market
countries. (Closed End)
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 Global 08/29/88 Seeks to provide income through
Balanced Trust 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/National 04/06/93 Growth Portfolio - Seeks long
Bank of Greece term capital growth through
Trans-European Fund investments in stock and debt
securities of companies and
governments primarily located in
the European Economic Community.
Income Portfolio - Seeks high
current income and relative
stability of principal through
investments in debt securities
of companies and governments
located primarily in the
European Economic Community.
Templeton Value 06/08/89 Seeks maximum total investment
Trust return by investing in all
geographic and economic sectors.
Asian Development 01/22/88 Seeks to maximize overall long-
Equity Fund term return by investing,
directly or indirectly, mainly
in shares, convertible bonds,
warrants, and other equity
related securities of entities
in the Asian developing
countries.
Templeton Asia Fund 11/14/89 Seeks to achieve long-term
capital appreciation by
investing primarily in equity
securities of entities which
either are listed on recognized
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 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.
Recent Mutual Fund Introductions
The mutual funds referenced above include two new municipal bond funds
introduced during the year ended September 30, 1994: Franklin Arkansas
Municipal Bond Fund and Franklin Tennessee Municipal Bond Fund. During the
year, Templeton successfully introduced four closed-end funds in the U.S.,
Japan and Canada. The Templeton Dragon Fund, Inc. raised a net amount of
$759,485,844 in the U.S. and Japan. The Vietnam Opportunities Fund, Inc.
and Templeton Emerging Markets Appreciation Fund, Inc. raised net amounts
of $112,810,543 and $59,172,907, respectively, in the U.S. The Templeton
Emerging Markets Appreciation Fund raised a net amount of $63,750,000 in
Canada. In addition, Templeton also introduced the following open-end
funds: Franklin/Templeton Japan Fund; Templeton Americas Government
Securities Fund; Templeton Global Infrastructure Fund; and Templeton Global
Rising Dividends Fund. In addition, Franklin introduced the Franklin
Strategic Income Fund, Franklin Real Estate Securities Fund, Franklin Cash
Reserves Fund, Franklin U. S. Government Agency Money Market Fund, AEA Cash
Management Fund, Franklin/Templeton German Government Bond Fund,
Franklin/Templeton Global Currency Fund, Franklin/Templeton Hard Currency
Fund and Franklin/Templeton High Income Currency 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 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 Templeton Funds. Comparable agreements are in effect with foreign
registered Funds and with managed accounts. The management agreements for
the U.S. registered Franklin 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 vote 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 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 Templeton Funds and the Company's
subsidiaries, such termination would have a material adverse impact upon
the Company. To date, no management agreements of the Company or any of
its subsidiaries with any of the Franklin Templeton Funds have been
involuntarily terminated.
As of September 30, 1994, substantially all of the stock of the various
directly and indirectly owned subsidiary companies was 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 ILA and Franklin Bank. Charles B. Johnson, Rupert H.
Johnson, Jr. and R. Martin Wiskemann beneficially own approximately 19.8%,
15.7% and 9.8%, 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.
Under the terms of the management agreements with the Franklin Templeton
Funds, the 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 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 companies decide which securities
such Funds will purchase, hold or sell. In addition, such companies take
all steps necessary to implement such decisions, including the selection of
brokers and dealers to execute transactions for such Funds, in accordance
with detailed criteria set forth in the management agreement for such Funds
and applicable law and practice.
Generally, the Company or a subsidiary provides and pays the salaries of
personnel who serve as officers of the Franklin Templeton Funds, including
the President and such other administrative personnel as are necessary to
conduct such Funds' day-to-day business operations, including maintaining a
Fund's portfolio records, answering shareholder inquiries, providing
information, creating and publishing literature, compliance with securities
regulations, accounting systems and controls, preparation of annual reports
and other administrative activities.
The Funds generally pay their own expenses such as legal and auditing fees,
reporting and board and shareholder meeting costs, SEC and state
registration and similar expenses. Generally, the Funds pay advisory
companies a fee payable monthly based upon a Fund's net assets. Annual
rates under the various investment management agreements range from 0.25%
to a maximum of 1.75% 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 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 the 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, and utilizing
such sources as the inspection of corporate activities, management
interviews, company prepared information, and 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. Such compensation is based upon an annual fee per
shareholder account, ranging between $6 and $22.37, a pro-rated portion of
which is paid monthly.
Distribution and Marketing
Distributors acts as the principal underwriter and distributor of shares of
the Franklin Templeton 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, 1994, approximately 3,500 local, regional and national
securities brokerage firms offered shares of the Franklin Templeton Funds
for sale to the investing public. The Company has approximately 42
"wholesalers" who interface with the broker/dealer community. Fund shares
are offered to individuals, qualified groups, trustees, IRA and Keogh
plans, employee benefit plans, trust companies, bank trust departments and
institutional investors.
Sales of Fund shares are generally subject to sales charges which range
from zero to 9% depending upon the amount invested, the type of investor
and the particular Fund product. The Company's money market and
institutional funds are sold to investors without a sales charge. As of
September 30, 1994, there were approximately 4.3 million shareholder
accounts in the Franklin Templeton Funds.
Broker/dealers are paid a commission 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.
Commissions paid to broker/dealers are typically paid at the time of the
purchase as a percentage of the amount invested.
Prior to July 1994, most of the U.S registered Templeton Funds and some of
the U.S. registered Franklin Funds had adopted distribution plans under
Rule 12b-1 promulgated under the 40 Act ("Rule 12b-1"). During the spring
of 1994, all of the remaining Funds in the Franklin Group of Funds (with
the exception of certain money market funds) adopted Distribution Plans
pursuant to Rule 12b-1 (the "Plans"). The Plans are approved 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, which
went into effect in July 1994, permit the Funds to bear certain expenses
relating to the distribution of their shares. The Plans were proposed by
Distributors as part of its broader restructuring and revision of its
distribution practices in an attempt to ensure that the Franklin Group of
Funds would be in a position to compete effectively with other mutual funds
groups in the 1990's and beyond.
At the same time the Plans went into effect, the sales charge structure of
these Funds was amended to eliminate the previously-assessed sales charge
on the reinvestment by shareholders of their income dividends. This charge
had been disfavored by some investors and brokers and it was anticipated
that the elimination of the charge might have a positive effect on the
number of shareholders who choose to reinvest their dividends rather than
take them in cash. Prior to July 1994, Distributors had retained 50% of
the sales charge imposed on the reinvested dividends; the other 50% was
paid to the dealer of record on the shareholder's account. In addition,
the maximum front-end load increased from 4.0% to 4.25% (for income funds)
and 4.5% (for equity funds). Distributors will, in most cases, retain the
front-end load in excess of 4%.
Fees under the newly adopted Plans range in amount from .25% per annum of
average daily net assets (primarily on income funds) to .15% (primarily on
equity funds). The implementation of the Plans provides for a lower fee on
shares acquired prior to the adoption of the Plans. It is anticipated that
the fees from the Plans will be paid primarily to third party dealers who
provide service to their shareholder accounts, as well as engage in
distribution activities. Distributors will also be eligible to receive
reimbursement from the Funds (from 0.1% to 0.5%) for expenses involved in
distributing the Funds, such as advertising.
As further discussed in Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" (the "MD&A"), after the
close of the fiscal year, the boards of certain of the Franklin Funds and
Templeton Funds approved proposals to adopt multiple classes of shares by
offering two or more alternatively priced classes of shares where each
class represents interests in the same Fund. Implementation of such
proposals requires SEC approval and, in some instances, shareholder
approval. Subject to such approvals, the Company anticipates introducing a
new class of shares with a hybrid, level-load structure combining aspects
of conventional front-end, back-end, and level-load pricing.
Revenues
The Company's revenues are derived primarily from its investment management
activities. Total operating revenues are set forth in the table below.
Investment management fees have comprised approximately 78%, 76% and 77% in
1994, 1993 and 1992, respectively, of total operating revenue for each of
the three fiscal years reported. Underwriting commissions from mutual fund
activities contributed approximately 12%, 14% and 14% in 1994, 1993 and
1992, respectively. Transfer, trust and related fees from mutual fund
activities contributed 7%, 7% and 5% in 1994, 1993 and 1992, respectively.
Operating Revenues
Years Ended September 30,
($ in millions)
1994 1993 1992
Investment management fees $647.7 $489.7 $284.0
Underwriting commissions, net 96.6 87.1 50.4
Transfer, trust and related fees 54.6 45.1 19.5
Banking/finance, real estate and 28.0 18.8 17.0
other
Totals $826.9 $640.7 $370.9
====== ====== ======
Other Financial Services
The Company's consumer lending, 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 earnings is anticipated. The real
estate operations have incurred net losses since inception and the Company
does not anticipate any immediate improvement in this line of business.
Regulatory Considerations
Virtually all aspects of the Company's businesses are subject to various
foreign, federal and state laws and regulations. As discussed above, the
Company and a number of its subsidiaries are registered with various
foreign, federal and state governmental agencies. Foreign, federal and
state laws and regulations grant such supervisory agencies broad
administrative powers, including the power to limit or restrict the Company
from carrying on its business if it fails to comply with such laws and
regulations. In such event, the possible sanctions which may be imposed
include the suspension of individual employees, limitations on the
Company's (or a subsidiary's) engaging in business for specified periods of
time, the revocation of the investment advisor or broker/dealer
registrations of subsidiaries and censures and fines.
The Company's officers, directors and employees may from time to time own
securities which are also held by the Funds. The Company's internal
policies with respect to individual investments require prior clearance and
reporting of transactions and restrict certain transactions so as to reduce
the possibility of conflicts of interest.
To the extent that existing or future regulations affecting the sale of
Fund shares or their investment strategies cause or contribute to reduced
sales of Fund shares or impair the investment performance of the Funds, the
Company's aggregate 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 upfront sales charge. None of the Franklin Templeton Funds is
in, or close to, that situation at the present time.
Competition
The investment company and privately managed funds industry is highly
competitive. In the United States, there are over 5,100 mutual funds of
varying sizes and investment policies and objectives whose shares are being
offered to the public. During the past three fiscal years, assets under
management in the mutual fund industry increased by over $800 billion.
During this same time period, the Company was able to maintain an
approximate 4% market share of such net assets by a combination of service
to customers, yields and performance on investments and extensive marketing
activities with its broker/dealer network. In addition, the Templeton
Acquisition has materially strengthened the ability of the Company to
compete in the growing marketplace for global investing.
The Company has advertised in major national financial publications, as
well as on radio and television to promote name recognition and to assist
its broker/dealer network. Such activities included purchasing network and
cable programming, sponsorship of 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 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 Templeton Funds, notwithstanding the availability
of proprietary products. However, to the extent that these firms limit or
restrict the sale of Franklin Templeton Funds shares through their
brokerage systems in favor of these proprietary mutual funds, assets under
management might decline and the Company's revenues might be adversely
affected.
Another element of competition among mutual funds is the rates at which
fees and sales charges are imposed. The Company believes that its
investment management and other fee structures are already relatively
competitive and does not presently anticipate significant competitive
pressures for further reductions. However, a number of mutual fund
sponsors presently market their funds without sales charges. As investor
interest in the mutual fund industry has increased, competitive pressures
have increased on sales charges of broker/dealer distributed funds. The
Company believes that, although this trend will continue, a significant
portion of the investing public still relies on the services of the
broker/dealer community, particularly during weaker market conditions.
However, in response to competitive pressures or for other similar reasons,
the Company might be forced to lower 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 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. 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.
From time to time, Congress has considered various proposals which would
permit bank holding companies and their subsidiaries to engage in various,
presently prohibited activities, including sponsoring mutual funds and
distributing their securities. These or similar proposals, if enacted,
could enable bank affiliates to compete directly with the mutual fund
industry. In addition, the Office of the Comptroller of the Currency has
proposed amendments to its regulations governing common trust funds which,
if adopted, may increase competition between banks and mutual fund
companies. The Investment Company Institute and others have opposed
various aspects of these proposals. The Company cannot determine at the
present time whether any of such proposals will be adopted, or, if adopted,
what effect they may have on the Company.
Special Considerations
General
As discussed above, the Company's revenues are derived primarily from
investment management activities and the distribution of mutual fund
shares. 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.
Over the past three (3) fiscal years, there have been substantial annual
increases in the Company's assets under management due to growth and to the
Acquisition. Although such growth continued during the current fiscal year
as described below in the MD&A, there has been significant volatility
during the current fiscal year in the Company's assets under management due
to a variety of market conditions. A discussion of the changes in the
composition of assets under management during the last three fiscal years
and the effects of market changes on such net assets is also discussed in
the MD&A. Subsequent to the close of the fiscal year, assets under
management declined from fiscal year end levels. A decline in assets under
management adversely affects the Company's revenues in a manner
approximately proportional to such decline in net assets.
Templeton Acquisition
As a result of the Templeton Acquisition, the portfolio mix of the combined
Templeton and Franklin Funds changed from primarily fixed income oriented
to both equity and fixed income components increasing the potential impact
of changes in the international equity market on the assets under
management of the combined entity. On the other hand, the Company believes
that the combined mutual fund complex 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.
Other
Subsequent to the close of the fiscal year, registrant purchased $7.1
million in unsecured Orange County, California obligations from the
Franklin Tax-Exempt Money Fund and the Franklin California Tax-Exempt Money
Fund.
Item 2. Properties
General
The Company owns or leases offices and facilities in ten (10) locations in
the immediate vicinity of its principal executive and administrative
offices located at 777 Mariners Island Boulevard, San Mateo, California.
In addition, the Company owns several buildings near Sacramento,
California, as well as buildings in St. Petersburg, Florida and Nassau,
Bahamas. 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. In
addition, the Company or its subsidiaries lease office space in New York,
New Jersey, Ft. Lauderdale, Florida and in several other states as well as
in Canada, Scotland, Luxembourg, Germany, Hong Kong, Singapore and
Australia. The Company is in the process of leasing new office space in
France, Russia, Vietnam, and Brazil.
Property Description
Leased
The Company leases approximately 177,000 square feet of space at the 777
Mariners Island Boulevard location for an approximate monthly rental of
$476,000 under a lease expiring February 16, 2001. The lease is subject to
adjustment to market value rent in 1996. The Company also leases
approximately 121,000 square feet of office/warehouse space at 1147 and
1149 Chess Drive in Foster City, California, at an approximate monthly
rental of $119,000, expiring in June 2000. The Company has recently
entered into a lease agreement for approximately 47,000 square feet of
office space at 1810 Gateway Drive, San Mateo, California. Occupancy of
this property is expected during the first quarter of 1995 at an
approximate monthly rental of $75,000, expiring in late 1997. The Company
also leases approximately 37,000 square feet of office space pursuant to
several lease agreements at 901 and 951 Mariners Island Boulevard, San
Mateo, California, at an approximate monthly rental of $62,000. These
leases expire at various times between September 1996 and April 2000. In
addition, the Company leases approximately 49,000 square feet at 2 Waters
Drive, San Mateo, California, at an approximate monthly rental of $74,000,
expiring in July 1999.
The principal Templeton offices are located in approximately 73,000 square
feet of space in Ft. Lauderdale, Florida, for an approximate monthly rental
of $128,000 under various leases expiring in December 2000. The Company
leases an aggregate of approximately 22,000 square feet in other locations
throughout the United States. The Company also leases approximately 59,000
square feet of office space for its offices in Canada, Scotland, Germany,
France, Luxembourg, Hong Kong, Singapore and Australia.
Owned
The Company maintains a customer service and data processing facility in
the property that it owns at 10600 White Rock Road, Rancho Cordova,
California, near Sacramento, California. The Company occupies 69,000
square feet in this property and has leased out 52,000 square feet to a
third party until February 2000 at an approximate monthly rental of
$68,000. The Company owns an additional eighteen acres of adjoining
undeveloped land on which it has constructed two office buildings of
approximately 67,000 square feet each. Tenant improvements for additional
office space are presently being installed in the second building. The
Company plans to develop additional facilities on this property but has not
yet commenced construction. One of such buildings is used for customer
service activities. 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 72,000 square foot office building primarily devoted to
shareholder servicing activities; and an approximately 105,000 square foot
facility devoted to a computer data center, training and mailing
operations. The Company also owns an approximately 14,000 square foot
office building in Nassau, Bahamas, as well as a nearby condominium
residence.
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, 1994, was $26.4 million. The loan is due in November, 1996. The
Company anticipates that Mariner Partners will have no difficulty in
refinancing the property.
Item 3. Pending Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to 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 61 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, and
Franklin/Templeton Investor
Services, Inc.; officer, director,
trustee or managing general partner,
as the case may be, of most other
principal domestic subsidiaries of
the Company and of 32 of the
investment companies in the Franklin
Group of Funds and 6 of the
investment companies in the
Templeton Family of Funds; and
Director, General Host Corporation.
Harmon E. Burns 49 Executive Vice President, Director
and Secretary of the Company;
Executive Vice President, Franklin
Advisers, Inc. and
Franklin/Templeton Distributors,
Inc.; Director, Templeton Worldwide,
Inc., Franklin/Templeton Investor
Services, Inc., and Franklin Bank;
and officer, director, trustee or
managing general partner, as the
case may be, of most other principal
domestic subsidiaries of the Company
and 12 of the investment companies
in the Franklin Group of Funds and 5
of the investment companies in the
Templeton Family of Funds.
Rupert H. Johnson, Jr. 54 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., and Franklin Bank; officer,
director, trustee or managing
general partner, as the case may be,
of most other principal domestic
subsidiaries of the Company and 32
of the investment companies in the
Franklin Group of Funds and 6 of the
investment companies in the
Templeton Family of Funds; and
Director, Digidesign, Inc.
Kenneth V. Domingues 62 Senior Vice President of
the Company; Chief Financial
Officer and Chief Accounting Officer
from August 1986 to March 1993;
officer of some of the other
subsidiaries of the Company and of
all the investment companies in the
Franklin Group of Funds.
Martin L. Flanagan 34 Senior Vice President, Chief
Financial and Accounting Officer and
Treasurer of the Company and an
officer of most the subsidiaries of
the Company since March, 1993;
Executive Vice President and
Director of Templeton Worldwide,
Inc.; Senior Vice President and
Treasurer, Franklin/Templeton
Distributors, Inc.; President, and
Director of Templeton Global
Investors, Inc.; director or trustee
of 5 of the investment companies in
the Templeton Family of Funds. From
January 1992 through October 1992,
Executive Vice President, Director
and Chief Operating Officer of Old
TGH. For more than five (5) years,
prior to that, Mr. Flanagan served
as Chief Financial Officer and in
various executive capacities with
Old TGH.
Deborah R. Gatzek 46 Senior Vice President of the Company
since March 1990; 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
various other subsidiaries of the
Company; officer of all the
investment companies in the Franklin
Group of Funds. Ms. Gatzek is the
spouse of Leslie M. Kratter.
Charles E. Johnson 38 Senior Vice President of the
Company, Director since December
1993; President and Director,
Templeton Worldwide, Inc.;
President, Franklin Institutional
Services Corporation; Senior Vice
President, Franklin/Templeton
Distributors Inc.; Chairman,
Franklin Agency, Inc.; Vice
President, Franklin Advisers, Inc.;
officer and/or director of other
subsidiaries of the Company and
officer, director or trustee of 8 of
the investment companies in the
Franklin Group of Funds and 6 of the
investment companies in the
Templeton Family of Funds; employed
in various capacities by the Company
or its subsidiaries since 1985.
William J. Lippman 69 Senior Vice President since March
1990; Senior Vice President,
Franklin Advisers, Inc. and
Franklin/Templeton Distributors,
Inc.; officer and trustee of some 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 30 Vice President of the Company since
June 1994; Executive Vice President,
Franklin Bank since August 1993 and
Senior Credit Officer; 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 62 Vice President of the Company;
Vice President, Franklin/Templeton
Distributors, Inc.; employed by the
Company in various administrative
and operations capacities for more
than five years.
Donna S. Ikeda 38 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 33 Vice President of the Company since
June 1994; President,
Franklin/Templeton Distributors,
Inc. since September 1994; Senior
Vice President, Franklin Advisers,
Inc. Prior to that time, Senior
Vice President and Assistant
National Sales Manager,
Franklin/Templeton Distributors,
Inc.
Leslie M. Kratter 49 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. Mr.
Kratter is the spouse of Deborah R.
Gatzek.
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. 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.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is traded on the New York Stock Exchange
("NYSE"), the Pacific Stock Exchange (Symbol: BEN) and the London Stock
Exchange. At December 2, 1994, there were approximately 1,500 shareholders
of record. The high and low sales prices (as adjusted for stock splits) by
quarter for the 1994 and 1993 fiscal years, as traded on the NYSE Composite
Tape, were as follows:
1994 Fiscal Year 1993 Fiscal Year
High Low High Low
Quarter
Oct-Dec 51-7/8 41-3/8 39 27-1/8
Jan-Mar 51 39-3/4 40-1/2 33-1/2
Apr-June 40-5/8 33-5/8 39-5/8 32
July-Sept 40-1/4 34-1/4 49 37-1/8
The Company paid dividends, of $.32 per share in fiscal 1994 and $.28 per
share in fiscal 1993. The Company expects to continue paying dividends to
common stockholders depending upon earnings and other relevant factors.
Item 6. Selected Financial Data
(in 000's, except Assets under Management and per share amounts)
September 30, 1994 1993 1992 1991 1990
Summary of
Operations:
Operating revenues $826,871 $640,744 $370,943 $300,604 $251,324
Net Income $251,308 $175,522 $124,051 $98,236 $89,443
Financial Data:
Total assets $1,737,985 $1,581,534 $834,287 $578,610 $478,542
Notes payable and
leases $468,150 $506,536 $155,541 $5,551 $4,168
Stockholders' equity $930,815 $720,378 $467,209 $363,014 $288,827
Assets Under
Management:
(in millions) $118,172 $ 107,490 $ 69,218 $57,877 $45,137
Per Common Share*:
Earnings
Primary $3.00 $2.12 $1.59 $1.26 $1.14
Fully diluted $3.00 $2.10 $1.59 $1.26 $1.14
Cash dividends $.32 $.28 $.26 $.23 $.20
Stockholders' equity $11.09 $8.77 $5.99 $4.66 $3.68
* Amounts are restated to reflect a 2-for-1 stock split in March 1992.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
Franklin Resources, Inc. and its majority-owned subsidiaries ("the
Company") derives its revenue from its principal line of business providing
investment management, administration, and related services to the Franklin
Templeton funds, managed accounts and other investment products. The
Company has a diversified base of assets under management and a full range
of investment management products and services to meet the needs of most
individuals and institutions. The Company's revenues are derived largely
from the amount and composition of assets under management.
On October 30, 1992, the Company acquired the assets and liabilities of
Templeton, Galbraith & Hansberger Ltd. ("Templeton"), a Cayman Island
corporation, for approximately $786 million. The acquisition of the
investment management, distribution and related companies servicing the
Templeton Family of Funds and managed accounts had the effect of increasing
the Company's assets under management by over $20 billion to $90.7 billion
on the date of acquisition.
In 1994, the Company continued to expand its range of investment products
and services. It acquired the $150 million Huntington international
currency funds in November 1993 and began offering various new equity and
income products, both in the United States and abroad. The most
significant developments during 1994 were the volatility and, in some
cases, decline in the global bond and stock markets coupled with a slowing
of investment into mutual funds. After growing to $117.5 billion in the
first four months of the fiscal year, assets under the Company's management
declined to $113.0 billion as of June 30, 1994. Subsequent net sales and
market appreciation from equity funds led to an increase in assets under
management to $118.2 billion as of September 30, 1994. Since September 30,
1994, the capital markets continue to be volatile and the U.S. mutual fund
industry generally is experiencing net redemptions of assets under
management. Although the industry and the Company expectations are for
long-term growth, the current capital market and industry environment could
have a negative impact on the Company's results of operations over the near-
term.
RESULTS OF OPERATIONS
Net income for the year ended September 30, 1994 was $251.3 million, an
increase of $75.8 million (43%) from $175.5 million in 1993, which
increased $51.4 million (41%) from $124.1 million in 1992. These increases
were primarily attributable to increases in the amount of revenues received
from the Franklin Templeton funds and institutional assets under
management.
Assets Under Management
As shown in the table below, total assets under management were $118.2
billion at September 30, 1994, an increase of $10.7 billion (10%) from
107.5 billion at September 30, 1993, which increased $38.3 billion (55%)
from $69.2 billion at September 30, 1992. Such increases during the two-
year period ended September 30, 1994 are principally attributable to
overall net additions to assets under management, including the $20 billion
of acquired Templeton assets under management, and market appreciation.
Certain specific asset classes and funds, particularly fixed income bond
funds, did not experience these increases.
Since 1992 the composition of assets under management has changed
significantly. Fixed income funds represent 50% of assets under management
at September 30, 1994 as compared to 78% at September 30, 1992. Equity and
income funds and institutional assets represent 50% of assets under
management at September 30, 1994 as compared to 22% at September 30, 1992.
Fixed income funds represent $59.2 billion of assets under management at
September 30, 1994 a decrease of $4.7 billion (7%) from $63.9 billion at
September 30, 1993. The substantial increase in U.S. interest rates during
1994 resulted in a combination of both net redemptions and market
depreciation in various fixed income funds. Notwithstanding this trend,
investors continued to show relatively more interest in the tax-free income
funds due to the higher income tax rates which became effective during the
period. Net assets in tax-free income funds were $39.4 billion at
September 30, 1994, a decrease of $1.3 billion (3%) over 1993. Net assets
of U.S. government bond funds were $14.7 billion at September 30, 1994, a
decrease of $3.7 billion (20%) over 1993. The Company maintains a
conservative investment philosophy. Consequently, it has not utilized
derivative securities to any material degree to enhance yields of fixed
income portfolios.
Equity and income funds represent $45.6 billion of assets under management
at September 30, 1994 an increase of $10.6 billion (30%) from 1993. Since
1992, the percentage of assets under management represented by equity and
income funds has increased from 15% to 39% at September 30, 1994 primarily
as a result of the acquisition and growth of the Templeton Family of Funds.
Net assets of global/international equity funds were $28.0 billion at
September 30, 1994, an increase of $8.5 billion (44%) over 1993. U.S.
equity/income funds were $17.6 billion at September 30, 1994, an increase
of $2.1 billion (14%) over 1993, which increased $5.3 billion (52%) over
1992. Investors seeking increased diversity and the prospect of above-
average investment returns have been attracted to both domestic and
international equity funds during this period.
Institutional assets under management were $13.3 billion at September 30,
1994, an increase of $4.7 billion (55%) from a year ago. This increase was
principally attributable to an increase in the number of clients.
Institutional assets represent 11% of the Company's assets under management
at September 30,1994. Such assets represented 8% and 7% of the company's
assets under management at September 30, 1993 and 1992, respectively. The
Company is strongly committed to the institutional account area and intends
to aggressively pursue its expansion and development.
Assets Under Management
(In millions)
Year ended September 30,
Franklin Templeton Group: 1994 1993 1992
Fixed income funds:
Tax-free income $39,432 $40,741 $33,477
U.S. government fixed income
(primarily GNMA's) 14,676 18,430 18,102
Money funds 2,629 2,342 2,323
Global/international fixed income 2,491 2,429 -
Total fixed income funds 59,228 63,942 53,902
Equity and income funds:
Global/international equity 28,049 19,463 -
U.S. equity/income 17,559 15,515 10,166
Total equity and income funds 45,608 34,978 10,166
Total Franklin Templeton fund assets $104,836 $98,920 $64,068
Franklin Templeton institutional 13,336 8,570 5,150
assets
Total Franklin Templeton Group $118,172 $107,490 $69,218
* Excludes Templeton Group of Funds for period prior to acquisition
Operating Revenues
Operating Revenues:
(in millions) 1994 1993 1992
$826.9 $640.7 $370.9
Total operating revenues increased $186.2 million (29%) over 1993 which
increased $269.8 million (73%) over 1992, the components of which are
described below.
Investment Management Fees:
(in millions) 1994 1993 1992
$647.7 $489.7 $284.0
Investment management fees for the period ended September 30, 1994
increased $158.0 million (32%) over 1993, which increased $205.7 million
(72%) over 1992.
Investment management fees have comprised approximately 78%, 76% and 77% of
total operating revenues for the fiscal years 1994, 1993, and 1992,
respectively. The Company's revenues from investment management fees are
derived primarily from fixed fee arrangements based upon the level of
assets under management with open-end and closed-end investment companies
and managed accounts. Annual rates, under the various investment
management agreements, range from .25% to a maximum of 1.75% and generally
decline as average net assets exceed various threshold levels. There have
been no significant changes in the management fee structures for the
Franklin Templeton Group during 1994. During 1992, the fee structures of a
number of the Templeton funds increased.
Underwriting Commissions:
(in millions) 1994 1993 1992
$96.6 $87.1 $50.4
Underwriting commissions for the year ended September 30, 1994 increased
$9.5 million (11%) over 1993, which increased $36.7 million (73%) over
1992. These increases resulted from increasing mutual fund sales.
Revenues from underwriting commissions are earned primarily from mutual
fund sales. The Franklin Templeton funds include a sales commission, of
which a significant portion is reallowed to selling intermediaries
During 1994, the shareholders of the FRANKLIN GROUP OF FUNDS approved
distribution plans pursuant to Rule 12b-1 of the Investment Company Act of
1940. In conjunction with the implementation of these plans, the Franklin
mutual fund sales commission structure was modified to eliminate sales
charges on reinvested dividends and replace them with an increased front
end load. These changes are expected to provide a more competitive sales
structure while making underwriting commission revenues more sensitive to
sales levels. Templeton funds registered in the United States adopted
distribution plans pursuant to Rule 12b-1, effective January 1, 1992, which
had the effect of increasing fund sales and related commission revenues for
the eleven-month period ended September 30, 1993.
The Boards of Directors of the Franklin and Templeton mutual funds have
adopted, subject to the approval of the funds' shareholders, a multi-class
sales-pricing structure. The new pricing structure is also expected to
increase the Company's competitiveness while reducing net commission
revenues. Sales of the new shares will require the Company to fund one
half of the sales commissions on these shares at the time of sale. These
amounts are expected to be substantially recovered over the period of a
year through the new pricing structure. If approved by shareholders, the
multi-class shares structure would likely be implemented during third
quarter of fiscal 1995.
Transfer, Trust and Related Fees:
(in millions) 1994 1993 1992
$54.6 $45.1 $19.5
Transfer, trust and related fees for the period ended September 30, 1994
increased $9.5 million (21%) as compared to 1993, which increased $25.6
million (131%) over 1992. These fees are generally fixed charges per
account which vary with the particular type of mutual fund and service
being rendered. Consequently, these fees are principally dependent upon the
number of shareholder accounts. During 1993, the Company combined its
transfer agency activities into a single entity which has, and should
continue to result in, improved efficiencies and services.
Banking/Finance, Real Estate, and Other:
(in millions) 1994 1993 1992
$28.0 $18.8 $17.0
Banking/finance, real estate and other revenues for the year ended
September 30, 1994 increased $9.2 million (49%) over 1993, which increased
$1.8 million (11%) over 1992. The banking/finance group contributed $2.5
million, $1.1 million and $.9 million to operating income in 1994, 1993 and
1992, respectively. During 1994 net loans receivable, principally from auto
loan and credit card portfolios, increased by $263.0 million (204%) to
$391.8 million at September 30, 1994. Earnings from the banking/finance
group are expected to continue to grow as the Company continues to increase
its investment in the loan portfolios.
The Company's real estate operations incurred operating losses of $2.0
million, $7.9 million and $4.4 million in 1994, 1993 and 1992,
respectively, as a result of the continued depressed real estate markets in
areas in which real estate operations are active.
Operating Expenses
Operating Expenses:
(in millions) 1994 1993 1992
$457.3 $355.9 $184.4
Operating expenses for the year ended September 30, 1994 increased $101.4
million (28%) over 1993, which increased $171.5 million (93%) over 1992.
These increases principally resulted from the general expansion of the
organization, with the Templeton acquisition being the material factor in
1993.
Operating income as a percentage of operating revenue was 45% for the year
ended 1994 as compared to 44% and 50% for the years ended 1993 and 1992,
respectively. The decrease in the operating profit margin for the years
ending 1994 and 1993 as compared to 1992 is primarily attributable to
purchase accounting and other costs related to the acquisition of
Templeton. For the years ended 1994 and 1993, amortization of goodwill
represents approximately 5% of the Company's total operating expenses.
Also, the Company has implemented an annual incentive plan during the year
which provides eligible employees payment of both cash and restricted
stock. The costs associated with the annual incentive plan are charged to
income currently. Costs are amortized over the contract period for those
incentives granted prior to the adoption of the annual incentive plan.
Deferred incentives begin vesting in 1995 and extend through 1998.
General and administrative expenses for the year ended September 30, 1994
were $360.5 million, an increase of $83.1 million (30%) as compared to
1993. This increase is principally related to the general expansion of the
business. General and administrative expenses increased $138.8 million
(100%) in 1993 as compared to 1992, in large part as a result of the
Templeton acquisition.
Selling expenses were $69.1 million for the year ended September 30, 1994,
an increase of $17.0 million (33%) as compared to 1993, which increased
$17.0 million (48%) from $35.1 million in 1992. In 1994, the Company
achieved certain efficiencies by combining the advertising and promotion
functions of the Franklin Templeton businesses. The Company continues to
increase its advertising and promotion particularly for the Templeton
funds.
Interest expense of the banking subsidiary was $9.4 million for the years
ended September 30, 1994 and 1993, a decrease of $1.1 million (11%) from
1992. During 1994, a portion of the banking/finance group's loans
receivable were financed through the Company. The interest expense funded
by the Company was $2.9 million which is reflected in other
income/(expenses). Consequently, the total interest expense attributable
to the banking/finance group was $12.3 million for the one year ended
September 30, 1994, an increase of $2.9 million (31%) and $1.8 million
(17%) over 1993 and 1992, respectively.
Total operating expenses will likely continue to increase with the overall
expansion of the business, the increase in competition and the Company's
ongoing commitment to improve its products and services.
Other Income (Expenses)
Investment and other income for the year ended September 30, 1994 was $22.7
million, an increase of $4.4 million (24%) from 1993, which decreased $2.1
million (10%) from $20.4 million in 1992. The net increase in investment
income during the current year results from a combination of factors,
including the increase in average balances of cash equivalents and
investment securities, increase in the average level of interest rates and
realization of capital gains compared to the prior periods.
Interest expense for the year ended September 30, 1994 was $29.8 million,
an increase of $1.0 million from 1993, which increased $26.7 million from
1992. The increase in interest expense in 1994 is attributable to the debt
incurred in the Company's acquisition of Templeton, investment in the
banking/finance group auto and credit card loan portfolios and to the
general rise in interest rates.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Stockholders' equity was $930.8 million at September 30, 1994, an increase
of $210.4 million (29%) from $720.4 million at year end 1993, which
increased $253.2 million (54%) from $467.2 million at year end 1992.
Cash provided by operating activities for the period ended September 30,
1994 was $273.5 million an increase of $74.1 million (37%) compared to
$199.4 million in 1993. Net cash expended in investing activities in 1994
was $273.4 million, including $268.2 million invested in the
banking/finance group loan portfolios and $39.2 million used in the
purchase of premises and equipment. The remainder came from the Company's
investment portfolio, including its banking/finance and real estate
operations. The Company used net cash of $92.7 million in 1994 for
financing activities. The issuance of $399.4 million in commercial paper
and medium-term notes was offset by $437.8 million in payments on long-term
debt. The Company paid $25.4 million in dividends to stockholders. The
Company purchased Treasury Stock of $26.4 million primarily in the open
market as part of a continuing Company policy. At September 30, 1994, the
Company held liquid assets of $515.0 million, including $210.4 million of
cash and cash equivalents as compared to $592.4 million and $303.0 million,
respectively, at September 30, 1993.
In May 1994, the Company replaced the $360 million term note facility with
a more flexible financing structure comprised of a $300 million commercial
paper program and a $300 million medium-term note program. As a part of
this new financing structure, the Company established two revolving credit
and competitive auction facilities as back-up for the commercial paper
program. The total bank credit facilities are $300 million, divided evenly
between a 364-day and a five-year revolving credit facility.
Financing for the $786 million Templeton acquisition in 1993 was provided
by the proceeds of $150 million of subordinated debentures with option
rights, issued prior to the 1993 fiscal year specifically to finance the
purchase, a $360 million term loan, approximately $87 million in Franklin
stock issued to Templeton management and employee shareholders, and
approximately $189 million of additional cash.
The $150 million of subordinated debentures require payment of semi-annual
interest at the rate of 6.25% per annum, resulting in semi-annual payments
of approximately $4.7 million. The debentures are redeemable at the
election of the holder, anytime on or after August 3, 1997, at a price
ranging from 93.65% to 100% of face value.
Swap agreements, previously entered into, effectively fix interest rates on
$105 million of commercial paper up to fifteen months from the balance
sheet date. Fixed rates of interest under these swap arrangements range
from 4.44% to 5.02%.
The Company anticipates that 1995 property and equipment acquisitions,
initially budgeted at more than $30 million, will be funded from liquid
assets currently available and from future operating cash inflows.
CHANGES IN ACCOUNTING PRINCIPLES
During fiscal 1993, the Company adopted Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," and No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." The cumulative
effects of adopting these standards were immaterial.
Item 8. Financial Statements and Supplementary Data
Index Of Consolidated Financial Statements And Schedules
for the years ended September 30, 1994, 1993 and 1992
CONTENTS
Consolidated Financial Statements of Franklin Resources, Inc.:
Pages
Report of Independent Accountants
Consolidated Balance Sheets
September 30, 1994 and 1993
Consolidated Statements of Income, for the years ended
September 30, 1994, 1993, and 1992
Consolidated Statements of Stockholders' Equity,
for the years ended September 30, 1994, 1993 and 1992
Consolidated Statements of Cash Flows,
for the years ended September 30, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Schedule:
II. Consolidated Amounts Receivable from Employees
IV. Short-Term Borrowings
X. Consolidated Supplementary Profit and Loss Information
All other schedules have been omitted as the information is provided in
the financial statements or in related notes thereto or are not required to
be filed as the information is not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Franklin Resources, Inc.:
We have audited the consolidated financial statements and financial
statement schedules of Franklin Resources, Inc. and Subsidiaries listed in
Item 14(a) of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
and financial statement schedules based on our 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, 1994 and 1993, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended September 30, 1994, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present
fairly, in all material respects, the information required to be included
therein.
Coopers & Lybrand L.L.P.
San Francisco, California
December 2, 1994
FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1994 and 1993
(Dollars in thousands) 1994 1993
Assets
Current Assets:
Cash and cash equivalents $190,415 $293,777
Receivables:
Fees from Franklin Templeton funds 88,801 63,471
Proceeds from sale of funds' shares - 39,150
Other 36,160 16,860
Investment securities, available-for-sale 153,292 139,134
Prepaid expenses and other 8,230 11,783
Total current assets 476,898 564,175
Banking/Finance Assets:
Cash and cash equivalents 19,961 9,175
Loans receivable, net 391,824 128,820
Investment securities, available-for-sale 26,345 69,962
Other assets 5,290 3,199
Total banking/finance assets 443,420 211,156
Other Assets:
Investments:
Investment securities, available-for-sale 9,144 7,891
Real estate 9,014 9,393
Deferred costs 9,235 10,367
Premises and equipment, net 94,218 65,821
Goodwill, net of $ 38,070 and $19,765
accumulated amortization, respectively 678,668 696,973
Other assets 17,388 15,758
Total other assets 817,667 806,203
Total assets $1,737,985 $1,581,534
The accompanying notes are an integral part of these consolidated financial
statements.
FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1994 and 1993
(Dollars in thousands) 1994 1993
Liabilities and Stockholders' Equity
Current Liabilities:
Trade payables and accrued expenses $126,809 $91,708
Debt payable within one year 84,482 51,716
Payable to funds for shares sold - 38,695
Dividends payable 6,528 5,747
Total current liabilities 217,819 187,866
Banking/Finance Liabilities:
Deposits of bank account holders:
Interest bearing demand deposits 7,727 10,794
Non-interest bearing demand deposits 17,976 8,986
Savings and time deposits 165,195 175,055
Other liabilities 973 974
Total banking/finance liabilities 191,871 195,809
Other Liabilities:
Long-term debt 383,668 454,820
Deferred tax liabilities - 10,999
Other liabilities 13,812 11,662
Total other liabilities 397,480 477,481
Total liabilities 807,170 861,156
Commitments (Note 9)
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 and 82,098,580 shares issued, and
81,597,450 and 82,098,580 shares outstanding,
for 1994 and 1993, respectively 8,226 8,210
Capital in excess of par value 92,283 83,683
Retained earnings 855,513 630,399
Less cost of treasury stock (25,409) -
Other 202 (1,914)
Total stockholders' equity 930,815 720,378
Total liabilities and stockholders' $1,737,985 $1,581,534
equity
The accompanying notes are an integral part of these consolidated financial
statements.
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
for the years ended September 30, 1994, 1993 and 1992
(Dollars in thousands, except per share 1994 1993 1992
data)
Operating revenues:
Investment management fees $647,675 $489,735 $284,029
Underwriting commissions, net 96,570 87,119 50,376
Transfer, trust and related fees 54,613 45,089 19,492
Banking/finance, real estate and other 28,013 18,801 17,046
Total operating revenues 826,871 640,744 370,943
Operating expenses:
General and administrative 360,548 277,413 138,629
Selling expenses 69,073 52,119 35,122
Amortization of goodwill 18,311 16,988 133
Interest expense of banking subsidiary 9,356 9,356 10,538
Total operating expenses 457,288 355,876 184,422
Operating income 369,583 284,868 186,521
Other income (expenses):
Investment and other income 22,703 18,290 20,364
Interest expense (29,765) (28,760) (2,137)
Other income (expenses) , net (7,062) (10,470) 18,227
Income before taxes on income 362,521 274,398 204,748
Taxes on income 111,213 98,876 80,697
Net income $251,308 $175,522 $124,051
Earnings per share:
Primary $3.00 $2.12 $1.59
Fully diluted $3.00 $2.10 $1.59
The accompanying notes are an integral part of these consolidated financial
statements.
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended September 30, 1994, 1993 and 1992
Common Stock Treasury Stock
(Shares and dollars in Shares Amount Capital Retained Shares Amount Other Total
thousands) in Earnings
Excess
of Par
Value
Balance, October 1, 1991 39,815 $3,982 $35 $378,171 (846) $(19,174) $363,014
Net income 124,051 124,051
Cash dividends on common stock 20,275) (20,275)
Effect of common stock split 38,992 3,899 (3,899) -
Exercise of options (35) (187) 37 641 419
Balance, September 30, 1992 78,807 7,881 - 477,861 (809) (18,533) - 467,209
Net income 175,522 175,522
Unrealized gain on investment
securities, net of tax $6,242 6,242
Foreign currency translation
adjustment 179 179
Cash dividends on common stock (22,984) (22,984)
Exercise of options 17 2 (3,648) 235 5,816 2,170
Issuance of stock for Templeton
acquisition 2,894 289 87,331 87,620
Issuance of restricted shares,
less amortization of $4,420 381 38 574 12,717 (8,335) 4,420
Balance, September 30, 1993 82,099 8,210 83,683 630,399 - - (1,914) 720,378
Net income 251,308 251,308
Unrealized gain on investment
securities, net of tax 1,836 1,836
Foreign currency translation
adjustment 352 352
Purchase of treasury stock (672) (26,410) (26,410)
Cash dividends on common stock (26,194) (26,194)
Exercise of options 11 1 157 158
Issuance of stock for 1,650
Huntington acquisition 36 4 1,646
Issuance of restricted shares,
less amortization of $6,318 119 11 6,797 5 1,001 (72) 7,737
Balance, September 30, 1994 82,265 $8,226 $92,283 $855,513 (667) $(25,409) $202 $930,815
The accompanying notes are an integral part of these consolidated financial
statements.
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30, 1994, 1993 and 1992
(Dollars in thousands) 1994 1993 1992
Net income $251,308 $175,522 $124,051
Adjustments to reconcile net income to
net cash provided by operating
activities:
Decrease (Increase) in receivables,
prepaid expenses and other 142 (22,900) 50,208
Increase (decrease) in trade payables
and accrued expenses (3,594) 15,481 (654)
Increase (decrease) in deferred taxes,
net (8,346) 4,021 (1,282)
Depreciation and amortization 36,693 24,286 4,339
Losses (gains) on real estate
investments (1,396) 2,969 585
Net cash provided by operating
activities 274,807 199,379 177,247
Liquidation (purchase) of investment
securities, net (9,385) 131,073 (172,880)
Purchase of banking/finance investment
portfolio (97,570) (60,877) (25,222)
Liquidation of banking/finance
investment portfolio 140,547 39,013 17,189
Liquidation of real estate investments 379 1,385 64
Net (increase) decrease in
banking/finance loans receivable (268,215) 1,728 (53,652)
Purchase of premises and equipment and
other (39,153) (20,138) (16,377)
Acquisition of Templeton, net of cash
acquired - (631,944) -
Net cash used in investing activities (273,397) (539,760) (250,878)
Increase (decrease) in deposits of bank
account holders (3,937) 17,573 2,839
Exercise of common stock options 158 1,997 419
Dividends paid on common stock (25,415) (22,307) (19,686)
Acquisition of treasury stock (26,410) - -
Issuance of debt 399,431 360,000 150,000
Payments on debt (437,813) (22,574) (296)
Net cash (used in) provided by
financing activities (93,986) 334,689 133,276
Increase (decrease) in cash and cash
equivalents (92,576) (5,692) 59,645
Cash and cash equivalents, beginning of
year 302,952 308,644 248,999
Cash and cash equivalents, end of year $210,376 $302,952 $308,644
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $31,004 $34,577 $11,224
Income taxes $98,691 $94,963 $85,293
Supplemental disclosure of non-cash
information:
Value of common stock issued in
Templeton acquisition - $100,376 -
Value of common stock issued in
other transactions $8,044 - -
The accompanying notes are an integral part of these consolidated financial
statements.
FRANKLIN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Basis of Presentation:
The consolidated financial statements include the accounts of Franklin
Resources, Inc. and its majority-owned subsidiaries (the "Company"). The
acquired Templeton, Galbraith & Hansberger Ltd. ("Templeton") operations
are included from the acquisition date, October 30, 1992. All material
intercompany accounts and transactions are eliminated from the consolidated
financial statements.
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.
Major Customers:
Substantially all revenues earned by the Company are from providing
investment management, underwriting, stock transfer and trust services to
the Franklin Templeton funds that operate in the United States, Canada,
Europe and other international markets under various rules and regulations
set forth by the Securities and Exchange Commission, individual state
agencies and foreign governments. All services are provided to these
mutual funds under contracts that definitively set forth the fees to be
charged for these services. The majority of these contracts are subject to
periodic review and approval by each fund's Board of Directors/Trustees and
shareholders (See Note 13).
Recognition of Revenues:
Investment management, stock transfer and trust fees and investment income
are all accrued as earned. Underwriting commissions on the sale of mutual
fund shares are recorded on the trade date, net of amounts paid to
unaffiliated intermediaries.
Deferred Costs:
Deferred costs result from the sale of certain U.S., Canadian and European
based mutual funds which have deferred sales charges and distribution fees.
Amortization of such deferred costs is charged against mutual fund
underwriting commission revenues on a straight-line basis over a period of
five years for the U.S. based funds, forty months for the Canadian based
funds and four years for the European funds. Deferred costs related to the
issuance of debt are amortized to interest expense over the life of the
related debt.
Taxes on Income:
Effective October 1, 1992, the Company changed its method of accounting for
income taxes from the income method to the liability method required by
Financial Accounting Standards Board Statement of Financial Accounting
Standards (SFAS) No. 109. The effect of adopting SFAS No. 109 on income in
the year of adoption was immaterial, as was the cumulative effect of the
accounting change on prior years.
Cash and Cash Equivalents:
Cash and cash equivalents include cash on hand, demand deposits with banks
or other high credit quality financial institutions, debt instruments with
original maturities of three months or less, and other highly liquid
investments, including money market funds, which are readily convertible
into cash. Due to the relatively short-term nature of these instruments,
the carrying value approximates fair value.
Investment Valuation:
The Company's investments in the Franklin Templeton funds and other
securities available-for-sale are carried at market value. The resulting
unrealized gains and losses are reported net of tax as a separate component
of stockholders' equity until realized. Market values for investments in
open-end mutual funds are based on the last reported net asset value.
Market values for other investments are based on the last reported price on
the exchange on which they are traded. Investments not traded on an
exchange are carried at management's estimate of market value.
Investments in real estate are carried at the lower of cost or net
realizable value, with depreciation provided using the straight-line method
over the estimated useful lives of the assets.
Realized gains and losses are recognized on the specific identification
method and are included in investment income currently.
Fair Value of Financial Instruments:
Loans Receivable: The fair values of the banking/finance group's performing
residential mortgage loans and home equity loans are estimated using
current market comparable information for securitizable mortgages,
adjusting for credit and other relevant characteristics. The fair value of
consumer loans is estimated using interest rates that consider the current
credit and interest rate risk inherent in the loans and current economic
and lending conditions.
Deposits: The fair values of the banking subsidiary's deposits subject to
immediate withdrawal are equal to the amount payable on demand at the
reporting date. Fair values for fixed-rate certificates of deposit are
estimated using interest rates currently offered on time deposits with
similar remaining maturities. The carrying values for deposits subject to
immediate withdrawal and for fixed-rate certificates of deposit
approximated fair value.
Long-Term Debt: 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.
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 approximates fair
value.
The banking/finance group is a party to commitments to extend credit.
Because many of the commitments are expected to expire without being drawn
upon, the total committed amounts do not necessarily represent future cash
requirements. Fair value of these instruments is based on current
settlement values and fees and interest rates currently charged to enter
into similar agreements, taking into account the remaining term of the
agreements and the counterparties' credit standing.
Premises and Equipment:
Furniture and equipment are recorded at cost and are depreciated on the
straight-line basis over their estimated useful lives. Expenditures for
repairs and maintenance are charged to expense when incurred. Leasehold
improvements are amortized on the straight-line basis over their estimated
useful lives or the lease term, whichever is shorter.
Goodwill:
The excess of cost over fair market value of the Company's acquisition of
Templeton is amortized on a straight-line basis over a period of forty
years.
Earnings Per Share:
Earnings per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
(stock options and debenture option rights) considered outstanding during
each year. The weighted average number of shares outstanding during 1994,
1993 and 1992 was 81,932,321, 81,594,765, and 77,971,835, respectively. The
weighted average numbers of shares outstanding reflect retroactive
application of the stock split in March 1992. Common stock equivalents
utilized in computing earnings per share in 1994 and 1993 were 1,777,220
and 1,261,833 for primary and 1,777,220 and 2,117,004 for fully diluted,
respectively. Common stock equivalents had an immaterial effect on fully
diluted earnings per share in 1992.
Reclassifications: Certain amounts in the 1993 and 1992 financial
statements have been reclassified to correspond to the 1994 presentation.
These reclassifications did not affect previously reported net income or
retained earnings.
2. Banking/Finance Group Loans, and Allowance for Loan Losses
The banking/finance group's loans at September 30, 1994 and 1993 consisted
of the following:
(Dollars in thousands): 1994 1993
Auto $328,396 $72,484
Credit card 89,409 54,389
Real estate 4,467 8,001
Other 5,799 4,524
428,071 139,398
Unearned fees and discounts (33,077) (9,106)
Allowance for loan losses (3,170) (1,472)
Loans receivable, net $391,824 $128,820
The estimated fair value of net loans receivable as of September 30, 1994
and 1993 was $392.7 and $129.6 million, respectively.
Included in the banking/finance group's loans is an allowance for loan
losses for the years ended September 30, 1994, 1993, and 1992 as follows:
(Dollars in thousands) 1994 1993 1992
Beginning balance $1,472 $2,055 $1,234
Provision for loan losses 5,415 4,093 4,931
Loans charged off (4,390) (5,273) (4,519)
Recoveries 673 597 409
Ending balance $3,170 $1,472 $2,055
3. Investments
Investments at September 30, 1994 and 1993 consisted of the following:
Gross Un- Gross Un-
Amortized realized realized Estimated
(Dollars in thousands) Cost Gains Losses Market
1994
Investment securities,
available-
for-sale:
Franklin Templeton funds $97,379 $6,547 $(6,186) $97,740
Debt securities 17,990 567 (121) 18,436
Equity securities 22,818 14,300 (2) 37,116
$138,187 $21,414 $(6,309) $153,292
Banking/finance group
investment
portfolio:
U.S. agencies securities $20,765 $5 $(322) $20,448
U.S. Treasury securities 6,012 0 (225) 5,787
Other marketable securities 110 0 0 110
$26,887 $5 $(547) $26,345
Investment Securities,
available-
for-sale:
Restricted securities $9,607 $112 $(575) $9,144
1993
Investment securities,
available-
for-sale:
Franklin Templeton funds $85,884 $8,902 $(22) $94,764
Debt securities 16,755 2,454 - 19,209
Equity securities 26,104 - (943) 25,161
$128,743 $11,356 $(965) $139,134
Banking/finance group
investment
portfolio:
U.S. agencies securities $13,471 $11 - $13,482
U.S. Treasury securities 49,454 78 - 49,532
Other marketable securities 6,666 282 - 6,948
$69,591 $ 371 - $69,962
Investment securities,
available-
for-sale:
Restricted securities $7,891 - - $7,891
Investments in the Franklin Templeton funds are shares of regulated
investment companies for which the Company acts as investment manager.
Proceeds from the sale of investment securities for 1994, 1993 and 1992
were $67.4 million, $57.2 million and $24.3 million respectively. Gains of
$1.2 million, $1.5 million and $2.5 million were realized on these sales
for 1994, 1993 and 1992, respectively.
At September 30, 1994, debt securities of the banking/finance group's
investment portfolio at amortized cost and estimated market value have
scheduled maturities as follows:
Amortized Estimated
(Dollars in thousands) Cost Market
Maturity:
0-1 year $18,773 $18,726
1-5 years 8,114 7,619
Greater than 5 years - -
$26,887 $26,345
Other debt securities have scheduled maturities as follows:
<CAPTION
Amortized Estimated
(Dollars in thousands) Cost Market
Maturity:
0-1 year $2,299 $2,319
1-5 years 2,816 3,260
5-10 years 6,731 6,166
Greater than 10 years 7,722 8,369
$19,568 $20,114
4. Premises and Equipment
The following is a summary of premises and equipment at September 30, 1994
and 1993:
(Dollars in thousands) 1994 1993
Furniture and equipment $68,247 $49,104
Premises and leasehold improvements 55,386 39,659
Leased equipment 7,256 7,882
Land 7,423 6,922
138,312 103,567
Less: Accumulated depreciation and
amortization (44,094) (37,746)
$94,218 $65,821
5. Segment Information
The Company conducts operations in four principal geographic areas of the
world: North America, the Bahamas, Europe and Asia/Pacific. Revenue by
geographic area includes fees and commissions charged to customers and fees
charged to affiliates. Operating income is defined as pre-tax income
excluding non-banking interest expense. Identifiable assets are those
assets used exclusively in the operations of each geographic area.
Information is summarized below:
Adjust-
(Dollars in ments
thousands) and
North Asia/ Elimina- Consoli-
America Bahamas Europe Pacific tions dated
1994
Revenues from:
Unaffiliated
customers $652,986 $103,037 $17,764 $53,084 - $826,871
Affiliates 9,209 1,040 567 6,214 $(17,030)
Total $662,195 $104,077 $18,331 $59,298 $(17,030) $826,871
Operating
income/(loss) $275,377 $ 77,732 $(1,391) $40,568 - $392,286
Identifiable
assets $990,477 $448,205 $22,443 $139,748 - $1,600,873
Corporate assets 137,112
Total assets $1,737,985
1993
Revenues from:
Unaffiliated
customers $552,005 $66,580 $8,743 $13,416 - $640,744
Affiliates 3,179 597 28 5,411 $(9,215) -
Total $555,184 $67,177 $8,771 $18,827 $(9,215) $640,744
Operating
income/(loss) $262,042 $38,491 $(3,729) $6,639 $(285) $303,158
Identifiable
assets $895,483 $459,848 $22,304 $128,240 $ 1,062 $1,506,937
Corporate assets 74,597
Total assets $1,581,534
Summarized below are the business segments:
Identifiable Operating
(Dollars in thousands) Assets Revenue Income
1994
Mutual funds and institutional
management $1,514,512 $796,266 $387,990
Banking/finance 208,500 27,897 5,419
Real estate and other 14,973 2,708 (1,123)
Company totals $1,737,985 $826,871 $392,286
1993
Mutual funds and institutional
management $1,325,008 $621,332 $309,354
Banking/finance 211,901 17,583 969
Real estate and other 44,625 1,829 (7,165)
Company totals $1,581,534 $640,744 $303,158
1992
Mutual funds and institutional
management $622,722 $353,234 $204,584
Banking/finance 193,297 16,743 551
Real estate and other 18,268 966 1,750
Company totals $834,287 $370,943 $206,885
The mutual funds segment's assets are primarily receivables from, and
investments in, Franklin Templeton mutual 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, 1994 and 1993 was as follows:
1994
Weighted
Average
(Dollars in thousands) Effec- 1994 1993
tive
Interest
Rate
Debt payable within one year:
Current maturities of long-term debt - $1,582 $51,716
Commercial paper 4.77% 82,900 -
Total debt payable within one year $84,482 $51,716
Long term debt:
Bank debt - $296,000
Notes payable 6.50% $80,000 -
Commercial paper issued under
long term borrowing agreements 4.77% 150,000 -
Subordinated debentures 6.61% 150,000 150,000
Other notes and capital lease
obligations 3,668 8,820
Total long-term debt $383,668 $454,820
Maturities of long-term debt excluding capital lease obligations are as
follows (in thousands):
1995 $150,000
1996 80,000
After 1999 150,000
$380,000
During 1994, the Company repaid $296.0 million in outstanding senior bank
debt with the proceeds from $300.0 million in commercial paper offerings.
The Company has two credit agreements with a group of commercial banks that
will allow it at its option to refinance certain amounts up to five years
from the closing date, May 19, 1994. In accordance with the Company's
intention and ability to refinance these obligations on a long-term basis,
$150 million of the outstanding balance 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, 1994.
The Company has interest rate swap agreements which effectively fix
interest rates on $105.0 million of commercial paper over a three to
fifteen month period from the balance sheet date. The fixed rates of
interest range from 4.44% to 5.02%.
During 1994, the Company initiated a $300 million medium-term note program.
Four notes totaling $80 million were issued maturing through 1996. Twice
yearly, interest payments are due on April 15 and October 15.
The subordinated debentures mature on August 3, 2002 and have a fixed
interest rate of 6.25% per annum. Under certain circumstances, all or a
portion of the debentures could pay additional interest, increasing to a
maximum rate of 7.77%.
The subordinated debentures have non-detachable option rights which allow
the holder to purchase common shares of the Company at any time during the
term of the debentures, for cash or in 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 is 4,721,435 shares. The option price
ranges from $28.65 to $31.77 per share and the redemption price ranges from
93.65% to 100% of face value, over the term of the debentures.
7. Investment Income
(Dollars in thousands) 1994 1993 1992
Dividends $10,969 $11,162 $17,487
Interest 6,538 3,678 2,068
Realized gains (losses), net 1,396 (2,730) (585)
Foreign exchange gains (losses), net (420) (174) -
Partnership income 840 1,399 1,001
Rental and other income 3,380 1,416 393
$22,703 $14,751 $20,364
Substantially all of the Company's dividend income was generated by
investments in the Franklin Templeton funds (See Note 3).
8. Taxes on Income
Taxes on income for the years ended September 30, 1994, 1993 and 1992 are
comprised of the following:
(Dollars in thousands) 1994 1993 1992
Current:
Federal $87,951 $74,958 $63,918
State 22,257 17,807 18,061
Foreign 13,717 4,342 -
Deferred (12,712) 1,769 (1,282)
Total provision $111,213 $98,876 $80,697
The components of the deferred provision for income taxes for the year
ended September 30, 1992 consisted of the following :
(Dollars in thousands) 1992
State taxes $(1,154)
Net effect of income and expenses reported in the
years received or paid for tax purposes and included
in financial statements as accrued (469)
Excess of tax depreciation over book 341
___
$(1,282)
=======
The major components of the net deferred tax asset(liability) as of
September 30, 1994 and 1993 were as follows :
(Dollars in thousands) 1994 1993
Deferred tax assets:
State taxes expensed currently, deductible
in following year $6,089 $5,989
Temporary differences on investment losses 3,278 3,286
Deferred compensation 5,062 2,901
Restricted stock compensation plan 10,150 2,605
Net operating loss carryforwards 8,121 -
Valuation allowance for deferred tax
assets (8,121) -
Other 4,738 2,177
Total deferred tax assets 29,317 16,958
Deferred tax liabilities:
Temporary differences on partnership
earnings 4,489 4,955
Capitalized compensation costs 5,681 5,542
Unrealized gains on securities 5,845 4,520
Depreciation on fixed assets 3,103 2,816
Prepaid expenses 2,381 1,486
Other 4,500 2,667
Total deferred tax liabilities 25,999 21,986
Net deferred tax asset (liability) $3,318 $(5,028)
There are approximately $15.4 million of foreign tax net operating loss
carryforwards which do not expire. In addition, there are approximately
$48.5 million in state tax net operating loss carryforwards that expire
between 2005 and 2009. 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, 1994, the cumulative amount
of reinvested income was approximately $110 million. The determination of
the unrecognized deferred tax relating to such reinvested income is not
practicable.
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, 1994, 1993 and 1992, respectively:
(Dollars in thousand) 1994 1993 1992
U.S. Federal statutory rate 35% 34.75% 34%
Federal taxes at statutory rate $126,882 $ 95,353 $ 69,614
State taxes, net of federal tax
effect 12,944 11,166 11,858
Foreign earnings subject to reduced
tax rates for which no U.S. tax is
provided (25,194) (6,591) -
Other (3,419) (1,052) (775)
Actual tax provision $111,213 $ 98,876 $ 80,697
Effective tax rate 31% 36% 39%
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 $15.1 million,
$12.1 million and $8.4 million for the fiscal years ended September 30,
1994, 1993 and 1992, respectively. At September 30, 1994, remaining
operating lease commitments are as follows (in thousands):
1995 $14,370
1996 12,961
1997 11,895
1998 10,717
1999 10,012
Thereafter 13,864
$73,819
The Company has also entered into capital leases for certain equipment
(primarily computer equipment) with a cost of $7.8 million and accumulated
amortization of $2.8 million at September 30, 1994. Future minimum
payments under such leases as of September 30, 1994 are as follows (in
thousands):
1995 $2,313
1996 1,838
1997 1,144
1998 295
1999 13
5,603
Less imputed interest 634
Net $4,969
At September 30, 1994, the Company's banking/finance group had commitments
to extend credit as follows (in thousands):
Credit card lines $306,757
Real estate equity lines 1,367
Consumer lines 599
$308,723
The carrying value of these commitments approximates fair value.
The Company through certain subsidiaries acts as fiduciary for retirement
and employee benefit plans. At September 30, 1994 assets held in trust
were approximately $9.1 billion.
10. Stockholders' Equity
On March 5, 1992, the Board of Directors approved a two-for-one stock
split, for which the Company issued 38,991,437 additional shares of common
stock. During the years ended September 30, 1994, 1993 and 1992, the
Company paid dividends to common stockholders of $.32, $.28, and $.26 per
share, respectively (as restated for the March 1992 two-for-one stock
split).
11. Employee Stock Option Plans
The stockholders have adopted stock option plans which provide for the
grant of options to purchase up to 2,358,250 shares of the Company's common
stock to officers and other key employees of the Company. Terms and
conditions (including price, exercise date and number of shares) are
determined by the Board of Directors, which administers the plans.
Information on the plans for the three years ended September 30, 1994,
adjusted to reflect the 1992 stock split, is as follows:
Number Option Price Per
(Shares and total dollars in of Share Total
thousands) Shares
Outstanding options at October 1,
1991 277 $5.75 to $15.25 $1,950
Exercised (60) $5.75 to $7.67 (419)
Outstanding options at September 30,
1992 217 $5.75 to $15.25 1,531
Granted 170 $14.04 to $30.04 3,463
Exercised (212) $5.75 to $15.25 (1,455)
Outstanding options at September 30,
1993 175 $8.93 to $30.04 3,539
Exercised (11) $8.93 (158)
Outstanding options at September 30,
1994 164 $8.96 to $30.04 $3,381
There were 1,179,272 unoptioned shares available for the granting of
options under the plans at September 30, 1994. The Company recognizes a
charge to income in connection with the plans to the extent that the
options granted are below the fair market value of the common stock at the
time of grant.
12. Employee Benefit and Incentive Plans
The Company has defined contribution profit sharing plans covering all
eligible U.S. employees of the Company who are not covered by a collective
bargaining agreement. Contributions are based on the Company's prior
year's results of operations and are made at the discretion of the
Company's Board of Directors. The Company contributed $4.9 million, $2.8
million and $2.6 million during 1994, 1993 and 1992, respectively, that
related to the 1993, 1992 and 1991 plan years.
The Company sponsors a 401(k) defined contribution pension plan in which
certain U.S. employees are eligible to participate. The Company funds the
401(k) plan by matching employee contributions, subject to statutory
limitations. Employer contributions were $1.0 million and $.8 million for
the years ended September 30, 1994 and 1993, respectively.
The Company sponsors restricted stock arrangements for certain of its
employees. The Company has issued shares of its common stock in the names
of the employees. The deferred compensation cost of these securities is
amortized on a straight-line basis to the date the stock vests with the
employees. The unamortized cost of the restricted shares of $7.7 million as
of September 30, 1994, is shown as a reduction of stockholders' equity.
13. Other Matters
Commission and fee revenue from the following mutual funds accounted for
more than 10% of total revenues in the years indicated:
1994 1993 1992
Franklin Custodian Funds 14% 19% 25%
Franklin California Tax-Free Income Fund - 11% 16%
At September 30, 1994, other receivables include $23.5 million in advances
to a limited partnership for which a subsidiary of the Company acts as a
general partner. Subsequently, these amounts have been paid.
14. Quarterly Results of Operations (unaudited)
Fiscal Quarter
(Dollars in thousands, First Second Third Fourth
except
per share amounts)
1994
Revenues $198,488 $213,628 $204,879 $209,876
Net income $59,001 $68,601 $60,023 63,683
Earnings per share:
Primary $.70 $.82 $.72 $.76
Fully diluted $.70 $.82 $.72 $.76
1993
Revenues $126,949 $153,626 $162,682 $197,487
Net income $ 34,764 $ 42,233 $ 44,798 $ 53,727
Earnings per share:
Primary $.43 $.51 $.54 $.64
Fully diluted $.43 $.51 $.54 $.62
1992
Revenues $82,651 $90,151 $89,921 $108,220
Net income $28,787 $31,087 $31,181 $32,996
Earnings per share:
Primary $ .37 $ .40 $ .40 $ .42
Fully diluted $ .37 $ .40 $ .40 $ .42
Earnings per share have been restated to reflect a two-for-one stock split
in 1992.
15. Acquisition of Templeton
On October 30, 1992, the Company acquired substantially all of the assets
and liabilities of Templeton, which through its subsidiaries was the
manager of the Templeton Family of Funds and private accounts. The
acquisition was accounted for as a purchase, with a purchase price of
approximately $786 million of which approximately $713 million was
allocated to goodwill. The purchase was financed by $360 million in bank
debt, $150 million in subordinated debentures with option rights, $189
million in cash and $87 million in the Company's common stock.
Based on unaudited financial data, had the acquisition been made on October
1, 1991, pro forma revenues, net income and net income per share for the
year ended September 30, 1992, would have been approximately $540 million,
$130 million and $1.60, respectively.
Pro forma results for the year ended September 30, 1993, as if the
acquisition had been made on October 1, 1992, are not presented as they
would not be materially different from the reported results which include
the operations of Templeton for the period from October 30, 1992 to
September 30, 1993.
Franklin Resources, Inc.
Schedule II. Consolidated Amounts Receivable From Employees
for the years ended September 30, 1994, 1993, and 1992
Balance of period
end
Balance
Fiscal beginning Amounts Amounts Non
Name of Debtor, year of period Additions collec- written Current Current
ted off
J. Paul Lewis (1) 1992 $0 $293,164 $0 $0 $315,718 $0
$22,554
1993 $315,718 $23,453 $0 $0 $339,171 $0
1994 $339,171 $7,903 $0 $347,074 $0 $0
Charles E.
Johnson(2) 1992 $118,217 $7,316 $0 $0 $36,200 $89,333
1993 $125,533 $7,316 $0 $0 $43,516 $89,333
1994 $132,849 $2,747 $67,387 $68,209 $0 $0
Mark Mobius (3)(6) 1993 $100,000 $100,000 $100,000 $0 $100,000 $0
1994 $100,000 $0 $100,000 $0 $0 $0
Mark
Holowesko(3)(6) 1993 $100,000 $100,000 $100,000 $0 $100,000 $0
1994 $100,000 $0 $100,000 $0 $0 $0
Dan Jacobs (3)(6) 1993 $100,000 $100,000 $100,000 $0 $100,000 $0
1994 $100,000 $0 $100,000 $0 $0 $0
Gary Motyl (3)(6) 1993 $100,000 $100,000 $100,000 $0 $100,000 $0
1994 $100,000 $0 $100,000 $0 $0 $0
Martin L. Flanagan
(3)(5)(6)(7) 1993 $100,000 $100,000 $100,000 $0 $100,000 $0
1994 $100,000 $0 $100,000 $0 $0 $0
1993 $550,228 $0 $18,652 $0 $15,145 $516,431
1994 $531,576 $0 $15,145 $0 $16,079 $500,352
1993 $0 $744,298 $0 $0 $744,298 $0
1994 $744,298 $0 $744,298 $0 $0 $0
Jerry Ledzinski
(4)(6) 1993 $500,000 $64,237 $14,789 $49,448 $0 $500,000
1994 $500,000 $51,935 $0 $51,935 $0 $500,000
Thomas L.
Hansberger (5)(6) 1993 $690,605 $0 $690,605 $0 $0 $0
Footnotes
(1) On October 15, 1991, the Company loaned J. Paul Lewis ("Lewis"), an
employee and shareholder of Franklin Asset Management Systems ("FAMS"), an
86% owned subsidiary of the Company, $293,164 (the "Loan") at a variable
interest rate based upon the Bank of America "prime rate." The loan was
due and payable on April 15, 1992 and was collateralized by shares of the
stock of FAMS owned by Lewis. No payments of principal or interest have
been made on the loan. On February 24, 1992, Lewis filed a voluntary
petition for relief under Chapter 7 of the Bankruptcy Code. The $22,554 and
$23,453 represent accrued but unpaid interest due on the loan as of
September 30, 1992 and September 30, 1993, respectively. The unpaid balance
was written-off in 1994.
(2) Pursuant to a Company policy to make loans for the exercise of
employee stock options, a loan in the amount of $89,333 was made to Charles
E. Johnson, Vice-President of the Company, in October, 1987, with accrued
interest additions. $68,209 of the remaining balance was forgiven during
1994.
(3) The Company has made loans to various officers with principal being
canceled after one year from the issuance of such loan if the employee
remains in the service of the Company.
(4) Variable interest demand note. Interest was 7.75% at year end 1994.
(5) Represents a $500,352 20-year secured mortgage loan bearing interest
at the rate of 5.98% on Mr. Flanagan's and a 10-year secured mortgage loan
on Mr. Hansberger's then principle residences in Nassau, Bahamas made by a
predecessor company and acquired by the Company in connection with the
Templeton acquisition.
(6) Beginning balances for Messrs. Jacobs, Mobius, Holowesko, Motyl,
Flanagan, Hansberger and Ledzinski for periods prior to the current fiscal
year relate to pre-acquisition transactions.
(7) Represents $744,298 secured mortgage loan bearing interest at the rate
of 3.69% on Florida residence.
Schedule IX. Short-Term Borrowing (Dollars in thousands)
Maximum Average
Weight- Amount Amount
ed outstand- outstand- Weighted
Balance Aver- ing during ing during Average2
at 9-30- age period period interest rate
94 inter- during period
est
rate
Commercial
paper1 $232,900 4.84% $300,000 $276,600 4.56%
1 At September 30, 1994, in accordance with the Company's ability and
intent, $150 million of commercial paper has been classified as long-term.
See Note 6 to the consolidated financial statements.
2 Weighted average interest rate was computed as the sum of the month end
effective interest rates divided by the number of months that there were
balances outstanding.
Schedule X. Consolidated Supplementary Profit And Loss Information
for the years ended September 30, 1994, 1993 and 1992 (Dollars in
thousands)
Column B
Charged to Cost and Expenses
Column A 1994 1993 1992
Advertising $54,884 $38,272 $26,533
Taxes, other than income taxes; maintenance and repairs; depreciation and
amortization of furniture and equipment; and royalties were either not
present or were immaterial in amount. Information related to rental income
is shown in Note 7 to the financial statements. Amortization of goodwill
is shown on the face of the Consolidated Statements of Income.
Item 9. Disagreements on accounting and financial disclosure
None
PART III
Items 10-13 are incorporated by reference to the Company's definitive proxy
soliciting material to be used in connection with the Annual Meeting of
Stockholders to be held January 24, 1995.
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) Registrant's Certificate of Incorporation, as filed November
28, 1969
(3)(ii) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985
(3)(iii) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987
(3)(iv) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994
(3)(v) Registrant's By-Laws are incorporated by reference to Form 10
(File No. 06952)
10.1 Representative Distribution Plan between Templeton Growth
Fund, Inc. and Franklin/Templeton Investor Services, Inc.
incorporated by referenced 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 Business Management Agreement between Templeton
Growth Fund, Inc. and Templeton Global Investors, Inc.
incorporated by referenced to Exhibit 10.2 to the 1993 Annual
Report
10.3 Representative Transfer Agent Agreement between Templeton
Growth Fund, Inc. and Franklin/Templeton Investor Services, Inc.
incorporated by referenced to Exhibit 10.3 to the 1993 Annual
Report
10.4 Representative Distribution Agreement between Templeton Growth
Fund, Inc. and Franklin/Templeton Distributors, Inc. incorporated
by reference to Exhibit 10.4 to the 1993 Annual Report
10.5 Representative Investment Management Agreement between
Templeton Growth Fund, Inc. and Templeton, Galbraith and
Hansberger Ltd. incorporated by reference to Exhibit 10.5 to the
1993 Annual Report
10.6 Representative Management Agreement between Advisers and the
Franklin Group of Funds incorporated by referenced 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")
10.7 Representative Distribution Agreement between Distributors and
the Franklin Group of Funds incorporated by referenced to Exhibit
10.2 to the 1992 Annual Report
10.8 Representative Distribution 12b-1 Plan between Distributors
and the Franklin Group of Funds incorporated by referenced to
Exhibit 10.3 to the 1992 Annual Report
10.9 Representative Shareholder Services Agreement between FTIS and
the Franklin Group of Funds incorporated by reference to Exhibit
10.4 to the 1992 Annual Report
10.10 Representative Amendment to Shareholder Services Agreement
between FTIS and the Franklin Group of Funds incorporated by
reference to Exhibit 10.5 to the 1992 Annual Report
10.11 Registrant's Annual Incentive Compensation Plan approved
January 19, 1994 incorporated by referenced to the Company's 1994
Proxy
10.12 Registrant's Universal Stock Plan approved January 19, 1994
incorporated by reference to the Company's 1995 Proxy
21 List of Subsidiaries
23 Consent of Independent Accountant
27 Financial Data Schedule
99(i) Report on internal accounting control of transfer agent from
Coopers & Lybrand L.L.P.
99(ii)Report on internal accounting control of transfer agent from
McGladrey & Pullen
(b) A Current Report on Form 8-K dated July 28, 1994 was filed on
August 4, 1994 attaching Registrant's press release dated July
28, 1994 under Items 5 and 7.
(c) See Item 14(a)(3) above.
(d) No separate financial statements are required; schedules are
included in Item 8.
EXHIBIT (3)(i)
(AS FILED NOVEMBER 28, 1969)
CERTIFICATE OF INCORPORATION
OF
FRANKLIN RESOURCES, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes
hereinafter stated, under the provi-sions and subject to the requirements
of the laws of the State of Delaware (particularly Chapter 1, Title 8 of
the Delaware Code and the acts amendatory thereof and supple-mental
thereto, and known, identified and referred to as the "General Corporation
Law of the State of Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is FRANKLIN RESOURCES, INC.
SECOND: The address, including street, number, city, and county,of
the registered office of the corporation in the State of Delaware is 229
South State Street, City of Dover, County of Kent; and the name of the
registered agent of the corporation in the State of Delaware at such
address is The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and of the pur-poses to be
conducted and promoted by the corporation, which shall be in addition to
the authority of the corporation to conduct any lawful business, to promote
any lawful purpose, and to engage in any lawful act or activity for which
corpor-ations may be organized under the General Corporation Law of the
State of Delaware, is as follows:
(a) To engage in and carry on the business of brokers and dealers in
securities of every kind, character or description what-soever;to
underwrite and distribute on behalf of itself and of others, securities of
every kind, character or description whatsoever and to participate with
others in any such under-writing or distribution; to negotiate private
placements of any such securities; to do a general securities business in
all branches thereof to the full extent permitted by law, including,
without limiting the generality of the foregoing, a general brokerage,
under-writing and investment business,and to do any and all things which
may be useful in connec-tion with or incidental to the conduct of such
business and, whether or not in connec-tion therewith, to purchase,
subscribe for, borrow, acquire, hold, sell, distribute, exchange, assign,
transfer, lend, mortgage, pledge, hypothecate, guarantee, deal in or
otherwise effect any and all transactions of every kind, character or
description whatsoever in or with respect to such securities, and
with respect to foreign exchange, acceptances and commer- cial paper of
every kind, character or description whatsoever, except bills of exchange.
(b) To engage in and carry on the business of brokers and
dealers in commodities (which term as used in this Certificate of
Incorporation includes contracts for the future delivery thereof) of every
kind, character or description whatsoever and, whether or not in connection
therewith, to purchase, borrow, acquire, hold, exchange, sell, distribute,
lend, mortgage, pledge, or otherwise dispose of, or import or export or
turn to account in any manner and generally to deal in or otherwise effect
any and all transactions of every kind, character or description whatso-
ever in or with respect to commodities and products, merchandise, articles
of commerce, materials, personal property, of every kind, character or
description whatsoever and any interest therein, and instruments evidencing
rights to acquire such interests,to guarantee any and all obligations
relating to transac-tions made on any board of trade, commodities exchange,
or similar institution, and to do any and all things which may be useful in
connection with or incidental to the conduct of such business.
(c) To maintain accounts with and for customers,of every
kind,character or descrip-tion whatsoever,including margin accounts, with
respect to securities and commodities and to do anything incidental to the
maintenance of such accounts.
(d) To render advisory, investigatory, supervisory, investment,
managerial or other services to any person,corporation,trust, firm, public
authority or organization of any kind.
(e) To act in any capacity whatsoever as financial, commercial or
business agent or representative,general or special,or as factor, broker or
in any other capacity whatsoever for, and to effect any and all
transactions of every kind, character or description whatsoever for the
account of any person, corporation, trust, firm, public authority or
organization of any kind.
(f) To acquire and hold one or more memberships in securities
exchanges, boards of trade, commodities exchanges, clearing corpora-tions
or associations, or similar institutions located within or without the
United States or to otherwise secure membership privileges thereon, and to
acquire and hold membership in any association of brokers, security dealers
or commodity dealers, or any other association, membership in which will in
any way facilitate the conduct of its business.
(g) To hold as nominee, custodian or otherwise, any securities or
commodities belonging to others, to issue appropriate receipts or
certificates therefor, and while holding such securities or commodities to
exercise all of the rights, powers and privileges of ownership thereof,
including the right to loan to others.
(h) To guarantee the signatures of customers or others whenever such
guarantees are convenient in the conduct of its business.
(i) To cause or allow the legal title to, or any legal or equitable
interest in, any property of any sort of the Corporation to remain or be
vested or registered in the name of any other person, corporation, trust,
firm, public authority or organization of any kind, whether upon trust for
or as agent or nominee of the Corporation, or otherwise for its account or
benefit.
(j) To transact a general real estate agency and brokerage business,
including acting as agent, broker or attorney in fact for any person,
corporation, trust, firm, public authority or organization of any kind in
sale and lease-back transactions and generally in buying, selling, and
dealing in real property and any interests and estates therein, on
commission or otherwise, renting and managing of estates, making, arranging
for, or obtaining loans upon such property, and supervising, managing and
protecting such property and all loans, interests in, and claims affecting
the same.
(k) To borrow money for any business, object or purpose of the
Corporation from time to time without limit as to amount; to issue any kind
of evidence of indebtedness, whether or not in connection with borrowing
money, including, without limiting the generality of the foregoing,
evidence of indebtedness convertible into shares of captial stock of the
Corporation; to secure the payment of any indebtedness by the creation of
any interest in any of the property or rights of the Corporation, whether
owned at the time such indebtedness is incurred or thereafter acquired, or
by the mortgaging, pledging or hypothecating of property of every kind,
character or description whatsoever, whether owned by the Corporation or,
when the Corporation has the right so to do, when owned by others.
(l) To loan to any person, corporation, trust, firm, public authority
or organization of any kind any of its funds or property, with or without
security, and to guarantee the loans of any of the foregoing.
(m) To hold securities of every kind, character or description
whatsoever of, or any other interests in, any other corporation or business
organization whatsoever organized under the laws of the United States or of
any State, Territory or Possession of the United States or of any foreign
country or of any subdivision, possession or dependency of any such foreign
country, without regard to the business carried on by such corporation or
business organization or to the part of the world in which it is carried
on, to do any and all acts and things necessary, advisable or desirable for
the preservation and enhancement in value of any of such securities or
interests, to make loans or grant subsidies to or otherwise assist, and to
guarantee the obligations of or the payment of dividends by, any such
corporation or business organization.
(n) To purchase, hold, sell, transfer, reissue or cancel shares of
its own capital stock or any instruments evidencing its indebtedness or any
other securities issued by it.
(o) To engage in any commercial, mercantile, manufacturing,
industrial, trading, mining, petroleum or petroleum products business of
every kind, character or description whatsoever, either by itself or
jointly with others, and to do any and all things incidental to the conduct
of such business.
(p) To acquire all or any part of the property and business,
including good will, of any person, corporation or partnership engaged in
any business similar to the objects or purposes of the Corporation, to pay
any appropriate consideration therefor, including cash and securities
issued by the Corporation, to assume in connection therewith any
liabilities or obligations of any such person, corporation or partnership,
and to hold, conduct, use or dispose of the whole or any part of the
property and business, including any good will, so acquired.
(q) To promote and exercise all or any part of the foregoing purposes
and powers in any and all parts of the world, and to conduct its business
in all or any of its branches as principal, agent, broker, factor,
contractor, and in any other lawful capacity, either alone or through or in
conjunction with any corporations, associations, partnerships, firms,
trustees, syndicates, individuals, organizations, and other entities in any
part of the world, and, in conducting its business and promoting any of its
purposes, to maintain offices, branches and agencies in any part of the
world, to make and perform any contracts and to do any acts and things, and
to carry on any business, and to exercise any powers and privileges
suitable, convenient, or proper for the conduct, promotion, and attainment
of any of the business and purposes herein specified or which at any time
may be incidental thereto or may appear conducive to or expedient for the
accomplishment of any of such business and purposes and which might be
engaged in or carried on by a corporation or organized under the General
Corporation Law of the State of Delaware, and to have and exercise all of
the powers conferred by the laws of the State of Delaware upon corporations
incorporated or organized under the General Corporation Law of the State of
Delaware.
The foregoing provisions in this Article THIRD shall be construed both
as purposes and powers and each as an independent purpose and power. The
foregoing enumeration of specific purposes and powers shall not be held to
limit or restrict in any manner the purposes and powers of the corporation,
and the purposes and powers herein specified shall, except when otherwise
provided in this Article THIRD, be in no wise limited or restricted by
reference to, or inference from, the terms of any provision of this or any
other Article of this certificate of incorporation; provided, that the
corporation shall not conduct any business, promote any purpose, or
exercise any power or privilege within or without the State of Delaware
which, under the laws thereof, the corporation may not lawfully conduct,
promote or exercise.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is six million (6,000,000) shares, of which
five million (5,000,000) shares shall be common stock of the par value of
ten (10) cents, and one million (1,000,000) shares shall be preferred stock
of the par value of one ($1.00) dollar. The preferred stock shall be
issuable from time to time in one or more series of equal rank with such
different series designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, and shall be subject to redemption at such time or
times and at such price or prices, and shall entitle the holders to receive
dividends at such rates, on such conditions and at such times, and
cumulative or non-cumulative, and shall entitle the holders to such rates
upon the dissolution of, or upon any distribution of the assets of, the
corporation, and shall be convertible into, or exchangeable for, shares of
any class or classes or any other series, at such price or prices or at
such rate or rates of exchange and with such adjustments, as shall be
stated in the resolution or resolutions providing for the issue of such
stock adopted by the Board of Directors.
FIFTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
STANLEY W. NATHANSON,Esq.c/o Silver, Saperstein, Barnett & Solomon,
Rm 5010, 60 E. 42 St., New York, N.Y. 10017
SIXTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers appointed for
this corporation under the provisions of section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this corporation under the provisions
of section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, agree to any compromise or arrangement and to any
reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
SEVENTH: For the management of the business and for the conduct of
the affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further
provided:
1. The management of the business and the conduct of the affairs of
the corporation, including the election of the Chairman of the Board of
Directors, if any, the President, the Treasurer, the Secretary, and other
principal officers of the corporation, shall be vested in its Board of
Directors. The number of directors which shall constitute the whole Board
of Directors shall be fixed by, or in the manner provided in, the By-Laws.
The phrase "whole Board" and the phrase "total number of directors" shall
be deemed to have the same meaning, to wit, the total number of directors
which the corporation would have if there were no vacancies. No election
of directors need be by written ballot.
2. The original By-Laws of the corporation shall be adopted by the
incorporator unless the certificate of incorporation shall name the initial
Board of Directors therein. Thereafter, the power to make, alter, or
repeal the By-Laws, and to adopt any new By-Law, except a By-Law
classifying directors for election for staggered terms, shall be vested in
the Board of Directors.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of shareholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (c)(2) of section 242 of the General
Corporation Law shall otherwise require; provided, that no share of any
such class which is otherwise denied voting power shall entitle the holder
thereof to vote upon the increase or decrease in the number of authorized
shares of said class.
EIGHTH: The Corporation shall, to the fullest extent permitted
by Section 145 of the General Corporation Law of Delaware, as the same may
be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or covered by
said section, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators
of such a person.
NINTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered or repealed, and other
provisions authorized by the law of the State of Delaware at the time in
force may be added or inserted in the manner and at the time prescribed by
said laws, and all rights at any time conferred upon the stockholders of
the corporation by this certificate of incorporation are granted subject to
the provisions of this Article NINTH.
Executed at New York, New York on November 24, 1969.
/s/ Stanley W. Nathanson
Incorporator
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BE IT REMEMBERED that, on November 24, 1969, before me, a Notary
Public duly authorized by law to take acknowledgement of deeds, personally
came Stanley W. Nathanson, the incorporator who duly executed the foregoing
certificate of incorporation before me and acknowledged the same to be his
act and deed, and that the facts therein stated are true.
GIVEN under my hand on November 24, 1969.
/s/ Theresa Rosenman
Notary Public
EXHIBIT (3)(ii)
(AS FILED ON MARCH 1, 1985)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
FRANKLIN RESOURCES, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of FRANKLIN
RESOURCES, INC., resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Fourth Article thereof so that, as amended, said
Article shall be and read as follows:
"FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is twenty-six million (26,000,000) shares, of which
twenty-five million (25,000,000) shares shall be common stock of the par
value of ten cents ($0.10), and one million (1,000,000) shares shall be
preferred stock of the par value of one dollar ($1.00). The preferred
stock shall be issuable from time to time in one or more series of equal
rank with such different series designations, preferences and relative,
participating, optional, or other special rights, and qualifications,
limitations, or restrictions thereof, and shall be subject to redemption at
such time or times and at such price or prices, and shall entitle the
holders to receive dividends at such rates, on such conditions, and at such
times, and cumulative or non-cumulative, and shall entitle the holders to
such rates upon the dissolution of, or upon any distribution of the assets
of, the corporation, and shall be convertible into, or exchangeable for,
shares of any class or classes or any other series, at such price or prices
or at such rate or rates of exchange and with such adjustments, as shall be
stated in the resolution or resolutions providing for the issue of such
stock adopted by the Board of Directors."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the Annual Meeting of the stockholders of said corporation was
duly called and held, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of
the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said FRANKLIN RESOURCES, INC. has caused this
certificate to be signed by CHARLES B. JOHNSON, its President and Chief
Executive Officer, and attested by HARMON E. BURNS, its Secretary, this
26th day of February, 1985.
FRANKLIN RESOURCES, INC.
By: /s/ Charles B. Johnson
President and Chief
Executive Officer
ATTEST:
By: /s/ Harmon E. Burns
Secretary
EXHIBIT (3)(iii)
(AS FILED ON APRIL 1, 1987)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
FRANKLIN RESOURCES, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of FRANKLIN
RESOURCES, INC., resolutions were duly adopted setting forth proposed
amendments to the Certificate of Incorporation of said corporation,
declaring said amendments to be advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The
resolutions setting forth the proposed amendments are as follows:
A. RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing Article FOURTH thereof so that, as amended, said
Article shall be and read as follows:
"FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is one hundred one million (101,000,000) shares, of
which one hundred million (100,000,000) shares shall be common stock of the
par value of ten cents ($0.10), and one million (1,000,000) shares shall be
preferred stock of the par value of one ($1.00). The preferred stock shall
be issuable from time to time in one or more series of equal rank with such
different series designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, and shall be subject to redemption at such time or
times and at such price or prices, and shall entitle the holders to receive
dividends at such rates, on such conditions and at such times, and
cumulative or non-cumulative, and shall entitle the holders to such rates
upon the dissolution of, or upon any distribution of the assets of, the
corporation, and shall be convertible into, or exchangeable for, shares of
any class or classes or any other series, at such price or prices or at
such rate or rates of exchange and with such adjustments, as shall be
stated in the resolution or resolutions providing for the issue of such
stock adopted by the Board of Directors."
B. RESOLVED, that a new Article TENTH be added to the Certificate of
Incorporation of the corporation, to read as follows:
"TENTH: A. A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which
the director derived any improper personal benefit. If the Delaware
General Corporation Law is amended after this Certificate of Amendment
becomes effective to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation law, as so amended.
B. Any repeal or modification of the foregoing Section A by the
stockholders of the corporation shall not adversely affect any right or
protection of a director or the corporation existing at the time of such
repeal or modification."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the Annual Meeting of the Stockholders of said corporation was
duly called and held, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of
the foregoing amendments.
THIRD: That said amendments were duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, said FRANKLIN RESOURCES, INC. has caused this
certificate to be signed by CHARLES B. JOHNSON, its President and Chief
Executive Officer, and attested by HARMON E. BURNS, its secretary, this
17th day of March 1987.
FRANKLIN RESOURCES, INC.
By: /s/ Charles B. Johnson
President and Chief
Executive Officer
ATTEST:
By: /s/ Harmon E. Burns
Secretary
EXHIBIT (3)(iv)
(AS FILED ON FEBRUARY 2, 1994)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Franklin Resources, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That, at a meeting of the Board of Directors of Franklin Resources,
Inc., resolutions were duly adopted setting forth a proposed amendment of
the Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that Article Fourth of the Certificate of Incorporation of this
corporation be amended, so that, as amended, said Article shall be and read
in its entirety as follows:
"FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is five hundred and one million (501,000,000)
shares, of which five hundred million (500,000,000) shares shall be common
stock of the par value of ten cents ($0.10),and one million (1,000,000)
shares shall be preferred stock of the par value of one dollar ($1.00). The
preferred stock shall be issuable from time to time in one or more series
of equal rank with such different series, designations, preferences and
relative, participating, optional, or other special rights,and
qualifications,limitations,or restrictions thereof, and shall be subject to
redemption at such time or times and at such price or prices, and shall
entitle the holders to receive dividends at such rates, on such conditions
and at such times, and cumulative or non cumulative, and shall entitle the
holders to such rates upon the dissolution of, or upon any distribution of
the assets of, the corporation, and shall be convertible into, or
exchangeable for, shares of any class or classes or any other series, at
such price or prices or at such rate or rates of exchange and with such
adjustments, as shall be stated in the resolution or resolutions providing
for the issue of such stock adopted by the Board of Directors.";
FURTHER RESOLVED, that such amendment to Article Fourth of the Certificate
of Incorporation be submitted to the stockholders for their approval at the
Annual Meeting of Stockholders and that the Board of Directors recommends
that the stockholders of the Corporation vote in favor of such amendment;
and
FURTHER RESOLVED, that upon obtaining approval of the stockholders,
the proper officers on behalf of the Corporation shall file such amendment
with the appropriate state officials.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of said corporation was duly called
and held,upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary
number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Franklin Resources, Inc. has caused this
certificate to be signed by Charles B. Johnson, its president, and Harmon
E. Burns, its secretary, this 31st day of January, 1994.
By: /s/ Charles B. Johnson
President
ATTEST: /s/ Harmon E. Burns
Secretary
EXHIBIT 21
FRANKLIN RESOURCES, INC.
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1994
LIST OF PRINCIPAL SUBSIDIARIES*
Name State or
Nation
of Incorporation
Franklin/Templeton Investor Services, Inc. California
Franklin Agency, Inc. California
Franklin Asset Management Systems California
Franklin Management, Inc. California
Franklin/Templeton Distributors, Inc. New York
Franklin Energy Corporation California
FS Capital Group California
Franklin Templeton Trust Company California
Franklin Advisers, Inc. California
Franklin Properties, Inc. California
Continental Property Management Company California
Franklin Real Estate Management, Inc. California
FS Properties Inc. California
Property Resources, Inc. California
Franklin Bank California
ILA Financial Services, Inc. Arizona
Franklin Partners, Inc. California
Franklin Institutional Services Corporation California
Franklin Capital Corporation Utah
Templeton Worldwide, Inc. Delaware
Templeton Global Investors, Inc. Delaware
Templeton International, Inc. Delaware
Templeton Quantitative Advisors, Inc. Delaware
Templeton/Franklin Investment Services, Inc. Delaware
Templeton/Franklin Investment Services
(Asia) Limited Hong Kong
Templeton Investment Counsel, Inc. Florida
Templeton Management Limited Canada
Templeton Heritage Limited Canada
Templeton Funds Trust Company Florida
Templeton Funds Annuity Company Florida
Templeton Investment Management (Hong Kong) Hong Kong
Limited
Templeton Investment Management (Singapore) Singapore
Pte. Ltd.
Templeton Investment Management (Australia) Australia
Limited
Templeton Global Strategic Services Germany
(Deutschland) GmbH
Templeton Global Investors Limited England
Templeton Investment Management Limited England
Templeton Unit Trust Managers Limited England
Templeton Global Strategic Services S.A. Luxembourg
Templeton Management (Lux) S.A. Luxembourg
T.G.H. Holdings Ltd. Bahamas
Templeton, Galbraith & Hansberger Ltd. Bahamas
*All subsidiaries currently do business only under their corporate name
except for Templeton Quantitative Advisors, Inc., which also operates under
the assumed name, "The DAIS Group"; Templeton Investment Counsel, Inc.
which also operates under the name Templeton Global Managers; and
Templeton/Franklin Investment Services, Inc. which also operates under the
assumed name Templeton Portfolio Advisory. All Templeton subsidiaries also
on occasion use the name Templeton Worldwide.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Franklin Resources, Inc. on Form S-3 for the issuance of medium term
notes, Form S-8 for the 1988 Restricted Stock Plan and Form S-8 for the
Canada Stock Option Plan of our report dated December 2, 1994, on our
audits of the consolidated financial statements and financial statement
schedules of Franklin Resources, Inc. as of September 30, 1994 and 1993 and
for the years ended September 30, 1994, 1993 and 1992, which report is
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
December 21, 1994
EXHIBIT 99(i)
Report on Internal Accounting Control of Transfer Agent from Coopers &
Lybrand L.L.P.
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors
Franklin/Templeton Investor Services, Inc.
We have examined management's assertion, included in its representation
letter dated December 22, 1994, that Franklin/Templeton Investor Services,
Inc. maintained an effective internal control structure, including the
appropriate segregation of responsibilities and duties, over the San Mateo,
California transfer agent and registrar functions, as of September 30,
1994, and that no material inadequacies as defined by Rule 17Ad-13(a)(3) of
the Securities Exchange Act of 1934 existed at such date.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly,
included a study and evaluation of the internal control structure over the
San Mateo, California transfer agent and registrar functions, using the
objectives set forth in Rule 17Ad-13(a)(3) of the Securities Exchange Act
of 1934. Those objectives are to provide reasonable, but not absolute,
assurance that securities and funds are safeguarded against loss from
unauthorized use or disposition and that transfer agent activities are
performed promptly and accurately. We believe that our examination
provides a reasonable basis for our opinion.
Because of inherent limitations in any internal control structure, errors
or irregularities may occur and not be detected. Also, projections of any
evaluation of the internal control structure over the transfer agent and
registrar functions to future periods are subject to the risk that the
internal control structure may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assertion that, as of September 30, 1994,
Franklin/Templeton Investor Services, Inc. maintained an effective internal
control structure, including the appropriate segregation of
responsibilities and duties, over the San Mateo, California transfer agent
and registrar functions, and that no material inadequacies existed as
defined by Rule 17Ad-13(a)(3) of the Securities Exchange Act of 1934, is
fairly stated, in all material respects, based on the criteria established
by Rule 17Ad-13(a)(3) of the Securities Exchange Act of 1934.
This report is intended solely for the information and use of the board of
directors and management of Franklin/Templeton Investor Services, Inc. and
the Securities and Exchange Commission, and should not be used for any
other purpose.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
December 2, 1994
EXHIBIT 99(ii)
Report on Internal Accounting Control of Transfer Agent from McGladrey &
Pullen
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
Franklin/Templeton Investor Services, Inc.
San Mateo, California
We have examined management's assertion, included in its representation
letter dated August 31, 1994 that the internal control structure of the
TITAN Mutual Fund Shareholder System and Related Shareholder Servicing
Functions processed by the Franklin Templeton Investor Services, Inc.
Service Center in St. Petersburg, Florida (the "Service Center") over the
transfer of record ownership and the safeguarding of related securities and
funds provides reasonable, but not absolute, assurance that securities and
funds are safeguarded against loss from unauthorized use or disposition
and that transfer agent activities are performed promptly and accurately in
accordance with regulations set forth in Rule 17AD-13(a)(3)(iii) of the
Securities Exchange Act of 1934.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly,
included obtaining an understanding of the internal control structure over
transaction processing, testing, and evaluating the design and operating
effectiveness of the internal control structure, and such other procedures
as we considered necessary in the circumstances. We believe that our
examination provides a reasonable basis for our opinion.
Because of inherent limitations in any internal control structure, errors
or irregularities may occur and not be detected. Also, projections of any
evaluation of the internal control structure over transaction processing to
future periods are subject to the risk that the internal control structure
may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management's assertion included in the first paragraph is
fairly stated, in all material respects, based upon the criteria
established by the Securities and Exchange Commission as set forth in Rule
17 AD-13(a)(3) of the Securities Exchange Act of 1934.
This report is intended solely for the information and use of the board of
directors and management of Franklin/Templeton Investor Services, Inc. and
the Securities and Exchange Commission and should not be used for any other
purpose.
/s/ McGladrey & Pullen
New York, New York
August 31, 1994
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 9, 1994 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 9, 1994 By /s/ Charles B. Johnson
Charles B. Johnson, Principal Executive
Officer and Director
Date: December 9, 1994 By /s/ Harmon E. Burns
Harmon E. Burns, Executive Vice
President-Legal and Administrative,
Secretary and Director
Date: December 9, 1994 By /s/ Martin L. Flanagan
Martin L. Flanagan, Treasurer and
Chief Financial Officer
Date: December 9, 1994 By /s/ Philip A. Scatena
Philip A. Scatena, Controller
Date: December 9, 1994 By /s/ Judson R. Grosvenor
Judson R. Grosvenor, Director
Date: December 9, 1994 By /s/ F. Warren Hellman
F. Warren Hellman, Director
Date: December 9, 1994 By /s/ Rupert H. Johnson, Jr.
Rupert H.Johnson, Jr., Director
Date: December 9, 1994 By /s/ Harry O. Kline
Harry O. Kline, Director
Date: December 9, 1994 By /s/ Louis E. Woodworth
Louis E. Woodworth, Director
Date: December 9, 1994 By /s/ Peter M. Sacerdote
Peter M. Sacerdote, Director