UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
OR
[ ]
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9318
FRANKLIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2670991
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 Mariners Island Blvd., San Mateo, CA 94404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (650) 312-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value
$.10 per share New York Stock Exchange, Pacific Exchange
and London Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing price of $95.375 on December 1, 1997 on the
New York Stock Exchange was $6,373,105,617. Calculation of holdings by
non-affiliates is based upon the assumption, for these purposes only, that
executive officers, directors, nominees, Registrant's Profit Sharing Plan and
persons holding 5% or more of Registrant's Common Stock are affiliates. Number
of shares of the Registrant's common stock outstanding at December 1, 1997:
126,026,610.
DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the registrant's proxy
statement for its Annual Meeting of Stockholders to be held January 20, 1998,
which was filed with the Commission on December 17, 1997, are incorporated by
reference into Part III of this report.
PART I
Item 1. Business
(a) GENERAL DEVELOPMENT OF BUSINESS
Franklin Resources, Inc. ("FRI") and its predecessors have been engaged in the
financial services business since 1947. FRI was organized in Delaware in
November 1969. The term "Company" as used herein, unless the context otherwise
requires, refers to Franklin Resources, Inc. and its consolidated subsidiaries.
The Company's principal executive and administrative offices are at 777 Mariners
Island Boulevard, San Mateo, California 94404. As of September 30, 1997, the
Company employed over 6,400 employees on a worldwide basis, consisting of
officers, investment management, distribution, administrative, sales and
clerical support staff. The Company also employs additional temporary help as
necessary to meet unusual requirements. Management believes that its relations
with its employees are excellent.
On October 30, 1992, the Company and certain of its direct and indirect
subsidiaries consummated the acquisition (the "Templeton Acquisition") of
substantially all of the assets and liabilities of Templeton, Galbraith &
Hansberger Ltd., a corporation organized under the laws of the Cayman Islands
and based in Nassau, Bahamas ("Old TGH"), which provided diversified investment
management and related services on a worldwide basis directly and through
subsidiaries to various U.S. open-end and closed-end investment companies as
well as to a variety of international investment portfolios and to U.S. and
international private and institutional accounts. Unless the context otherwise
requires, references herein to "Templeton" are deemed to refer to the business
operations acquired by the Company in connection with the Templeton Acquisition
and "Templeton funds" or "Templeton Family of Funds" refers to related funds.
Subsequent to the Templeton Acquisition, the Company has operated the Templeton
businesses on a unified basis with its other business operations.
In November 1993, the Company consummated an agreement to manage and advise the
Huntington Funds of Pasadena, California, now called the Franklin Templeton
Global Trust. This open-end investment company of several currency portfolio
series includes the Franklin Templeton Global Currency Fund, the Franklin
Templeton Hard Currency Fund and the Franklin Templeton High Income Currency
Fund, which invests in high quality foreign equivalent money market instruments
in various global currencies, as well as the Franklin Templeton German
Government Bond Fund, which invests in German government bonds and equivalents.
In November 1996, the Company through its wholly-owned subsidiary, Franklin
Mutual Advisers, Inc. ("FMAI") acquired (the "Mutual Acquisition") certain
assets and liabilities of Heine Securities Corporation ("Heine"), which provided
investment management services to various accounts and investment companies,
including Mutual Series Fund Inc., now known as Franklin Mutual Series Fund Inc.
("Mutual Series"). Mutual Series is an open-end investment company which, at the
time of the Mutual Acquisition, had five (5) series funds. Subsequent to the
Mutual Acquisition, the Company has managed Mutual Series on a unified basis
with its other business. Unless the context otherwise requires, references
herein to the "Mutual Funds" and the "Mutual Series" are deemed to refer to the
business operations acquired by the Company in connection with the Mutual
Acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation" ("MD&A").
The purchase price paid at the closing of the Mutual Acquisition was funded
through a combination of the Company's available cash, securities and the sale
of commercial paper. The base purchase price consisted of $551 million in cash,
including acquisition expenses, and the delivery of 1.1 million shares (the
"Shares"), before the effect of the three-for-two stock dividend paid on January
15, 1997 (the "Stock Dividend"), of the Company's Common Stock. The purchase
price included the deposit into escrow of $150 million to be invested in shares
of Mutual Series, which shares are being released over a five (5) year period
from the date of the acquisition, with a minimum $100 million retention for the
full five (5) year period. In addition to the base purchase price, the
transaction included a contingent payment ranging from $96.25 million to $192.5
million if certain agreed upon growth targets are met over the five (5) years
following the closing.
For a two-year period following the closing of the Mutual Acquisition, Heine and
its chief executive officer, Michael F. Price must limit their ownership of the
Company's common stock to no more than 4.9% and have also agreed to certain
limitations on the transferability of the Shares for this same time period. In
addition, the Shares must be voted in accordance with the recommendations of the
Company's Board of Directors. The Company has also granted certain registration
rights with respect to the Shares. Mr. Price and five (5) senior executives of
Heine entered into employment agreements assumed by FMAI upon the consummation
of the transaction.
In November 1996, the holders of the option rights related to the Company's
subordinated debentures (including entities affiliated with a director of the
Company), which were issued in connection with the Templeton Acquisition,
exercised their option rights to receive approximately 2.4 million shares of the
Company's common stock in exchange for approximately $75 million of subordinated
debentures. In December 1996, the holders of the subordinated debentures sold to
the Company the remaining option rights representing an additional 2.4 million
shares, and surrendered the remaining $75 million of debentures plus accrued
interest for cash of approximately $170 million. This transaction was financed
through the issuance of $100 million in medium-term notes and through cash on
hand. See Note 8 of Notes to Consolidated Financial Statements elsewhere herein.
FRI is principally a parent company primarily engaged, through various
subsidiaries, in providing investment management, marketing, distribution,
transfer agency and other administrative services to the open-end investment
companies of the Franklin Templeton Group and to U.S. 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 U.S. and some international stock exchanges. In
addition, the Company provides investment management, marketing and distribution
services to certain sponsored investment companies organized in the Grand Duchy
of Luxembourg (hereinafter referred to as "SICAV Funds"), which are distributed
in marketplaces outside of North America and to certain investment funds and
portfolios in Canada (hereinafter referred to as "Canadian Funds") as well as to
certain other international portfolios in the United Kingdom and elsewhere. The
Franklin Templeton Group of Funds consists of forty-four (44) open-end
investment companies with multiple portfolios.
When used in this report, the term "Franklin Group of Funds" refers generally to
the Franklin funds not acquired through either the Templeton or Mutual
Acquisitions nor developed primarily as a result of such acquisitions. The
Franklin Group of Funds, the Templeton Family of Funds, and the Mutual Series
are hereinafter referred to individually as a "Fund" or collectively as the
"Funds", the "Franklin Templeton funds", or the "Franklin Templeton Group of
Funds". Unless specifically noted otherwise, as used in this report the terms
the "Franklin Templeton funds" or the "Franklin Templeton Group" include the
Mutual Series. The closed-end investment companies, the foreign based funds and
the other U.S. and international managed and institutional accounts are
collectively referred to as the "Other Assets". The Franklin Templeton Group of
Funds along with the Other Assets are collectively referred to as the "Franklin
Templeton Group".
As of September 30, 1997, total assets under management in the Franklin
Templeton Group were $226 billion, the make-up of which was approximately as
follows: for the open-end investment companies in the Franklin Templeton Group
(excluding variable annuities), $175.1 billion; and for all the Other Assets
(including variable annuities), $50.9 billion. This makes the Franklin Templeton
Group one of the largest investment management complexes in the United States.
The mix of assets under management by a large financial services complex such as
the Franklin Templeton Group can be segregated by type of assets, type of
investment vehicle, type of investor or geographic location of assets.
International and U.S. equity assets under management, whether held for growth
potential, income potential or various combinations thereof by all types of
investors, including institutional and separate accounts on a worldwide basis,
were approximately $157.4 billion at September 30, 1997 and represent
approximately 70% of total assets under management. Fixed-income assets (both
long and short-term), including money market fund assets, held by all types of
investors on a worldwide basis were approximately $68.6 billion and represented
30% of total assets under management at fiscal year end. Assets under management
for institutional accounts, whether in institutional mutual funds, separate
accounts or other types of investment products, were approximately $30.7 billion
or 14% of total assets under management at fiscal year end and were primarily
invested in global and international equities. Assets under management by U.S.
based closed-end funds or equivalent foreign funds were $6.6 billion, or 2.9% of
total assets, at September 30, 1997.
The Company, through certain subsidiaries, also provides advisory services,
variable annuity products, and sponsors and manages public and private real
estate programs. Other subsidiaries offer consumer banking services, insured
deposits, dealer auto loans, and credit cards. The Company also provides
custodial, trustee and fiduciary services to individual retirement account
("IRA") and profit sharing or money purchase plans and to qualified retirement
plans and private trusts. From time to time, the Company also participates in
various investment management joint ventures. On a consolidated worldwide basis,
the Company provides U.S. and international individual and institutional
investors with a broad range of investment products and services designed to
meet varying investment objectives, which affords its clients the opportunity to
allocate their investment resources among various alternative investment
products as changing worldwide economic and market conditions warrant.
Subsidiaries-Investment Management, Administration, Distribution and
Related Services
The Company's principal line of business is providing investment management,
administration, distribution and related services for the Franklin Templeton
Group. This business is primarily conducted through the principal wholly-owned
direct and indirect subsidiary companies described below. Revenues are generated
primarily by subsidiaries that provide advisory and management services.
Revenues are derived primarily from investment management fees calculated on a
sliding scale fund-by-fund basis, which generally decline as the level of assets
managed increases.
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 State of California. Advisers provides investment
advisory, portfolio management and administrative services under management
agreements with most of the Funds in the Franklin Group of Funds. Advisers
manages approximately $83.9 billion, representing approximately 37.1% of the
Company's total assets under management, and generates approximately 17.4% of
total Company revenues.
Franklin Advisory Services, Inc.
Franklin Advisory Services, Inc. ("FASI") is a Delaware corporation formed in
1996 and is based in Fort Lee, New Jersey. FASI is registered as an investment
advisor with the SEC under the Advisers Act and is also registered as an
investment advisor in the State of New Jersey. FASI provides investment advisory
and portfolio management services under management agreements with certain funds
in the Franklin Group of Funds.
Templeton Global Advisors Limited.
Templeton Global Advisors Limited ("TGAL") is a Bahamian corporation located in
Nassau, Bahamas formed in connection with the Templeton Acquisition and is the
successor company to Old TGH. TGAL is registered as an investment advisor with
the SEC under the Advisers Act. TGAL provides investment management services
under various agreements with certain of the Templeton funds and Other Assets.
TGAL is the principal investment advisor to the Templeton funds and manages
approximately $53.6 billion, representing approximately 23.7% of the Company's
total assets under management.
Franklin Investment Advisory Services, Inc.
Franklin Investment Advisory Services, Inc. ("FIASI") is a Delaware corporation
formed in 1996 and is based in Norwalk, Connecticut. FIASI is registered as an
investment advisor with the SEC under the Advisers Act.
Franklin Mutual Advisers, Inc.
Franklin Mutual Advisers, Inc. ("FMAI") is a Delaware corporation formed in 1996
and is based in Short Hills, New Jersey. FMAI is registered as an investment
advisor with the SEC under the Advisers Act and is also registered as an
investment advisor in the States of Georgia, Texas and New Jersey. FMAI provides
investment management and portfolio management services under various agreements
with Mutual Series. FMAI is the investment manager to the Mutual Series funds
and manages approximately $24.8 billion, representing approximately 11% of the
Company's total assets under management.
Franklin Templeton Services, Inc.
Franklin Templeton Services, Inc. ("FTSI") is a Delaware corporation formed in
1996 and is based in San Mateo, California. FTSI provides business management
services, including fund accounting, securities pricing, trading, compliance and
other related administrative activities under various management agreements to
most of the U.S. Franklin Templeton Funds.
Templeton Investment Counsel, Inc.
Templeton Investment Counsel, Inc. ("TICI") is a Florida corporation formed in
October 1979. Based in Ft. Lauderdale, Florida, TICI is the principal investment
advisor to the majority of the Franklin Templeton managed and institutional
accounts, excluding Mutual Series. In addition, it provides investment advisory
portfolio management services to certain of the Templeton funds and subadvisory
services to certain of the Franklin funds. TICI manages approximately $23.5
billion, representing 10.4% of the Company's total assets under management.
Templeton Asset Management Ltd.
Templeton Asset Management Ltd. ("Templeton Singapore") is a corporation
organized under the laws of and based in Singapore. It is registered as the
foreign equivalent of an investment advisor in Singapore with the Monetary
Authority of Singapore and is also registered with the SEC under the Advisers
Act. A representative office of Templeton Singapore is registered as the foreign
equivalent of an investment advisor in Hong Kong. Templeton Singapore provides
investment advisory and related services to certain Templeton funds and
portfolios. Templeton Singapore is principally an investment advisor to emerging
market equity portfolios.
Templeton/Franklin Investment Services (Asia) Limited
Templeton/Franklin Investment Services (Asia) Limited is a corporation organized
under the laws of, and is based in, Hong Kong. It was formed in late 1993 to
distribute and service the Company's financial products in Asia.
Templeton Management Limited
Templeton Management Limited is a Canadian corporation formed in October 1982,
and is registered in Canada as the foreign equivalent of an investment advisor
and a mutual fund dealer with the Ontario Securities Commission. It provides
investment advisory, portfolio management, distribution and administrative
services under various management agreements with the Canadian Funds and with
private and institutional accounts.
Franklin/Templeton Distributors, Inc.
Franklin/Templeton Distributors, Inc. ("Distributors") is a New York corporation
formed in 1947. It is registered with the SEC as a broker-dealer and as an
investment advisor and is a member of the National Association of Securities
Dealers, Inc. (the "NASD"). As the principal underwriter of the shares of most
of the Franklin and Templeton funds, it earns underwriting commissions on the
distribution of shares of the Funds.
Templeton/Franklin Investment Services, Inc.
Templeton/Franklin Investment Services, Inc. ("TFIS") is a Delaware corporation
formed in October 1987 and is registered with the SEC as a broker-dealer and an
investment advisor. Its principal business activities include: (i) through its
Templeton Portfolio Advisory division, serving as a sponsor of a comprehensive
fee (wrap account) program, in which it provides investment advisory and
broker-dealer services, as well as serving as investment adviser in other
broker-dealer wrap account programs and directly as an adviser for separate
accounts; and (ii) serving as a direct marketing broker-dealer for institutional
investors in Franklin Templeton Group of Funds.
Franklin/Templeton Investor Services, Inc.
Franklin/Templeton Investor Services, Inc. ("FTIS") is a California corporation
formed in 1981 which provides shareholder record keeping services and acts as
transfer agent and dividend-paying agent for the Franklin and Templeton funds.
FTIS is registered with the SEC as a transfer agent under the Securities
Exchange Act of 1934 (the "Exchange Act"). FTIS is compensated under an
agreement with each Franklin and Templeton open-end mutual fund on the basis of
a fixed annual fee per account, which varies with the Fund and the type of
services being provided, and is reimbursed for out-of-pocket expenses.
Other Templeton Investment Advisory, Distribution, Research and Related
Subsidiaries are organized and/or located in California, Florida, Australia, the
Bahamas, Brazil, France, Germany, India, Italy, Luxembourg, Poland, Russia,
South Africa and the United Kingdom, and provide investment advisory and related
services to other subsidiaries of the Company and to various U.S. and foreign
portfolios and private and institutional accounts. In addition, the Company,
through various Templeton subsidiaries, has opened or is in the process of
opening branch offices or in some instances forming subsidiaries in various
other international locations, including Argentina, China, Cyprus, Hungary,
Japan, Korea, Mauritius, Russia, South Africa, and Vietnam.
Franklin Templeton Trust Company
Franklin Templeton Trust Company ("FTTC"), a California corporation formed in
October 1983, is a trust company licensed by the California Superintendent of
Banks. FTTC serves primarily as custodian for Individual Retirement Accounts and
profit sharing or money purchase plans whose assets are invested in the Franklin
and Templeton funds, and as trustee or fiduciary of private trusts and
retirement plans.
Templeton Funds Trust Company
Templeton Funds Trust Company ("TFTC"), a Florida corporation formed in December
1985, is a trust company licensed by the Florida Office of the Comptroller. TFTC
serves as trustee of commingled trusts for qualified retirement plans.
Franklin Management, Inc.
Franklin Management, Inc. ("FMI"), a California corporation organized in
February 1978, is a registered investment advisor for private accounts. FMI also
provides advisory services to third party broker-dealer wrap fee programs.
Franklin Institutional Services Corporation
Franklin Institutional Services Corporation ("FISCO") is a California
corporation organized in August 1991. FISCO is a registered investment advisor
and provides services for institutional accounts.
Franklin Agency, Inc.
Franklin Agency, Inc. ("Agency") is a California corporation organized in
December 1971. Agency provides insurance agency services for the Franklin
Valuemark annuity products.
Templeton Funds Annuity Company
Templeton Funds Annuity Company ("TFAC") is a Florida corporation formed in
January 1984 which offers variable annuity products. TFAC is principally
regulated by the Florida Department of Insurance and Florida's Treasurer.
Templeton Worldwide, Inc.
Templeton Worldwide, Inc. is a Delaware corporation organized in July 1992 as
the parent holding company for all of the Templeton companies.
Subsidiaries-Other Financial Services
In addition to its principal business activity of providing investment
management and related services, during all or portions of the fiscal year, the
Company was also engaged in two (2) other lines of business in the financial
services marketplace conducted through the subsidiaries described below:
consumer lending services and the management of public and private real estate
programs.
Consumer Lending Services
Franklin Bank (the "Bank"), a 98.2%-owned subsidiary of the Company, is a
non-Federal Reserve member California State chartered bank. The Bank was formed
in 1974 and was acquired by the Company in December 1985. The Bank, with total
assets of $117.6 million as of September 30, 1997, 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.
Franklin Capital Corporation
Franklin Capital Corporation ("FCC") is a Utah corporation formed in June 1993
to expand the Company's auto lending activities. FCC conducts its business
primarily in the Western region of the United States and originates its loans
through a network of auto dealerships representing a wide variety of makes and
models. FCC offers several different loan programs to finance new and used
vehicles. FCC also acquires credit card receivables from the Bank. As of
September 30, 1997, FCC's total assets included $154.3 million of gross
automobile contracts and $63.9 million of gross credit card receivables.
Real Estate Subsidiaries
The Company's real estate related line of business is conducted primarily
through two (2) principal subsidiary corporations. Franklin Properties, Inc.
("FPI") is a real estate investment and management company organized in
California in April 1988, which managed three (3) publicly traded real estate
investment trusts, until May 7, 1996, at which time two (2) of the real estate
investment trusts were merged into the third real estate investment trust, and
renamed Franklin Select Realty Trust, Inc. Franklin Select Realty Trust, Inc.
continues to be managed by FPI under an advisory agreement and is publicly
traded on the American Stock Exchange. Property Resources, Inc. ("PRI"), a
California corporation organized in April 1967 and acquired by the Company in
December 1985, serves as general partner, property manager or advisor for
certain other real estate investment programs.
Investment Management
The Franklin Templeton Group accommodates a variety of investment objectives,
including, capital appreciation, growth and income, income, tax-free income and
stability of principal. In seeking to achieve such objectives, each portfolio
emphasizes different investment securities. Portfolios seeking income focus on
taxable and tax-exempt money market instruments, tax-exempt municipal bonds,
global fixed-income securities, 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
U.S. markets, some seek broad national market exposure, while others focus on
narrower sectors such as precious metals, health care, emerging technology,
mid-cap companies, small-cap companies, real estate securities and utilities.
Still others focus on investments in particular emerging market countries and
regions. A majority of the assets managed are equity oriented.
In addition to closed-end funds, many of which are described below, the Other
Assets include portfolios managed for the world's largest corporations,
endowments, charitable foundations, pension funds, wealthy individuals and other
institutions. Investment management services for such portfolios focus on
specific client objectives utilizing the various investment techniques offered
by the Franklin Templeton Group.
During the fiscal year ended September 30, 1997, 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 Group of Funds generally were sold at
their respective net asset value per share plus a sales charge, which varies
depending upon the type of share, the individual fund and the amount purchased.
In accordance with certain terms and conditions described in the prospectuses
for such Funds, certain investors are eligible to purchase shares at net asset
value or at reduced sales charges, and investors may generally exchange their
shares of a fund at net asset value for shares of another fund in the Franklin
Templeton Group when they believe such an investment decision is appropriate
without the payment of additional sales charges.
As of September 30, 1997, the net asset holdings of the five (5) largest funds
in the Franklin Templeton Group (some of which are investment companies and some
of which are series of other investment companies) were Templeton Foreign Fund
($17.0 billion), Franklin California Tax-Free Income Fund, Inc. ($14.6 billion),
Templeton Growth Fund ($13.9 billion), Templeton World Fund ($9.6 billion) and
the Franklin Custodian Funds-U.S. Government ($9.5 billion). At September 30,
1997, these five (5) mutual funds represented, in the aggregate, 28.5% of all
assets under management in the Franklin Templeton Group.
General Fund Description
Set forth in the tables below is a brief description of the Funds and of the
principal investments and investment strategies of such Funds or portfolios
comprising most of the principal Funds or portfolios in the Franklin Templeton
Group separated into twenty-three (23) different general categories as follows:
(i) Franklin Funds Seeking Preservation of Capital and Income
(ii) Franklin Funds Seeking Current Income
(iii) Franklin Funds Seeking Tax-Free Income
(iv) Franklin Funds Seeking Growth and Income
(v) Franklin Funds Seeking Capital Growth
(vi) Franklin Funds for Tax-Deferred Investments (Valuemark variable
annuity)
(vii) Franklin Closed-End Funds
(viii) Franklin Funds for Institutional Investors
(ix) Franklin Templeton International Currency Funds
(x) Templeton Funds Seeking Preservation of Capital and Income
(xi) Templeton Funds Seeking Capital Growth from Global Portfolios
(xii) Templeton Funds Seeking Capital Growth from U.S. Portfolios
(xiii) Templeton Funds Seeking High Current Income from Global
Portfolios
(xiv) Templeton Funds Seeking High Total Return from Global
Portfolios
(xv) Templeton Funds for Tax-Deferred Investments
(xvi) Templeton Contractual Plans
(xvii) Templeton SICAV Funds
(xviii) Templeton Canadian Funds
(xix) Templeton Closed-End Funds
(xx) Templeton Funds for Institutional Investors
(xxi) Representative Templeton International Portfolios
(xxii) Mutual Series Funds
(xxiii) Asset Allocation Funds
Recent Fund Introductions and Changes
The Mutual Series team, known for its value-driven approach to U.S. equity
investing, joined the Franklin Templeton organization in November 1996. This
addition brought four (4) established and one (1) newly created series to the
Franklin Templeton Funds. A sixth series, Mutual Financial Services Fund, was
added in August 1997.
In December 1996, a new investment company, Franklin Templeton Fund Allocator
Series, consisting of three (3) series that invest in a selected group of
Franklin Templeton Funds, was introduced. The Franklin Discovery Biotechnology
Fund was added to the Franklin Strategic Series in September 1997. During the
fiscal year, four (4) funds were liquidated and two (2) Templeton funds were
merged into two (2) Franklin funds.
Effective January 2, 1997, twenty-five (25) Franklin Templeton funds offered a
new class of shares, called Advisor Class Shares, available without a sales
charge generally for employees and for large investments ($5 million or more).
During fiscal 1997, seventy-six (76) Franklin Templeton funds offered multiple
classes of shares in response to investor demand for varying load structures. Of
these funds, forty-five (45) offered Class I and Class II shares, seven (7)
offered Class I shares and Advisor Class Shares, and twenty-four (24) offered
Class I, Class II and Advisor Class Shares (or the Mutual Series equivalent to
Advisor Class Shares, called Z Class Shares).
(i) Franklin Funds Seeking Preservation of Capital and Income
Name of Fund Inception Principal Investments/Strategy
Date
Franklin California 09/03/85 Seeks double tax-free income (free
Tax-Exempt Money Fund from federal and state personal income
taxes) by investing in short-term
California municipal securities.
Franklin Federal Money 05/13/80 Seeks high current income by investing
Fund in short-term instruments backed by
U.S. government securities.
Franklin Money Fund 05/01/76 Seeks capital
preservation, liquidity and dividends by
investing in short-term securities (money
market instruments).
Franklin New York 09/03/85 Seeks triple tax-free income (free
Tax-Exempt Money Fund from federal, N.Y. state and N.Y. city
taxes) by investing in short-term New
York municipal securities.
Franklin Tax-Exempt 02/18/82 Seeks income free from federal taxes
Money Fund by investing in short-term municipal
securities.
Franklin Templeton Money 05/01/95 Seeks capital preservation, liquidity
Fund II and dividends, by investing in
short-term securities. Open only to
shareholders exchanging out of Class
II shares in other Franklin Templeton
Funds.
(ii) Franklin Funds Seeking Current Income
Name of Fund Inception Principal Investments/Strategy
Date
Franklin Adjustable Rate 12/26/91 Seeks high current income and
Securities Fund increased price stability by investing
in Double A rated mortgage-backed
securities: adjustable rate mortgages
("ARMs") created by private issuers as
well as Ginnie Mae, Fannie Mae and
Freddie Mac.
Franklin Adjustable U.S. 10/20/87 Seeks income with lower volatility of
Government Securities principal by investing in government
Fund or government agency guaranteed
adjustable rate mortgage-backed
securities.
Franklin Corporate 01/14/87 Seeks high after-tax income for
Qualified Dividend Fund corporations by investing in preferred
securities and by maximizing the amount
of dividend income it receives that
qualifies for the dividends-received
deduction.
Franklin Global 03/15/88 Seeks high current income by investing
Government Income Fund primarily in fixed-income securities
issued by both U.S. and foreign
governments.
Franklin Investment 01/14/87 Seeks high current income by investing
Grade Income Fund in debt securities, most of which will
be intermediate term investment grade
issues and dividend paying common and
preferred stocks.
Franklin 04/15/87 Seeks income and relative stability of
Short-Intermediate U.S. principal by investing in less
Government Securities volatile, shorter term securities of
Fund U.S. government securities carrying
the full faith and credit guarantee of
the U.S. government.
Franklin Templeton 12/31/92 Seeks total return by investing in a
German Government Bond managed portfolio of German government
Fund bonds.
Franklin's AGE High 12/31/69 Seeks high current income by investing
Income Fund in high yielding lower rated corporate
bonds.
U.S. Government 05/31/70 Seeks high current income by investing
Securities Series (a in a portfolio limited to securities
series of Franklin that are obligations of the U.S.
Custodian Funds, Inc.) government or its instrumentalities
(Ginnie Mae securities).
(iii) Franklin Funds Seeking Tax-Free Income
Federal Tax-Free Funds
Name of Fund Inception Principal Investments/Strategy
Date
Franklin Federal 09/21/92 Seeks high current income by investing
Intermediate-Term in nationally diversified municipal
Tax-Free Income Fund bonds with an average maturity of
three (3) to ten (10) years.
Franklin Federal 10/07/83 Seeks federal tax-free income by
Tax-Free Income Fund investing in nationally diversified,
investment quality municipal bonds.
Franklin High Yield 03/18/86 Seeks federal tax-free income by
Tax-Free Income Fund investing in nationally diversified,
high yield, medium and lower rated
municipal bonds.
Franklin Insured 04/01/85 Seeks federal tax-free income by
Tax-Free Income Fund investing in nationally diversified,
insured municipal bonds.
Franklin Puerto Rico 08/03/85 Seeks to provide a maximum level of
Tax-Free Income Fund income exempt from federal income tax
and the personal income taxes of the
majority of the states by investing in
municipal securities. For U.S.
citizens and residents.
State Tax-Free Funds
The Company manages insured state tax-free funds, established from 1985 to 1996,
in the states of Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New York and Ohio. The principal investments and strategy of these
funds 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 twenty-seven (27) non-insured state tax-free income funds established
from 1977 to 1996 providing double tax-free income from long-term municipal
securities to residents of twenty-four (24) states.
(iv) Franklin Funds Seeking Growth and Income
Name of Inception Principal Investments/Strategy
Fund Date
Franklin Asset 12/05/51 Seeks total return by investing in
Allocation Fund common stocks, investment grade
corporate and U.S. government bonds,
short-term money market instruments,
securities of foreign issuers and real
estate securities.
Franklin Balance Sheet 04/02/90 Seeks high total return by investing
Investment Fund in common and preferred stocks,
secured or unsecured bonds, and
commercial paper or notes, which have
per-share current market values believed
to be below their net asset or book
values.
Franklin Convertible 04/15/87 Seeks to maximize total return by
Securities Fund investing in convertible bonds and
convertible preferred stock.
Franklin Equity Income 03/15/88 Seeks capital appreciation and high
Fund current dividend income by investing
in high yielding common stocks for
greater price stability.
Franklin Global 07/02/92 Seeks total return by investing in
Utilities Fund equity and debt securities issued by
foreign and U.S. utilities companies.
Franklin MicroCap Value 12/12/95 Seeks high total return by investing
Fund primarily in securities of companies
with market capitalization under $100
million at the time of purchase and which
are believed to be undervalued in the
marketplace.
Franklin Natural 06/05/95 Seeks high total return by investing
Resources Fund primarily in stocks of companies that
own, produce, refine, process and
market natural resources.
Franklin Rising 04/02/90 Seeks capital appreciation by
Dividends Fund investing in stocks with consistent,
substantial dividend increases for
capital growth.
Franklin Strategic 05/24/94 Seeks high current income and capital
Income Fund appreciation, by investing in U.S. and
foreign fixed-income securities.
Franklin Value Fund 03/11/96 Seeks total return by
investing in equity and debt securities
of companies worldwide, which are
believed to be undervalued in the
marketplace.
Income Series (a series 08/31/48 Seeks to maximize income by investing
of Franklin Custodian in stocks and bonds, including foreign
Funds, Inc.) and high yield, lower rated
securities, selected with particular
consideration for their income
producing potential.
Utilities Series (a 09/30/48 Seeks capital appreciation and current
series of Franklin income by investing in utility
Custodian Funds, Inc.) companies located in high growth areas.
(v) Franklin Funds Seeking Capital Growth
Name of Fund Inception Principal Investments/Strategy
Date
DynaTech Series (a 01/01/68 Seeks capital appreciation by
series of Franklin investing in the volatile stocks of
Custodian Funds, Inc.) companies engaged in dramatic
break-through areas such as medicine,
telecommunications and electronics or who
have proprietary advantages in their
field.
Franklin Blue Chip Fund 05/28/96 Seeks capital
appreciation by investing in securities
of well-established, large capitalization
companies ("blue chip companies") with a
long record of revenue growth and
profitability.
Franklin California 10/30/91 Seeks capital appreciation by
Growth Fund investing primarily in growth stocks
or securities of companies
headquartered in or conducting a
majority of operations in California.
Franklin Equity Fund 01/01/33 Seeks capital
appreciation and current income by
investing primarily in common stocks of
seasoned companies with low prices in
relation to earnings growth.
Franklin Global Health 02/14/92 Seeks capital appreciation by
Care Fund investing primarily in equity
securities of health care companies
worldwide with potential for above
average growth.
Franklin Gold Fund 05/19/69 Seeks capital
appreciation and current income by
investing in securities of companies
engaged in mining, processing or dealing
in gold or other precious metals.
Franklin MidCap Growth 06/01/96 Seeks long-term capital growth by
Fund investing in equity securities of
medium capitalization companies
believed to be positioned for rapid
growth.
Franklin Real Estate 01/03/94 Seeks to maximize total return by
Securities Fund investing primarily in the equity
securities of companies operating in
the real estate industry.
Franklin Small Cap 02/14/92 Seeks long-term capital growth by
Growth Fund investing primarily in equity
securities of small capitalization
growth companies.
Growth Series (a series 03/31/48 Seeks capital appreciation by
of Franklin Custodian investing in well-known companies with
Funds, Inc.) demonstrated growth characteristics.
Franklin Biotechnology 09/15/97 Seeks capital appreciation by
Discovery Fund investing in securities of
biotechnology companies and discovery
research firms located in the U.S. and
other countries.
(vi) Franklin Funds for Tax-Deferred Investments
Franklin Valuemark Funds is an open-end management investment company currently
consisting of twenty-three (23) separate series or portfolios which offer a wide
range of investment objectives, strategies, and risks. Shares are currently sold
only to separate accounts of the Allianz Life Insurance Company of North America
and its affiliates to fund the benefits under variable life insurance policies
and variable annuity contracts. Products presently offered include two (2)
flexible premium deferred variable annuities ("Valuemark II" in New York and
"Valuemark III" in all other states), an immediate variable annuity ("Valuemark
Income Plus"), single premium variable life insurance ("Franklin Valuemark
Life"), and flexible premium variable life insurance ("ValueLife"). The
portfolios are managed by Advisers, Franklin Advisory Services, Inc., Franklin
Mutual Advisers, Inc., TICI, TGAL, and Templeton Asia. The investment objectives
and policies of most of the portfolios are similar to those of corresponding
Franklin and Templeton funds, although differences in portfolio size,
investments held, and insurance and expense related differences will cause the
performance of the Valuemark portfolio to differ.
(vii) Franklin Closed-End Funds
Name of Fund Inception Principal Investments/Strategy
Date
Franklin Multi-Income 10/24/89 Seeks high current income by investing
Trust (listed on the primarily in high yielding,
NYSE) fixed-income corporate securities as
well as dividend-paying stocks of
companies engaged in the public
utilities industry.
Franklin Universal Trust 09/23/88 Seeks high current income by investing
(listed on the NYSE) in fixed-income debt securities and
dividend paying stocks and securities
of precious metals and natural
resources companies.
Principal Maturity Trust 01/19/89 Seeks to return investors' original
(listed on the NYSE) capital of $10 per share on or before
May 31, 2001, while providing high
monthly income by investing in
mortgage-backed securities, zero coupon
securities and high income producing debt
securities.
(viii) Franklin Funds for Institutional Investors
Name of Fund Inception Principal Investments/Strategy
Date
Adjustable Rate 11/05/91 Seeks high current income by investing
Securities Portfolio in mortgage-backed securities (ARMs).
(sold only to other
investment companies)
Franklin Cash Reserves 07/01/94 Seeks high current income by investing
Fund in U.S. and foreign short-term
securities.
Franklin Institutional 01/02/92 Seeks high current income by investing
Adjustable Rate in a portfolio of mortgage-backed
Securities Fund securities, pooled adjustable rate
mortgage securities.
Franklin Institutional 11/01/91 Seeks high current income and
Adjustable U.S. increased price stability by investing
Government Securities in a portfolio of adjustable U.S.
Fund government or guaranteed agency
mortgage-backed securities, (ARMs
created by Ginnie Mae, Fannie Mae and
Freddie Mac).
Franklin Strategic 02/01/93 Seeks a high level of total return by
Mortgage Portfolio investing primarily in mortgage-backed
securities, pooled mortgages issued or
guaranteed by Ginnie Mae, Fannie Mae or
Freddie Mac.
Franklin U. S. 02/08/94 Seeks high current income consistent
Government Agency Money with capital preservation and
Market Fund liquidity by investing in short-term
instruments backed by U.S. government
securities.
Franklin U.S. Government 01/19/88 Seeks high current income consistent
Securities Money Market with capital preservation and
Portfolio liquidity by investing in short-term
instruments backed by U.S. government
securities.
Franklin U.S. Treasury 08/20/91 Seeks high current income consistent
Money Market Portfolio with capital preservation and
liquidity by investing in short-term
U.S. Treasury obligations.
Money Market Portfolio 07/17/85 Seeks high
current income consistent with capital
preservation and liquidity by investing
all of its assets in money market
instruments.
The Money Market 07/28/92 Seeks high current income consistent
Portfolio (sold only to with capital
preservation and other investment
liquidity by investing all of its
companies) assets in money market
instruments.
The U.S. Government 07/28/92 Seeks high current income consistent
Securities Money Market with capital preservation and
Portfolio (sold only to liquidity by investing in short-term
other investment instruments backed by U.S. government
companies) securities.
U.S. Government 05/20/91 Seeks high current income and
Adjustable Rate Mortgage increased price stability by investing
Portfolio (sold only to in mortgage-backed securities, (ARMs
other investment created by Ginnie Mae, Fannie Mae and
companies) Freddie Mac).
(ix) Franklin Templeton International Currency Funds
Name of Fund Inception Principal Investments/Strategy
Date
Franklin Templeton 06/30/86 Seeks to maximize total return, by
Global Currency Fund investing in interest- earning money
market instruments denominated in three
(3) or more of sixteen (16) major world
currencies.
Franklin Templeton Hard 11/17/89 Seeks to protect against U.S. dollar
Currency Fund depreciation by investing in
high-quality money market instruments
denominated in three (3) or more of the
five (5) major currencies of lowest
inflation countries and the Swiss Franc.
Franklin Templeton High 11/17/89 Seeks current income higher than that
Income Currency Fund of U.S. dollar money market
instruments by investing in
interest-bearing money market instruments
denominated in Major and Non-Major
Currencies.
(x) Templeton Funds Seeking Preservation of Capital and Income
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Money Fund 10/2/87 Seeks current income, stability of
Merged into principal and liquidity by investing
Franklin in high quality money market
Money Fund instruments with maturities not
on 12/31/96 exceeding 397 days, consisting on
primarily of short-term U.S.
government securities, bank certificates
of deposit, time deposits, bankers'
acceptances, commercial paper and
repurchase agreements.
(xi) Templeton Funds Seeking Capital Growth from Global Portfolios
Name of Fund Inception Principal Investments/Strategy
Date
Franklin Templeton Japan 07/28/94 Seeks long-term capital growth by
Fund investing primarily in the equity
securities of companies domiciled in
Japan and traded in Japanese
securities markets.
Templeton Developing 10/17/91 Seeks long-term capital appreciation
Markets Trust by investing primarily in equity
securities of issuers in countries
with developing markets.
Templeton Foreign Fund 10/05/82 Seeks long-term
capital growth by investing in stocks and
debt obligations of companies and
governments outside the United States.
Templeton Foreign 09/20/91 Seeks long-term capital growth by
Smaller Companies Fund investing in a diverse portfolio of
equity securities that trade on markets
in countries other than the United
States.
Templeton Global 03/14/94 Seeks long-term capital growth by
Infrastructure Fund investing in securities of U.S. and
foreign companies that are principally
engaged in or related to the development,
operation or rehabilitation of the
physical and social infrastructures of
various nations throughout the world.
Templeton Global 02/28/90 Seeks long-term capital growth by
Opportunities Trust investing in securities issued by
companies and governments of any
nation.
Templeton Greater 05/08/95 Seeks long-term capital appreciation
European Fund by investing primarily in equity
securities of companies Western,
Central and Eastern Europe and in
Russia.
Templeton Growth Fund 11/29/54 Seeks long-term capital growth by
investing in stocks and bonds issued
by companies and governments of any
nation.
Templeton Latin America 05/08/95 Seeks long-term capital appreciation
Fund by investing primarily in equity
securities and debt obligations of
issuers in Latin American countries.
Templeton Pacific Growth 09/20/91 Seeks long-term capital growth by
Fund investing primarily in equity
securities that trade on markets in
the Pacific Rim.
Templeton Global Real 09/18/89 Seeks long-term capital growth by
Estate Fund investing in securities of U.S. and
foreign companies engaged in or
related to the real estate industry.
Templeton Global Smaller 06/01/81 Seeks long-term capital growth by
Companies Fund, Inc. investing in common and preferred
stocks, rights and warrants of
companies of various nations
throughout the world.
Templeton World Fund 01/17/78 Seeks long-term
capital growth by investing in stocks and
debt obligations of foreign and U.S.
companies.
(xii) Templeton Funds Seeking Capital Growth From U.S. Portfolios
Name of Fund Inception Principal Investments/Strategy
Date
Templeton American 03/27/91 Seeks long-term total return by
Trust, Inc. investing no less than 65% of assets
in stocks and debt obligations of U.S.
companies and the U.S. government.
(xiii) Templeton Funds Seeking High Current Income from Global Portfolios
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Americas 06/27/94 Seeks high current income, with total
Government Securities return as a secondary objective, by
Fund investing primarily in debt securities
issued or guaranteed by governments,
government agencies, political
subdivisions, and other government
entities of countries located in North,
South and Central America and the
surrounding waters.
Templeton Global Bond 09/24/86 Seeks current income by investing
Fund (formerly Templeton primarily in debt securities,
Income Fund) preferred stock, common stocks which
pay dividends and income producing
securities convertible into common stock
of companies, governments and government
agencies of various nations throughout
the world.
(xiv) Templeton Funds Seeking High Total Return from Global Portfolios
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Growth and 03/14/94 Seeks high total return by investing
Income Fund (formerly primarily in equity and debt
Templeton Global Rising securities of U.S. and foreign
Dividends Fund) companies.
(xv) Templeton Funds for Tax-Deferred Investments
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Asset 08/31/88 Seeks a high level of total return by
Allocation Fund investing in stocks of companies in
any nation, debt obligations of
companies and governments of any
nation, and in money market
instruments.
Templeton Bond Fund 08/31/88 Seeks high current income by investing
primarily in debt securities of
companies, governments and government
agencies of various nations throughout
the world, and in debt securities
which are convertible into common
stock of such companies.
Templeton International 05/01/92 Seeks long-term capital growth by
Fund investing in stocks and debt
obligations of companies and
governments outside the United States.
Templeton Money Market 08/31/88 Seeks current income, stability of
Fund principal and liquidity by investing
in money market instruments with
maturities not exceeding 397 days,
consisting primarily of short-term U.S.
government securities, certificates of
deposit, time deposits, bankers'
acceptances, commercial paper and
repurchase agreements.
Templeton Stock Fund 08/31/88 Seeks capital growth
by investing primarily in common stocks
issued by companies, large and small, in
various nations throughout the world.
Templeton Variable 02/16/88 Seeks long-term capital growth by
Annuity Fund investing primarily in stocks and debt
obligations of companies and
governments of any nation, including
the United States.
Mutual Shares 05/01/97 Seeks capital appreciation by
Investments Fund investing in U.S. equity securities
trading at prices below their intrinsic
values, in restructuring investments and
in foreign equity and debt securities.
Franklin Growth 05/01/97 Seeks capital appreciation by
Investments Fund investing in equities and convertible
securities issued by U.S.
corporations, including stocks of
small capitalization companies.
Mutual Discovery 05/01/97 Seeks capital appreciation by
Investments Fund investing in U.S. and foreign equity
securities, including those of small
capitalization companies, in
restructuring investments and debt
securities.
(xvi) Templeton Contractual Plans
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Capital 03/01/91 Seeks long-term capital growth by
Accumulator Fund, Inc. investing in stocks and debt
obligations of companies and
governments of any nation.
(xvii) Templeton SICAV Funds
Templeton Global Strategy (SICAV)
Equity Funds (denominated in U.S. dollars unless otherwise noted)
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Deutschmark 04/26/91 Seeks long-term capital growth by
Global Growth Fund investing mainly in shares of
companies of any size found in any
nation (denominated in Deutschmarks).
Templeton Emerging 02/28/91 Seeks long-term capital growth by
Markets Fund investing in the shares and debt
obligations of corporations and
governments of developing or emerging
nations.
Templeton European Fund 04/17/91 Seeks long-term
capital growth by investing mainly in
shares of companies of all sizes based in
European countries (denominated in Swiss
francs).
Templeton Far East Fund 06/30/91 Seeks long-term
capital growth by investing mainly in
shares of companies of all sizes which
are based in or which derive significant
profits from the Far East.
Templeton Global Growth 02/28/91 Seeks long-term capital growth by
Fund investing primarily in the shares of
companies of any size found in any
nation.
Templeton Pan American 02/28/91 Seeks long-term capital growth by
Fund investing primarily in shares of
companies of all sizes based in the
North or South American continents.
Templeton Smaller 07/08/91 Seeks long-term capital growth by
Companies Fund investing primarily in shares of
companies with a market capitalization of
less than $1 billion found in any nation.
Fixed Income Funds (denominated in U.S. Dollars unless otherwise noted)
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Deutschmark 02/28/91 Seeks to maximize total investment
Global Bond Fund return by investing in a wide variety
of fixed-interest securities, including
those issued by supranational bodies such
as The World Bank (denominated in
Deutschmarks).
Templeton Emerging 07/05/91 Seeks to maximize total investment
Markets Fixed Income Fund return by investing primarily in
dollar and non-dollar denominated debt
obligations of emerging markets.
Templeton Global Income 02/28/91 Seeks to maximize current income by
Fund investing primarily in fixed-interest
securities of governments and
companies worldwide.
Templeton Haven Fund 07/08/91 Seeks to maintain a
stable share price by investing in
short-term high quality transferable debt
securities (denominated in Swiss francs).
Templeton U.S. 02/28/91 Seeks security of capital and income
Government Fund by investing in bonds issued by the
U.S. government and its agencies.
Templeton Worldwide Investments SICAV
Growth Portfolio 08/21/89 Seeks long term
capital growth by investing in all types
of securities issued by companies or
governments of any nation.
Income Portfolio 08/21/89 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
(2) years.
(xviii) Templeton Canadian Funds
Non-Institutional Funds
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Balanced Fund 04/07/83 Seeks long-term capital appreciation
by investing primarily in a
combination of Canadian common and
preferred shares, bonds, and
debentures; managed to comply with
eligibility requirements under
Canadian law regarding retirement and
other tax deferred plans.
Templeton Canadian Asset 9/14/94 Seeks high level of total return by
Allocation Fund investing primarily in Canadian
shares, debt obligations and short-term
instruments; managed to comply with
eligibility requirements under Canadian
law regarding retirement and other
tax-deferred plans.
Templeton Canadian Bond 01/02/90 Seeks high current income and capital
Fund appreciation by investing primarily in
publicly traded debt securities issued
or guaranteed by Canadian governments
or their agencies, or issued by
Canadian municipalities or
corporations.
Templeton Canadian Stock 01/03/89 Seeks capital appreciation by
Fund investing in a diversified portfolio
of Canadian equity securities primarily
managed to comply with eligibility
requirements of the Canadian law
regarding retirement and other tax
deferred plans.
Templeton Emerging 09/20/91 Seeks long-term capital appreciation
Markets Fund by investing primarily in emerging
country equity securities.
Templeton Global 9/14/94 Seeks high level of total return by
Balanced Fund investing in shares, debt obligations
and short-term instruments of
companies and governments of any
nation, including Canada and the
United States.
Templeton Global Bond 06/07/88 Seeks high current income by investing
Fund primarily in a portfolio of fixed
income securities of issuers
throughout the world.
Templeton Global Smaller 01/03/89 Seeks capital appreciation by
Companies Fund investing primarily in equity
securities of emerging growth
companies throughout the world.
Templeton Growth Fund, 09/01/54 Seeks long-term capital growth by
Ltd. investing in stock and debt
obligations of companies and
governments of any nation.
Templeton International 09/14/94 Seeks high level of total return by
Balanced Fund investing in shares, debt obligations
and short-term instruments of companies
and governments of any nation other than
Canada and the United States.
Templeton International 01/03/89 Seeks long-term total return by
Stock Fund investing in shares and debt
obligations of companies and
governments outside of Canada and the
United States.
Templeton Treasury Bill 02/29/88 Seeks a high level of current income
Fund consistent with preservation of
capital and liquidity by investing in
Canadian government or agency debt
obligations and high quality short-term
money market instruments.
Funds for Institutional
Investors
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Global Equity 07/06/90 Seeks long-term capital appreciation
Trust (non-taxable) by investing in stocks and bonds
issued by companies and governments of
any nation.
Templeton International 07/06/90 Seeks long-term capital appreciation
Equity Trust by investing in stocks and bonds
(non-taxable) issued by companies and governments
outside of Canada and the United
States.
Templeton International 07/06/90 Seeks long-term total return by
Stock Trust (taxable) investing in stocks and bonds issued
by companies and governments outside
of Canada and the United States.
Closed-End Funds
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Emerging 06/21/94 Seeks long-term capital appreciation,
Markets Appreciation by investing in equity securities and
Fund (listed on the debt obligations of issuers in
Toronto Stock Exchange emerging market countries.
and Montreal Stock
Exchange)
(xix) Templeton Closed-End Funds
Name of Fund Inception Principal Investments/Strategy
Date
Templeton China World 09/09/93 Seeks long-term capital appreciation,
Fund, Inc. (listed on by investing primarily in equity
the NYSE) securities of companies organized
under the laws of or with a principal
office in the People's Republic of China
("PRC"), Hong Kong or Taiwan collectively
"Greater China", for which the principal
trading market is in Greater China, and
which derive at least 50% of their
revenues from goods or services sold or
produced in, or have at least 50% of
their assets in, the PRC.
Templeton Dragon Fund, 09/21/94 Seeks long-term capital appreciation
Inc. (listed on the by investing at least 45% of its total
NYSE and Osaka assets in the equity securities of
Securities Exchange) companies (i) organized under the laws
of, or with a principal office in, the
PRC or Hong Kong, or the principal
business activities of which are
conducted in China or Hong Kong or for
which the principal equity securities
trading market is in China or Hong Kong,
and (ii) that derive at least 50% of
their revenues from goods or services
sold or produced, or have at least 50% of
their assets in China or Hong Kong.
Templeton Emerging 04/29/94 Seeks capital appreciation by
Markets Appreciation investing substantially all of its
Fund, Inc. (listed on assets in a portfolio of equity
the NYSE) securities and debt obligations of
issuers in emerging market countries.
Templeton Emerging 02/26/87 Seeks long-term capital appreciation
Markets Fund, Inc. by investing primarily in emerging
(listed on the NYSE and markets equity securities.
Pacific Exchange "PE")
Templeton Emerging 09/23/93 Seeks high current income, with a
Markets Income Fund, secondary investment objective of
Inc. (listed on the NYSE) capital appreciation, 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 Global 11/22/88 Seeks high current income consistent
Governments Income Trust with the preservation of capital
(listed on the NYSE) achieved by investing 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 Income 03/17/88 Seeks high current income, with a
Fund, Inc. (listed on secondary investment objective of
the NYSE and PE) capital appreciation, by investing
primarily in a portfolio of
fixed-income securities (including
debt securities and preferred stock)
of U.S. and foreign issuers.
Templeton Global 05/23/90 Seeks high level of total return
Utilities, Inc. (listed Merged into (income plus capital
on the AMEX and the Franklin appreciation),without undue risk, by
Midwest Stock Exchange) Global investing at least 65% of its total
Utilities assets in equity and debt securities
03/29/96 issued by U.S. and foreign companies
in the utility industries.
Templeton Russia Fund, 06/15/95 Seeks long-term capital appreciation
Inc. (listed on the by investing primarily in equity
NYSE) securities of Russian companies.
Templeton Vietnam 09/15/94 Seeks long-term capital appreciation
Opportunities Fund, by investing in the equity securities
Inc. (listed on the of Vietnam companies.
NYSE)
(xx) Templeton Funds for Institutional Investors
Name of Fund Inception Principal Investments/Strategy
Date
Templeton Emerging 05/03/93 Seeks long-term capital growth by
Markets Series investing in securities of issuers of
countries having emerging markets.
Templeton Foreign Equity 10/18/90 Seeks long-term capital growth by
Series investing in stocks and debt
obligations of companies and
governments outside the United States.
Templeton Growth Series 05/03/93 Seeks long-term
capital growth by investing in stocks and
debt obligations of companies and
governments of any nation.
Templeton Emerging Fixed 05/01/97 Sees long-term capital growth by
Income Series investing in stocks and debt
obligations of companies and
governments of any nation, including
developing nations.
(xxi) Representative Templeton International Portfolios
Name of Fund Inception Principal Investments/Strategy
Date
Asian Development Equity 01/22/88 Seeks to maximize overall long-term
Fund return by investing, directly or
indirectly, primarily in shares,
convertible bonds, warrants, and other
equity related securities of entities in
the Asian developing countries.
Templeton Asia Fund 11/14/89 Seeks to achieve long-term capital
appreciation by investing primarily in
equity securities of entities which
either are listed on recognized
exchanges in capital markets of the
Asia/Oceania Region or which have their
area of primary activity in those same
capital markets.
Templeton Emerging Asia 06/24/93 Seeks to achieve long-term capital
Fund appreciation by investing primarily in
equity securities of companies which are
either listed on recognized exchanges in
capital markets in emerging Asian
countries or companies which have their
primary activity in those same capital
markets.
Templeton Emerging 06/19/89 Seeks long term capital appreciation by
Markets Investment Trust investing in companies operating or
Plc. trading in emerging market countries.
(Closed End)
Templeton Global 08/29/88 Seeks to provide income by investing in
Balanced Trust an internationally diversified
portfolio of equities, fixed interest,
and convertible stocks. (Unit Trust)
Templeton Global Growth 08/29/88 Seeks to maximize total investment
Trust return by investing in an
internationally diversified portfolio
of equity shares and convertible
stocks. (Unit Trust)
Templeton Global Income 07/13/88 Seeks to achieve high current income by
Portfolio, Ltd. investing primarily in a portfolio of
fixed income securities (including debt
securities and preferred stock) of issuers
throughout the world.
Templeton Latin America 05/03/94 Seeks long-term capital growth by
Investment Trust Plc. investing in companies listed on stock
exchanges in Latin America or that have
substantial trading interests in that
region. (Closed End)
Templeton Value Trust 06/08/89 Seeks maximum total
investment return by investing in all
geographic and economic sectors.
Templeton/National Bank 04/06/93 Growth Portfolio - Seeks long term of
Greece Trans-European capital growth by investing in stock Fund
and debt securities of companies and
governments primarily located in the
European Economic Community. Income
Portfolio - Seeks high current income and
relative stability of principal by
investing in debt securities of companies
and governments located primarily in the
European Economic Community.
(xxii) Mutual Series Funds
Name of Fund Inception Principal Investments/Strategy
Date
Value - Global
Mutual European Fund (a 07/03/96 Seeks capital appreciation, which may
series of Franklin occasionally be short-term, and income
Mutual Series Funds Inc.) by investing in common and preferred
stocks, as well as debt securities,
including high yield, lower-rated
securities, that the fund's investment
manager believes are undervalued. The fund
focuses primarily in European companies
and may invest in small capitalization
stock.
Growth
Mutual Discovery Fund (a 12/31/92 Seeks long-term capital appreciation by
series of Franklin investing in common and preferred
Mutual Series Funds Inc.) stock, including high yield,
lower-rated securities of U.S. and
foreign companies. Investments include
securities of smaller cap companies.
Growth and Income
Mutual Beacon Fund (a 06/29/62 Seeks capital appreciation, which may
series of Franklin occasionally be short-term, and income
Mutual Series Funds Inc.) by investing in common and preferred
stock, as well as debt securities,
including high yield, lower-rated
securities of U.S. and foreign
companies that the fund's investment
manager believes are undervalued.
Mutual Financial 08/19/97 Seeks capital appreciation, which may
Services Fund (a series occasionally be short-term, and income
of Franklin Mutual by investing in common and preferred
Series Funds Inc.) stock, as well as debt securities and
securities convertible into common stocks
(including convertible preferred and
convertible debt securities) issued by
companies in the financial services
industry.
Mutual Qualified Fund (a 09/26/80 Seeks capital appreciation, which may
series of Franklin occasionally be short-term, and income
Mutual Series Funds Inc.) by investing in common and preferred
stock, as swell as debt securities,
including high yield, lower-rated
securities of U.S. and foreign
companies that the fund's investment
manager believes are undervalued.
Mutual Shares Fund (a 07/01/49 Seeks capital appreciation, which may
series of Franklin occasionally be short-term, and income
Mutual Series Funds Inc.) by investing in common and preferred
stock, as swell as debt securities,
including high yield, lower-rated
securities of U.S. and foreign
companies that the fund's investment
manager believes are undervalued.
(xxiii) Asset Allocation Funds
Name of Fund Inception Principal Investments/Strategy
Date
Franklin Templeton Fund Consist of three (3) series that seek
Allocator Series the highest level of long-term total
return that is consistent with an
acceptable level of risk, achieved
primarily through a professionally managed
portfolio of mutual funds. Each series
will seek to achieve its investment
objective through active asset allocation
implemented primarily with investments in
a combination of Franklin Templeton mutual
funds.
Franklin Templeton 12/31/96 Seeks the highest level of long-term
Conservative Target Fund total return that is consistent with a
lower level of risk.
Franklin Templeton 12/31/96 Seeks the highest level of long-term
Moderate Target Fund total return that is consistent with a
moderate level of risk.
Franklin Templeton 12/31/96 Seeks the highest level of long-term
Growth Target Fund total return that is consistent with a
higher level of risk.
(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 Note 7 of Notes
to Consolidated Financial Statements elsewhere herein.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Investment Management and Administrative Services
The Company, through its various subsidiaries described above, provides
investment advisory, portfolio management, transfer agency, business management
agent and administrative services to the Franklin Templeton Group. Such services
are provided pursuant to agreements in effect with each of the U.S. registered
Franklin Templeton Funds open- and closed-end investment companies. Comparable
agreements are in effect with foreign registered Funds and with other managed
accounts. The management agreements for the U.S. registered Franklin Templeton
Funds continue in effect for successive annual periods, providing such
continuance is specifically approved at least annually by a majority vote cast
in person at a meeting of such Funds' Boards of Trustees or Directors called for
that purpose, or by a vote of the holders of a majority of the Funds'
outstanding voting securities. In either event, the continuance must be approved
by a majority of such Funds' trustees or directors who are not parties to such
agreement or interested persons of the Funds or the Company within the meaning
of the Investment Company Act of 1940 (the "40 Act"). Trustees and directors of
Funds' boards are hereinafter referred to as "directors". Foreign registered
Funds have various termination rights and provisions.
Each such agreement automatically terminates in the event of its "assignment"
(as defined in the 40 Act) and either party may terminate the agreement without
penalty after written notice ranging from thirty (30) to sixty (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
or with respect to a significant portion of the Other Assets, such termination
would have a material adverse impact upon the Company. To date, no management
agreements of the Company or any of its subsidiaries with any of the Franklin
Templeton Funds have been involuntarily terminated. Changes in the customer base
of institutional investors occur on a regular basis. Since the Templeton
Acquisition and the Mutual Acquisition to date, assets under management in the
category of Other Assets set forth above have continued to grow.
As of September 30, 1997, substantially all of the shares of the various
directly and indirectly owned subsidiary companies were owned directly by the
Company or subsidiaries thereof, except with respect to a limited number of
foreign entities and limited minority ownership of certain other companies. As
of December 1, 1997, Charles B. Johnson, Rupert H. Johnson, Jr. and R. Martin
Wiskemann beneficially owned approximately 19.1%, 15.2% and 9.3%, respectively,
of the outstanding voting common stock of the Company.
Under the terms of the management agreements with the Franklin Templeton Funds,
the various subsidiary companies described above generally supervise and
implement such Funds' investment activities and provide the administrative
services and facilities which are necessary to the operation of such Funds'
business. Such subsidiary companies also conduct research and provide investment
advisory services and, subject to and in accordance with any directions such
Funds' boards may issue from time to time, such subsidiary companies determine
which securities such Funds will purchase, hold or sell. In addition, such
subsidiary companies take all steps necessary to implement such decisions,
including the selection of brokers and dealers to execute transactions for such
Funds, in accordance with detailed criteria set forth in the management
agreement for such Funds and applicable law and practice. Similar services are
rendered with respect to the Other Assets.
Generally, the Company or a subsidiary provides and pays the salaries of
personnel who serve as officers of the Franklin 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,
maintaining accounting systems and controls, preparation of annual reports and
other administrative activities.
The Funds generally pay their own expenses such as legal and auditing fees,
reporting and board and shareholder meeting costs, SEC and state registration
and similar expenses. Generally, the Funds pay advisory companies a fee payable
monthly based upon a Fund's net assets. Annual rates under the various
investment management agreements range from .15% to a maximum of 2.00% and are
generally reduced as net assets exceed various threshold levels.
The investment management agreements permit advisory companies to act as an
advisor to more than one Fund so long as such companies' ability to render
services to each of such Funds is not impaired, and so long as purchases and
sales appropriate for all such Funds are made on a proportionate or other
equitable basis. Management of the Company and the directors of the Funds
regularly review the Fund fee structures in light of Fund performance, the level
and range of services provided, industry conditions and other relevant factors.
Advisory fees are generally waived or voluntarily reduced when a new Fund is
first established and then increased to contractual levels with the growth in
net assets.
The investment advisory services provided by such advisory companies include
fundamental investment research and valuation analyses, encompassing original
country, industry and company research, company visits and inspections, and the
utilization of such sources as company public records and activities, management
interviews, company prepared information, and other publicly available
information, as well as analyses of suppliers, customers and competitors. In
addition, research services provided by brokerage firms are used to support
other research. In this regard, some brokerage business from the Funds is
allocated in recognition of value-added research services received.
Fixed-income research includes economic analysis, credit analysis and value
analysis. The economic analysis function monitors and evaluates numerous factors
that influence the supply and demand for credit on a worldwide basis. Credit
analysts research the credit worthiness of debt issuers and their individual
short-term and long-term debt issues. Yield spread differential analysis reviews
the relative value of market sectors that represent buying and selling
opportunities.
Additional shareholder administrative services are provided by FTIS, which
receives administrative fees from the Funds for providing shareholder record
keeping services and for acting as transfer and dividend-paying agent for the
Funds. As of September 30, 1997, such compensation was based upon an annual fee
per shareholder account, ranging between $14.54 and $18.00, a pro-rated portion
of which was paid monthly.
Distribution and Marketing
Distributors acts as the principal underwriter and distributor of shares of the
open-end 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, 1997,
approximately 3,772 local, regional and national securities brokerage firms
offered shares of the Franklin Templeton Funds for sale to the investing public.
The Company has approximately sixty-five (65) "wholesalers" who interface with
the broker-dealer community. Fund shares are offered to individual investors,
qualified groups, trustees, IRA and profit sharing or money purchase plans,
employee benefit plans, trust companies, bank trust departments and
institutional investors. In addition, various management and advisory services,
commingled and pooled accounts, wrap fee arrangements and various other private
investment management services are offered to certain private and institutional
investors.
Broker-dealers are paid various fees for services in matching investors with
Funds whose investment objectives match such investors' goals. Broker-dealers
also assist in explaining the operations of the Funds, in servicing the account
and in various other distribution services.
Most of the U.S. based Franklin Templeton Funds have a multi-class share
structure whereby Class I shares are sold with a maximum front-end sales charge
which ranges from a low of 1.50% to a high of 5.75%. Reductions in the maximum
sales charges may be available depending upon the amount invested and the type
of investor. Class II shares, which were introduced during the 1995 fiscal year,
have a hybrid, level load structure combining aspects of conventional front-end,
back-end and level-load pricing. Class II shares are subject to an initial sales
charge of 1% paid immediately by the investor. Also, in connection with the
distribution of Class II shares, a principal distribution subsidiary of the
Company has in the past paid, and may in the future pay, an additional 1% to the
broker-dealer. However, Class II shares are generally subject to a 1% contingent
deferred sales charge, charged to the investor and returned to the Company, on
redemptions within eighteen (18) months of purchase. See "Risk Factors and
Cautionary Statements". Class II shares are also subject to higher on-going Rule
12b-1 fees, as described below. The multi-class structure was adopted to provide
investors greater payment alternatives in implementing their investment
programs. The Company's money market and institutional funds are sold to
investors without a sales charge.
Most of the U.S. registered Franklin Templeton funds, with the exception of
certain Franklin Templeton money market funds, have also adopted distribution
plans (the "Plans") under Rule 12b-1 promulgated under the 40 Act ("Rule
12b-1"). The Plans are established for an initial term of one (1) year and,
thereafter, must be approved annually by the Fund boards and by a majority of
disinterested directors. All such Plans are subject to termination at any time
by a majority vote of the disinterested directors or by the Funds' shareholders.
The Plans permit the Funds to bear certain expenses relating to the distribution
of their shares.
Fees under the Plans for Class I shares range in amount from a low of .10% per
annum of average daily net assets to a high of .50% while Class II share fees
range between .65% to 1%. The implementation of the Plans provided for a lower
fee on Class I shares acquired prior to the adoption of such Plans. Fees from
the Plans are paid primarily to third party dealers who provide service to their
shareholder accounts, as well as engage in distribution activities. Distributors
may also receive reimbursement from the Funds for expenses involved in
distributing the Funds, such as advertising, and reimbursement for a 1% payment
to dealers on sales of Class II shares, subject to the Plans' limitations on
amounts.
As of September 30, 1997, there were approximately 7.4 million shareholder
accounts in the worldwide Franklin Templeton Group of Funds.
Revenues
As shown in the Consolidated Financial Statements, the Company's revenues are
derived primarily from its investment management activities. Total operating
revenues are set forth in the table below. Revenues from investment management
fees have comprised approximately 60%, 58% and 58% in 1997, 1996 and 1995,
respectively, of total operating revenue for each of the three (3) fiscal years
reported. Underwriting commissions, from gross sales and reinvestments of
products subject to commissions contributed to revenues approximately 34%, 36%
and 36% in 1997, 1996 and 1995 respectively. Shareholder servicing fees from
mutual fund activities contributed 6%, 6% and 5% in 1997, 1996 and 1995
respectively. See "MD&A--Operating Revenues".
Other Financial Services
The Company's consumer lending, dealer auto loan and real estate businesses do
not as yet contribute significantly to either the revenues or the net income of
the Company. Franklin Bank's operations are limited by national banking laws and
no immediate significant increase in revenues is anticipated. The real estate
operations have incurred net losses since inception and the Company does not
anticipate any immediate improvement in this line of business. The Company's
dealer auto loan business required the infusion of significant working capital
during fiscal 1996 and 1995, either in the form of inter-company loans or by
contributions to the capital of FCC by the Company. During portions of that
period, the Company experienced an increase in delinquency rates in such loans
and, in response, expanded its auto loan collection efforts and tightened its
underwriting policies. There was a significant reduction in gross charge-offs
and delinquency rates during fiscal 1997. A more detailed analysis of the
financial effects of loan losses and delinquency rates, as well as the funding
of this activity, is contained in the "MD&A--Operating Revenues".
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 by certain employees, including officers
and directors who are employed by the Company, require prior clearance and
reporting of some transactions and restrict certain transactions so as to reduce
the possibility of conflicts of interest.
To the extent that existing or future regulations affecting the sale of Fund
shares or other investment products or their investment strategies cause or
contribute to reduced sales of Fund shares or investment products or impair the
investment performance of the Funds or such other investment products, the
Company's aggregate assets under management and its revenues might be adversely
affected. Changes in regulations affecting free movement of international
currencies might also adversely affect the Company.
Since 1993, the NASD Conduct Rules have limited the amount of aggregate sales
charges which may be paid in connection with the purchase and holding of
investment company shares sold through brokers. The effect of the rule might be
to limit the amount of fees that could be paid pursuant to a fund's 12b-1 Plan
in a situation where a fund has no, or limited, new sales for a prolonged period
of time. None of the Franklin Templeton funds are in, or close to, that
situation at the present time.
Technology
The Company established a dedicated Year 2000 Project Team in 1996 to assess and
modify all systems in its computing environment and is currently modifying or
replacing all non-Year-2000-compliant systems. The Company is also upgrading its
desktop hardware and software to support the next generation of more
sophisticated business applications. Communication links were also upgraded in
1997 to support the Company's global offices, as well as to provide dedicated
links to key business partners. The Company will continue to assess the impact
of Year 2000 issues on its global computer systems and applications. See
"MD&A--Operating Expenses".
Competition
The financial services industry is highly competitive and has increasingly
become a global industry. As a result, comparative market data is not readily
available. There are over 6,600 open-end investment companies of varying sizes,
investment policies and objectives whose shares are being offered to the public
in the United States. Due to the Company's international presence and varied
product mix, it is difficult to assess the Company's market position relative to
other investment managers on a worldwide basis, but the Company believes that it
is one of the more widely diversified investment managers in the United States.
The Company believes that its strong equity and fixed-income base coupled with
its strong global presence will serve its competitive needs well over time. The
Company continues its focus on service to customers, performance on investments
and extensive marketing activities with its strong broker-dealer and other
financial institution distribution network.
The Company is in competition with the financial services and other investment
alternatives offered by stock brokerage and investment banking firms, insurance
companies, banks, savings and loan associations and other financial
institutions. Many of these competitors have substantially greater resources
than the Company. Although the banking industry continues to expand its
sponsorship of proprietary funds distributed through third party distributors,
the Company has and continues to actively pursue sales relationships with banks
and insurance companies to broaden its distribution network in response to such
competitive pressures.
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, substantially all of
which are currently paid to broker-dealers and other financial intermediaries.
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.
The Company advertises the Franklin Templeton Group in major national financial
publications, as well as on radio and television to promote name recognition and
to assist its distribution network. Such activities included purchasing network
and cable programming, sponsorship of sporting events, such as the "Franklin
Templeton Shark Shoot-Out", sponsorship of The Nightly Business Report on public
television, and extensive newspaper and magazine advertising.
Further aspects of competition are discussed below under "Risk Factors and
Cautionary Statements".
Asset Mix
As discussed above, the Company's revenues are derived primarily from investment
management activities. Broadly speaking, the direction and amount of change in
the net assets of the Funds are dependent upon two factors: (1) the level of
sales of shares of the funds as compared to redemptions of shares of the funds;
and (2) the increase or decrease in the market value of the securities owned by
the Funds. Although the Company believes that it has substantially benefited
from the Templeton and Mutual Acquisitions, the resultant shift in asset mix
from primarily a fixed-income base to a combination of fixed-income and global
equities has increased the possibility of volatility in the Company's managed
portfolios due to the increased percentage of equity investments managed. In
addition, the Company derives higher revenues and income from its equity assets
and therefore a future shift in assets from equity to fixed-income would have an
adverse impact on the Company's income and revenues. Despite this potential for
volatility, management believes that the Franklin Templeton Group is more
competitive as a result of the greater diversity of global investments and
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. Fluctuations in interest rates and in the yield
curve will have an effect on fixed-income assets under management as well as on
the flow of monies to and from fixed-income funds and, therefore, on the
Company's revenues from such funds. In addition, the impact of changes in the
equity marketplace may significantly affect assets under management. The effects
of the foregoing factors on equity funds and fixed-income funds often operate
inversely and it is, therefore, difficult to predict the net effect of any
particular set of conditions on the level of assets under management.
Although the Company and its assets under management are subject to political
and currency risks, due to its international activities, as is discussed in more
detail in "Risk Factors and Cautionary Statements" and "MD&A--Liquidity and
Capital Resources", its exposure to fluctuations in foreign currency markets and
to fixed-asset value depreciation is limited.
Forward-Looking Statements
When used in this Form 10-K and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed under the caption "Risk
Factors and Cautionary Statements" below, that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed below could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company will not undertake and specifically declines any obligation to
release publicly the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Risk Factors and Cautionary Statements
The Company's revenues and income are derived primarily from the management of a
variety of financial services products. The financial services industry is
highly competitive, as discussed above. Such competition could negatively impact
the Company's market share, which could impact assets under management, from
which the bulk of the Company's revenues and income arise.
Sales of mutual fund shares and other financial services products can also be
negatively affected by adverse general securities market conditions, burdensome
governmental regulations and recessionary global economic conditions. In
addition, securities dealers, whose large retail distribution systems play an
important role in the sale of shares of the Franklin, Templeton and Mutual
Series funds, also sponsor competing proprietary mutual funds. To the extent
that these firms limit or restrict the sale of Franklin, Templeton or Mutual
Series funds shares through their brokerage systems in favor of their
proprietary mutual funds, future sales may be negatively impacted and the
Company's revenues might be adversely affected. In addition, as the number of
competitors in the investment management industry increases, greater demands are
placed on existing distribution channels, which may cause distribution costs to
increase.
The Company's assets under management include a significant number of global
equities, which increase the volatility of the Company's managed portfolios and
its revenue and income streams. In addition, the shift in the Company's asset
mix from primarily fixed-income to a combination of fixed-income and global
equities has increased the possibility of volatility in the Company's managed
portfolios due to the increased percentage of equity investments managed. The
securities market is currently experiencing the longest "bull market" in history
with unprecedented levels of investor demand for equity securities. As a result
of this financial environment, the Company's equity holdings have increased in
value, which has contributed to increased assets under management and revenues.
The valuation of the equity portion of the Company's assets under management is
especially subject to the securities market, which is cyclical and subject to
periodic corrections. A downturn in this financial market would have an adverse
effect on the value of the equity portion of the Company's assets under
management which in turn would have a negative effect on the Company's revenues.
In addition, the Company derives higher revenues and income from its equity
assets and therefore a future shift in assets from equity to fixed-income would
have an adverse impact on the Company's income and revenues.
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. A significant portion of the Company's assets
under management are fixed-income securities. Fluctuations in interest rates and
in the yield curve will have an effect on fixed-income assets under management
as well as on the flow of monies to and from fixed-income funds and, therefore,
on the Company's revenues from such funds. In addition, the impact of changes in
the equity marketplace may significantly affect assets under management. The
effects of the foregoing factors on equity funds and fixed-income funds often
operate inversely and it is, therefore, difficult to predict the net effect of
any particular set of conditions on the level of assets under management.
Certain portions of the Company's managed portfolios are invested in various
securities of corporations located or doing business in developing regions of
the world commonly known as emerging markets. These portfolios and the Company's
revenues derived from the management of such portfolios are subject to
significant risks of loss from unfavorable political and diplomatic
developments, currency fluctuations, social instability, changes in governmental
policies, expropriation, nationalization, confiscation of assets and changes in
legislation relating to foreign ownership. Foreign trading markets, particularly
in some emerging market countries are often smaller, less liquid, less regulated
and significantly more volatile.
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. In response to such competitive pressures, the Company might
be forced to lower or further adjust sales charges, substantially all of which
are currently paid to broker-dealers and other financial intermediaries. The
reduction in such sales charges could make the sale of shares of the Franklin,
Templeton and Mutual Series funds less attractive to the broker-dealer
community, which could in turn have a material adverse effect on the Company's
revenues. In the alternative, the Company might be required to pay additional
fees, commissions or charges in connection with the distribution of its shares
which could have a negative effect on the Company's earnings.
Sales of Class II shares have increased relative to the Company's overall sales,
resulting in higher distribution expenses, which have caused distribution
expenses to exceed distribution revenues for certain products and put increasing
pressure on the Company's profit margins. If the Company is unable to fund
commissions on Class II shares using existing cash flow and debt facilities,
additional funding will be necessary. Past sales of Class II shares are not
necessarily indicative of future sales volume, and future sales of Class II
shares may be lower or higher as a result of changes in investor demand or
lessened or unsuccessful sales efforts by the Company.
The Company is in competition with the financial services and other investment
alternatives offered by stock brokerage and investment banking firms, insurance
companies, banks, savings and loan associations and other financial
institutions. Many of these competitors have substantially greater resources
than the Company. In addition, there has been a trend of consolidation in the
mutual fund industry which has resulted in stronger competitors. The banking
industry also continues to expand its sponsorship of proprietary funds
distributed through third party distributors. To the extent that banks limit or
restrict the sale of Franklin, Templeton or Mutual Series shares through their
distribution systems in favor of their proprietary mutual funds, assets under
management might decline and the Company's revenues might be adversely affected.
The Company is unable to predict at this time whether the Taxpayer Relief Act of
1997 will have a positive or a negative effect on the Company's portfolios or
revenues.
The Company's real estate activities are subject to fluctuations in the real
estate market place as well as to significant competition from companies with
much larger real estate portfolios giving them significantly greater economies
of scale.
The Company's auto loan receivables business and credit card receivable
activities are subject to significant fluctuations in those consumer market
places as well as to significant competition from companies with much larger
receivable portfolios. In addition, certain of the Company's competitors are
engaged in the financing of auto loans in connection with a much larger
automobile manufacturing businesses and may at times provide loans at
significantly below market interest rates in order to further the sale of
automobiles.
The consumer loan market is highly competitive. The Company competes with many
types of institutions including banks, finance companies, credit unions and the
finance subsidiaries of large automobile manufacturers. Interest rates the
Company can charge and, therefore, its yields vary based on this competitive
environment. The Company is reliant on its relationships with various automobile
dealers and this relationship is highly dependent on the rates and service that
the Company provides. There is no guarantee that in this competitive environment
the Company can maintain its relationships with these dealers. Auto loan and
credit card portfolio losses can also be influenced significantly by trends in
the economy and credit markets which negatively impact borrowers' ability to
repay loans.
Item 2. Properties
General
As of September 30, 1997, the Company 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 six (6) buildings near Sacramento,
California, as well as two (2) buildings in St. Petersburg, Florida, one (1)
building in Phoenix, Arizona, two (2) buildings in Nassau, Bahamas as well as
substantial space in high rise office buildings in Argentina and Singapore.
Certain properties of the Company were under construction during fiscal 1997 as
described below. Since the Company is operated on a unified basis, corporate
activities, fund related activities, accounting operations, sales, real estate
and banking operations, auto loans and credit cards, management information
system activities, publishing and printing operations, shareholder service
operations and other business activities and operations take place in a variety
of such locations. The Company or its subsidiaries also lease office space in
Florida, New York, and Utah and in several other states. In addition, the
Company or its subsidiaries also lease office space in Australia, Bermuda,
Brazil, Canada, Dubai, England, France, Germany, Hong Kong, India, Italy, Japan,
Luxembourg, Poland, Russia, Scotland, South Africa, Taiwan, and Vietnam.
Property Description
Leased
As of September 30, 1997, the Company leased properties at the locations set
forth below:
Approximate Approximate Base Expiration
Location Square Footage Monthly Rental Date
777 Mariners Island Boulevard
San Mateo, CA 94404 177,000 $443,000 February 2001
1147 & 1149 Chess Drive
Foster City, CA 94404 121,000 $108,000 June 2000
500 East Broward Boulevard
Ft. Lauderdale, FL 33394 104,000 $175,000 December 2000
1810 Gateway Drive
San Mateo, CA 94404 49,000 $89,000 June 2000
2 Waters Drive
San Mateo, CA 94404 49,000 $70,000 July 1999
1950 Elkhorn Court
San Mateo, CA 94403 37,000 $43,000 July 2001
901 & 951 Mariners Island Between March
Boulevard 34,000 $62,000 1999 &
San Mateo, CA 94404 April 2000
1850 Gateway Drive
San Mateo, CA 94404 19,000 $34,000 July 2000
1400 Fashion Island Boulevard
San Mateo, CA 94404 14,000 $41,000 June 2002
Other U.S. Locations 68,000 --
--
Foreign Operations 147,000 --
--
Owned
The Company maintains a customer service facility in the property that it owns
at 10600 White Rock Road, Rancho Cordova, California. The Company occupies
75,000 square feet in this property and has leased out 46,000 square feet to a
third party until February 2000 at an approximate monthly rental of $69,000. The
Company owns an additional twenty-seven (27) acres of adjoining land on which it
has constructed two (2) office buildings of approximately 67,000 square feet
each and a data center/warehouse facility of approximately 162,000 square feet.
The Company owns six (6) facilities in St. Petersburg, Florida, including an
approximate 90,000 square foot office building and an approximate 117,000 square
foot facility devoted to a computer data center, training, warehouse and mailing
operations. Four (4) new office buildings of approximately 70,000 square feet
each were under construction during fiscal 1997 and were completed in November
1997. Shareholder servicing activities have been relocated to this new 280,000
square foot development. The Company plans to develop additional facilities at
this site in the future.
The Company also owns two (2) office buildings in Nassau, Bahamas, of
approximately 14,000 square feet and approximately 25,000 square feet,
respectively as well as a nearby condominium residence.
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 thirty year non-recourse financing for the
property from Metropolitan Life Insurance Company at an interest rate of 8.10%
per annum, due November 2002. The principal balance outstanding as of September
30, 1997, was $24.9 million.
Property Changes
The Company entered into two (2) separate contracts, totaling approximately
$13.8 million, in May 1997 and September 1997, respectively, for the design and
construction of Buildings C and D in Rancho Cordova. Construction of Building C,
a 74,000 square foot office building, was completed in November 1997 and
Building D, a 95,000 square foot office building, is expected to be completed in
August 1998.
During fiscal 1997, the Company also owned an office building of approximately
70,000 square feet at 1800 Gateway Drive, San Mateo, California. In October
1997, the Company sold, but continued to occupy it pursuant to a lease. The
lease provides for base monthly rental payments of $199,500 and terminates in
July 2002. The Company has the right to terminate the lease without penalty at
any time after July 2000.
On December 12, 1997, the Board of Directors of the Company approved the
previously-executed contract to acquire approximately thirty-three (33) acres of
land ("Bay Meadows") located in San Mateo, California for a total estimated
purchase price of approximately $21.6 million. A subsidiary of the Company, PRI,
executed a contract in May 1995 to purchase the property, which contract was
subsequently assigned to FRI. The Bay Meadows purchase was subject to receipt of
governmental regulatory approvals, which were obtained in April 1997. As a
result, a related escrow deposit of $850,000 made by the Company became
non-refundable. As a condition to approval of the Company's planned use of the
Bay Meadows property, the City of San Mateo will require construction of roads,
modification to a freeway interchange, and other off-site improvements. The
Company is obligated to reimburse the seller of Bay Meadows for a portion of the
cost of certain of these off-site improvements. Presently, this reimbursement is
expected to approximate $7.9 million. Escrow on the purchase is scheduled to
close in April 1998, at which time the Company is obligated to make its first
payment for off-site improvements.
After receiving the necessary governmental approvals for purchase of the Bay
Meadows property, the Company executed a design build contract in July 1997 for
the design and construction of a new 900,000 square foot campus at Bay Meadows.
The total contract amount will not be final until after the project is
completely designed and building permits issued by the City of San Mateo,
California.
Item 3. Pending Legal Proceedings
There are no material pending legal proceedings to which the Company or any of
its subsidiaries is 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 following information on the executive officers of the Company is given as
of December 1, 1997:
Name Age Principal Occupation for the Past Five Years
- --------------------------------------------------------------------------------
Charles B. Johnson 64 President, Chief Executive Officer and
Director of the Company; Chairman and
Director, Franklin Advisers, Inc. and
Franklin/Templeton Distributors, Inc.;
Director, Templeton Worldwide, Inc.,
Franklin Bank, Franklin/Templeton Investor
Services, Inc., Franklin Mutual Advisers,
Inc. and General Host Corporation; officer
and/or director, as the case may be, of
most other principal U.S. subsidiaries of
the Company; officer and/or director or
trustee, as the case may be, of 54 of the
investment companies in the Franklin
Templeton Group of Funds.
Harmon E. Burns 52 Executive Vice President, Director and
Secretary of the Company; Executive Vice
President and Director of
Franklin/Templeton Distributors, Inc., and
Franklin Templeton Services, Inc.;
Executive Vice President of Franklin
Advisers, Inc.; Director, Templeton
Worldwide, Inc., Franklin/Templeton
Investor Services, Inc., and Franklin
Mutual Advisers, Inc.; officer and/or
director, as the case may be, of most other
principal U.S. subsidiaries of the Company;
officer and/or director or trustee, as the
case may be, of 58 of the investment
companies in the Franklin Templeton Group
of Funds.
Rupert H. Johnson, Jr. 57 Executive Vice President and Director of
the Company; Director and President,
Franklin Advisers, Inc.; Director and
Executive Vice President,
Franklin/Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor
Services, Inc., Templeton Worldwide, Inc.,
Franklin Bank and Franklin Mutual Advisers,
Inc.; officer and/or director or trustee,
as the case may be, of most other principal
U.S. subsidiaries of the Company; and of 58
of the investment companies in the Franklin
Templeton Group of Funds.
Martin L. Flanagan 37 Senior Vice President, Chief Financial
Officer of the Company; President and Chief
Executive Officer of Franklin Templeton
Services, Inc., Senior Vice President of
Franklin Advisers, Inc., Executive Vice
President and Director of Templeton
Worldwide, Inc.; officer of most of the
subsidiaries of the Company since March
1993; and officer and/or director, trustee
or managing partner, as the case may be, of
most other principal U.S. subsidiaries of
the Company; and of 58 of the investment
companies in the Franklin Templeton Group
of Funds. Prior to 1993, employed by
various Templeton entities.
Deborah R. Gatzek 49 Senior Vice President of the Company since
March 1990; General Counsel since January
1996; Vice President of the Company from,
1986 to March 1990; Senior Vice President,
Franklin/Templeton Distributors, Inc. and
Franklin Templeton Services, Inc.; Vice
President, Franklin Advisers, Inc.; officer
of most other principal U.S. subsidiaries
of the Company; and officer of 58 of the
investment companies in the Franklin
Templeton Group of Funds.
Charles E. Johnson 41 Senior Vice President and Director of the
Company; President and Director, Templeton
Worldwide, Inc., Director, Franklin Mutual
Advisers, Inc.; President, CEO and
Director, Franklin Institutional Services
Corporation; Senior Vice President,
Franklin/Templeton Distributors Inc.;
Chairman, Director, Franklin Agency, Inc.;
Vice President, Franklin Advisers, Inc.;
Chairman and Director, Templeton Investment
Counsel, Inc.; officer and/or director, as
the case may be, of other U.S. and
international subsidiaries of the Company;
officer and/or director or trustee, as the
case may be, of 36 of the investment
companies in the Franklin Templeton Group
of Funds.
William J. Lippman 72 Senior Vice President of the Company since
March 1990; Director, Templeton Worldwide,
Inc.; and officer and/or director or
trustee of seven of the investment
companies in the Franklin Group of Funds.
Until June 1988, President, Chief Executive
Officer, and Director of L.F. Rothschild
Fund Management, Inc., Director of L.F.
Rothschild Asset Management, Inc.,
Administrative Managing Director and
Director of L.F. Rothschild & Co.,
Incorporated.
Jennifer J. Bolt 33 Vice President of the Company since June
1994; Executive Vice President, Franklin
Bank since August 1993; President and
Director, Franklin Capital Corporation,
since November 1993; employed by the
Company in various other capacities for
more than the past five (5) years.
Donna S. Ikeda 41 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 36 Vice President of the Company since June
1994; President, Franklin/Templeton
Distributors, Inc. since September 1994;
Vice President, Franklin Advisers, Inc.
Prior to that time, Senior Vice President
and Assistant National Sales Manager,
Franklin/Templeton Distributors, Inc.;
Employee of Franklin Resources, Inc. and
its subsidiaries in administrative and
portfolio management capacities since
January 1986; officer of one investment
company in the Franklin Group of Funds.
Gordon F. Jones 50 Vice President and Chief Information
Officer of the Company since March 1995.
From March 1990 to March 1995, Vice
President of Novell, Inc., a worldwide
network systems company; Vice President and
Chief Information Officer of Novell, Inc.
from March 1994 to March 1995.
Leslie M. Kratter 52 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.
Charles R. Sims 36 Treasurer of the Company. Employed by the
Company since 1989. From August 1991 to
October 1997, Vice President and Chief
Financial Officer and from February 1992 to
October 1997, Director of Canadian
operations.
Kenneth A. Lewis 36 Vice President, Corporate Controller and
Chief Accounting Officer of the Company,
Senior Vice President and Controller of
Templeton Worldwide, Inc., and an officer
of several other U.S. subsidiaries of the
Company. Prior to the Templeton
Acquisition, employed by various Templeton
entities.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. Peter M.
Sacerdote, a director of the Company, is a brother-in-law of Charles B. Johnson
and Rupert H. Johnson, Jr. Charles E. Johnson is the son of Charles B. Johnson
and the nephew of Rupert H. Johnson, Jr. and Peter Sacerdote. Gregory E. Johnson
is the son of Charles B. Johnson, the nephew of Rupert H. Johnson, Jr. and Peter
Sacerdote and the brother of Jennifer Bolt and Charles E. Johnson. Jennifer Bolt
is the daughter of Charles B. Johnson, the niece of Rupert H. Johnson, Jr. and
Peter Sacerdote, and the sister of Charles E. Johnson and Gregory E. Johnson.
Leslie M. Kratter is the spouse of Deborah R. Gatzek.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information About the Company's Common Stock
The Company's common stock is traded on the New York Stock Exchange ("NYSE") and
the Pacific Exchange under the ticker symbol BEN and the London Stock Exchange
under the ticker symbol FKR. On September 30, 1997, the closing price of the
Company's common stock on the NYSE was $93 1/8 per share. At December 1, 1997,
there were approximately 2,500 shareholders of record. In addition, the Company
estimates that there are approximately 22,000 beneficial shareholders whose
shares are held in street name.
The following table sets forth the high and low sales prices for the Company's
common stock from the NYSE Composite Tape. All sales prices have been adjusted
retroactively to reflect the Stock Dividend.
1997 Fiscal Year 1996 Fiscal Year
Quarter High Low High Low
- --------------------------------------------------------------------------------
October-December 49 3/4 43 1/12 38 2/3 31 1/16
January-March 71 7/8 48 3/4 39 5/12 30 11/12
April-June 74 1/4 51 7/8 41 1/6 35 3/4
July-September 93 9/16 72 5/8 45 3/4 34 1/2
The Company declared dividends of $0.34 per share in fiscal 1997 and $0.29 per
share in fiscal 1996. The Company expects to continue paying dividends on a
quarterly basis to common stockholders depending upon earnings and other
relevant factors.
Item 6. Selected Financial Highlights
IN MILLIONS, EXCEPT
ASSETS UNDER MANAGEMENT
AND PER SHARE AMOUNTS
AS OF AND FOR THE YEARS
1997 1996 1995 1994 1993
ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
Summary of Operations:
Operating revenues** $2,163.3 $1,519.5 $1,253.3 $1,340.8 $1,175.5
Net income $ 434.1 $ 314.7 $ 268.9 $ 251.3 $ 175.5
Financial Data:
Total assets $3,095.2 $2,374.2 $2,244.7 $1,968.8 $1,581.5
Long-term debt $ 493.2 $ 399.5 $ 382.4 $ 383.7 $ 454.8
Stockholders'
equity $1,854.2 $1,400.6 $1,161.0 $ 930.8 $ 720.4
Assets Under
Management
(IN BILLIONS) $ 226.0 $ 151.6 $ 130.8 $ 118.2 $ 107.5
Per Common Share*
Earnings
Primary $ 3.43 $ 2.52 $ 2.16 $ 2.00 $ 1.41
Fully diluted $ 3.43 $ 2.50 $ 2.13 $ 2.00 $ 1.40
Cash dividends $ 0.34 $ 0.29 $ 0.27 $ 0.21 $ 0.19
Book value $ 14.71 $ 11.63 $ 9.56 $ 7.60 $ 5.85
* Prior year amounts have been restated to reflect the Stock Dividend.
** Prior year amounts have been restated to correspond to current year
treatment.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
GENERAL
Franklin Resources, Inc. and its consolidated subsidiaries (the "Company")
derive substantially all of their revenues and net income from providing
investment management, administration, distribution and related services to the
Franklin, Templeton and Mutual Series funds, institutional accounts and other
investment products (collectively, "The Franklin Templeton Group"). The Company
has a diversified base of assets under management and a full range of investment
products and services to meet the needs of most individuals and institutions.
The Company offers its services in most global markets including Asia,
Australia, Canada, the Caribbean, Continental Europe, South Africa, South
America, the United Kingdom and the United States. At September 30, 1997, the
Company had offices in over 20 different nations, employing over 6,400 people.
On November 1, 1996, the Company acquired the assets and liabilities of Heine
Securities Corporation ("Heine"), the former investment manager to Mutual Series
Fund Inc., other funds and private accounts ("Mutual"). This transaction ("the
Acquisition") had an aggregate value of approximately $616 million. Heine
received $551 million in cash and 1.1 million shares of the Company's common
stock (before the effect of the three-for-two stock dividend paid January 15,
1997) that may not be sold for two years from the date of the Acquisition and
that are subject to other restrictions.
ASSETS UNDER MANAGEMENT
BY INVESTMENT OBJECTIVE,
IN BILLIONS
AS OF SEPTEMBER 30, 1997 1996 1995
- --------------------------------------------------------------------------------
Franklin Templeton Group
FIXED-INCOME
Tax-free $45.8 $42.5 $40.5
U.S. government (primarily GNMAs) 15.1 15.8 16.3
Taxable and tax-free money funds 3.7 3.7 3.6
Global/international 4.0 3.2 3.2
- --------------------------------------------------------------------------------
Total fixed-income 68.6 65.2 63.6
- --------------------------------------------------------------------------------
EQUITY
Global/international 104.3 67.2 51.5
U.S. 53.1 19.2 15.7
--------------------------------------------------------------------------
Total equity 157.4 86.4 67.2
- --------------------------------------------------------------------------------
Total Franklin Templeton Group $226.0 $151.6 $130.8
- --------------------------------------------------------------------------------
BY INVESTMENT VEHICLE,
IN BILLIONS
AS OF SEPTEMBER 30, 1997 1996 1995
- --------------------------------------------------------------------------------
Franklin Templeton Group
MUTUAL FUNDS
Open-end $175.1 $113.7 $100.1
Closed-end 6.6 5.7 5.1
Annuities 13.6 10.9 8.8
--------------------------------------------------------------------------
Total mutual funds 195.3 130.3 114.0
--------------------------------------------------------------------------
Institutional trusts and
managed accounts 30.7 21.3 16.8
- --------------------------------------------------------------------------------
Total Franklin Templeton Group $226.0 $151.6 $130.8
- --------------------------------------------------------------------------------
The Company's revenues are derived largely from the amount and composition of
assets under its management.
Assets under the Company's management grew by $74.4 billion (49%) and $20.8
billion (16%) in fiscal 1997 and 1996, respectively. Equity assets grew at the
highest rate: 82% and 29%, respectively, and represented 70% and 57% of total
assets under management during these years. The proportionately higher growth
rate of equity assets in 1997 was related to the effects of increased net sales
and market appreciation relative to other categories. The addition of Mutual
contributed $28.4 billion to the 1997 growth in this category. Institutional
assets, which are comprised predominantly of global/international equity
portfolios, grew 44% and 27% in 1997 and 1996, respectively. Fixed-income assets
grew 5% and 3% in 1997 and 1996, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, amounts included in
the Consolidated Statements of Income of Franklin Resources, Inc. and the
percentage change in those amounts from period to period.
Franklin Resources, Inc.
Consolidated Income Statement Data
IN MILLIONS,
EXCEPT PER SHARE DATA PERCENT INCREASE
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED
SEPTEMBER 30,
1997 1996 1995 1997 1996
- --------------------------------------------------------------------------------
OPERATING REVENUES
Investment
management fees $1,292.5 $880.8 $726.8 47% 21%
Underwriting and
distribution fees 735.1 545.0 449.1 35% 21%
Shareholder servicing fees 124.9 88.7 68.7 41% 29%
Other, net 10.8 5.0 8.7 116% (43)%
- -------------------------------------------------------------------------------
Total operating revenues 2,163.3 1,519.5 1,253.3 42% 21%
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Underwriting and
distribution 712.3 518.1 406.1 37% 28%
Compensation and benefits 447.2 325.1 260.1 38% 25%
Information systems,
technology and
occupancy 135.4 88.5 73.7 53% 20%
Advertising and promotion 96.6 71.7 70.1 35% 2%
Amortization of
deferred sales commissions 59.5 24.2 5.9 146% 310%
Amortization of
intangible assets 34.3 18.3 18.3 87% --
Other 86.5 56.5 51.0 53% 11%
- --------------------------------------------------------------------------------
Total operating expenses 1,571.8 1,102.4 885.2 43% 25%
- --------------------------------------------------------------------------------
Operating income 591.5 417.1 368.1 42% 13%
OTHER INCOME (EXPENSES)
Investment and other income 49.5 50.4 29.8 (2)% 69%
Interest expense (25.3) (11.3) (11.2) 124% 1%
- ------------------------------------------------------------------------------
Other income, net 24.2 39.1 18.6 (38)% 110%
- --------------------------------------------------------------------------------
Income before taxes on income 615.7 456.2 386.7 35% 18%
Taxes on income 181.6 141.5 117.8 28% 20%
- ------------------------------------------------------------------------------
Net income $434.1 $314.7 $268.9 38% 17%
==============================================================================
OPERATING PROFIT MARGIN 27% 27% 29% -- --
Earnings per share
Primary $3.43 $2.52 $2.16 36% 17%
Fully diluted $3.43 $2.50 $2.13 37% 17%
Revenues, net income and earnings per share rose to the highest levels in the
Company's history. Net income and fully diluted earnings per share for 1997
increased by 38% and 37%, respectively, driven principally by increased
investment management fee revenues. Net income and earnings per share for 1996
increased 17%, primarily as a result of a 21% increase in investment management
fee revenues.
OPERATING REVENUES
Investment management fees are derived primarily from contractual fixed-fee
arrangements that are based upon the level of assets under management with
open-end and closed-end investment companies and institutional portfolios. Under
various investment management agreements, annual rates vary and generally
decline as the average net assets of the portfolios exceed certain threshold
levels. The majority of fund investment management contracts are subject to
periodic approval by each fund's Board of Directors/Trustees and shareholders.
There have been no significant changes in the investment management fee
structures for the Franklin Templeton funds in the periods under review.
Investment management fees increased 47% and 21% in fiscal 1997 and 1996,
respectively. Management fees grew at a faster rate than average assets under
management in both 1997 and 1996 as a result of a shift in composition of
average assets under management to higher-fee equity funds during the years
under consideration.
Underwriting commission fees are earned primarily from fund sales. Distribution
fees are generally based on the level of assets under management. Most sales of
Franklin Templeton funds include a sales commission which is paid to the
Company. Certain subsidiaries of the Company act as distributors for its
sponsored funds and receive distribution fees from those funds in reimbursement
for distribution expenses incurred. A significant portion of underwriting
commission and distribution fee revenues are paid to selling intermediaries.
Underwriting and distribution fees increased 35% and 21% in 1997 and 1996,
respectively, largely due to increased fund sales which were partially offset by
a decrease in effective commission rates. Effective commission rates have
declined as relative sales of products with lower commission rates have
increased.
Shareholder servicing fees are generally fixed charges per account which vary
with the particular type of fund and the service being rendered.
Shareholder servicing fees increased 41% and 29% in 1997 and 1996, respectively.
The increases were a result of an increase in fund shareholder accounts, as well
as an increase in the average per account charge. During the second quarter of
1997, the average annual per account charge was increased for approximately 120
of the Company's U.S. registered funds.
Other revenues, net consist primarily of the revenues from the Company's bank
and finance subsidiaries, which are shown net of interest expense and the
provision for loan losses. Other revenues, net increased 116% in 1997 and
decreased 43% in 1996. The increase in 1997 resulted primarily from decreasing
loss and delinquency trends at the Company's bank and finance subsidiaries. The
past due rate at the end of 1997 was 3.2% compared to 4.0% at the end of 1996.
Actual gross charge-offs decreased 43% in 1997 compared to a 24% increase in
1996, reflecting the Company's more stringent underwriting policies and improved
collection efforts.
OPERATING EXPENSES
Underwriting and distribution includes sales commissions and distribution fees
paid to brokers and other third-party intermediaries. During both 1997 and 1996,
underwriting and distribution expenses increased consistent with mutual fund
sales.
Compensation and benefits increased 38% and 25% in 1997 and 1996, respectively,
reflecting an increase in the number of full-time employees, the Acquisition and
increased contributions to the Company's Annual Incentive Plan that are based
upon the Company's profitability. The number of full-time employees increased
30% and 9% in 1997 and 1996, respectively, as the Company continued to expand
its operations and as a result of the Acquisition.
Information systems, technology and occupancy increased in 1997 due to costs
related to the integration of systems related to the Acquisition, several major
system implementations, as well as upgrades to our network, desktop and Internet
environments. The growth in this area in 1996 was in line with the general
growth in the Company. The Company is in the process of assessing the impact of
Year 2000 issues on its global computer systems and applications. The Company
expects to incur internal staff costs as well as consulting and other related
expenses. At this time, management believes that the costs associated with
resolving these issues will not have a material impact on the Company's
financial statements.
Advertising and promotion expenses increased 35% and 2% in 1997 and 1996,
respectively. The 1997 increase was due to marketing and promotion efforts
related to the Mutual Series funds and other promotional activities.
Amortization of deferred sales commissions increased 146% and 310% in 1997 and
1996, respectively, primarily as a result of the increase in Class II and
Canadian fund sales.
Amortization of intangibles increased in 1997 as a result of the Acquisition.
Other expenses increased in 1997 due to costs associated with the Acquisition,
as well as general growth of the Company. Other expenses increased in 1996 due
to general growth of the Company.
OTHER INCOME (EXPENSES)
Investment income declined in 1997 as a result of the sale of a portion of the
Company's investment portfolio that was used to fund the Acquisition. Investment
and other income increased in 1996 as a result of increases in investment
assets, as well as approximately $17 million in capital gains realized on the
Acquisition-related sale of investments at the end of 1996.
Interest expense increased in 1997 due to a $221.0 million increase in amounts
outstanding under the Company's commercial paper lines and a $100 million
increase in notes payable (medium-term notes) outstanding, partially offset by a
$150 million reduction in subordinated debentures.
TAXES ON INCOME
The Company's effective tax rate has remained relatively stable at 30%, 31% and
30% in 1997, 1996 and 1995, respectively. The Company's effective tax rate
differs from the U.S. statutory rate primarily due to the Company's non-U.S.
subsidiaries' relative contributions to taxable income. The Company does not
provide U.S. taxes on these earnings to the extent they have been reinvested for
an indefinite period of time. The effective tax rate will continue to be
reflective of the relative contribution of foreign earnings, which are subject
to reduced tax rates and are not currently included in U.S. taxable income. The
Company is currently reviewing the effect of the Taxpayer Relief Act of 1997.
This Act may cause a change in the effective tax rate for future periods.
FINANCIAL CONDITION
At September 30, 1997, the Company's assets aggregated $3.1 billion, up from
$2.4 billion a year earlier, primarily as a result of the Acquisition and
reinvested net income. Stockholders' equity increased to approximately $1.9
billion at September 30, 1997 compared to $1.4 billion at the end of 1996,
primarily as a result of net income and the issuance of shares in connection
with the Acquisition. Outstanding debt (long-term and short-term) increased by
$211.7 million to $611.6 million at September 30, 1997, principally as a result
of the Acquisition. However, the Company's ratio of earnings (before taxes) to
fixed charges (interest and the interest factor on rent) remains high at 12.0
for 1997 compared to 11.1 for 1996. The Company's interest coverage ratio
(pretax income before interest expense divided by interest expense) is 14.2 for
1997 as compared to 13.4 for 1996. The Company's overall weighted average
interest rate at September 30, 1997, including the effect of interest-rate swap
agreements, was 6.3% on $569.7 million of outstanding commercial paper and notes
payable (medium-term notes) as compared to 6.53% on $398.7 million of debt
outstanding at September 30, 1996.
Cash provided by operating activities increased to $428.5 million in 1997, up
from $359.6 million and $296.5 million in 1996 and 1995, respectively. During
the year ended September 30, 1997, the Company used net cash of $593.4 million
for investing activities, of which $550.7 million was for the Acquisition. Net
cash provided by financing activities during the year was $105.5 million,
primarily as a result of the issuance of $416.4 million in notes payable and
commercial paper, which was partially offset by payments on debt aggregating
$128.8 million and the purchase of option rights related to the subordinated
debentures of $91.7 million (see Note 8 of Notes to the Consolidated Financial
Statements). During fiscal year 1997, the Company paid $40.4 million in
dividends to stockholders and purchased 313,000 shares of its common stock for
$19.1 million.
The Company's auto loan and credit card receivables business activities are
subject to fluctuations in those consumer market places, as well as to
competition from companies with much larger receivable portfolios. Auto loan and
credit card portfolio results can also be influenced significantly by trends in
the economy and credit markets that may negatively impact borrowers' ability to
repay loans. Credit card and auto loans receivable decreased from 1996 levels
due to net paydowns of existing loans. As a result of its improved auto loan
collection efforts and enhanced systems supporting those activities, the Company
has experienced a decrease in delinquency rates and loan losses since September
30, 1996. Any future increases in the Company's investment in dealer auto loan
and credit card portfolios are expected to be funded either through existing
debt facilities and operating cash flows or through the securitization of a
portion of the portfolios.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company held liquid assets of $889.7 million,
including $442.7 million of cash and cash equivalents, as compared to $889.9
million and $502.2 million, respectively, at September 30, 1996. Revolving
credit facilities at September 30, 1997 aggregated $500 million of which $200
million was under a 364-day revolving credit facility. The remaining $300
million revolving facility has a five-year term. At September 30, 1997,
approximately $548.5 million was available to the Company under unused
commercial paper and medium-term note facilities.
Management expects that the principal needs for cash in the coming year will be
to advance sales commissions, fund increased property and equipment
acquisitions, pay shareholder dividends, repurchase shares of the Company's
common stock and service debt. Management believes that the Company's existing
liquid assets, together with the expected continuing cash flow from operations,
its borrowing capacity under current credit facilities and its ability to issue
stock will be sufficient to meet its present and reasonably foreseeable cash
requirements.
Results of operations will continue to be dependent upon general economic
growth, the strength of capital markets and the Company's ability to meet
investor demands with competitive products and services. Operating revenues will
be dependent upon the amount and composition of assets under management, mutual
fund sales, and the number of mutual fund investors, private and institutional
clients. Operating costs are expected to increase with the Company's continued
expansion, the increase in competition and the Company's continued commitment to
improving its products and services.
Despite the Company's global presence, its exposure to adverse fluctuations in
foreign currency markets is limited because a substantial portion of its foreign
subsidiaries' revenues and the majority of their monetary assets are U.S. and
Canadian dollar denominated. Over 95% of the Company's operating revenues were
earned in U.S. and Canadian dollars in both 1997 and 1996. Accordingly, the
Company has not deemed it necessary to enter into foreign currency hedging
transactions.
The Company participates in the financial derivatives markets to manage its
exposure to interest-rate fluctuations on a portion of its commercial paper. The
Company has entered into interest-rate swap agreements to convert interest
payment obligations under variable-rate debt instruments to fixed-rate interest
payment obligations. Through interest-rate swap agreements and its medium-term
note program, the Company has fixed the rates of interest it pays on 84% of
outstanding debt (see Note 8 of Notes to the Consolidated Financial Statements).
Item 8. Financial Statements and Supplementary Data
Index of Consolidated Financial Statements for the years ended September 30,
1997, 1996 and 1995.
CONTENTS
Consolidated Financial Statements of Franklin Resources, Inc.:
Pages
Report of Independent Accountants
Consolidated Statements of Income, for the years ended
September 30, 1997, 1996, and 1995
Consolidated Balance Sheets
September 30, 1997 and 1996
Consolidated Statements of Stockholders' Equity,
for the years ended September 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows,
for the years ended September 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
All schedules have been omitted as the information is provided in the
financial statements or in related notes thereto or is not required to be filed
as the information is not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Franklin Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Franklin
Resources, Inc. and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Franklin
Resources, Inc. and subsidiaries as of September 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
San Francisco, California
October 22, 1997
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS,
EXCEPT PER SHARE DATA
FOR THE YEARS ENDED
SEPTEMBER 30, 1997 1996 1995
- --------------------------------------------------------------------------------
OPERATING REVENUES
Investment management fees $1,292,488 $880,684 $726,719
Underwriting and distribution fees 735,112 545,039 449,141
Shareholder servicing fees 124,905 88,715 68,701
Other, net 10,770 5,035 8,703
- --------------------------------------------------------------------------------
Total operating revenues 2,163,275 1,519,473 1,253,264
----------------------------------------------------------------------------
OPERATING EXPENSES
Underwriting and distribution 712,328 518,122 406,100
Compensation and benefits 447,169 325,135 260,097
Information systems, technology
and occupancy 135,391 88,500 73,697
Advertising and promotion 96,552 71,655 70,138
Amortization of deferred sales
commissions 59,468 24,237 5,894
Amortization of intangible assets 34,294 18,348 18,305
Other 86,613 56,368 50,892
- --------------------------------------------------------------------------------
Total operating expenses 1,571,815 1,102,365 885,123
----------------------------------------------------------------------------
OPERATING INCOME 591,460 417,108 368,141
Other income (expenses)
Investment and other income 49,586 50,458 29,673
Interest expense (25,333) (11,336) (11,159)
- --------------------------------------------------------------------------------
OTHER INCOME, NET 24,253 39,122 18,514
------------------------------------------------------------------------------
Income before taxes on income 615,713 456,230 386,655
Taxes on income 181,650 141,500 117,710
------------------------------------------------------------------------------
Net income $434,063 $314,730 $268,945
- --------------------------------------------------------------------------------
Earnings per Share
Primary $3.43 $2.52 $2.16
Fully diluted $3.43 $2.50 $2.13
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
AS OF SEPTEMBER 30, 1997 1996
- --------------------------------------------------------------------------------
Assets
CURRENT ASSETS
Cash and cash equivalents $434,864 $483,975
Receivables
Fees from Franklin Templeton funds 213,547 133,453
Other 20,315 54,727
Investment securities, available-for-sale 189,674 174,156
Prepaid expenses and other 20,039 9,952
- --------------------------------------------------------------------------------
Total current assets 878,439 856,263
- --------------------------------------------------------------------------------
BANKING/FINANCE ASSETS
Cash and cash equivalents 7,877 18,214
Loans receivable, net 296,188 345,399
Investment securities, available-for-sale 24,232 25,325
Other 3,739 4,660
- --------------------------------------------------------------------------------
Total banking/finance assets 332,036 393,598
- --------------------------------------------------------------------------------
OTHER ASSETS
Deferred sales commissions 119,537 24,316
Property and equipment, net 217,085 161,613
Intangible assets, net 1,224,019 641,983
Receivable from banking/finance group 203,787 236,532
Other 120,297 59,862
- --------------------------------------------------------------------------------
Total other assets 1,884,725 1,124,306
- --------------------------------------------------------------------------------
Total assets $3,095,200 $2,374,167
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
AS OF SEPTEMBER 30, 1997 1996
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
CURRENT LIABILITIES
Compensation and benefits $154,222 $77,935
Commissions 46,125 28,067
Income taxes 31,908 27,673
Short-term debt 118,372 427
Other 54,873 48,099
- --------------------------------------------------------------------------------
Total current liabilities 405,500 182,201
- --------------------------------------------------------------------------------
BANKING/FINANCE LIABILITIES
Deposits
Interest bearing 91,433 125,124
Non-interest bearing 6,971 6,095
Payable to Parent 203,787 236,532
Other 2,213 1,725
- --------------------------------------------------------------------------------
Total banking/finance liabilities 304,404 369,476
- --------------------------------------------------------------------------------
OTHER LIABILITIES
Long-term debt 493,244 399,462
Other 37,831 22,437
- --------------------------------------------------------------------------------
Total other liabilities 531,075 421,899
- --------------------------------------------------------------------------------
Total liabilities 1,240,979 973,576
- --------------------------------------------------------------------------------
Commitments and Contingencies (Note 11)
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; 126,230,916 and 82,264,982 shares
issued; and 126,031,900 and 80,272,131 shares
outstanding, for 1997 and 1996, respectively 12,623 8,226
Capital in excess of par value 91,207 101,226
Retained earnings 1,757,536 1,370,513
Less cost of treasury stock (11,070) (90,301)
Other 3,925 10,927
- --------------------------------------------------------------------------------
Total stockholders' equity 1,854,221 1,400,591
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $3,095,200 $2,374,167
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
IN THOUSANDS
AS OF AND FOR THE YEARS CAPITAL IN
ENDED SEPTEMBER 30, COMMON STOCK EXCESS OF RETAINED TREASURY STOCK
1997, 1996 AND 1995 SHARES AMOUNT PAR VALUE EARNINGS SHARES AMOUNT OTHER TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
Balance, October 1, 1994 82,265 $8,226 $92,283 $855,513 (667) $(25,409) $202 $930,815
Net income 268,945 268,945
Unrealized gain on investment
securities, net of tax 13,745 13,745
Foreign currency translation
adjustment 835 835
Purchase of treasury stock (1,126) (41,749) (41,749)
Cash dividends on
common stock (33,254) (33,254)
Issuance of restricted shares, net (48) 431 17,121 3,160 20,233
Other (45) 37 1,518 1,473
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1995 82,265 8,226 92,190 1,091,204 (1,325) (48,519) 17,942 1,161,043
Net income 314,730 314,730
Unrealized loss on investment
securities, net of tax (10,644) (10,644)
Foreign currency translation
adjustment (752) (752)
Purchase of treasury stock (1,001) (53,413) (53,413)
Cash dividends on
common stock (35,421) (35,421)
Issuance of restricted shares, net 9,672 280 9,777 4,381 23,830
Other (636) 53 1,854 1,218
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 82,265 8,226 101,226 1,370,513 (1,993) (90,301) 10,927 1,400,591
Net income 434,063 434,063
Issuance of stock for
Heine acquisition 22,300 1,100 43,287 65,587
Exercise and purchase of
option rights related to
subordinated debentures, net 1,796 180 (47,914) 565 31,065 (16,669)
Issuance of stock for
3-for-2 stock dividend 42,028 4,203 (4,203)
Unrealized gain on investment
securities, net of tax 3,219 3,219
Foreign currency translation
adjustment (5,192) (5,192)
Purchase of treasury stock (313) (19,135) (19,135)
Cash dividends on
common stock (42,837) (42,837)
Issuance of restricted shares,
net 96 10 14,360 352 19,455 (5,029) 28,796
Other 46 4 1,235 89 4,559 5,798
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 126,231 $12,623 $91,207 $1,757,536 (200) $(11,070) $3,925 $1,854,221
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $434,063 $314,730 $268,945
Adjustments to reconcile net income to net cash
provided by operating activities
Increase in receivables, prepaid expenses and other (106,024) (33,405) (9,525)
Increase in deferred sales commissions (154,689) (40,080) (11,316)
Increase (decrease) in other current liabilities 22,370 3,315 (2,529)
Increase (decrease) in income taxes payable 4,235 19,452 (9,405)
Increase in commissions payable 18,058 6,787 19,191
Increase (decrease) in accrued compensation and benefits 102,171 41,328 (3,137)
Depreciation and amortization 123,908 64,728 46,834
Gains on disposition of assets (15,563) (17,272) (2,604)
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 428,529 359,583 296,454
- -----------------------------------------------------------------------------------------------------
Purchase of investments (110,019) (70,768) (130,194)
Liquidation of investments 98,826 107,287 90,869
Purchase of banking/finance investments (27,120) (60,936) (110,163)
Liquidation of banking/finance investments 28,376 59,316 113,265
Originations of banking/finance loans receivable (114,836) (103,532) (222,341)
Collections of banking/finance loans receivable 165,051 207,664 146,963
Purchase of property and equipment (82,973) (64,419) (40,365)
Acquisition of assets and liabilities of Heine
Securities Corporation (550,742) -- --
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (593,437) 74,612 (151,966)
- ------------------------------------------------------------------------------------------------------
Decrease in bank deposits (32,814) (38,155) (21,525)
Exercise of common stock options 1,878 1,219 375
Dividends paid on common stock (40,387) (34,650) (31,688)
Purchase of treasury stock (19,135) (53,413) (41,749)
Issuance of debt 416,410 134,377 34,254
Payments on debt (128,807) (203,083) (32,832)
Purchase of option rights from subordinated
debenture holdings (91,685) -- --
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 105,460 (193,705) (93,165)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents (59,448) 240,490 51,323
Cash and cash equivalents, beginning of year 502,189 261,699 210,376
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $442,741 $502,189 $261,699
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest, including banking/finance group interest $42,154 $36,619 $28,129
Income taxes $172,906 $122,486 $125,496
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Value of common stock issued for the Acquisition $65,587 -- --
Value of common stock issued for redemption of debentures $75,015 -- --
Value of common stock issued in other transactions $31,954 $18,667 $18,546
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Franklin Resources, Inc. and its consolidated subsidiaries (the "Company")
derive substantially all of their revenues and net income from providing
investment management, administration, distribution and related services to the
Franklin Templeton funds, institutional accounts and other investment products
that operate in the United States, Canada, Europe and other international
markets under various rules and regulations set forth by the Securities and
Exchange Commission, individual state agencies and foreign governments. Services
to the Franklin Templeton funds are provided under contracts that definitively
set forth the fees to be charged for these services. The majority of these
contracts are subject to periodic review and approval by each fund's Board of
Directors/Trustees and shareholders. Currently, no fund's revenues represent
more than 10% of total revenues. Company revenues are largely dependent on the
total value and composition of assets under management, which include U.S. and
international equity and debt portfolios. Accordingly, fluctuations in financial
markets and in the composition of assets under management impact revenues and
results of operations.
Basis of Presentation. The consolidated financial statements are prepared in
accordance with generally accepted accounting principles which require the use
of estimates made by the Company's management. Certain 1996 and 1995 amounts
have been reclassified to conform to 1997 presentation.
The consolidated financial statements include the accounts of Franklin
Resources, Inc. and its majority-owned subsidiaries. All material inter-company
accounts and transactions have been eliminated except the inter-company payable
from the banking/finance group to the parent to fund auto and credit card loans.
Operating revenues of the banking/finance group are included in Other revenues,
net and are presented net of related interest expense and the provision for loan
losses. Accordingly, reported interest expense excludes interest expense
attributable to the banking/finance group.
Cash and Cash Equivalents include cash on hand, demand deposits with banks or
other high credit quality financial institutions, debt instruments with original
maturities of three months or less and other highly liquid investments,
including money market funds, which are readily convertible into cash. Due to
the relatively short-term nature of these instruments, the carrying value
approximates fair value.
Investment Securities, available for sale are carried at fair value. Fair values
for investments in Franklin Templeton funds are based on the last reported net
asset value. Fair values for other investments are based on the last reported
price on the exchange on which they are traded. Investments not traded on an
exchange are carried at management's estimate of fair value.
Realized gains and losses are included in investment income currently based on
specific identification. Unrealized gains and losses are reported net of tax as
a separate component of stockholders' equity until realized.
Derivative Instruments. The Company enters into interest-rate swap agreements to
manage its exposure to fluctuations in interest rates. Under these agreements
the Company agrees to exchange, at specified intervals, the difference between
fixed- and variable-interest amounts calculated by reference to an agreed-upon
notional principal amount. The interest-rate differential between the fixed
pay-rate and the variable receive-rate is reflected as an adjustment to interest
expense over the life of the swaps. The Company does not hold or issue
derivative financial instruments for trading purposes.
Loans Receivable. Interest on auto installment loans is accrued principally
using the rule of 78s method, which approximates the interest method. Interest
on all other loans is accrued using the simple interest method. An allowance for
loan losses is established monthly based on historical experience, including
delinquency and loss trends. A loan is charged to the allowance when it is
deemed to be uncollectible, taking into consideration the value of the
collateral, the financial condition of the borrower and other factors.
Recoveries on loans previously charged off as uncollectible are credited to the
allowance for loan losses.
Deferred Sales Commissions. Sales commissions paid to financial intermediaries
in connection with the sale of certain share classes of open-end Franklin
Templeton funds are deferred and amortized on a straight-line basis over periods
ranging from eighteen months to six years.
Property and Equipment are recorded at cost and are depreciated on the
straight-line basis over their estimated useful lives. Expenditures for repairs
and maintenance are charged to expense when incurred. Leasehold improvements are
amortized on the straight-line basis over their estimated useful lives or the
lease term, whichever is shorter.
Intangible Assets, consisting principally of the estimated value of mutual fund
management contracts and goodwill resulting from the acquisitions of the assets
of Templeton and Heine Securities Corporation, are being amortized over various
lives ranging from 5 to 40 years. The Company has evaluated the potential
impairment of its intangible assets on the basis of the expected future
operating cash flows to be derived from these assets in relation to the
Company's carrying values and has determined that there is no impairment.
Periodically, the Company reviews the carrying value of its intangible assets
for potential impairment.
Recognition of Revenues. Investment management fees, shareholder servicing fees,
investment income and distribution fees are all recognized as earned.
Underwriting commissions related to the sale of Franklin Templeton mutual fund
shares are recorded on the trade date.
Advertising and Promotion. Costs of advertising and promotion are expensed as
the advertising appears in the media.
Foreign Currency Translation. Assets and liabilities of foreign subsidiaries are
translated at current exchange rates as of the end of the accounting period, and
related revenues and expenses are translated at average exchange rates in effect
during the period. Net exchange gains and losses resulting from translation are
excluded from income and are recorded as a separate component of stockholders'
equity. Foreign currency transaction gains and losses are reflected in income
currently.
Dividends. During the years ended September 30, 1997, 1996 and 1995, the Company
declared dividends to common stockholders of $.34, $.29 and $.27, respectively.
All common shares and per share amounts have been adjusted to give retroactive
effect to a three-for-two stock dividend paid January 15, 1997 to shareholders
of record on December 31, 1996. Stockholders' equity as of September 30, 1996
and 1995 has not been restated.
Earnings per Share are computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents considered
outstanding during each year. The weighted average number of shares and common
stock equivalents used in computing earnings per share in 1997, 1996 and 1995
were 126,715,000, 124,970,000 and 124,671,000 for primary and 126,733,000,
125,642,000 and 126,047,000 for fully diluted, respectively.
Note 2 ACQUISITION
On November 1, 1996, the Company acquired the assets and liabilities of Heine
Securities Corporation ("Heine"), the former investment manager to Mutual Series
Fund Inc., other funds and private accounts ("Mutual"). The transaction had an
aggregate value of approximately $616 million. Heine received $551 million in
cash and 1.1 million shares of the Company's common stock (before the effect of
the three-for-two stock dividend declared December 31, 1996) that may not be
sold for two years from the date of the Acquisition and that are subject to
other restrictions. Pursuant to the terms of the acquisition agreement, the
shareholder of Heine invested $150 million of the cash proceeds in Mutual and
agreed to maintain a minimum balance of $100 million for five years from the
date of the Acquisition. In addition to the base purchase price, the purchase
agreement also provides for contingent payments to Heine ranging from $96.25
million to $192.5 million under certain conditions if certain agreed-upon growth
targets are met. The Acquisition has been accounted for using the purchase
method of accounting.
Note 3 INVESTMENT SECURITIES
Investment securities, available-for-sale at September 30, 1997 and 1996
consisted of the following:
AMORTIZED GROSS UNREALIZED FAIR
IN THOUSANDS COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------
1997
Franklin Templeton
funds $151,726 $21,552 -- $173,278
Debt 33,176 341 $(134) 33,383
Equities 5,853 1,414 (79) 7,188
Other 51 6 -- 57
- ----------------------------------------------------------------------------
$190,806 $23,313 $(213) $213,906
- ----------------------------------------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
IN THOUSANDS COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------
1996
Franklin Templeton
funds $116,146 $12,993 -- $129,139
Debt 36,108 278 $(91) 36,295
Equities 1,578 2,332 (61) 3,849
Other 30,178 20 -- 30,198
- -------------------------------------------------------------------------------
$184,010 $15,623 $(152) $199,481
- --------------------------------------------------------------------------------
At September 30, 1997, maturities of debt securities were as follows:
ESTIMATED
IN THOUSANDS COST FAIR VALUE
- ----------------------------------------------------------------------------
Due in one year or less $14,063 $14,087
Due after one year through three years 15,381 15,465
Due after three years 3,732 3,831
- -------------------------------------------------------------------------------
$33,176 $33,383
- -------------------------------------------------------------------------------
Note 4 BANKING/FINANCE GROUP LOANS AND ALLOWANCE FOR LOAN LOSSES
Activity of the banking/finance group's loans and allowance for loan losses for
the years ended September 30, 1997 and 1996 was as follows:
NET
CHARGE
IN THOUSANDS 1996 ADDITIONS PAYDOWNS OFFS 1997
- -------------------------------------------------------------------------------
Auto $284,141 $92,708 $(131,058) $(6,436) $239,355
Credit Card 87,527 21,622 (29,974) (927) 78,248
Other 6,387 506 (2,736) (165) 3,992
- -------------------------------------------------------------------------------
378,055 114,836 (163,768) (7,528) 321,595
- -------------------------------------------------------------------------------
Unearned fees
and discounts (23,092) (7,400) 13,645 (16,847)
Allowance for
loan losses (9,564) (6,524) 7,528 (8,560)
- -------------------------------------------------------------------------------
Loans
receivable,
net $345,399 $100,912 $(150,123) -- $296,188
----------------------------------------------------------------------------
NET
CHARGE
IN THOUSANDS 1995 ADDITIONS PAYDOWNS OFFS 1996
- -------------------------------------------------------------------------------
Auto $400,867 $62,840 $(165,380) $(14,186) $284,141
Credit Card 95,040 39,846 (45,476) (1,883) 87,527
Other 6,000 846 (320) (139) 6,387
- -------------------------------------------------------------------------------
501,907 103,532 (211,176) (16,208) 378,055
- -------------------------------------------------------------------------------
Unearned fees
and discounts (42,813) (6,900) 26,621 (23,092)
Allowance for
loan losses (9,081) (16,691) 16,208 (9,564)
- -------------------------------------------------------------------------------
Loans
receivable,
net $450,013 $79,941 $(184,555) -- $345,399
---------------------------------------------------------------------------
For the years ended September 30, 1997, 1996 and 1995, the interest expense
of the banking/finance group included in other operating revenues, net was
$21.2 million, $25.6 million and $28.6 million, respectively.
At September 30, 1996 and 1995, the carrying value of loans receivable
approximated fair value. The fair value of consumer loans is estimated
using interest rates that consider the current credit and interest rate
risk inherent in the loans and current economic and lending conditions.
At September 30, 1997 and 1996, the carrying values of deposits
approximated fair value. The fair values of the banking subsidiary's
deposit amounts payable on demand at the reporting date are estimated using
interest rates currently offered on time deposits with similar remaining
maturities.
Note 5 PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at September 30, 1997 and
1996:
USEFUL LIVES
IN THOUSANDS IN YEARS 1997 1996
-----------------------------------------------------------------------------
Furniture and equipment 3-5 $181,173 $114,228
Premises and leasehold improvements 5-35 101,299 92,493
Leased equipment 5 6,860 2,451
Land -- 24,722 23,811
-----------------------------------------------------------------------------
314,054 232,983
Less: Accumulated depreciation and
amortization (96,969) (71,370)
- -------------------------------------------------------------------------------
$217,085 $161,613
- -------------------------------------------------------------------------------
Note 6 INTANGIBLE ASSETS
The following is a summary of intangible assets at September 30, 1997 and 1996:
AMORTIZATION
IN THOUSANDS PERIOD IN YEARS 1997 1996
- -----------------------------------------------------------------------------
Goodwill and management
contracts 40 $1,300,793 $716,010
Other intangibles 5-15 31,546 --
- -----------------------------------------------------------------------------
1,332,339 716,010
Accumulated amortization (108,320) (74,027)
- -----------------------------------------------------------------------------
$1,224,019 $641,983
- -----------------------------------------------------------------------------
Note 7 SEGMENT INFORMATION
The Company conducts operations in five principal geographic areas of the world:
the U.S., Canada, the Bahamas, Europe and Asia/Pacific. Revenues by geographic
area include fees and commissions charged to customers and fees charged to
affiliates. Identifiable assets are those assets used exclusively in the
operations of each geographic area.
Information is summarized below:
IN THOUSANDS ADJUSTMENT
ASIA/ AND
1997 US CANADA BAHAMAS EUROPE PACIFIC ELIMINATION CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------
REVENUES FROM
Unaffiliated customers $1,512,873 $169,560 $250,216 $61,109 $169,517 -- $2,163,275
Affiliates 152,203 1,099 3,182 26,237 8,071 $(190,792) --
- ----------------------------------------------------------------------------------------------------------------------
Total $1,665,076 $170,659 $253,398 $87,346 $177,588 $(190,792) $2,163,275
- ----------------------------------------------------------------------------------------------------------------------
Operating income $249,700 $49,374 $175,518 $1,629 $115,239 -- $591,460
- ----------------------------------------------------------------------------------------------------------------------
Identifiable assets $1,302,166 $122,335 $449,112 $32,028 $181,191 -- $2,086,832
Corporate assets -- -- -- -- -- $1,008,368 1,008,368
- ---------------------------------------------------------------------------------------------------------------------
Total assets $1,302,166 $122,335 $449,112 $32,028 $181,191 $1,008,368 $3,095,200
- ----------------------------------------------------------------------------------------------------------------------
IN THOUSANDS ADJUSTMENT
ASIA/ AND
1996 US CANADA BAHAMAS EUROPE PACIFIC ELIMINATION CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------
REVENUES FROM
Unaffiliated customers $1,106,448 $99,658 $173,697 $31,752 $107,918 -- $1,519,473
Affiliates 34,452 509 1,773 13,742 5,982 $(56,458) --
- --------------------------------------------------------------------------------------------------------------------
Total $1,140,900 $100,167 $175,470 $45,494 $113,900 $(56,458) $1,519,473
- --------------------------------------------------------------------------------------------------------------------
Operating income $193,821 $29,131 $115,826 $742 $77,588 -- $417,108
- ---------------------------------------------------------------------------------------------------------------------
Identifiable assets $848,156 $69,547 $432,088 $24,912 $154,503 -- $1,529,206
Corporate assets -- -- -- -- -- $844,961 844,961
- ----------------------------------------------------------------------------------------------------------------------
Total assets $848,156 $69,547 $432,088 $24,912 $154,503 $844,961 $2,374,167
- ----------------------------------------------------------------------------------------------------------------------
IN THOUSANDS ADJUSTMENT
ASIA/ AND
1995 US CANADA BAHAMAS EUROPE PACIFIC ELIMINATION CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------
REVENUES FROM
Unaffiliated customers $947,376 $66,970 $131,571 $24,624 $82,723 -- $1,253,264
Affiliates 17,080 492 1,606 10,903 7,160 $(37,241) --
- ----------------------------------------------------------------------------------------------------------------------
Total $964,456 $67,462 $133,177 $35,527 $89,883 $(37,241) $1,253,264
- ----------------------------------------------------------------------------------------------------------------------
Operating income/(loss) $199,615 $22,362 $90,393 $(1,770) $57,541 -- $368,141
- ----------------------------------------------------------------------------------------------------------------------
Identifiable assets $819,287 $43,589 $438,859 $23,681 $138,213 -- $1,463,629
Corporate assets -- -- -- -- -- $781,052 781,052
- ----------------------------------------------------------------------------------------------------------------------
Total assets $819,287 $43,589 $438,859 $23,681 $138,213 $781,052 $2,244,681
- ----------------------------------------------------------------------------------------------------------------------
Summarized below are the business segments:
IN THOUSANDS OPERATING
IDENTIFIABLE INCOME/
1997 ASSETS REVENUES (LOSS)
- --------------------------------------------------------------------------------
Investment management $1,746,827 $2,152,505 $598,154
Banking/finance 332,036 8,617 (5,102)
Real estate 7,969 2,153 (1,592)
- --------------------------------------------------------------------------------
Company totals $2,086,832 $2,163,275 $591,460
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
Investment management $1,124,229 $1,514,438 $429,348
Banking/finance 393,598 3,179 (11,090)
Real estate 11,379 1,856 (1,150)
- --------------------------------------------------------------------------------
Company totals $1,529,206 $1,519,473 $417,108
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
Investment management $958,200 $1,244,561 $379,288
Banking/finance 496,059 6,841 (10,217)
Real estate 9,370 1,862 (930)
- ------------------------------------------------------------------------------
Company totals $1,463,629 $1,253,264 $368,141
- -------------------------------------------------------------------------------
The investment management segment's assets are primarily intangibles and
receivables from, and investments in, Franklin Templeton funds. The
banking/finance segment's assets are primarily investment securities and
consumer loans.
Note 8 DEBT
Debt at September 30, 1997 and 1996 was as follows:
1997 WEIGHTED
IN THOUSANDS AVERAGE INTEREST RATE 1997 1996
- --------------------------------------------------------------------------------
SHORT-TERM DEBT
Commercial paper 6.26% $51,500 --
Notes payable 6.63% 60,000 --
Other -- 6,872 $427
- --------------------------------------------------------------------------------
Total short-term debt $118,372 $427
- --------------------------------------------------------------------------------
LONG-TERM DEBT
Commercial paper issued under
long-term borrowing agreements 6.26% $298,245 $128,731
Notes payable 6.36% 160,000 120,000
Subordinated debentures -- -- 150,000
Other 34,999 731
- --------------------------------------------------------------------------------
Total long-term debt $493,244 $399,462
- --------------------------------------------------------------------------------
As of September 30, 1997, maturities of long-term debt are as follows:
IN THOUSANDS
1998 $298,245
1999 56,612
2000 56,612
2001 66,612
2002 6,612
Thereafter 8,551
----------------------------------
$493,244
----------------------------------
The Company has a revolving credit agreement with a group of commercial banks
that will allow it, at its option, to refinance the commercial paper for up to
five years from the closing date, May 16, 1997. In accordance with the Company's
intention and ability to refinance these obligations on a long-term basis,
$298.2 million of commercial paper at September 30, 1997 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, 1997. At September 30, 1997, amounts available
for issuance under the Company's commercial paper program were $148.5 million.
At September 30, 1997, the Company had interest-rate swap agreements maturing
through October 2000 which effectively fixed interest rates on $295 million of
commercial paper. These financial instruments are placed with major financial
institutions. The creditworthiness of the counterparties is subject to
continuous review and full performance is anticipated. Any potential loss from
failure of the counterparties to perform is deemed to be immaterial. The
following table presents information for outstanding interest-rate swaps at
September 30, 1997:
IN THOUSANDS
MATURING IN THE YEARS
ENDING SEPTEMBER 30, 1999 2000 2001
- --------------------------------------------------------------------------------
Notional amounts $165,000 $40,000 $90,000
Fair value $(1,215) $(563) $(1,215)
Carrying value $(168) $(65) $(133)
Weighted average receive rate 5.53% 5.56% 5.56%
Weighted average pay rate 6.36% 6.52% 6.43%
Notes payable represents the Company's participation in a medium-term note
program. Notes totaling $100 million and $120 million were issued during 1997
and 1996, respectively, with interest rates ranging from 6.02% to 6.63%. These
notes mature at various times from 1998 through 2001. At September 30, 1997,
amounts available for issuance under the Company's medium-term note program were
$400 million.
On November 26, 1996, the holders of the option rights related to the Company's
subordinated debentures exercised their option rights to receive approximately
2.4 million shares of the Company's common stock in return for approximately $75
million of the subordinated debentures. The holders of the subordinated
debentures also agreed to sell to the Company the remaining option rights
representing an additional 2.4 million shares, and to surrender the remaining
$75 million of debentures plus accrued interest for cash of approximately $170
million. This transaction was financed through the issuance of $100 million in
medium-term notes referred to above and through cash on hand. No material gain
or loss was recognized on this transaction.
At September 30, 1997 and 1996, the fair value of long-term debt approximated
its carrying value. The fair values of long-term debt are estimated using
interest rates currently offered to the Company for debt with similar remaining
maturities.
Note 9 INVESTMENT INCOME
IN THOUSANDS 1997 1996 1995
- ------------------------------------------------------------------------
Dividends $14,141 $15,683 $12,873
Interest 16,105 16,787 12,029
Realized gains, net 15,563 17,271 2,499
Foreign exchange gains
(losses), net 2,245 (394) (355)
Other 1,532 1,111 2,627
- ------------------------------------------------------------------------
$49,586 $50,458 $29,673
- ------------------------------------------------------------------------
Substantially all of the Company's dividend income was generated by investments
in the Franklin Templeton funds.
Note 10 TAXES ON INCOME
Taxes on income for the years ended September 30, 1997, 1996 and 1995 were
comprised of the following:
IN THOUSANDS 1997 1996 1995
- -------------------------------------------------------------------------------
Current
Federal $122,361 $98,803 $76,350
State 33,874 23,118 19,969
Foreign 26,637 25,558 20,018
Deferred (benefit) expense (1,222) (5,979) 1,373
- --------------------------------------------------------------------------------
Total provision $181,650 $141,500 $117,710
- --------------------------------------------------------------------------------
Included in income before taxes was $358.9 million, $225.7 million and $161.7
million, of foreign income for the years ended September 30, 1997, 1996 and
1995, respectively.
The major components of the net deferred tax asset as of September 30, 1997 and
1996 were as follows:
IN THOUSANDS 1997 1996
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS
State taxes expensed currently, deductible
in following year $6,844 $6,608
Temporary differences on investment losses 1,974 2,124
Loan loss reserves 3,850 3,760
Deferred compensation 3,442 1,983
Restricted stock compensation plan 34,933 20,016
Net operating loss carryforwards 27,510 18,203
Other 8,256 5,077
- --------------------------------------------------------------------------------
Total deferred tax assets 86,809 57,771
- --------------------------------------------------------------------------------
Valuation allowance for net
operating loss carryforwards (27,510) (18,203)
- --------------------------------------------------------------------------------
Deferred tax assets, net of
valuation allowance 59,299 39,568
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Temporary differences on partnership earnings $4,774 $5,504
Capitalized compensation costs 6,728 7,503
Net unrealized gains on securities 8,967 4,622
Depreciation on fixed assets 11,384 6,244
Prepaid expenses 15,419 6,019
Other 9,233 1,315
- --------------------------------------------------------------------------------
Total deferred tax liabilities 56,505 31,207
- --------------------------------------------------------------------------------
Net deferred tax asset $2,794 $8,361
- --------------------------------------------------------------------------------
At September 30, 1997, there were approximately $28.2 million of foreign net
operating loss carryforwards of which approximately $13.0 million expire between
1999 and 2005 and the remaining have an indefinite life. In addition, there are
approximately $288.5 million in state net operating loss carryforwards that
expire between 2006 and 2012. 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 for an indefinite period of time. Accordingly,
no U.S. federal or state income taxes have been provided thereon. At September
30, 1997, the cumulative amount of reinvested income for which no U.S. taxes
have been provided was approximately $588 million. Determination of the amount
of the unrecognized deferred U.S. income tax liability related to such
reinvested income is not practicable because of the numerous assumptions
associated with this hypothetical calculation; however, foreign tax credits
would be available to reduce some portion of this amount.
The following is a reconciliation between the amount of tax expense at the
federal statutory rate and taxes on income as reflected in operations for the
years ended September 30, 1997, 1996 and 1995, respectively:
IN THOUSANDS 1997 1996 1995
- --------------------------------------------------------------------------------
U.S. federal statutory rate 35.0% 35.0% 35.0%
Federal taxes at statutory rate $215,500 $159,786 $135,329
State taxes, net of federal tax effect 21,099 18,167 12,747
Foreign earnings subject to
reduced tax rates for which
no U.S. tax is provided (69,973) (43,159) (32,956)
Other 15,024 6,706 2,590
- --------------------------------------------------------------------------------
Actual tax provision $181,650 $141,500 $117,710
- --------------------------------------------------------------------------------
Effective tax rate 29.5% 31.0% 30.4%
- --------------------------------------------------------------------------------
Note 11 COMMITMENTS AND CONTINGENCIES
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 2017. Lease expense aggregated $27.6 million, $24.3
million and $21.8 million for the fiscal years ended September 30, 1997, 1996
and 1995, respectively.
At September 30, 1997, future minimum lease payments under operating leases were
as follows:
IN THOUSANDS
1998 $22,958
1999 20,900
2000 16,645
2001 7,169
2002 2,893
Thereafter 13,109
-----------------------------------
$83,674
-----------------------------------
At September 30, 1997, the Company's banking/finance group had commitments to
extend credit aggregating $390.9 million, principally under its credit card
lines.
The Company through certain subsidiaries acts as fiduciary for retirement and
employee benefit plans. At September 30, 1997, assets held in trust were
approximately $20.1 billion.
The Company is involved in various claims and legal proceedings of a nature
considered normal to its business. While it is not feasible to predict or
determine the final outcome of these proceedings, management does not believe
that they should result in a materially adverse effect on the Company's
financial position, results of operations or liquidity.
Note 12 EMPLOYEE STOCK AWARD AND OPTION PLANS
The Company sponsors an Annual Incentive Plan which provides eligible employees
payment of both cash and restricted stock. The costs associated with the Annual
Incentive Plan awards are charged to income currently.
In December 1993, the Company adopted a Universal Stock Plan providing for the
issuance of up to 3 million shares of the Company's stock for various
stock-related awards including restricted stock and stock options. As of
September 30, 1997, the Company had approximately 892,000 shares remaining
available for grant under the Universal Stock Plan. Terms and conditions under
the option plans (including price, exercise date and number of shares) are
determined by the Compensation Committee of the Board of Directors. Information
regarding the option plans for the fiscal years ending September 30, 1997, 1996
and 1995 is as follows:
FOR THE YEARS ENDED
SEPTEMBER 30, 1997 1996 1995
- --------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES IN THOUSANDS SHARES PRICE SHARES PRICE SHARES PRICE
- --------------------------------------------------------------------------------
Outstanding,
beginning
of year 282 $21.42 325 $18.12 250 $15.06
Granted 39 $44.29 36 $37.63 103 $25.04
Exercised (154) $17.50 (79) $15.31 (28) $20.32
- --------------------------------------------------------------------------------
Outstanding,
end of year 167 $30.42 282 $21.42 325 $18.12
- --------------------------------------------------------------------------------
Exercisable,
end of year 70 $28.25 51 $28.38 47 $22.47
- --------------------------------------------------------------------------------
Range of exercise prices at September 30, 1997 -- $7.88 to $44.29.
Weighted-average remaining contractual life -- 4 years.
All share and price information above has been adjusted to give retroactive
effect to a three-for-two stock dividend declared December 31, 1996.
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"). Accordingly, no compensation costs have been recognized for the stock
options granted. Had compensation costs for the Company's stock options granted
after September 30, 1995 been determined consistent with the provisions of FAS
123, the Company's net income and earnings per share would not have been
materially affected because the number of such stock options is insignificant.
Total compensation cost recognized for stock-based compensation during 1997,
1996 and 1995 was $42.2 million, $27.8 million and $16.9 million, respectively.
Note 13 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
IN THOUSANDS
QUARTER FIRST SECOND THIRD FOURTH
- --------------------------------------------------------------------------------
1997
Revenues $437,625 $519,196 $572,547 $633,907
Net income $96,229 $101,411 $111,188 $125,235
Earnings per share
Primary $0.76 $0.80 $0.88 $0.99
Fully diluted $0.76 $0.80 $0.88 $0.99
1996
Revenues $341,755 $393,199 $394,762 $389,757
Net income $73,951 $75,212 $81,066 $84,501
Earnings per share
Primary $0.59 $0.60 $0.65 $0.68
Fully diluted $0.59 $0.60 $0.65 $0.67
1995
Revenues $303,303 $297,554 $316,568 $335,839
Net income $63,304 $63,040 $69,029 $73,572
Earnings per share
Primary $0.51 $0.51 $0.56 $0.59
Fully diluted $0.51 $0.51 $0.55 $0.59
Note 14 NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued three Statements of
Financial Accounting Standards which will become effective for the Company's
fiscal year ending September 30, 1999.
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128") specifies the computation, presentation and disclosure requirements for
earnings per share for entities with publicly held common stock. FAS 128 will
require the Company to change its presentation of earnings per share from
primary and fully diluted to basic and diluted. At that time, all prior period
earnings per share data will be restated. The impact on reported earnings per
share is not expected to be material as the Company's common stock equivalents
are currently not material.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130") establishes the disclosure requirements for reporting
comprehensive income in an entity's annual and interim financial statements.
Comprehensive income includes such items as foreign currency translation
adjustments and unrealized gains on securities currently reported as components
of stockholders' equity. FAS 130 will require the Company to classify items of
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately in the equity
section of the consolidated balance sheet. The Company has not yet determined
the type of presentation it will adopt.
Statement of Financial Accounting Standards No. 131, "Disclosures of Segment
Information" establishes standards for the way a public enterprise reports
information about operating segments in annual financial statements and requires
that these enterprises report selected information about operating segments in
interim financial statements. The Company has not yet determined the effect, if
any, of this pronouncement on the consolidated financial statements.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Items 10-13 are incorporated by reference to the Company's definitive proxy
statement to be mailed to stockholders in connection with the Annual Meeting of
Stockholders to be held January 20, 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Please see the index in Item 8 for a list of the financial statements
filed as part of this report.
(2)Please see the index in Item 8 for a list of the financial statement
schedules filed as part of this report.
(3) The following exhibits are filed as part of this report:
(3)(i)(a) Registrant's Certificate of Incorporation, as filed November
28, 1969, incorporated by reference to Exhibit (3)(i) to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 (the "1994 Annual Report")
(3)(i)(b) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985, incorporated by reference
to Exhibit (3)(ii) to the 1994 Annual Report
(3)(i)(c) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987, incorporated by reference
to Exhibit (3)(iii) to the 1994 Annual Report
(3)(i)(d) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994, incorporated by
reference to Exhibit (3)(iv) to the 1994 Annual Report
(3)(ii) Registrant's By-Laws are incorporated by reference to Form 10
(File No. 06952), incorporated by reference to Exhibit (3)(v)
to the 1994 Annual Report
10.1 Representative Distribution Plan between Templeton Growth Fund, Inc.
and Franklin/Templeton Investor Services, Inc. incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993 (the "1993 Annual Report")
10.2 Representative Transfer Agent Agreement between Templeton Growth Fund,
Inc. and Franklin/Templeton Investor Services, Inc. incorporated by
reference to Exhibit 10.3 to the 1993 Annual Report
10.3 Representative Investment Management Agreement between Templeton
Growth Fund, Inc. and Templeton, Galbraith & Hansberger Ltd.
incorporated by reference to Exhibit 10.5 to the 1993 Annual Report
10.4 Representative Management Agreement between Advisers and the Franklin
Group of Funds incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1992 (the "1992 Annual Report")
10.5 Representative Distribution 12b-1 Plan between Distributors and the
Franklin Group of Funds incorporated by reference to Exhibit 10.3 to the
1992 Annual Report
10.6 Amended Annual Incentive Compensation Plan approved January 24, 1995
incorporated by reference to the Company's Proxy Statement filed under
cover of Schedule 14A on December 28, 1994 in connection with its Annual
Meeting of Stockholders held on January 24, 1995
10.7 Universal Stock Plan approved January 19, 1994 incorporated by reference
to the Company's 1995 Proxy Statement filed under cover of Schedule 14A
on December 29, 1993 in connection with its Annual Meeting of
Stockholders held on January 19, 1994
10.8 Representative Amended and Restated Distribution Agreement between
Franklin/Templeton Distributors, Inc. and Franklin Federal Tax-Free
Income Fund, incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1995 (the "June 1995 Quarterly Report")
10.9 Distribution 12b-1 Plan for Class II shares between Franklin/Templeton
Distributors, Inc. and Franklin Federal Tax-Free Income Fund,
incorporated by reference to Exhibit 10.2 to the June 1995 Quarterly
Report
10.10 Representative Investment Management Agreement between Templeton
Global Strategy SICAV and Templeton Investment Management Limited,
incorporated by reference to Exhibit 10.3 to the June 1995 Quarterly
Report
10.11 Representative Sub-Distribution Agreement between Templeton, Galbraith
& Hansberger Ltd. and BAC Corp. Securities, incorporated by reference
to Exhibit 10.4 to the June 1995 Quarterly Report
10.12 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to Exhibit
10.5 to the June 1995 Quarterly Report
10.13 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (ERISA), incorporated by reference
to Exhibit 10.6 to the June 1995 Quarterly Report
10.14 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (NON-ERISA), incorporated by
reference to Exhibit 10.7 to the June 1995 Quarterly Report
10.15 Representative Amended and Restated Transfer Agent and Shareholder
Services Agreement between Franklin/Templeton Investor Services, Inc.
and Franklin Custodian Funds, Inc., dated July 1, 1995, incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 (the "1995 Annual Report")
10.16 Representative Amended and Restated Distribution Agreement between
Franklin/Templeton Distributors, Inc. and Franklin Custodian Funds,
Inc., incorporated by reference to Exhibit 10.17 to the 1995 Annual
Report
10.17 Representative Class II Distribution Plan between Franklin/Templeton
Distributors, Inc. and Franklin Custodian Funds, Inc., on behalf of
its Growth Series, incorporated by reference to Exhibit 10.18 to the
1995 Annual Report
10.18 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to Exhibit
10.19 to the 1995 Annual Report
10.19 Representative Mutual Fund Purchase and Sales Agreement for Accounts of
Bank and Trust Company Customers, effective July 1, 1995, incorporated
by reference to Exhibit 10.20 to the 1995 Annual Report
10.20 Representative Management Agreement between Franklin Value Investors
Trust, on behalf of Franklin MicroCap Value Fund, and Franklin
Advisers, Inc., incorporated by reference to Exhibit 10.21 to the 1995
Annual Report
10.21 Representative Sub-Distribution Agreement between Templeton, Galbraith
& Hansberger Ltd. and Sub-Distributor, incorporated by reference to
Exhibit 10.22 to the 1995 Annual Report
10.22 Representative Non-Exclusive Underwriting Agreement between Templeton
Growth Fund, Inc. and Templeton Franklin Investment Services (Asia)
Limited, dated September 18, 1995, incorporated by reference to
Exhibit 10.23 to the 1995 Annual Report
10.23 Representative Shareholder Services Agreement between
Franklin/Templeton Investor Services, Inc. and Templeton Franklin
Investment Services (Asia) Limited, dated September 18, 1995,
incorporated by reference to Exhibit 10.24 to the 1995 Annual Report
10.24 Agreement to Merge the Businesses of Heine Securities Corporation,
Elmore Securities Corporation and Franklin Resources, Inc., dated June
25, 1996, incorporated by reference to Exhibit 2 to Registrant's Report
on Form 8-K dated June 25, 1996
10.25 Subcontract for Transfer Agency and Shareholder Services dated November
1, 1996 by and between Franklin Investor Services, Inc. and PFPC Inc.,
incorporated by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996 (the
"1996 Annual Report")
10.26 Representative Sample of Franklin/Templeton Investor Services, Inc.
Transfer Agent and Shareholder Services Agreement, incorporated by
reference to Exhibit 10.26 to the 1996 Annual Report
10.27 Representative Administration Agreement between Templeton Growth Fund,
Inc. and Franklin Templeton Services, Inc., incorporated by reference
to Exhibit 10.27 to the 1996 Annual Report
10.28 Representative Sample of Fund Administration Agreement with Franklin
Templeton Services, Inc., incorporated by reference to Exhibit 10.28
to the 1996 Annual Report
10.29 Representative Subcontract for Fund Administrative Services between
Franklin Advisers, Inc. and Franklin Templeton Services, Inc.,
incorporated by reference to Exhibit 10.29 to the 1996 Annual Report
10.30 Representative Investment Advisory Agreement between Franklin Mutual
Series Fund Inc. and Franklin Mutual Advisers, Inc., incorporated by
reference to Exhibit 10.30 to the 1996 Annual Report
10.31 Representative Management Agreement between Franklin Valuemark Funds
and Franklin Mutual Advisers, Inc., incorporated by reference to
Exhibit 10.31 to the 1996 Annual Report
10.32 Representative Investment Advisory and Asset Allocation Agreement
between Franklin Templeton Fund Allocator Series and Franklin
Advisers, Inc., incorporated by reference to Exhibit 10.32 to the 1996
Annual Report
10.33 Representative Management Agreement between Franklin New York Tax-Free
Income Fund, Inc. and Franklin Investment Advisory Services, Inc.,
incorporated by reference to Exhibit 10.33 to the 1996 Annual Report
10.34 1998 Employee Stock Purchase Plan approved December 12, 1997 by the
Board of Directors, incorporated by reference to the Company's Proxy
Statement filed under cover of Schedule 14A on December 17, 1997 in
connection with its Annual Meeting of Stockholders to be held on January
20, 1998
10.35 System Development and Services Agreement dated as of August 29, 1997
by and between Franklin/Templeton Investor Services, Inc. and Sungard
Shareholder Systems, Inc.
12 Computation of Ratios of Earnings to Fixed Charges
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
(b)(1) Current Report on Form 8-K dated July 24, 1997 was filed on July 24,
1997 attaching Registrant's press release dated July 24, 1997 under
Items 5 and 7.
(c) See Item 14(a)(3) above.
(d) No separate financial statements are required; schedules are included
in Item 8.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FRANKLIN RESOURCES, INC.
Date: December 12, 1997 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 12, 1997 By /s/ Charles B. Johnson
Charles B. Johnson, Principal
Executive Officer and Director
Date: December 12, 1997 By /s/ Harmon E. Burns
Harmon E. Burns, Executive Vice
President-Legal and Administrative
Secretary and Director
Date: December 12, 1997 By /s/ Martin L. Flanagan
Martin L. Flanagan, Treasurer
and Chief Financial Officer
Date: December 12, 1997 By /s/ Kenneth A. Lewis
Kenneth A. Lewis, Controller
Date: December 12, 1997 By /s/ James A. McCarthy
James A. McCarthy, Director
Date: December 12, 1997 By /s/ F. Warren Hellman
F. Warren Hellman, Director
Date: December 12, 1997 By /s/ Charles E. Johnson
Charles E. Johnson, Director
Date: December 12, 1997 By /s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr., Director
Date: December 12, 1997 By /s/ Harry O. Kline
Harry O. Kline, Director
Date: December 12, 1997 By /s/ Louis E. Woodworth
Louis E. Woodworth, Director
Date: December 12, 1997 By
Peter M. Sacerdote, Director
ITEM
(3)(i)(a) Registrant's Certificate of Incorporation, as filed November
28, 1969, incorporated by reference to Exhibit (3)(i) to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 (the "1994 Annual Report")
(3)(i)(b) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985, incorporated by reference
to Exhibit (3)(ii) to the 1994 Annual Report
(3)(i)(c) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987, incorporated by reference
to Exhibit (3)(iii) to the 1994 Annual Report
(3)(i)(d) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994, incorporated by
reference to Exhibit (3)(iv) to the 1994 Annual Report
(3)(ii) Registrant's By-Laws are incorporated by reference to Form 10
(File No. 06952), incorporated by reference to Exhibit (3)(v)
to the 1994 Annual Report
10.1 Representative Distribution Plan between Templeton Growth Fund, Inc.
and Franklin/Templeton Investor Services, Inc. incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993 (the "1993 Annual Report")
10.2 Representative Transfer Agent Agreement between Templeton Growth Fund,
Inc. and Franklin/Templeton Investor Services, Inc. incorporated by
reference to Exhibit 10.3 to the 1993 Annual Report
10.3 Representative Investment Management Agreement between Templeton
Growth Fund, Inc. and Templeton, Galbraith & Hansberger Ltd.
incorporated by reference to Exhibit 10.5 to the 1993 Annual Report
10.4 Representative Management Agreement between Advisers and the Franklin
Group of Funds incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1992 (the "1992 Annual Report")
10.5 Representative Distribution 12b-1 Plan between Distributors and the
Franklin Group of Funds incorporated by reference to Exhibit 10.3 to the
1992 Annual Report
10.6 Amended Annual Incentive Compensation Plan approved January 24, 1995
incorporated by reference to the Company's Proxy Statement filed under
cover of Schedule 14A on December 28, 1994 in connection with its Annual
Meeting of Stockholders held on January 24, 1995
10.7 Universal Stock Plan approved January 19, 1994 incorporated by reference
to the Company's 1995 Proxy Statement filed under cover of Schedule 14A
on December 29, 1993 in connection with its Annual Meeting of
Stockholders held on January 19, 1994
10.8 Representative Amended and Restated Distribution Agreement between
Franklin/Templeton Distributors, Inc. and Franklin Federal Tax-Free
Income Fund, incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1995 (the "June 1995 Quarterly Report")
10.9 Distribution 12b-1 Plan for Class II shares between Franklin/Templeton
Distributors, Inc. and Franklin Federal Tax-Free Income Fund,
incorporated by reference to Exhibit 10.2 to the June 1995 Quarterly
Report
10.10 Representative Investment Management Agreement between Templeton
Global Strategy SICAV and Templeton Investment Management Limited,
incorporated by reference to Exhibit 10.3 to the June 1995 Quarterly
Report
10.11 Representative Sub-Distribution Agreement between Templeton, Galbraith
& Hansberger Ltd. and BAC Corp. Securities, incorporated by reference
to Exhibit 10.4 to the June 1995 Quarterly Report
10.12 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to Exhibit
10.5 to the June 1995 Quarterly Report
10.13 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (ERISA), incorporated by reference
to Exhibit 10.6 to the June 1995 Quarterly Report
10.14 Representative Investment Management Agreement between Templeton
Investment Counsel, Inc. and Client (NON-ERISA), incorporated by
reference to Exhibit 10.7 to the June 1995 Quarterly Report
10.15 Representative Amended and Restated Transfer Agent and Shareholder
Services Agreement between Franklin/Templeton Investor Services, Inc.
and Franklin Custodian Funds, Inc., dated July 1, 1995, incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 (the "1995 Annual Report")
10.16 Representative Amended and Restated Distribution Agreement between
Franklin/Templeton Distributors, Inc. and Franklin Custodian Funds,
Inc., incorporated by reference to Exhibit 10.17 to the 1995 Annual
Report
10.17 Representative Class II Distribution Plan between Franklin/Templeton
Distributors, Inc. and Franklin Custodian Funds, Inc., on behalf of
its Growth Series, incorporated by reference to Exhibit 10.18 to the
1995 Annual Report
10.18 Representative Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealer, incorporated by reference to Exhibit
10.19 to the 1995 Annual Report
10.19 Representative Mutual Fund Purchase and Sales Agreement for Accounts of
Bank and Trust Company Customers, effective July 1, 1995, incorporated
by reference to Exhibit 10.20 to the 1995 Annual Report
10.20 Representative Management Agreement between Franklin Value Investors
Trust, on behalf of Franklin MicroCap Value Fund, and Franklin
Advisers, Inc., incorporated by reference to Exhibit 10.21 to the 1995
Annual Report
10.21 Representative Sub-Distribution Agreement between Templeton, Galbraith
& Hansberger Ltd. and Sub-Distributor, incorporated by reference to
Exhibit 10.22 to the 1995 Annual Report
10.22 Representative Non-Exclusive Underwriting Agreement between Templeton
Growth Fund, Inc. and Templeton Franklin Investment Services (Asia)
Limited, dated September 18, 1995, incorporated by reference to
Exhibit 10.23 to the 1995 Annual Report
10.23 Representative Shareholder Services Agreement between
Franklin/Templeton Investor Services, Inc. and Templeton Franklin
Investment Services (Asia) Limited, dated September 18, 1995,
incorporated by reference to Exhibit 10.24 to the 1995 Annual Report
10.24 Agreement to Merge the Businesses of Heine Securities Corporation,
Elmore Securities Corporation and Franklin Resources, Inc., dated June
25, 1996, incorporated by reference to Exhibit 2 to Registrant's Report
on Form 8-K dated June 25, 1996
10.25 Subcontract for Transfer Agency and Shareholder Services dated November
1, 1996 by and between Franklin Investor Services, Inc. and PFPC Inc.,
incorporated by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996 (the
"1996 Annual Report")
10.26 Representative Sample of Franklin/Templeton Investor Services, Inc.
Transfer Agent and Shareholder Services Agreement, incorporated by
reference to Exhibit 10.26 to the 1996 Annual Report
10.27 Representative Administration Agreement between Templeton Growth Fund,
Inc. and Franklin Templeton Services, Inc., incorporated by reference
to Exhibit 10.27 to the 1996 Annual Report
10.28 Representative Sample of Fund Administration Agreement with Franklin
Templeton Services, Inc., incorporated by reference to Exhibit 10.28
to the 1996 Annual Report
10.29 Representative Subcontract for Fund Administrative Services between
Franklin Advisers, Inc. and Franklin Templeton Services, Inc.,
incorporated by reference to Exhibit 10.29 to the 1996 Annual Report
10.30 Representative Investment Advisory Agreement between Franklin Mutual
Series Fund Inc. and Franklin Mutual Advisers, Inc., incorporated by
reference to Exhibit 10.30 to the 1996 Annual Report
10.31 Representative Management Agreement between Franklin Valuemark Funds
and Franklin Mutual Advisers, Inc., incorporated by reference to
Exhibit 10.31 to the 1996 Annual Report
10.32 Representative Investment Advisory and Asset Allocation Agreement
between Franklin Templeton Fund Allocator Series and Franklin
Advisers, Inc., incorporated by reference to Exhibit 10.32 to the 1996
Annual Report
10.33 Representative Management Agreement between Franklin New York Tax-Free
Income Fund, Inc. and Franklin Investment Advisory Services, Inc.,
incorporated by reference to Exhibit 10.33 to the 1996 Annual Report
10.34 1998 Employee Stock Purchase Plan approved December 12, 1997 by the
Board of Directors, incorporated by reference to the Company's Proxy
Statement filed under cover of Schedule 14A on December 17, 1997 in
connection with its Annual Meeting of Stockholders to be held on January
20, 1998
10.35 System Development and Services Agreement dated as of August 29, 1997
by and between Franklin/Templeton Investor Services, Inc. and Sungard
Shareholder Systems, Inc.
12 Computation of Ratios of Earnings to Fixed Charges
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
(b)(1) Current Report on Form 8-K dated July 24, 1997 was filed on July 24,
1997 attaching Registrant's press release dated July 24, 1997 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.