-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PdrfktDTuW9hmcG+4loiZbeBm/OIindAzCfDnV8IPaoZK+/3FqUZUlTuqbmfyHlq 3P5z1WmZq4LG109Jtv89rQ== 0000038777-96-000115.txt : 19960515 0000038777-96-000115.hdr.sgml : 19960515 ACCESSION NUMBER: 0000038777-96-000115 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN RESOURCES INC CENTRAL INDEX KEY: 0000038777 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 132670991 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09318 FILM NUMBER: 96562733 BUSINESS ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4155703000 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to______________ Commission File No. 1-9318 FRANKLIN RESOURCES, INC. (Exact name of registrant as specified in its charter) Delaware 13-2670991 -------- ----------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 777 Mariners Island Blvd., San Mateo, CA 94404 (Address of Principal Executive Offices) (Zip Code) (415) 312-2000 (Registrant's telephone number, including area code) ___________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ______ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES _____ NO ______ APPLICABLE ONLY TO CORPORATE ISSUERS: Outstanding: 80,348,334 shares, common stock, par value $.10 per share at April 30, 1996. Exhibit index See Page _____ PART I -FINANCIAL INFORMATION Item 1. Condensed Financial Statements In the opinion of management, all appropriate adjustments necessary to a fair presentation of the results of operations have been made for the periods shown. All adjustments are of a normal recurring nature. Certain prior year amounts have been reclassified to conform to current year presentation. These financial statements should be read in conjunction with the Company's audited financial statements for the fiscal year ended September 30, 1995. Franklin Resources, Inc. Consolidated Statements of Income Unaudited Three months Six months ended ended March 31 March 31 --------- --------- (Dollars in thousands, except per share data) 1996 1995 1996 1995 ----- ----- ----- ----- Operating revenues: Investment management fees $215,336 $172,582 $416,971 $347,156 Underwriting commissions, net 3,739 9,096 6,714 22,209 Transfer, trust and related fees 22,631 15,520 44,020 31,463 Banking/finance, net and other 2,924 2,583 3,478 7,186 -------- ---------- --------- --------- Total operating revenues 244,630 199,781 471,183 408,014 -------- ---------- --------- --------- Operating expenses: General and administrative 121,122 85,003 228,176 181,340 Selling 17,286 19,886 32,811 38,121 Goodwill amortization 4,530 4,640 9,371 9,210 -------- ---------- --------- --------- Total operating expenses 142,938 109,529 270,358 228,671 -------- ---------- --------- --------- Operating income 101,692 90,252 200,825 179,343 Other income/(expense): Investment and other income 9,989 5,262 20,654 12,025 Interest expense (3,419) (2,880) (6,042) (6,303) -------- ---------- --------- --------- Other income/(expense), net 6,570 2,382 14,612 5,722 -------- ---------- --------- --------- Income before taxes on income 108,262 92,634 215,437 185,065 Taxes on income 33,050 29,594 66,274 58,721 -------- ---------- --------- --------- Net income $75,212 $63,040 $149,163 $126,344 ======== ========== ========= ========= Earnings per share: Primary $0.91 $0.76 $1.79 $1.52 Fully diluted $0.91 $0.76 $1.79 $1.52 Dividends per share $0.11 $0.10 $0.22 $0.20 The accompanying note is an integral part of these financial statements. Franklin Resources, Inc. Consolidated Balance Sheets Unaudited March 31 September 30 (Dollars in thousands) 1996 1995 ------- ------------ ASSETS: Current assets: Cash and cash equivalents $322,953 $246,184 Receivables: Fees from Franklin Templeton Group 121,268 110,972 Other 43,248 38,407 Investment securities, available for sale 206,408 208,478 Prepaid expenses and other 11,325 7,167 --------- --------- Total current assets 705,202 611,208 --------- --------- Banking/finance group assets: Cash and cash equivalents 14,629 15,515 Loans receivable, net 385,866 450,013 Investment securities, available for sale 26,649 23,655 Other assets 6,176 6,876 -------- --------- Total banking/finance group assets 433,320 496,059 -------- --------- Other Assets: Investments: Investment securities, available for sale 18,643 15,291 Real Estate 8,890 8,826 Deferred costs 46,348 17,703 Premises and equipment, net 129,696 118,628 Goodwill, net of $65,027 and $56,375 amortization, respectively 650,982 660,363 Receivable from banking/finance group 253,426 302,273 Other assets 14,955 14,330 -------- --------- Total other assets 1,122,940 1,137,414 ---------- ---------- Total assets $2,261,462 $2,244,681 =========== ============ The accompanying note is an integral part of these financial statements. Franklin Resources, Inc. Consolidated Balance Sheets Unaudited March 31 September 30 (Dollars in thousands) 1996 1995 ------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY: LIABILITIES: Current liabilities: Trade payables and accrued expenses $121,276 $117,744 Debt payable within one year 30,333 87,204 Dividends payable 8,838 8,123 --------- --------- Total current liabilities 160,447 213,071 --------- --------- Banking/finance group liabilities: Deposits of account holders: Interest bearing 139,096 159,627 Non-interest bearing 10,110 9,747 Payable to parent 253,426 302,273 Other liabilities 3,343 2,076 --------- -------- Total banking/finance group liabilities 405,975 473,723 --------- -------- Other Liabilities: Long-term debt 421,184 382,367 Other liabilities 15,102 14,477 --------- -------- Total other liabilities 436,286 396,844 --------- -------- Total liabilities 1,002,708 1,083,638 ----------- ---------- STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value, 1,000,000 shares authorized; no shares issued or outstanding Common stock, $.10 par value; 500,000,000 shares authorized; 82,264,982 shares issued; 80,349,133 and 80,939,611 shares outstanding, respectively 8,226 8,226 Capital in excess of par value 98,261 92,190 Retained earnings 1,222,678 1,091,204 Less cost of treasury stock (86,360) (48,519) Other 15,949 17,942 --------- --------- Total stockholders' equity 1,258,754 1,161,043 ---------- ---------- Total liabilities and stockholders' equity $2,261,462 $2,244,681 =========== =========== The accompanying note is an integral part of these financial statements. Franklin Resources, Inc. Consolidated Statements of Cash Flows Unaudited Six months ended March 31 -------- (Dollars in thousands) 1996 1995 ----- ----- Net income $149,163 $126,344 Adjustments to reconcile net income to net cash provided by operating activities: (Increase)/decrease in receivables, prepaid expenses and other (33,969) 10,611 Increase/(decrease) in trade payables, accrued expenses and other 23,463 (24,436) Depreciation and amortization 19,839 20,117 Gains on disposition of assets (5,411) (407) ---------- ----------- Net cash provided by operating activities 153,085 132,229 ---------- ----------- Purchases of Franklin Templeton funds, net (2,572) (25,419) Purchases of banking/finance investment portfolio (36,850) (67,894) Liquidations of banking/finance investment portfolio 33,929 75,076 Originations of banking/finance loans receivable (21,382) (166.199) Collections of banking/finance loans receivable 77,239 69,242 Purchases of other investments, net (3,495) (529) Purchases of premises and equipment and other (19,985) (14,906) ---------- ----------- Net cash provided by (used in) investing activities 26,884 (130,629) ---------- ----------- Increase/(decrease) in deposits of bank account holders (20,168) 3,805 Exercise of common stock options 1,009 - Dividends paid on common stock (16,973) (15,453) Purchases of treasury stock (50,682) (24,194) Issuance of debt 65,440 44,418 Repayment of debt (82,712) (20,374) ---------- ----------- Net cash used in financing activities (104,086) (11,798) ---------- ----------- Increase (decrease) in cash and cash equivalents 75,883 (10,198) Cash and cash equivalents, beginning of the period 261,699 210,376 --------- --------- Cash and cash equivalents, end of the period $337,582 $200,178 ========== =========== Supplemental disclosure of non-cash information: Value of common stock issued in other transactions $18,040 $15,857 The accompanying note is an integral part of these financial statements. Note to Condensed Consolidated Financial Statements 1. Debt The Company issued $60 million in medium-term notes during March, 1996, maturing March, 2001 with coupon rates of 6.56%. The proceeds were used to retire $20 million in medium-term notes that had matured and reduce outstanding short-term commercial paper. The Company's overall effective interest rate at March 31, 1996 was 6.21% on approximately $450 million of outstanding commercial paper, medium-term notes and subordinated debentures. The Company has entered into interest rate swap agreements to exchange variable-rate interest payment obligations for fixed-rate interest payment obligations without the exchange of underlying principal amounts. At March 31, 1996, the Company had swap agreements outstanding with an aggregate notional amount of $125 million, maturing August through September 1999, under which the Company paid fixed rates of interest ranging from 6.24% to 6.45%. These financial instruments are placed with major financial institutions. The credit worthiness of the counterparties is subject to continuing review and full performance is anticipated. Any potential loss from failure of the counterparties to perform is deemed to be immaterial. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL Franklin Resources, Inc. and its majority-owned subsidiaries (the "Company") derives substantially all of its revenue and net income from providing investment management, administration, distribution and related services to the Franklin Templeton funds, managed accounts and other investment products. The Company's revenues are derived largely from the amount and composition of assets under management. The Company has a diversified base of assets under management and a full range of investment management products and services to meet the needs of a variety of individuals and institutions. The Company's assets under management were $141.4 billion at March 31, 1996, an increase of $10.6 billion (8%) from September 30, 1995 and an increase of $22.6 billion (19%) from March 31, 1995. These increases were the result of both net sales and market appreciation. The Company operates in five geographic areas of the world: the United States, Canada, the Bahamas, Europe and Asia/Pacific. At March 31, 1996, the Company had offices in 18 countries. The Company continues to explore opportunities globally to increase its investment research capabilities and to support global distribution channels. I. Material Changes in Results of Operations Results of operations Three months ended Six months ended March 31 % March 31 % (In millions) 1996 1995 Change 1996 1995 Change ------ ----- ------- ------- ------- ------- Net Income $75.2 $63.0 19% $149.2 $126.3 18% Earnings per share Primary $.91 $.76 20% $1.79 $1.52 18% Fully diluted $.91 $.76 20% $1.79 $1.52 18% Operating margin 42% 45% 43% 44% The increases in net income were primarily due to increases in investment management fees as a result of higher average assets under management. Operating expenses increased at a higher rate than operating revenues resulting in a 3% and 1% decline in the Company's operating margins in the periods under review. Operating revenues will continue to be dependent upon the amount and composition of assets under management, mutual fund sales, and the number of mutual fund investors and institutional clients. Operating expenses are expected to increase with the Company's ongoing expansion, the increase in competition and the Company's commitment to improve its products and services. These endeavors will likely result in an increase in selling expenses, employment costs and other general and administrative expenses. The contributions to the Company's operating profit from its non-U.S. operations continued to increase principally as a result of increased fee revenues from investment management services provided by its foreign subsidiaries in Canada, the Bahamas and the Asia/Pacific region. This trend will continue to be dependent on the amount and composition of assets managed by the Company's non-U.S. subsidiaries. There have been no significant changes to the Company's limited exposure to fluctuations in global currency markets. Assets under management* As of March % 31 (In billions) 1996 1995 Change -------- ------- ------- Franklin Templeton Group: Fixed income funds: Tax-free $41.5 $39.4 5% U.S. government (primarily GNMA's) 15.8 16.4 (4%) Taxable and tax-free money funds 3.0 2.8 7% Global/international 2.8 2.7 4% -------- ------- ------- Total fixed-income funds 63.1 61.3 3% -------- ------- ------- Equity and income funds: Global/international 41.3 30.0 38% U.S. equity/income 17.9 13.3 35% -------- ------- ------- Total equity and income funds 59.2 43.3 37% -------- ------- ------- Total Franklin Templeton fund assets 122.3 104.6 17% -------- ------- ------- Franklin Templeton institutional assets 19.1 14.2 35% -------- ------- ------- Total Franklin Templeton Group $141.4 $118.8 19% ======== ======= ======= *Certain prior year amounts have been reclassified to conform to current year presentation. Changes in assets under management Three months ended Six months ended March 31 % March 31 % (In billions) 1996 1995 Change 1996 1995 Change ------ ------ ------ ------ ------ ------ Assets under management - beginning $135.1 $114.6 18% $130.8 $118.2 11% Sales & reinvestments 9.9 6.1 62% 17.3 13.6 27% Redemptions (5.1) (4.9) 4% (10.1) (11.2) (10%) Market appreciation /(depreciation) 1.5 3.0 (50%) 3.4 (1.8) 289% ------ ------ ------ ------ ------ ------ Assets under management - ending $141.4 $118.8 19% $141.4 $118.8 19% ====== ====== ====== ====== ====== ====== Average assets under management $139.1 $116.4 20% $135.6 $116.4 16% ====== ====== ====== ====== ====== ====== Fixed income funds represent 45% of assets under management as of March 31, 1996, down from 52% a year ago. This trend generally reflects investors' preference for equity funds and their relatively high level of market appreciation during the periods under review. Equity and income funds represent 42% of assets under management as of March 31, 1996, up from 36% a year ago. Global/international equity funds' assets under management were up 38% from levels a year ago. U.S. equity/income funds increased 35% from levels a year ago. Institutional assets represent 14% of assets under management as of March 31, 1996 up from 12% a year ago. This increase resulted from both an increase in the number of clients as well as additional investments from existing clients. The Company is strongly committed to the institutional account area and intends to continue the expansion of the services it provides in this area. Operating revenue Three months Six months ended ended March 31 % March 31 % (In millions) 1996 1995 Change 1996 1995 Change ------ ------ ------ ------ ------ ------ Investment management fees $215.3 $172.6 25% $417.0 $347.1 20% Underwriting commissions, net 3.8 9.1 (58)% 6.7 22.2 (70%) Transfer, trust and related fees 22.6 15.5 46% 44.0 31.5 40% Banking/finance, net and other 2.9 2.6 12% 3.5 7.2 (51%) ------ ------ ------ ------ ------ ------ Total operating revenues $244.6 $199.8 22% $471.2 408.0 15% The Company's revenues from investment management fees are derived primarily from fixed-fee arrangements based upon the level of assets under management with open-end and closed-end investment companies and managed accounts. There have been no significant changes in the management fee structures for the Franklin Templeton Group in the periods under review. Investment management fees increased primarily due to 20% and 16% increases in average assets under management during the periods. Underwriting commissions, net includes sales commission and distribution fee revenues earned primarily from fund sales, offset by payments to selling intermediaries and amortization of deferred sales commissions paid by the Company. During the third quarter of the previous fiscal year, many of the U.S. Franklin and Templeton funds introduced a new class of shares, Class II shares, which pay brokers a sales commission and distribution fees that are only partially recovered by the Company through distribution fee revenues. During the three- and six-month periods under review, distribution expenses have grown at a faster rate than distribution revenues because of the relative growth of Class II shares and other similar products outside the United States in the Company's sales mix. While Class II shares have increased the Company's distribution expenses and utilized the Company's capital resources over the short term, the Company believes that the new class of shares will result in an overall increase in assets under management by expanding distribution of fund shares. Sales of Class II shares represented 12% of the Company's long-term U.S. mutual fund sales during the first six months of 1996. Underwriting commissions, net, also decreased due to a decrease in commission revenue from sales of annuity products resulting from a change in commission rates effective September 1, 1995. The level of underwriting commissions, net can be expected to vary with the level of sales and the level of assets under management and the composition of products sold. Transfer, trust and related fees are generally fixed charges per account which vary with the particular type of fund and the service being rendered. Transfer, trust and related fees increased in part as a result of a 13% increase in retail fund shareholder accounts to 5.2 million from 4.6 million a year ago. Also, effective July 1, 1995, approximately 85 of the Company's U.S. mutual funds consisting of approximately 2.3 million shareholder accounts implemented an average annual fee increase of $4 per shareholder account. Banking/finance, net and other Three months Six months ended ended March 31 % March 31 % (In millions) 1996 1995 Change 1996 1995 Change ------ ----- ----- ------ ------- ------ Revenues $12.2 $14.0 (13%) $25.1 $27.4 (8%) Provision for loan losses (3.0) (4.4) (32%) (8.3) (7.0) 19% Interest expense (6.3) (7.0) (10%) (13.3) (13.2) 1% ------ ----- ----- ------ ------- ------ Total banking, finance, net and other $2.9 $2.6 12% $3.5 $7.2 (51%) ====== ===== ===== ====== ======= ====== Compared to the corresponding three-month period in the prior year, banking/finance, net and other revenues increased principally due to decreases in the provision for loan losses and interest expense attributable to the banking/finance group. Revenues decreased principally due to a 20% decrease in loans outstanding during the period. Provision for loan losses decreased due to a decrease from the previous quarter in delinquencies as a percent of loans outstanding from 6.5% to 5.7%. Interest expense during the period decreased due to reduced borrowings by the banking/finance group from the parent as a result of net paydowns on dealer auto loans. Compared to the six-month period in the prior year, banking/finance, net and other revenues declined due to a decrease in revenue as a result of lower average loan balances and an increase in the provision for loan losses as a result of rising delinquency and charge-off rates compared to the same period a year ago. Operating expenses Three months Six months ended ended March 31 % March 31 % (In millions) 1996 1995 Change 1996 1995 Change ------ ------ ----- ------ ------- ------ General and administrative $121.1 $85.0 42% $228.2 $181.3 26% Selling 17.3 19.9 (13%) 32.8 38.1 (14%) Goodwill amortization 4.5 4.6 (2%) 9.4 9.2 2% ------ ------ ----- ------ ------- ------ Total operating expenses $142.9 $109.5 31% $270.4 $228.6 18% ====== ====== ===== ====== ======= ====== Increases in operating expenses principally resulted from the general expansion of the Company's business, particularly with respect to the opening of foreign offices and product development. General and administrative expenses increased during the period due to higher employment, technology and facilities costs related to the expansion of the Company's business. Employee count increased approximately 8% from March 31, 1995 to over 4,700 at March 31, 1996. Employment costs represent approximately 60% of operating expenses during the three-and six-month periods ended March 31, 1996 and represent approximately 75% and 80% of the increases in general and administrative expenses during the three-and six-month periods, respectively. Employment costs include incentive based compensation which will continue to be dependent upon increases in operating profit margins excluding such compensation. Selling expenses decreased during the comparative three-and six-month periods mainly due to periodic variations in media advertising and marketing campaigns. Other income/(expense) Three months Six months ended ended March 31 % March 31 % (In millions) 1996 1995 Change 1996 1995 Change ----- ----- ------ ----- ----- ------ Investment and other income $10.0 $5.3 89% $20.6 $12.0 72% Interest expense (3.4) (2.9) 17% (6.0) (6.3) (5%) ----- ----- ------ ----- ----- ------ Other income (expense), net $6.6 $2.4 175% $14.6 $5.7 156% ===== ===== ====== ===== ===== ====== The increases in investment income resulted from an increase in the average levels of interest-bearing assets invested as well as capital gains realized. The Company's overall effective interest rate at March 31, 1996 was 6.21% on approximately $450 million of outstanding commercial paper, medium-term notes and subordinated debentures as compared to 6.31% on $488 million of debt outstanding at March 31, 1995. The Company has fixed the interest rates it pays on over 85% of its outstanding debt through its medium-term notes program, its subordinated debentures and the interest rate swap agreements discussed below. The Company entered into interest rate swap agreements to exchange variable-rate interest payment obligations for fixed-rate interest payment obligations without exchanging of the underlying principal amounts. At March 31, 1996, the Company had swap agreements outstanding with an aggregate notional amount of $125 million, maturing August through September 1999, under which the Company paid fixed rates of interest ranging from 6.24% to 6.45%. These financial instruments are placed with major financial institutions. The credit worthiness of the counterparties is subject to continuing review and full performance is anticipated. The increase in taxes on income is primarily attributable to the increase in pre-tax income. II. Material Changes in Financial Condition, Liquidity and Capital Resources Selected balance sheet items As of As of March September 31 30 % (In millions) 1996 1995 Change ------ ------- ------- Banking/finance loans receivable, net $385.9 $450.0 (14%) Receivable from the banking/finance group $253.4 $302.3 (16%) Deferred costs $46.3 $17.7 162% Debt payable within one year $30.3 $87.2 (65%) Long term debt $421.2 $382.4 10% -------- ------- ------ The Company substantially increased its auto loan portfolio during fiscal year 1994 as it expanded this business activity. Because a substantial portion of the portfolio was new, the impact of delinquency and loss trends was not fully reflected in the financial performance of the Company until fiscal year 1995. As the Company has expanded its auto loan financing business, it has concurrently strengthened its collection systems, policies and procedures, as well as its underwriting criteria and its overall management team. Management is monitoring the results of its increased efforts in the credit and collection areas. At March 31, 1996, banking/finance loans receivable, net decreased due to net paydowns and a decrease in funding of new auto loans as a result of higher credit requirements. The net paydowns on loans receivable resulted in a reduction of the receivable from the banking/finance group. Deferred costs increased due to a $15.6 million increase in deferred commissions related to Canada-based funds and Class II shares. They also increased as a result of $11.2 million in costs related to the purchase of a building which will house the Company's operations in Singapore. Debt payable within one year decreased as a result of the Company using the proceeds from a $40 million issuance of medium-term notes and approximately $17 million in cash from operations to reduce outstanding short-term commercial paper. The Company used the proceeds from an additional issuance of $20 million in medium-term notes to retire notes that matured March 15, 1996. The Company also issued $5.4 million in short term notes and repaid them during the period. Selected cash flow items Six months ended March 31 (In millions) 1996 1995 ------- ------ Cash flows from operating activities $153.1 $132.2 Cash flows from investing activities $26.9 ($130.6) Cash flows from financing activities ($104.1) ($11.8) The increase in cash flows from operating activities was primarily the result of an increase in net income and an increase in the net change in trade payables and accrued expenses. The cash flows from investing and financing activities during the period were affected primarily by the decrease in the Company's funding of auto and credit card loans of the banking/finance group, purchases of premises and equipment, repayment of debt and purchase of treasury shares. The Company continues to fund these activities primarily from operating cash flows while utilizing its commercial paper and medium- term notes facilities when appropriate. During the six-month period ended March 31, 1996, the Company purchased 954,755 Franklin Resources, Inc. shares for $50.7 million. On March 14, 1996, the Board of Directors of the Company authorized up to an additional 3,000,000 shares under its repurchase program. At March 31, 1996, the Company had 3,914,511 shares remaining under its authorized repurchase program. The Company will continue from time to time to purchase its own shares in the open market and in private transactions for use in connection with various corporate employee incentive programs and when it believes the market price of its shares merits such action. Distribution of Class II shares has required the Company to advance a one percent dealer commission which is expected to be recouped substantially during the subsequent twelve-month period primarily through a .75% and .50% asset based charge on equity and fixed income funds, respectively. The one per cent dealer commission has been deferred and amortized on a straight-line basis over the eighteen-month contingent deferred sales charge period. The Company has funded these advances through operating cash flows and existing debt facilities. The Company anticipates increased sales of Class II shares which will result in increased advances of dealer commissions. At March 31, 1996, the Company held liquid assets of $735.2 million, including $337.6 million in cash and cash equivalents as compared to $643.2 million, including $261.7 million in cash and cash equivalents at September 30, 1995, respectively. FRANKLIN RESOURCES, INC. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Stockholders of Franklin Resources, Inc. was held at 10:00 a.m., Pacific Standard Time, on January 25, 1996 at the offices of the Corporation at 777 Mariners Island Boulevard, San Mateo, California 94404. The three (3) proposals presented at the meeting were: 1. The election of nine (9) directors to hold office until the next Annual Meeting of Stockholders or until their successors are elected and shall qualify. 2. The ratification of the appointment by the Board of Directors of Coopers & Lybrand, L.L.P. as the Company's independent certified accountants for the current fiscal year ending September 30, 1996. 3. The transaction of such other business as properly may come before the Meeting or any adjournments or postponements thereof. (b) Each of the nine nominees for director was elected and received the number of votes set forth below: Name For Withheld Harmon E. Burns 72,645,467 362,138 Judson R. Grosvenor 72,624,017 383,588 F. Warren Hellman 72,648,746 358,859 Charles B. Johnson 72,645,110 362,495 Charles E. Johnson 72,644,467 363,138 Rupert H. Johnson, Jr. 72,644,808 362,797 Harry O. Kline 72,553,475 454,130 Peter M. Sacerdote 72,557,828 449,777 Louis E. Woodworth 72,663,631 343,974 The ratification of the appointment of Coopers & Lybrand, L.L.P. as the Company's independent certified accountants for the fiscal year ending September 30, 1996, was approved by a vote of 72,975,914 in favor, , 20,016 shares against, and 11,675 shares abstaining. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed as part of the report: Exhibit (3)(i)(a)Registrant's Certificate of Incorporation, as filed November 28, 1969, incorporated by reference to Exhibit (3)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994 (the "1994 Annual Report") Exhibit 3(i)(b) Registrant's Certificate of Amendment of Certificate of Incorporation, as filed March 1, 1985, incorporated by reference to Exhibit (3)(ii) to the 1994 Annual Report Exhibit (3)(i)(c) Registrant's Certificate of Amendment of Certificate of Incorporation, as filed April 1, 1987, incorporated by reference to Exhibit (3)(iii) to the 1994 Annual Report Exhibit (3)(i)(d) Registrant's Certificate of Amendment of Certificate of Incorporation, as filed February 2, 1994, incorporated by reference to Exhibit (3)(iv) to the 1994 Annual Report Exhibit (3)(ii) Registrant's By-Laws are incorporated by reference to Exhibit 3(v) to Registrant's Form 10-Q for the Quarterly Period ended December 31, 1994. Exhibit 4: Instruments defining the rights of holders, including indentures i) Form of Indenture-Exhibit No. 4 to the Company's Registration Statement on Form S-3 (33-53147) filed by the Company electronically on April 14, 1994 (the "MTN S-3"), incorporated by reference in its entirety. ii) Form of Fixed Rate Note-Exhibit No.4.1 to Amendment No. 1 to the MTN S-3, filed by the Company electronically on May 19, 1994, incorporated by reference in its entirety. iii) Form of Floating Rate Note-Exhibit 4.2 to Amendment No. 1 to the MTN S-3, filed by the Company electronically on May 19, 1994, incorporated by reference in its entirety. Exhibit 10.1 Representative Investment Management Agreement between Templeton Global Strategy SICAV and Templeton Global Advisors Limited. Exhibit 10.2 Representative Investment Management Agreement between Templeton Global Strategy SICAV and Franklin Advisors, Inc. Exhibit 10.3 Representative Investment Management Agreement between Templeton Russian and Eastern European Debt Fund and Templeton Investment Management Limited, Inc. Exhibit 10.4 Representative Service Agreement between Templeton Russian and Eastern European Debt Fund and Templeton Global Strategic Services S.A. Exhibit 11 Computations of per share earnings. (See page ) Exhibit 12 Computations of ratios of earnings to fixed charges (See page) Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K: Form 8-K dated April 26, 1996 reporting under Item 5 Other Events the filing of an earnings press release by the Company on April 25, 1996 and including said press release as an Exhibit under Item 7 Financial Statements and Exhibits. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FRANKLIN RESOURCES, INC. Registrant Date: May 14, 1996 /S/ Martin L. Flanagan ---------------------- MARTIN L. FLANAGAN Senior Vice President, Treasurer and Chief Financial Officer INDEX TO EXHIBITS Exhibit (3) The following exhibits are filed as part of this report: Exhibit (3)(i)(a) Registrant's Certificate of Incorporation, as filed November 28, 1969, incorporated by reference to Exhibit (3)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994 (the "1994 Annual Report") Exhibit 3(i)(b) Registrant's Certificate of Amendment of Certificate of Incorporation, as filed March 1, 1985, incorporated by reference to Exhibit (3)(ii) to the 1994 Annual Report Exhibit (3)(i)(c) Registrant's Certificate of Amendment of Certificate of Incorporation, as filed April 1, 1987, incorporated by reference to Exhibit (3)(iii) to the 1994 Annual Report Exhibit (3)(i)(d) Registrant's Certificate of Amendment of Certificate of Incorporation, as filed February 2, 1994, incorporated by reference to Exhibit (3)(iv) to the 1994 Annual Report Exhibit (3)(ii) Registrant's By-Laws are incorporated by reference to Exhibit 3(v) to Registrant's Form 10-Q for the Quarterly Period ended December 31, 1994. Exhibit 4: Instruments defining the rights of holders, including indentures i) Form of Indenture-Exhibit No. 4 to the Company's Registration Statement on Form S-3 (33-53147) filed by the Company electronically on April 14, 1994 (the "MTN S-3"), incorporated by reference in its entirety. ii) Form of Fixed Rate Note-Exhibit No.4.1 to Amendment No. 1 to the MTN S-3, filed by the Company electronically on May 19, 1994, incorporated by reference in its entirety. iii) Form of Floating Rate Note- Exhibit 4.2 to Amendment No. 1 to the MTN S-3, filed by the Company electronically on May 19, 1994, incorporated by reference in its entirety. Exhibit 10.1 Representative Investment Management Agreement between Templeton Global Strategy SICAV and Templeton Global Advisors Limited. Exhibit 10.2 Representative Investment Management Agreement between Templeton Global Strategy SICAV and Franklin Advisors, Inc. Exhibit 10.3 Representative Investment Management Agreement between Templeton Russian and Eastern European Debt Fund and Templeton Investment Management Limited, Inc. Exhibit 10.4 Representative Service Agreement between Templeton Russian and Eastern European Debt Fund and Templeton Global Strategic Services S.A. Exhibit 11 Computations of per share earnings. (See page ) Exhibit 12 Computations of ratios of earnings to fixed charges (See page) Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K: Form 8-K dated April 26, 1996 reporting under Item 5 Other Events the filing of an earnings press release by the Company on April 25, 1996 and including said press release as an Exhibit under Item 7 Financial Statements and Exhibits. EX-10.1 2 Exhibit 10.1 INVESTMENT MANAGEMENT AGREEMENT _______________________________ THIS AGREEMENT is made the 15th day of February, 1996 BETWEEN: TEMPLETON GLOBAL STRATEGY SICAV, a Societe d'Investissement a Capital Variable, incorporated in the Grand Duchy of Luxembourg whose registered office is at Centre Neuberg, 30, Grand-Rue, L-1660 Luxembourg (hereinafter called the "Company"), of the first part AND: TEMPLETON GLOBAL ADVISORS LIMITED, a company incorporated under the laws of the Commonwealth of the Bahamas. whose principal office is located at Lyford Cay, Nassau, Bahamas, (hereinafter called the "Investment Manager") of the second part. WHEREAS: (A) The Company was incorporated on 6th November, 1990 as a Societe d'Investissement a Capital Variable (SICAV) under the law of 30th March 1988 concerning collective investment undertakings. (B) The Company is engaged in the business of investment and re-investment of its assets in investments and securities of all types in accordance with the investment objectives, subject to the restrictions and limitations, specified in its Articles of Incorporation ("Articles") and in its Prospectus ("Prospectus") in such manner and to such extent as may from time to time be determined by the Board of Directors ("Board") of the Company. (C) The Company is desirous of being provided with investment management and advisory services and the Investment Manager is willing to provide the same. (D) This Agreement shall supercede all prior agreements between the parties. NOW IT IS HEREBY AGREED AS FOLLOWS: 1. Appointment ___________ The Company hereby appoints the Investment Manager to act as the investment manager and investment adviser of the Company upon the terms and conditions hereinafter appearing and the Investment Manager agrees to accept such appointment. 2. Control of Directors ____________________ The Directors of the Company may at all times give to the Investment Manager guidelines and/or directions relating to the conduct of the business of the Company, both in regard to the general policy of the Company and in regard to specific matters and the Investment Manager shall exercise its powers and duties hereunder subject at all times to the control of and review by the Directors of the Company. In particular, the management of the relevant assets of the Company shall be subject to any specific or general directions which the Directors of the Company may give to the Investment Manager with regard to the acquisition, holding or disposal of investments to the extent that the Directors of the Company may at any time and from time to time take over either generally or to a limited extent and either in collaboration with or to the exclusion of the Investment Manager the making, varying or disposal of any or all of the investments and securities of the Company. 3. Management of Investments _________________________ (a) Subject to the provisions of Clause 2 above, the Investment Manager shall manage the investment, realisation and reinvestment of the assets of the Company corresponding to the relevant classes of shares of the Company as are described in the Appendix attached hereto ("assets") with power on behalf of and in the name of the Company at its discretion to purchase, subscribe to, otherwise acquire or deal in investments and securities and to sell, redeem, exchange, vary or transpose the same provided that as manager of the assets of the Company, the Investment Manager shall observe and comply with the Articles of the Company, all regulations set out in the Prospectus of the Company and the laws and regulations under which the Company is incorporated. (b) Subject to the provisions of Clause 2 above, all rights of voting conferred by investments and securities of the Company shall be exercised in such manner as the Investment Manager may determine and the Investment Manager may in its discretion refrain from the exercise of such voting rights. The Company shall from time to time execute and deliver to the Investment Manager or procure the Custodian of the Company to execute and deliver such powers of attorney or proxies as may reasonably be required authorising such attorney or proxies to vote, consent or otherwise act in respect of (or any part of) the investments and securities of the Company. (c) The Investment Manager may enter into such contracts in the name of the Company as may be necessary to carry out its duties hereunder. (d) The Company shall ratify and confirm all and whatever the Investment Manager (or any Adviser appointed pursuant to Clause 5 hereof) shall lawfully do or cause to be done in good faith in the proper performance of its duties hereunder and the Company shall at all times keep the Investment Manager indemnified against all actions, proceedings, claims and liabilities whatsoever arising out of the proper performance of its duties as aforesaid which may be brought against or prosecuted against or incurred by the Investment Manager save in the case of willful default, gross negligence, bad faith or reckless disregard of duty. (e) The Investment Manager shall render to the Directors written reports of the composition of the assets of the Company as often as the Directors shall reasonably require. (f) It is hereby expressly declared and understood that the appointment of the Investment Manager as manager of the assets of the Company shall in no way discharge or relieve the Directors of the Company from their general liabilities and obligations to the shareholders of the Company. (g) The Investment Manager shall forthwith, on receipt, pay to or deposit with the Custodian of the Company all moneys, investments and securities received by it on behalf of the Company. 4. Investment Advice _________________ (a) The Investment Manager shall as investment adviser advise the Company concerning the investment, realisation and reinvestment of the assets of the Company and Company's general investment policy. (b) In connection with its obligations hereunder, the Investment Manager shall, with regard to the relevant classes of shares of the Company as are described in the Appendix hereto: (i) evaluate investments and securities which appear to the Investment Manager as being appropriate for the Company, and on the price movements in respect of such investments and securities and on such other factors relating thereto as the Investment Manager considers relevant for its management of the investment, realisation and reinvestment of the assets of the Company; (ii) analyse continually the progress of all investments and securities which are for the time being and from time to time represented in the portfolio of investments and securities of the Company and provide reports requested by the Board of the Company from time to time; (iii)analyse the manner in which moneys required for redemptions of shares or other purposes of the Company should be realised; (iv) analyse all actions which it appears to the Investment Manager it should take in order to carry into effect the investment objectives of the Company in relation to investments and securities for the time being and from time to time forming part of the assets of the Company; (v) prepare material for inclusion in any reports required by the Board of the Company; and (vi) advise the Company concerning all actions which it appears to the Investment Manager should be taken to carry out the investment policies of the Company. 5. Delegation __________ (a) The Investment Manager shall be entitled to seek advice from and to delegate its functions, powers, discretions, privileges and duties hereunder or any of them to one or more persons, firms or corporations approved by the Company (hereinafter referred to as "Adviser") and any such delegation may be on such terms and conditions as the Investment Manager shall think fit, provided always that the Investment Manager shall remain liable to the Company for the acts and omissions of the Adviser and its Directors, Officers, Employees and agents in such capacity. (b) The Investment Manager shall be entitled to instruct the Company to pay any Adviser from the consideration payable to the Investment Manager hereunder and any such amounts so paid shall be deducted from the amount of the consideration payable to the Investment Manager hereunder pursuant to Clause 6 below. (c) The Investment Manager (or any Adviser appointed pursuant to Clause 5 hereof) shall be at liberty in the performance of its duties and in the exercise of the powers, discretions, privileges and duties vested in it hereunder to act by responsible officers or a responsible officer for the time being and to employ and pay an agent to perform or concur in performing any of the services required to be performed hereunder and may act or rely in good faith upon the reasonable opinion or advice or any information obtained from any broker, lawyer, valuer, surveyor, auctioneer or expert reporting to the Company. 6. Remuneration ____________ (a) For the investment management and advisory services rendered by the Investment Manager pursuant to Clause 3 and 4 hereof, the Company shall pay to the Investment Manager a fee calculated as a percentage of the average net asset value of each relevant class of shares during each month. The relevant classes of shares concerned by the present Agreement and the rates of fees applicable to each class of shares are described in the Appendix attached hereto. For the purpose of this Clause, the net asset value of each relevant class of shares shall be determined in the manner laid down in Article 23 of the Articles of the Company. (b) In the event of any dispute arising as to the calculation of the fee payable hereunder the same shall be referred to the Auditors for the time being of the Company whose decision shall be final and binding on the parties hereto. 7. Costs to be borne by the Investment Manager ___________________________________________ Except as provided in Clauses 6 and 8 hereof, the Investment Manager shall pay all its own expenses incurred in the provision of its services hereunder including the fees, charges and expenses of any Adviser. 8. Costs to be borne by the Company ________________________________ The Company shall pay all its own expenses (whether incurred directly or by the Investment Manager or any Adviser) including without limitation: (i) fees and expenses of the Directors of the Company including traveling expenses; (ii) charges and expenses of the Custodian; (iii) charges and expenses incurred in determining the value of the net assets of the Company and the keeping of its books and records; (iv) charges and expenses of Auditors, Legal Advisers and other professional advisers of the Company; (v) charges and expenses of the agents and representatives of the Company along with any and all appropriate insurance policies; (vi) all taxes, corporate fees and governmental charges and duties payable by the Company in Luxembourg or elsewhere; (vii)the cost of preparing, printing and distributing share certificates, interim and annual reports, prospectuses and any marketing material of the Company; (viii) the fees and expenses involved in registering (and Maintaining the registration of) the Company with governmental agencies or stock exchanges to permit the sale of or dealing in, its shares including the preparation, printing and filing of the prospectuses or similar material for use in any particular jurisdiction; (ix) any advertising and promotional costs; (x) brokerage commissions, fiscal or governmental charges or duties in respect of or in connection with the acquisition, holding or disposal of any of the assets of the Company or otherwise in connection with its business; (xi) the expenses of any fiscal and governmental charges and duties relating to the purchase, sale, issue, transfer or redemption of shares in the Company and of making any distributions to the shareholders; (xii)any interest, fees or charges payable on account of any borrowing by the Company; (xiii)all expenses of shareholders' and Directors' meetings and of preparing and printing reports to shareholders; and (xiv) all other expenses not related to the functions undertaken by the Investment Manager hereunder. 9. Duties of Investment Manager ____________________________ (a) In carrying out their duties and functions hereunder, the Investment Manager (and any Adviser appointed pursuant to Clause 5 hereof) shall act for the benefit of the Company and shall act with all reasonable care and diligence normally expected of an investment manager. The Investment Manager shall not deal with the Company on the sale or purchase of investments to or from the Company or otherwise deal with the Company as principal without the consent of the Directors. (b) Generally, the Investment Manager will select brokers or dealers to execute securities transactions for the Company that the Investment Manager reasonably believes will provide best price and execution for each transaction. Certain of these brokers may refer advisory clients to the Investment Manager or recommend the purchase of shares of the Company. These referrals or recommendations may provide a direct or indirect benefit to the Investment Manager in addition to the remuneration described in Clause 6 of this Agreement and the Appendix thereto. In addition, the Investment Manager may direct brokerage transactions for the Company's account to brokers who provide research services to the Investment Manager and who may charge higher commissions than other brokers. Commissions paid by the Company to such brokers may be used to pay for research that is not used in managing the assets of the Company. 10. Conflicts of Interest _____________________ (a) Any director, officer or employee of the Company or of the Investment Manager or any Adviser may act in the capacity of director, officer, employee or agent of the other and the services being supplied by the Investment Manager or any Adviser under this Agreement to the Company may, at the option of the Investment Manager or Adviser, be supplied through directors, officers, employees or agents acting in such capacity. (b) The directors, officers and employees of the Investment Manager or any Adviser who may or may not also be directors, officers or employees of the Company, may engage simultaneously with their activities as such in other businesses and may render services for other individuals, companies, trusts or persons. No such director, officer or employee shall be deemed to have an individual interest which is in conflict with the interests of the Company or of the Investment Manager by reason of rendering or of having any interest in or position with any person directly or indirectly rendering to the Company, the Investment Manager or any Adviser investment advisory, management, office or clerical services, banking, custodian, accounting, or transfer agent services, legal or auditing services or engaging in the sale and distribution of the Company's shares. (c) As described in Clause 9, the Investment Manager may refer transactions for the Company's account to brokers or dealers that refer advisory clients to the Investment Manager or that recommend the purchase of shares of the Company, provided that in each case the Investment Manager reasonably believes the broker or dealer will provide best price and execution for the transaction. This practice may result in a potential conflict of interest between the Company's interest in obtaining best price and execution and the Investment Manager's interest in obtaining client referrals and selling additional shares of the Company. A similar conflict of interest may arise when the Investment Manager causes transactions for the Company to be executed through brokers that provide research services to the Investment Manager. 11. Duration ________ This Agreement shall become effective on the date as of which it is made and shall continue and remain in force and effect unless and until terminated by either party thereto giving not less than three months prior written notice (or such shorter notice as the parties hereto may agree to accept) to the other, provided that this Agreement may be terminated by the Company forthwith by notice in writing if: (i) the Investment Manager commits a material breach of its obligations under this Agreement and fails to make good such breach within thirty days of receipt of notice from the Company requiring it to do so, or (ii) the Investment Manager goes into liquidation or becomes subject to moratorium proceedings (except a voluntary liquidation for the purpose of reconstruction or amalgamation upon terms previously approved by the Company) or if a receiver is appointed over any of its assets. 12. Assignment __________ This Agreement shall not be assigned by either party, save with the prior written consent of the other party, provided, however, that a transaction which does not result in a change of actual control or management of the Investment Manager shall not be an assignment for purposes of this Clause 12. 13. Confidentiality _______________ Neither of the parties hereto shall, either before or after the termination of this Agreement, disclose to any person not authorised by the relevant party to receive the same any information relating to such party or to the affairs of such party of which the party disclosing the same shall have become possessed during the period of this Agreement and each party shall use its best endeavours to prevent any such disclosures aforesaid. 14. Notices _______ Any notice required to be given hereunder may be served by being left at or sent by recorded delivery to the registered office for the time being of the party on which it is to be served and any notice given by post shall be deemed to have been served at the expiration of seven days after it is posted and in proving such service it shall be sufficient to prove that the envelope containing the notice was properly addressed and sent by recorded delivery. 15. Proper Law __________ This Agreement shall be governed by and construed in accordance with the laws of the Grand Duchy of Luxembourg and the parties submit to the non-exclusive jurisdiction of the Courts of Luxembourg. 16. Counterparts ____________ This Agreement shall be executed in two counterparts, one such counterpart to be retained by the Company and Investment Manager respectively. AS WITNESS the hands of the duly authorised representatives of the parties hereto on the day and year first before written. TEMPLETON GLOBAL STRATEGY SICAV /s/ Charles E. Johnson ______________________ By : Charles E. Johnson /s/ Gregory E. McGowan _______________________ By : Gregory E. McGowan TEMPLETON GLOBAL ADVISORS LIMITED /s/ Charles E. Johnson _______________________ By: Charles E. Johnson /s/ Greogry E. McGowan _______________________ By : Gregory E. McGowan APPENDIX Relating to the different classes of shares concerned by the foregoing Agreement and the rates of fees payable to the Investment Manager as provided under Clause 6 of the Agreement. Templeton Global Property Securities Fund 1.75% The fee referred to hereabove is payable monthly in arrears to the Investment Manager with respect to each relevant class of shares of the Company. EX-10.2 3 Exhibit 10.2 INVESTMENT MANAGEMENT AGREEMENT ________________________________ THIS AGREEMENT is made the 15th day of February, 1996. BETWEEN: TEMPLETON GLOBAL STRATEGY SICAV, a Societe d'Investissement a Capital Variable, incorporated in the Grand Duchy of Luxembourg whose registered office is at Centre Neuberg, 30, Grand-Rue, L-1660 Luxembourg (hereinafter called the "Company"), of the first part AND: FRANKLIN ADVISERS, INC., a company incorporated in California whose principal office is located at 777 Mariners Island Blvd, San Mateo, CA 94404, (hereinafter called the "Investment Manager") of the second part. WHEREAS: (A) The Company was incorporated on 6th November, 1990 as a Societe d'Investissement a Capital Variable (SICAV) under the law of 30th March 1988 concerning collective investment undertakings. (B) The Company is engaged in the business of investment and re-investment of its assets in investments and securities of all types in accordance with the investment objectives, subject to the restrictions and limitations, specified in its Articles of Incorporation ("Articles") and in its Prospectus ("Prospectus") in such manner and to such extent as may from time to time be determined by the Board of Directors ("Board") of the Company. (C) The Company is desirous of being provided with investment management and advisory services and the Investment Manager is willing to provide the same. (D) This Agreement shall supercede all prior agreements between the parties. NOW IT IS HEREBY AGREED AS FOLLOWS: 1. Appointment ----------- The Company hereby appoints the Investment Manager to act as the investment manager and investment adviser of the Company upon the terms and conditions hereinafter appearing and the Investment Manager agrees to accept such appointment. 2. Control of Directors -------------------- The Directors of the Company may at all times give to the Investment Manager guidelines and/or directions relating to the conduct of the business of the Company, both in regard to the general policy of the Company and in regard to specific matters and the Investment Manager shall exercise its powers and duties hereunder subject at all times to the control of and review by the Directors of the Company. In particular, the management of the relevant assets of the Company shall be subject to any specific or general directions which the Directors of the Company may give to the Investment Manager with regard to the acquisition, holding or disposal of investments to the extent that the Directors of the Company may at any time and from time to time take over either generally or to a limited extent and either in collaboration with or to the exclusion of the Investment Manager the making, varying or disposal of any or all of the investments and securities of the Company. 3. Management of Investments ------------------------- (a) Subject to the provisions of Clause 2 above, the Investment Manager shall manage the investment, realisation and reinvestment of the assets of the Company corresponding to the relevant classes of shares of the Company as are described in the Appendix attached hereto ("assets") with power on behalf of and in the name of the Company at its discretion to purchase, subscribe to, otherwise acquire or deal in investments and securities and to sell, redeem, exchange, vary or transpose the same provided that as manager of the assets of the Company, the Investment Manager shall observe and comply with the Articles of the Company, all regulations set out in the Prospectus of the Company and the laws and regulations under which the Company is incorporated. (b) Subject to the provisions of Clause 2 above, all rights of voting conferred by investments and securities of the Company shall be exercised in such manner as the Investment Manager may determine and the Investment Manager may in its discretion refrain from the exercise of such voting rights. The Company shall from time to time execute and deliver to the Investment Manager or procure the Custodian of the Company to execute and deliver such powers of attorney or proxies as may reasonably be required authorising such attorney or proxies to vote, consent or otherwise act in respect of (or any part of) the investments and securities of the Company. (c) The Investment Manager may enter into such contracts in the name of the Company as may be necessary to carry out its duties hereunder. (d) The Company shall ratify and confirm all and whatever the Investment Manager (or any Adviser appointed pursuant to Clause 5 hereof) shall lawfully do or cause to be done in good faith in the proper performance of its duties hereunder and the Company shall at all times keep the Investment Manager indemnified against all actions, proceedings, claims and liabilities whatsoever arising out of the proper performance of its duties as aforesaid which may be brought against or prosecuted against or incurred by the Investment Manager save in the case of willful default, gross negligence, bad faith or reckless disregard of duty. (e) The Investment Manager shall render to the Directors written reports of the composition of the assets of the Company as often as the Directors shall reasonably require. (f) It is hereby expressly declared and understood that the appointment of the Investment Manager as manager of the assets of the Company shall in no way discharge or relieve the Directors of the Company from their general liabilities and obligations to the shareholders of the Company. (g) The Investment Manager shall forthwith, on receipt, pay to or deposit with the Custodian of the Company all moneys, investments and securities received by it on behalf of the Company. 4. Investment Advice ----------------- (a) The Investment Manager shall as investment adviser advise the Company concerning the investment, realisation and reinvestment of the assets of the Company and Company's general investment policy. (b) In connection with its obligations hereunder, the Investment Manager shall, with regard to the relevant classes of shares of the Company as are described in the Appendix hereto: (i) evaluate investments and securities which appear to the Investment Manager as being appropriate for the Company, and on the price movements in respect of such investments and securities and on such other factors relating thereto as the Investment Manager considers relevant for its management of the investment, realisation and reinvestment of the assets of the Company; (ii) analyse continually the progress of all investments and securities which are for the time being and from time to time represented in the portfolio of investments and securities of the Company and provide reports requested by the Board of the Company from time to time; (iii) analyse the manner in which moneys required for redemptions of shares or other purposes of the Company should be realised; (iv) analyse all actions which it appears to the Investment Manager it should take in order to carry into effect the investment objectives of the Company in relation to investments and securities for the time being and from time to time forming part of the assets of the Company; (v) prepare material for inclusion in any reports required by the Board of the Company; and (vi) advise the Company concerning all actions which it appears to the Investment Manager should be taken to carry out the investment policies of the Company. 5. Delegation ---------- (a) The Investment Manager shall be entitled to seek advice from and to delegate its functions, powers, discretions, privileges and duties hereunder or any of them to one or more persons, firms or corporations approved by the Company (hereinafter referred to as "Adviser") and any such delegation may be on such terms and conditions as the Investment Manager shall think fit, provided always that the Investment Manager shall remain liable to the Company for the acts and omissions of the Adviser and its Directors, Officers, Employees and agents in such capacity. (b) The Investment Manager shall be entitled to instruct the Company to pay any Adviser from the consideration payable to the Investment Manager hereunder and any such amounts so paid shall be deducted from the amount of the consideration payable to the Investment Manager hereunder pursuant to Clause 6 below. (c) The Investment Manager (or any Adviser appointed pursuant to Clause 5 hereof) shall be at liberty in the performance of its duties and in the exercise of the powers, discretions, privileges and duties vested in it hereunder to act by responsible officers or a responsible officer for the time being and to employ and pay an agent to perform or concur in performing any of the services required to be performed hereunder and may act or rely in good faith upon the reasonable opinion or advice or any information obtained from any broker, lawyer, valuer, surveyor, auctioneer or expert reporting to the Company. 6. Remuneration ------------ (a) For the investment management and advisory services rendered by the Investment Manager pursuant to Clause 3 and 4 hereof, the Company shall pay to the Investment Manager a fee calculated as a percentage of the average net asset value of each relevant class of shares during each month. The relevant classes of shares concerned by the present Agreement and the rates of fees applicable to each class of shares are described in the Appendix attached hereto. For the purpose of this Clause, the net asset value of each relevant class of shares shall be determined in the manner laid down in Article 23 of the Articles of the Company. (b) In the event of any dispute arising as to the calculation of the fee payable hereunder the same shall be referred to the Auditors for the time being of the Company whose decision shall be final and binding on the parties hereto. 7. Costs to be borne by the Investment Manager ------------------------------------------- Except as provided in Clauses 6 and 8 hereof, the Investment Manager shall pay all its own expenses incurred in the provision of its services hereunder including the fees, charges and expenses of any Adviser. 8. Costs to be borne by the Company -------------------------------- The Company shall pay all its own expenses (whether incurred directly or by the Investment Manager or any Adviser) including without limitation: (i) fees and expenses of the Directors of the Company including traveling expenses; (ii) charges and expenses of the Custodian; (iii) charges and expenses incurred in determining the value of the net assets of the Company and the keeping of its books and records; (iv) charges and expenses of Auditors, Legal Advisers and other professional advisers of the Company; (v) charges and expenses of the agents and representatives of the Company along with any and all appropriate insurance policies; (vi) all taxes, corporate fees and governmental charges and duties payable by the Company in Luxembourg or elsewhere; (vii) the cost of preparing, printing and distributing share certificates, interim and annual reports, prospectuses and any marketing material of the Company; (viii) the fees and expenses involved in registering (and maintaining the registration of) the Company with governmental agencies or stock exchanges to permit the sale of or dealing in, its shares including the preparation, printing and filing of the prospectuses or similar material for use in any particular jurisdiction; (ix) any advertising and promotional costs; (x) brokerage commissions, fiscal or governmental charges or duties in respect of or in connection with the acquisition, holding or disposal of any of the assets of the Company or otherwise in connection with its business; (xi) the expenses of any fiscal and governmental charges and duties relating to the purchase, sale, issue, transfer or redemption of shares in the Company and of making any distributions to the shareholders; (xii) any interest, fees or charges payable on account of any borrowing by the Company; (xiii)all expenses of shareholders' and Directors' meetings and of preparing and printing reports to shareholders; and (xiv) all other expenses not related to the functions undertaken by the Investment Manager hereunder. 9. Duties of Investment Manager ---------------------------- (a) In carrying out their duties and functions hereunder, the Investment Manager (and any Adviser appointed pursuant to Clause 5 hereof) shall act for the benefit of the Company and shall act with all reasonable care and diligence normally expected of an investment manager. The Investment Manager shall not deal with the Company on the sale or purchase of investments to or from the Company or otherwise deal with the Company as principal without the consent of the Directors. (b) Generally, the Investment Manager will select brokers or dealers to execute securities transactions for the Company that the Investment Manager reasonably believes will provide best price and execution for each transaction. Certain of these brokers may refer advisory clients to the Investment Manager or recommend the purchase of shares of the Company. These referrals or recommendations may provide a direct or indirect benefit to the Investment Manager in addition to the remuneration described in Clause 6 of this Agreement and the Appendix thereto. In addition, the Investment Manager may direct brokerage transactions for the Company's account to brokers who provide research services to the Investment Manager and who may charge higher commissions than other brokers. Commissions paid by the Company to such brokers may be used to pay for research that is not used in managing the assets of the Company. 10. Conflicts of Interest --------------------- (a) Any director, officer or employee of the Company or of the Investment Manager or any Adviser may act in the capacity of director, officer, employee or agent of the other and the services being supplied by the Investment Manager or any Adviser under this Agreement to the Company may, at the option of the Investment Manager or Adviser, be supplied through directors, officers, employees or agents acting in such capacity. (b) The directors, officers and employees of the Investment Manager or any Adviser who may or may not also be directors, officers or employees of the Company, may engage simultaneously with their activities as such in other businesses and may render services for other individuals, companies, trusts or persons. No such director, officer or employee shall be deemed to have an individual interest which is in conflict with the interests of the Company or of the Investment Manager by reason of rendering or of having any interest in or position with any person directly or indirectly rendering to the Company, the Investment Manager or any Adviser investment advisory, management, office or clerical services, banking, custodian, accounting, or transfer agent services, legal or auditing services or engaging in the sale and distribution of the Company's shares. (c) As described in Clause 9, the Investment Manager may refer transactions for the Company's account to brokers or dealers that refer advisory clients to the Investment Manager or that recommend the purchase of shares of the Company, provided that in each case the Investment Manager reasonably believes the broker or dealer will provide best price and execution for the transaction. This practice may result in a potential conflict of interest between the Company's interest in obtaining best price and execution and the Investment Manager's interest in obtaining client referrals and selling additional shares of the Company. A similar conflict of interest may arise when the Investment Manager causes transactions for the Company to be executed through brokers that provide research services to the Investment Manager. 11. Duration --------- This Agreement shall become effective on the date as of which it is made and shall continue and remain in force and effect unless and until terminated by either party thereto giving not less than three months prior written notice (or such shorter notice as the parties hereto may agree to accept) to the other, provided that this Agreement may be terminated by the Company forthwith by notice in writing if: (i) the Investment Manager commits a material breach of its obligations under this Agreement and fails to make good such breach within thirty days of receipt of notice from the Company requiring it to do so, or (ii) the Investment Manager goes into liquidation or becomes subject to moratorium proceedings (except a voluntary liquidation for the purpose of reconstruction or amalgamation upon terms previously approved by the Company) or if a receiver is appointed over any of its assets. 12. Assignment ---------- This Agreement shall not be assigned by either party, save with the prior written consent of the other party, provided, however, that a transaction which does not result in a change of actual control or management of the Investment Manager shall not be an assignment for purposes of this Clause 12. 13. Confidentiality --------------- Neither of the parties hereto shall, either before or after the termination of this Agreement, disclose to any person not authorised by the relevant party to receive the same any information relating to such party or to the affairs of such party of which the party disclosing the same shall have become possessed during the period of this Agreement and each party shall use its best endeavours to prevent any such disclosures aforesaid. 14. Notices -------- Any notice required to be given hereunder may be served by being left at or sent by recorded delivery to the registered office for the time being of the party on which it is to be served and any notice given by post shall be deemed to have been served at the expiration of seven days after it is posted and in proving such service it shall be sufficient to prove that the envelope containing the notice was properly addressed and sent by recorded delivery. 15. Proper Law ----------- This Agreement shall be governed by and construed in accordance with the laws of the Grand Duchy of Luxembourg and the parties submit to the non-exclusive jurisdiction of the Courts of Luxembourg. 16. Counterparts ------------- This Agreement shall be executed in two counterparts, one such counterpart to be retained by the Company and Investment Manager respectively. AS WITNESS the hands of the duly authorised representatives of the parties hereto on the day and year first before written. TEMPLETON GLOBAL STRATEGY SICAV /s/ Charles E. Johnson ---------------------- By : Charles E. Johnson /s/ Gregory E. McGowan ______________________ By: Gregory E. McGowan FRANKLIN ADVISERS, INC. /s/ Deborah R. Gatzek _____________________ By: Deborah R. Gatzek /s/ Harmon E. Burns ______________________ By: Harmon E. Burns APPENDIX Relating to the different classes of shares concerned by the foregoing Agreement and the rates of fees payable to the Investment Manager as provided under Clause 6 of the Agreement. Franklin Templeton High Yield Fund 0.80% Franklin Templeton US Government Fund 0.65% Franklin Templeton International Bond Fund 0.90% The fees referred to hereabove are payable monthly in arrears to the Investment Manager with respect to each relevant class of shares of the Company. AMENDMENT TO INVESTMENT MANAGEMENT AGREEMENT DATED MARCH 1, 1996 BETWEEN TEMPLETON GLOBAL STRATEGY SICAV AND FRANKLIN ADVISERS, INC. The parties hereto agree that the Investment Management Agreement dated March 1, 1996, shall be and hereby is amended by adding a third paragraph to Clause 6 (a) to read as follows: The Investment Manager may waive all or a portion of its fees provided for hereunder and such waiver shall be treated as a reduction in purchase price for its services. The Investment Manager shall contractually bound hereunder by the terms of any publicly announced waiver of its fee, or any limitation of the Fund's expenses, as if such waiver or limitation were full set forth herein. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their officers designated below as of the day and year first written above. TEMPLETON GLOBAL STRATEGY SICAV /s/ Charles E. Johnson ----------------------- By : Charles E. Johnson /s/ Gregory E. McGowan _______________________ By : Gregory E. McGowan FRANKLIN ADVISERS, INC. /s/ Deborah R. Gatzek ______________________ By: Deborah R. Gatzek /s/ Harmon E. Burns ______________________ By: Harmon E. Burns EX-10.3 4 Exhibit 10.3 THIS AGREEMENT is made on 1 March, 1996 BETWEEN: (1) TEMPLETON RUSSIAN AND EASTERN EUROPEAN DEBT FUND having its Registered Office at 13 Rue Goethe, L-1637 Luxembourg, Grand- Duchy of Luxembourg (hereinafter called "the Company") of the first part, and (2) TEMPLETON INVESTMENT MANAGEMENT LIMITED, incorporated under the Companies Acts and having its Registered Office at Plumtree Court, London EC4A 4HT (hereinafter called "TIML") of the second part. WHEREAS: (A) The Company wishes to appoint TIML as investment manager of the Company on the terms and conditions hereinafter set forth. (B) TIML is a member of IMRO and as such regulated by IMRO in the conduct of investment business. NOW THEREFORE THE PARTIES HEREBY AGREE as follows:- 1. APPOINTMENT 1.01 The Company hereby appoints TIML as investment manager of the Company and its subsidiaries and TIML agrees to such appointment ("appointment"). In this capacity TIML shall manage the assets of the Company and its subsidiaries ("the Assets"). 1.02 TIML agrees to act as investment manager on the terms of this Agreement. 1.03 This Agreement shall commence on 12 March, 1996 (the "Commencement Date") notwithstanding the date of this Agreement and shall take immediate effect with respect to the Assets the initial value of which shall be equal to the net proceeds of the placing of up to 20,000,000 shares in the Company pursuant to a prospectus to be issued by the Company and dated 1 March 1996 ("the Prospectus"). 2. AUTHORITY OF TIML 2.01 During the continuance of TIML's appointment hereunder, TIML shall have full authority without prior reference to the Company to manage, invest, realise and reinvest the Assets in accordance with the Investment Objective and Policies, Investment Restrictions and Dividend Policy as set out in the Prospectus and subject to any restrictions set out in the Prospectus or in the Articles of Incorporation of the Company or imposed by Luxembourg law and further subject to any amendment or variation made in accordance with Clause 2.02. 2.02 (a) Subject to Clause 2.01, TIML shall have complete discretion, without prior reference to the Company, to purchase and sell investments and otherwise to manage the Assets in such manner as TIML may determine. (b) Any variations in the Investment Objective and Policies, Investment Restrictions and Dividend Policy shall be made by the Directors (as defined in the Prospectus) and shall be notified in writing by or on behalf of the Company to TIML. (c) The Company may also give TIML specific prior instructions to buy, sell or retain any investment, or exercise (or refrain from exercising) any rights in respect of any investment. 2.03 (a) TIML shall not be liable to the Company or its subsidiaries in any way and the Company will not be entitled to terminate this Agreement (otherwise than in accordance with Clause 9) by reason of the Investment Objectives not being achieved otherwise than by reason of TIML not adhering to the Investment Objective and Policies and Dividend Policy of the Company. (b) TIML shall in no way be responsible for any loss or depreciation in the value of any of the Assets which may arise by reason or in consequence of the exercise or non-exercise of the powers, duties and discretion hereby given or undertaken by TIML unless such loss or depreciation shall arise by reason of the fraud or negligence of TIML or any of TIML's officers or staff or the officers or employees of any Associate nor shall TIML be responsible for any loss resulting from the acts, omissions or insolvency of any broker, trader, market maker or other dealer or any custodian, sub-custodian, depository, agent or nominee unless acting in accordance with TIML's instructions. 2.04 The Company acknowledges that unless the Company gives prior written notice to TIML in accordance with the terms of this Agreement of any intended restriction: (i) the Company places no restrictions on any type of investment which TIML may include in the Assets at any time, other than in terms of Clause 2.01; (ii) there are no restrictions on the markets on which the Company wishes transactions to be effected by TIML on the Company's behalf, other than in terms of Clause 2.01; and (iii)there is no restriction made by the Company on the amount of any one investment or on the proportion of the Assets which any one investment or any particular kinds of investment may represent, other than in terms of Clause 2.01. 2.05 The day to day management of the Assets shall be carried out by one or more of TIML's designated staff or officers who may be required, at the Company's expense, to attend meetings with the Company to discuss the Investment Objective and Policies, Investment Restrictions and Dividend Policy of the Company. 2.06 TIML may in performing TIML's services hereunder ("services") use such broker, trader, market maker or other dealer (in either case including any Associate) as TIML may select and any systems of settlement or delivery appropriate to the investment concerned. 2.07 For purposes of performing its services hereunder, TIML shall be entitled to appoint an investment adviser to act as its investment adviser and to provide it with investment advice which shall include, but not be limited to, sharing market information, assisting in the selection of investments and providing consultation services as required and initially TIML shall retain as investment adviser, for an initial period of one year, Templeton Global Bond Managers, a division of Templeton Investment Counsel, Inc., Broward Financial Centre, Ft. Lauderdale, Florida 33394- 3091, USA and TIML shall also be entitled to retain the services of other sub-advisers or consultants as and when TIML considers it appropriate to do so and initially TIML shall retain Global Fund Management S.A., 5/1 Ulitsa Leo Tolstoy, Moscow 119862, Russia and ICFI-Moscow Partners, 3rd Fronzenskaya 6, Moscow 119279, Russia as sub-advisers to provide it with services including but not limited to furnishing advice and making recommendations regarding the purchase and sale of securities traded in the markets in which the Company operates, providing statistical, research and other factual data, identifying regulatory and other applicable governmental requirements and monitoring the execution and settlement of transactions. 2.08 TIML will provide, on receipt of reasonable notice from the Company, access to all books of account and records which are within TIML's possession and control relating solely to the Assets as the Company may reasonably require. 3. REGULATORY STATUS 3.01 TIML is a member of Investment Management Regulatory Organisation Limited ("IMRO") and is regulated by IMRO in carrying on TIML's investment business. 3.02 TIML shall use its best endeavours to maintain its status as an authorised person for the purposes of the Financial Services Act 1986. 3.03 In accepting this Agreement, the Company confirms that the Company has the status of a Non-private Customer (as defined in the Rules of IMRO ("IMRO Rules")) in relation to the services which TIML shall provide. Unless the context otherwise requires, terms defined in the IMRO Rules shall have the same meanings in this Agreement. 3.04 The regulatory matters that IMRO require TIML to include in this Agreement as well as other matters that apply to TIML's appointment are set out in Schedule 2 hereto but are subject always to Clause 2. 4. FEES AND EXPENSES 4.01 The fee ("Management Fee") which the Company shall pay as consideration for TIML's services together with VAT (if applicable) or any similar tax where appropriate is set out in Schedule 1 hereto. The Management Fee shall be payable quarterly in arrears on the Relevant Date(s) (as defined in paragraph 4 of Schedule 2) and TIML shall submit quarterly invoices to Templeton Global Strategic Services S.A. as the Administrator ("the Administrator") of the Company within 14 days following the Relevant Date(s). The Company or the Administrator shall either send or otherwise provide TIML with a cheque in respect of the Management Fee within three business days of submission of each quarterly invoice, failing which TIML is authorised to draw the relevant sum from the cash held within the Assets. 4.02 Subject to Clause 4.03, TIML will pay the costs incurred by TIML in connection with the services out of TIML's remuneration and the fees of any investment adviser, sub- adviser or consultant it engages . 4.03 TIML shall not be liable to bear the following expenses, which shall be for the Company's account:- (a) stamp duties, taxes, governmental charges, brokerage, commissions, penalties, transfer fees, registration fees and other charges payable in respect of the acquisition, holding or realisation of, or income arising on the Assets including charges for the transfer of Assets or delivery instructions by telex, facsimile, cable or telephone; (b) interest on and charges and expenses of arranging, and arising out of, all or any borrowings made on behalf of the Company in accordance with this Agreement; (c) any charges or expenses of any bank, nominee or custodian in connection with the safe custody of the Assets; (d) any directors' fees and expenses, it being understood that there are no such fees payable initially; (e) any charges in connection with the safe custody, insurance (including premiums) of any Asset; (f) the Company's audit fees and legal expenses incurred in connection with its corporate existence and corporate and financial structure of the Company and relations with its shareholders and third parties and all other professional fees incurred by it; (g) costs and expenses of advertising and publicity; and (h) any other expenses that TIML incurs in carrying out its duties as the Directors may authorise as being payable or reimbursable by the Company. 5. LIABILITY AND INDEMNITY 5.01 To the extent permitted by law, TIML, in TIML's capacity as investment manager, shall not be liable for any loss suffered by the Company unless such loss arises from TIML's negligence, bad faith or wilful default. 5.02 The Company shall indemnify and hold TIML harmless against all costs, claims, demands or expenses which may be brought against or incurred or suffered by TIML by reason of TIML's performance of TIML's duties hereunder and shall ratify and confirm all lawful acts and things done by TIML in the performance of TIML's duties hereunder. The indemnity shall extend to any such claim arising as a result of loss, delay, misdelivery or error in transmission of any communication or as a result of acting upon any forged transfer, but not to any claim arising from any negligence, bad faith or wilful default by TIML. 5.03 TIML shall exercise all reasonable care and diligence in the choice of counterparties. In the event that any counterparty fails to account to TIML or the Custodian for any Assets for whatever reason, TIML shall take all reasonable steps in TIML's power to pursue, on behalf of and at the Company's expense, all appropriate legal remedies against such counterparty to recover such Assets or obtain compensation. Subject thereto, TIML shall not be liable for any such failure to account unless and to the extent that TIML has been negligent or wilfully in default in TIML's choice of counterparties. 5.04 TIML may in the performance of TIML's duties and in the exercise of TIML's powers and discretions hereunder act by responsible officer(s) and, provided it is reasonable for TIML so to do in the circumstances, may instruct, act by, or rely upon the opinion or advice or any information or services provided by any broker, lawyer, valuer, accountant or other consultant or expert whether reporting to the Company or TIML or not and TIML shall not be responsible for any loss occasioned because of so acting in good faith. 5.05 TIML shall not be liable for anything done or suffered by TIML to be done in good faith in accordance with or in pursuance of any of the Company's requests or instructions as set out in paragraph 12 of Schedule 2 hereto. 5.06 Provided that TIML shall have used all reasonable care in the appointment, instruction, supervision and control of any person, firm or corporation to supply services in connection with TIML's duties hereunder, TIML shall be entitled to rely on any advice or information or services provided by such person, firm or corporation (including any adviser, sub- adviser or consultant it engages pursuant to Clause 2.07) without liability to the Company for any loss suffered by the Company as a result thereof provided that (a) it was reasonable for TIML to rely on such advice, information or services in the circumstances and (b) this sub-Clause shall not be interpreted as permitting any delegation by TIML of TIML's duties hereunder as the investment manager of the Assets. 5.07 TIML shall not be required to take any legal or other action which might make TIML liable for the payment of money or liable in any other way, unless TIML is fully indemnified to TIML's reasonable satisfaction for all TIML's reasonable costs, liabilities and expenses, as a pre-requisite to taking action. 6. ASSIGNMENT 6.01 Neither the Company nor TIML shall assign, transfer or novate any rights or obligations under this Agreement without the prior written consent of the other. 7. NOTICES 7.01 Unless otherwise provided, any communication or other notice to be given by the Company or TIML shall be given in writing, or orally and thereafter confirmed in writing. 7.02 Any such communication or other notice shall be deemed to be given if delivered by hand or posted first class post prepaid in the UK and air mail if outside the UK or sent by facsimile transmission by the party giving notice to the address of the other party as set out above or to such other address as may from time to time be notified in writing to it by the other party. Such communication or other notice so posted shall be deemed to have been duly received 48 hours (if posted and received within the UK) and 120 hours (if posted and/or received outside the UK using airmail) after it is posted and any such communication or notice delivered or given by facsimile transmission shall be deemed given upon delivery or transmission and in proving service it shall be sufficient to prove that the envelope containing the communication on other notice was properly addressed and posted or, as the case may be, that it was delivered to the correct address, or that it was sent by facsimile transmission to the correct number. 8. JURISDICTION 8.01 This Agreement shall be subject to and construed in accordance with the law of England. Disputes shall be subject to the jurisdiction of the English Courts to which the Company and TIML submit. 9. TERMINATION 9.01 (a) The Company shall not terminate TIML's appointment during the life of the Company except where the Company resolves to do so at a general meeting of the Company by a shareholder resolution with a majority consisting of 75% or more of the total number of votes cast for and against such resolution . (b) TIML shall be entitled to terminate its appointment by giving the Company not less than 90 days notice in writing so as to expire at any time after the first anniversary of the Commencement Date, but only in circumstances where TIML has selected another investment manager for the Company who is acceptable to the Directors and who has agreed to enter into an investment management agreement with the Company to take over the responsibilities as the investment managers of the Company. 9.02 Either the Company or TIML may terminate this Agreement immediately without penalty by notice in writing to the other if:- (a) an order is made or an effective order is made or resolution is passed for the winding-up of the other party otherwise than for the purpose of its amalgamation or reconstruction on terms approved in advance in writing by the first party which approval shall not be unreasonably withheld or delayed; or (b) the other party shall become or be declared insolvent; or (c) a receiver of the other party or any of its assets is appointed; or (d) the other party commits a material breach of the Agreement. 9.03 This Agreement shall terminate immediately if TIML fails to maintain TIML's status as an authorised person for the purposes of the Financial Services Act 1986 (as amended) in relation to this Agreement PROVIDED THAT in the event of TIML temporarily ceasing to maintain its status as such an authorised person in circumstances previously approved in writing by the Company shall not result in the termination of this Agreement. 9.04 Termination shall not affect any action taken by TIML and permitted under this Agreement, prior to the date of termination or any warranty or indemnity given by the Company under this Agreement or implied by law and shall be without prejudice to any other rights, obligations or remedies of either the Company or TIML in respect of any matters arising under this Agreement prior to such termination. Termination will be without prejudice to the completion of transactions already initiated which will be completed by TIML as soon as practicable. 9.05 On termination by either the Company or TIML, TIML shall be entitled to receive from the Company all fees, costs, charges and expenses arising under this Agreement up to the date of termination including any additional expenses necessarily incurred in settling outstanding obligations or terminating this Agreement whether they occur before or after the date of termination. 9.06 If the Company wishes to give less notice than provided for in Clause 9.01, it is agreed that, in consideration of TIML's accepting a lesser period of notice, the Company shall pay to TIML on the expiry of such agreed shorter period of notice any remuneration remaining due and unpaid in respect of TIML's services and an amount (together with Value Added Tax) equal to the remuneration which would have been payable to TIML in respect of the period by which the agreed shorter period of notice is less than the full period of notice, based on the Net Asset Value of the Company pursuant to the provisions of paragraph 2 of Schedule 1 hereto. 9.07 Upon termination hereof by either party and for whatever reason the Company hereby agrees if requested to do so by TIML to commence the procedures necessary to change its name to a name unconnected with TIML or any Associate as at the date hereof and to use its best endeavours to obtain the consent of its shareholders to the change of name if necessary. 10. CONFIDENTIALITY 10.01 Neither the Company or TIML shall disclose to any person (except with the Company's authority or unless required by law or any regulatory authority) any information relating to the business, assets or finances or other matters of a confidential nature of the other party which it may have in its possession during the period of this Agreement. IN WITNESS WHEREOF this Agreement typewritten on this and the nine preceding pages together with the two Schedules annexed on pages 11 to 18 has been entered into the day and year first above written: Signed for and on behalf of the said TEMPLETON RUSSIAN AND EASTERN EUROPEAN DEBT FUND by: /s/ Charles E. Johnson ..... Director Charles E. Johnson.......... Full Name /s/ J. Mark Mobius...........Director/Secretary J. B. Mark Mobius.............. Full Name Signed for and on behalf of the said TEMPLETON INVESTMENT MANAGEMENT LIMITED by: /s/ D. W. Adams ........... Director Douglas William Adams....... Full Name /s/ Gerard W. Kerr...........Director/Secretary Gerard William Kerr......... Full Name SCHEDULE 1 referred to in Clause 4 of the foregoing Investment Management Agreement Management Fee 1. The Management Fee payable to TIML under this Agreement shall be in respect of successive annual periods (or parts of such periods) beginning on the Commencement Date. 2. The Management Fee shall be payable at the rate of 1.85 per cent per annum of the Net Asset Value of the Company (as defined in the Prospectus and determined in accordance with the valuation principles referred to in paragraph 4(d) of Schedule 2) and shall be payable quarterly in arrears at the Relevant Date(s) (together with any applicable Value Added Tax) on the basis of the average of the Net Asset Value of the Company on each weekly Valuation Date (as defined in the Prospectus) in the period from the last Relevant Date down to the Relevant Date concerned except in connection with the first period where the average will be calculated from the Commencement Date and the last period where the average will be calculated down to the date of termination. 3. TIML shall compute the amount of the Management Fee based on information supplied by the Administrator and shall submit invoices to the Company for payment in accordance with Clause 4.01 of the Agreement. 4. If for any reason the period for which a payment is due is less or more than a complete quarter, the part of the remuneration attributable to the number of whole weeks in such quarter shall be based on the average of the Net Asset Value of the Company on each weekly Valuation Date during such number of whole weeks and for any remaining period of less than one week shall be 1/7th part of the aggregate of the Management Fee payable for such week . 5. The value of any holdings in investment trusts, unit trusts, funds and similar schemes, both closed and open- ended, which are managed by TIML or any Associate of TIML shall be excluded from the value of the Assets for the purpose of calculating the Management Fee. SCHEDULE 2 referred to in Clause 3.04 of the foregoing Investment Management Agreement 1. Contingent Liability Transactions (a) The services to be provided by TIML shall include effecting, without prior reference to the Company, Contingent Liability Transactions (being transactions relating to Futures, Options and Contracts for Differences (within the meaning of Schedule 1 to the Financial Services Act 1986) or to any right or interest in such an investment) and transactions in units in Unregulated Collective Investment Schemes. Margins and payments for Contingent Liability Transactions may be made in the form of cash or other investments of the Company provided that TIML may not commit the Company to any obligation which would at the time of commitment be in breach of any limits or restrictions set out in the Prospectus or in the Articles of Incorporation of the Company or imposed by Luxembourg law. TIML will have discretion as to the circumstances in which TIML may, without reference to the Company, make contractual or other arrangements to settle or close out obligations entered into in accordance with this paragraph. (b) TIML may effect Contingent Liability Transactions with or for the Company otherwise than under the rules of a Recognised or Designated Investment Exchange and in a contract traded thereon if TIML is permitted to do so under Rule 3.13(1) of Chapter II of the IMRO Rules. 2. Complaints (a) TIML has in operation a written procedure in accordance with the Rules of IMRO for the effective consideration and proper handling of complaints from customers. (b) Any complaint by the Company arising from the services performed by TIML hereunder should be notified in writing to TIML's Compliance Officer who will investigate it and give his response. Once a complaint has been responded to in writing, if no indication has been received from the Company that the Company are not satisfied with the response, then after four weeks from the date of response TIML may treat the complaint as settled and resolved. The Company shall at all times have the right to complain directly to the Investment Ombudsman and shall inform TIML of the terms of any complaint the Company make direct to the Investment Ombudsman at the time such complaint is made. The foregoing shall be without prejudice to the provisions of the said Agreement. (c) The Company may request, and TIML shall provide as soon as reasonably practicable thereafter, a statement describing the Company's rights to compensation in the event of TIML's inability to meet any liabilities to the Company. 3. Soft Commission Arrangements TIML does not intend to effect transactions with or through the agency of another person with whom TIML has an arrangement under which that other person will from time to time provide or procure for TIML or an Associate services or other benefits, the nature of which are such that their provision results, or is designed to result, in the improvement of TIML's or such Associate's performance in providing services for its clients or customers and for which TIML or such Associate make no direct payment but instead undertakes to place business (including business on behalf of TIML's or such Associate's customers, including the Company) with that person. 4. Periodic Statements (a) TIML shall arrange for the Administrator to send to the Company written periodic statements of the composition and value of the Assets within five business days of the dates specified below (the "Relevant Dates" and individually a "Relevant Date") as follows: (i) quarterly statements as at 31 March, 30 June, 30 September and 31 December in each year; (ii) an annual statement as at 31 March in each year; and (iii) a final statement on the date of termination of this Agreement. TIML shall also arrange for the Administrator to send to the Company further such periodic statements on a weekly basis (b) For the avoidance of doubt the parties hereto agree that the relevant provisions of the IMRO Rules as to the content of periodic statements shall not apply. (c) The valuations referred to in the foregoing paragraphs shall (unless otherwise agreed with the Company) be determined by the Administrator in conjunction with TIML in accordance with the valuation principles to be applied in determining the Net Asset Value of the Company as described under the heading of "Valuation of Net Assets" in Part VI of the Prospectus, as from time to time amended. (d) TIML or the Administrator on behalf of TIML shall submit the contract notes and other details of transactions in respect of the Assets to the Company not later than the end of each calendar month or as soon as reasonably practicable thereafter. (e) TIML should provide the Company with such other periodic reports as may be agreed upon from time to time. 5. Stabilisation The Company agrees that TIML has the right to effect transactions in accordance with Rule 3.2(2) of Chapter II of the IMRO Rules in investments the prices of which may be subject to stabilisation. 6. Borrowings Subject to the restrictions on borrowings set out in the Prospectus and the Articles of Incorporation of the Company, TIML may commit the Company and its subsidiaries to supplement the Assets either by borrowing on the Company's behalf in connection with repurchases of shares of the Company or tender offers or to pay dividends or distributions required for tax purposes or for other temporary purposes that are for facilitating timely settlement of investment and foreign exchange transactions, whether or not on the security of documents of title or documents which evidence title to the Assets, or otherwise that commit the Company to a contract the performance of which may not be possible without such a supplement when TIML consider such supplement to be appropriate for the purpose of carrying out the Investment Objectives in respect of the Assets. 7. Underwriting (a) TIML shall be entitled to commit the Company to any obligation to underwrite or sub-underwrite any issue or offer for sale of securities without any restriction on the categories of securities which may be so underwritten or any financial limits on the extent of such underwriting, except as otherwise stated in the Agreement. (b) TIML may without prior reference to the Company acquire or dispose of investments for the account of the Assets of which an issue or offer for sale was underwritten, managed or arranged by TIML or an Associate thereof during the preceding twelve months. 8. Custodian (a) TIML is not authorised either to accept delivery of cash or securities of the Company or its subsidiaries or to establish or maintain custodial arrangements for the Assets. (b) In particular, the Company shall direct the Custodian to segregate the Assets and to invest, realise and reinvest them in accordance with the directions given by TIML. Such directions shall be transmitted in a manner to be agreed between the Custodian and TIML. (c) Subject to paragraph (d) below, investments comprised in the Assets shall be registered in the Company's name or in the name of a subsidiary of the Company or the name of the Custodian or in the name of a nominee company which is a subsidiary of the Custodian or in such other manner as may be agreed to by the Company from time to time. (d) Investments comprised in the Assets which are issued under the laws of any country or state outside the United Kingdom shall be registered either in the Company's name or in the name of a subsidiary of the Company or the name of the Custodian or of a subsidiary of the Custodian or in the name of such other bank, trustee company or nominee company as may be agreed from time to time by the Company, and the bank or company concerned shall be entitled to charge the Company at its normal rates for the provision of such nominee services. (e) The provisions of paragraphs (c) and (d) above shall apply to investments in bearer form and to documents of title to investments as though references to the deposit of such investments or documents of title with any such company as may be specified in those paragraphs were in each case substituted for references in the said paragraphs to the registration of investments in the name of such company. (f) Except with the Company's prior consent in writing, no investment, money or other assets comprised in the Assets nor any document of title thereto shall be lent to or deposited with any person (whether by way of security or otherwise) other than a subsidiary of the Company or as provided (i) in the preceding provisions of this paragraph 8; or (ii) in the case of money, paragraph 10 below. (g) TIML does not accept liability for any act, default or omission on the part of the Custodian or any subsidiary of it or agent thereof or any other bank, trustee company, depositories, nominee company or other person in whose name or with whom any investment or documents of title may at any time be registered or deposited. (h) Subject to the foregoing provisions of this paragraph, TIML will be entitled to instruct the Custodian or such other bank, trustee company, nominee company or other person in whose name or with whom any investments or documents of title have been registered or deposited to make delivery of such documents of title when settling transactions. (i) TIML will take all reasonable steps to reclaim or, as appropriate, to assist the Custodian to reclaim all refunds which shall be due of tax paid by way of deduction from dividends and interest or otherwise in respect of the Assets. 9. Voting and Other Rights Of Investments (a) TIML shall be entitled at TIML's discretion and without prior reference to the Company to exercise or refrain from:- (i) exercising (or leave unexercised) voting and other rights, privileges and options attaching to or in any way arising in connection with any of the investments comprised in the Assets; (ii) making payment in respect thereof, charging or deducting the amounts paid to the Company or its subsidiaries; (iii) consenting to, or participating in, liquidations, reorganisations, amalgamations, mergers and sales, affecting any of the investments in the Assets; and (iv) in such connection paying assessments, subscriptions and other sums, and charge the amounts paid or payable to the Company or its subsidiaries. Provided that the Company reserves the right at the Company's discretion to direct TIML how to exercise any such rights in relation to any particular investment and TIML hereby undertakes to comply with any such direction. (b) For the purposes of paragraph (a), voting rights shall be deemed to include not only the right to vote at a meeting but any consent to or approval of any arrangement, scheme or resolution or any exercise of, alteration in or abandonment of any rights attaching to any investment comprised in the Assets and the right to requisition or join in a requisition to convene any meeting to give notice of any resolution or to consent to any short notice of a meeting or to demand or join in demanding any poll at a meeting. 10. Bank Accounts Any money which is at any time comprised in the Assets shall be placed to the credit of one or more bank accounts, which may be with a branch in the United Kingdom or overseas. Money so deposited shall be held in the Company's name and accordingly shall not be client money for the purposes of the Financial Services (Clients' Money) Regulations 1991 (as such Regulations may be amended or re- enacted). The Company shall grant mandates in TIML's favour with regard to the operation of such accounts so as to permit TIML to perform TIML's duties under the Agreement. 11. Material Interests And Conflicts Of Interest (a) TIML may effect, without prior reference to the Company, transactions with or for the Company in which TIML has directly or indirectly a material interest (other than an interest arising solely from TIML's participation in the transaction) or a relationship of any description with another party which may involve a conflict with TIML's duty to the Company, except that TIML shall not invest any part of the Assets in any investment trust company or Collective Investment Scheme managed by TIML or any Associate of TIML without prior notification to the Company. For the avoidance of doubt, in providing its services to the Company, TIML may use any broker, trader, market maker or other dealer from whom TIML receives advice or other services in accordance with Clause 2.07 of the Agreement. (b) TIML or any Associate may without prior reference (other than in respect of any transaction within the exception stipulated in paragraph (a) hereof) to the Company:- (i) sell an investment to, or buy an investment from, the Company for the account of the Assets as a principal or as an agent (including as agent for an Associate) or on behalf of another of TIML's clients; and (ii) have directly or indirectly a material interest of any description, or have a relationship with another person such as to place TIML or it in a position where TIML's or its duty to or interest in relation to that other person conflicts or may conflict with TIML's or its duty to the Company; or (iii) act both as an agent for the Company and also as an agent for the counterparty, (iv) enter into a transaction jointly on the Company's behalf and on behalf of other person(s) for whom TIML act as investment manager. The terms of any such transaction shall be determined by TIML or the Associate, or, as the case may be, agreed with the other principal concerned taking into account the normal profits of any third party in respect of such a transaction provided that TIML or the Associate reasonably believes that the terms of the transaction is no less favourable to the Company than it would have been had it been a transaction at arm's length with a third party which is not an Associate in the open market. (c) Notwithstanding Clause 6.01 of the Agreement TIML may, in TIML's absolute discretion, without prior reference to the Company, instruct as TIML's agent any Associate to arrange any transaction in connection with the management of the Assets. (d) Subject to the other provisions of the Agreement, TIML may acquire or dispose of units for the account of the Assets in any Collective Investment Scheme operated or advised by TIML or any Associate thereof or investment company which is, or the custodian, trustee or manager of which, is, an Associate. (e) Any transaction in investments in Collective Investment Schemes will be effected at the relevant price quoted by the operator of the scheme (subject to TIML's duty of best execution if more than one price is quoted). (f) Subject as provided in paragraph (a) above, any Associate of TIML may retain any commission, the benefit of any mark-up or mark-down or any other sum derived from any transaction carried out for the Company in any Collective Investment Scheme managed by an Associate in accordance with this paragraph and neither TIML nor any Associate shall be liable to account to the Company for any profit, commission, brokerage or other remuneration made or received from or by reason of any transaction or any connected transaction in relation to the Assets whether from any other client of TIML's or an Associate or otherwise, and accordingly the Management Fee set out in Schedule 1 shall neither be supplemented nor abated by reason of any such commission, profit, brokerage or other remuneration. (g) Neither TIML nor any Associate shall be required to disclose to the Company details of any amounts TIML or they receive from transactions effected under this Agreement (other than amounts expressly charged to the Company) nor details of any connected transaction nor of any other customer or counterparty involved in a transaction. (h) Nothing in this Agreement shall be deemed to limit or restrict TIML's right, or the right of any of its officers, directors or employees, to engage in any other business or to devote time and attention to the management or other aspects of any business, or to render investment management services or services of any kind to any other client. (i) The Company acknowledges that TIML provides investment management services to numerous other private accounts. The Company also acknowledges that TIML may give advice and take action with respect to any of TIML's other clients or for TIML's own account which may differ from the timing or nature of action taken by TIML with respect to the Assets. (j) Nothing herein contained shall prevent TIML, TIML's directors or employees or any Associate of TIML from buying, holding and dealing in any investments upon their own account, notwithstanding that the same or similar investments may be held for the account of the Assets and no such person shall be liable to account for any benefit to the Company by reason of such interest. (k) Nothing in this Agreement shall impose upon TIML any obligation to purchase or sell or to recommend for purchase or sale, with respect to the Assets, any security which TIML, or TIML's shareholders, directors, officers, employees or Associates may purchase or sell for its or their own account(s) or for the account of any other client. 12. Authorised Signatories and Instructions (a) The Company shall, at TIML's request, provide TIML with: (i) any authority necessary to enable TIML to fulfil TIML's obligations under this Agreement; and (ii) a list and description of authorised persons from whom TIML may accept instructions, together with specimen signatures of such persons. (b) The Company may give TIML instructions from time to time by way of a letter (receipt of which instructions TIML shall acknowledge in writing). (c) TIML are authorised to rely on, may act on and treat as fully authorised by the Company, any instruction, confirmation or communication which purports to have been given (and which is accepted by TIML in good faith as having been given) by or on behalf of the persons notified by the Company from time to time to TIML as being authorised to instruct the Company by whatever means transmitted and whether or not in writing and notwithstanding that it shall subsequently be shown that the same was not given, signed or sent by an authorised person and, unless TIML shall have received written notice to the contrary, whether or not the authority of such person shall have been terminated. (d) TIML may, if TIML so wishes, request instructions from the Company in regard to any particular transaction which it proposes to effect or generally and may refrain from effecting such proposed transaction or any transaction until TIML shall have received instructions, in writing if so requested. /s/ Charles E. Johnson /s/ J. Mark Mobius ______________________ __________________ Charles E. Johnson J. Mark Mobius /s/ D. W. Adams /s/ Gerard W. Kerr _______________ __________________ D. W. Adams Gerard W. Kerr EX-10.4 5 EXHIBIT 10.4 SERVICE AGREEMENT ____________________ This Agreement has been made on 1st March, 1996 Between 1. TEMPLETON RUSSIAN AND EASTERN EUROPEAN DEBT FUND, a Societe d'Investissement a Capital Variable, incorporated under the laws of the Grand-Duchy of Luxembourg and having its registered office in Luxembourg, 30, Grand-Rue, (hereinafter called the 'Fund") on the one part, and 2. TEMPLETON GLOBAL STRATEGIC SERVICES S.A., a Societe Anonyme, incorporated under the laws of the Grand-Duchy of Luxembourg and also having its registered office in Luxembourg (hereinafter called the "Agent") on the other part, WHEREAS; (A) The Fund has been incorporated as an investment Fund for the investment and reinvestment of its assets in certain types of securities, as more fully described in its Articles of Incorporation; (B) The Board of Directors of the Fund has selected the Agent to act as, registrar and transfer, corporate and domiciliary agent for the Fund and to provide certain administrative services; (C) The Agent is ready and willing to act as registrar and transfer, corporate and domiciliary agent and to provide administrative services as aforesaid, subject to and in accordance with the provisions of the law of 30th March 1988 (the "law') and the provisions set forth in this agreement NOW IT IS HEREBY AGREED AS FOLLOWS: I. Registrar and Transfer Agency 1.) Appointment The Fund hereby appoints the Agent as its registrar and transfer agent. subject to the provisions hereof, and will deliver, or cause to be delivered, forthwith upon request to the Agent all documents and papers necessary under Luxembourg law, under the Articles of incorporation of the Fund as from time to time amended, and as may be required for the due performance of the duties of the Agent hereunder, or for the due performance of such additional duties as may from time to time be agreed upon between the Agent and the Fund. 2.) Functions of the Registrar and Transfer Agent As registrar and transfer agent the Agent shall have and perform the following powers and duties: A. Maintenance of Records To keep safely and to maintain in current form, as required by Luxembourg law, the register of shareholders of the Fund as well as the certificates for shares of the Fund to deal with requests for transfer of shares whether through the Luxembourg Stock Exchange or otherwise and to maintain and keep safely such other records as may, be required or requested by proper instructions from time to time and as may further be required by the laws of Luxembourg. B. Disposition of Certificates To keep safely all share certificates of the Fund, as may be designated for safekeeping prior to issue from time to time by the Fund; to accept or keep certificates, tendered for exchange, replacement, repurchase or transfer by the holders thereof in accordance with the provisions of the Articles of Incorporation of the Fund and the requirements of Luxembourg law; to accept and keep safely such forms and documents as may be submitted to it in connection with any such tender; to deliver as agent, subject to the conditions set forth hereafter. share certificates of the Fund, whether by way of original issue to new shareholders or in exchange, replacement or further to a transfer subject to the provisions of the Articles of Incorporation of the Fund and to Luxembourg law. C. Subscriptions and Repurchases To handle the processing of subscriptions to shares in the Fund, to deal with requests for repurchases and with resales of repurchased shares and to make such transfers of funds, or to give instructions with respect to such transfers, and to rake such actions as shall be necessary in order to effect such sales and repurchases. In this connection the Agent shall have regard to the specific provisions of the Prospectus relating to the issue, transfer, redemption and holding of shares comprising, inter alia, restrictions on ownership and minimum holding by certain types of shareholders. D. Conditions for Delivery and Repurchase To deliver share certificates (i) by way of original issue, or (ii) further to a transfer, conversion, replacement or exchange only after receipt (x) by the receiving bank designated by the Fund -from time to time of payment therefor. or (y) of share certificates for an equivalent number of shares. For this purpose cheques, drafts and similar instruments of payment will be considered as good funds if and when collected. To make payment or to cause payment to be made of repurchase proceeds only after all the conditions as described by the Articles of incorporation of the Fund and other valid documents, as amended from time to time, are fully met. E. Destruction of Certificates To destroy by cremation or any other means share certificates which have been cancelled or mutilated or which are no longer of good delivery for any other reason. Such destruction shall be evidenced by an affidavit duly signed by two witnesses. F. Circulars to Shareholders To provide and supervise services with regard to the dispatch of statements, reports, notices, announcements, proxies and other documents to the shareholders of the Fund and to maintain such records with regard thereto as may from time to time be required by the Fund or by Luxembourg law. II. Corporate and Domiciliary Agent Agreement 1 . The Agent allows the Fund to fix its registered office at the address of the Agent at Centre Neuberg, 30, Grand-Rue Luxembourg. The Agency will act as corporate and domiciliary agent for the Fund and will provide related services for the benefit of the Fund (in which capacity the agent is hereinafter called the "Domiciliary Agent"). 2. The Fund will, on request, deliver or cause to be delivered to the Agent all the books, records, agreements, forms, papers, files and other corporate documents required by Luxembourg law and the Articles of Incorporation of the Fund necessary to the Domiciliary Agent for the due performance of its duties. As Domiciliary Agent the Agent will have the following duties: a) To receive and keep safely any and all notices, correspondence, telegrams, telex messages, telephonic advice or ocher representations and communications received for account of the Company the Agent being authorized to open the mail no received at its address and obtain knowledge of its contents. b) To provide such facilities as may from time to time be necessary in the course of the day-to-day administration of the Company, including such meetings of its officers, directors and/or shareholders as may be convened in Luxembourg. c) To provide and supervise facilities and services for the preparation and dispatch of statements, notices. announcements, proxies and other documents to the shareholders of the Fund and to maintain such records with regard thereto as may from time to time be required by the Company or by Luxembourg law. d) To draw up the minutes of the general meetings, to provide for legal publications and file any tax returns. To perform such ocher services as may be agreed upon from time to time between the Agent and the Fund with regard to the maintenance of any and all records or books required to be kept at the principal office of the Fund. e) To take, upon instruction of the Fund and at its expense, all actions necessary to defend the Fund's nationality and domicile. 3 . As compensation for the performance of its duties under this agreement, the Agent will be entitled to charge out of the Fund's assets a fee as may be agreed from time to time among the parties hereto. IV. Administrative Agency The Fund appoints the Agent, and the Agent hereby accepts such appointment, as Administrative Agent of the Fund. In such capacity the Administrative Agent shall perform the following Administrative services: a) the bookkeeping of the Fund in accordance with general accounting principles and legal provisions; b) the determination of the net asset value of the shares of the different Funds in accordance with the provisions of the articles of incorporation and the Prospectus issued from time to time by the Fund. c) the preparation of the annual accounts and the periodical financial statements and reports in accordance with Luxembourg law and the requirements of the Luxembourg Monetary Institute. d) the liaison with the Independent Public Accountant. V. General 1.) Use of the Agent's name The Fund agrees not to use the Agent's name in any document, publication or publicity material., including but not limited to prospectuses, notices, circulars, sales literature, stationery. advertisements etc. without the prior consent of the Agent. 2.) Submission to Law The Fund undertakes to submit to any and all applicable laws, regulations and administrative rulings of the Grand Duchy of Luxembourg and of any other country in which the Fund conducts business. 3.) Right to receive advice If the Agent shall at any time be in doubt as to any action to be taken or omitted by it, it may, with the consent of the Fund, request and receive advice, at the expense of the Fund. from legal counsel selected by the Fund, and may, but shall not be required to, act thereon. 4.) Proper Instructions "Proper instructions" shall be deemed to have been received by the Agent in respect of any of the matters referred to in this Agreement upon receipt of written, cabled or telexed Instructions given by any two directors or by such one or more person or persons as the Board of Directors of the Fund shall from time to time have authorized to give the particular class of instructions in question. A certified copy of a resolution of the Board of Directors of the Fund may be received and accepted by the Agent as conclusive evidence of the authority of any such person or persons to act, and may be considered as in full force and effect until receipt of written notice to the contrary. The Agent shall not be liable for the execution of instructions which the Agent will have accepted in good faith as being proper instructions. 5.) Books and records The books and records of the Agent relating to the Fund's business shall be open to inspection and audited at reasonable times by officers and auditors employed by the Fund. 6.) Indemnification The Fund agrees that it will indemnify and hold harmless the Agent and its officers and directors from any and all cost, liability and expense resulting from the fact that the Agent has acted in accordance with the terms of this Agreement pursuant to the receipt of proper instructions. The Agent shall be liable to the fund for any acts or omissions involving an intentional or negligent failure to exercise due care by the Agent or its employees, officers or directors contrary to the terms of this Agreement, except such acts or omissions as are required by court order or other legal process or regulation of any governmental body. The Agent agrees that it will indemnify and hold harmless the Fund and its employees, officers and directors from any and all loss, damage, liability and expense arising out of negligence or intentional misconduct of the Agent, any of its employees, officers or directors. 7.) Compensation The Agent will be entitled to debit the Fund's accounts in order to receive payment. as compensation for the performance of its duties under this Agreement, for all fees as may be agreed upon from time to time. 8.) Lien The Agent acknowledges that, unless otherwise agreed from time to time with the Fund, it has no right to a lien or to a right of retention over the documents of title or certificates evidencing title to any of the assets of the Fund. 9.) Disbursements The Agent will be entitled to be refunded all expenses properly incurred in the performance of its duties under this Agreement. The Agent will from time to time give details of such expenses to the Fund in writing. 10.) Termination Either Party may terminate this Agreement by notice in writing, delivered or dispatched by registered mail to the other party hereto, not less than 60 days prior to the date upon which such termination becomes effective. However, breach of any clause contained in this Agreement by either party shall entitle the other party to terminate this Agreement upon thirty days' prior written notice unless such breach is cured within such period. Upon termination hereof the Fund shall pay to the Agent such compensation as may be due as of the date of such termination and shall likewise reimburse the Agent for its costs, expenses and disbursements properly incurred. The Agent shall, in the event of such termination, deliver or cause to be delivered to the Fund, or as the Fund may direct, if so required by proper instructions, all documents and papers of the Fund then held hereunder. and all funds or other properties of the Fund deposited with or held by it hereunder. 11.) Notices to the Fund Notices may be delivered or dispatched by mail, or may be cabled or telexed to the Fund's address in Luxembourg, and such Fund then held hereunder, and all funds or other properties of the fund deposited with or held by it hereunder. 12.) Notices to the Agent Notices may be delivered or dispatched by mail, or may be telexed to the Agent's address in Luxembourg. Such notices shall be deemed to have been properly delivered or given hereunder and shall be effective and the date of delivery if delivered, cabled or telexed or, if dispatched by registered mail. on the day on which the same have been tendered for delivery by the post. 13.) Proper Law This Agreement shall be subject to and construed in accordance with Luxembourg law. This Agreement has been executed in two counterparts and shall become effective on 1st March, 1996. /s/ J. Mark Mobius ------------------- J.Mark Mobius TEMPLETON RUSSIAN AND EASTERN EUROPEAN DEBT FUND /s/ Charles E. Johnson ----------------------- By: Charles E. Johnson TEMPLETON RUSSIAN AND EASTERN EUROPEAN DEBT FUND /s/ D. B. Anderson ------------------- D. B. Anderson /s/ D. W. Adams ---------------- D. W. Adams EX-11 6 Exhibit 11 COMPUTATIONS OF PER SHARE EARNINGS Earnings per share are based on net income divided by the average number of shares outstanding including common stock equivalents during the period. Three months Six months ended ended March 31 March 31 (Dollars and shares in thousands) 1996 1995 1996 1995 ----------- ---------- -------- ------- Average outstanding shares 80,345 81,375 80,584 81,489 Common stock equivalents Primary 2,573 1,335 2,536 1,335 Fully diluted 2,721 1,502 2,721 1,502 Total shares Primary 82,918 82,710 83,120 82,824 Fully diluted 83,065 82,878 83,305 82,991 Net income $75,212 $63,040 $149,163 $126,344 Earnings per share: Primary $0.91 $0.76 $1.79 $1.52 Fully diluted $0.91 $0.76 $1.79 $1.52 EX-12 7 Exhibit 12 COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES For three months For six months ended ended March 31 March 31 (Dollars and shares in thousands) 1996 1995 1996 1995 -------- -------- --------- --------- Income before taxes $108,262 $92,634 $215,437 $185,065 Add fixed charges: Interest expense 7,537 7,353 14,902 14,440 Interest factor on rent 2,063 1,905 3,950 3,398 -------- -------- ---------- --------- Total fixed charges 9,600 9,258 18,852 17,838 Earnings before fixed charges and taxes on income $117,862 $101,892 $234,289 $202,903 ======== ======== ========= ========= Ratio of earnings to fixed charges 12.3 11.0 12.4 11.4 ======== ======== ========= ========= EX-27 8
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS SEP-30-1996 MAR-31-1996 337,582 206,408 164,516 0 0 705,202 129,696 0 2,261,462 160,447 0 8,226 0 0 1,250,528 2,261,462 0 471,183 0 270,358 0 0 6,042 215,437 66,274 0 0 0 0 149,163 1.79 1.79
-----END PRIVACY-ENHANCED MESSAGE-----