Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
415-312-2000

Alexandria, VA, July 29, 1996/FOOLWIRE/ --- Franklin Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BEN)") else Response.Write("(NYSE:BEN)") end if %> announced Thursday the "best quarter [they have] ever had." Assets under management increased 4% from last quarter to $147.6 billion. This resulted from increases in gross and net sales as well as market appreciation. Operating revenue was flat quarter to quarter [yearly basis] but investment management fees grew 6%, greater than the increase in assets under management. This ratio of growth is the result of a different mix of customer investments to products with higher advisory fees.

Underwriting commissions are now broken out on a gross basis. Underwriting and distribution fees include gross fees, commissions and distribution income and are separated from underwriting and distribution expenses, which not appear on the income statement in operating expenses instead of in the net figure, as it formerly appeared. These fees decreased 6% from last quarter as a result of gross sales being lower than last quarter's record-breaking sales quarter. Transfer agency increased 4% as a result in the number of shareholder accounts, in line with the increase in assets under management. Net bank finance revenue decreased as a result of aggressive charge-offs, for which the outstanding amount on the balance sheet has decreased during the quarter. In addition, delinquencies have fallen.

Operating expenses decreased 1% during the quarter. Inside of that figure, selling expense has increased slightly, but that is due to increases in activity in the US as well as abroad. Operating income increased 5%. Other investment income increased substantially because of non-recurring gains realized on investments. Interest expense decreased as outstanding debt fell during the quarter. Net income per share increased 17% from the year-ago quarter.

Equity funds continue to dominate the funds under management and international funds are showing continued strength. Total assets are up 18% from the prior-year quarter. Assets are little changed on the Franklin side. Templeton saw a 9% increase over the last quarter.

By category, assets under management break down to:

                                   1996                          1995                

Tax free fixed-income             $ 42.6 billion              $ 40.8 billion
Equities                            48.7                        36.8
Taxable fixed income                14.3                        14.6
Money markets                       flat
Annuities                           10.6
Foreign based                        9.5
Separate accounts                   15.5

Domestic equity sales grew 70% from the prior year, but were down slightly from the previous quarter. Gross flows for taxable fixed income was down from last quarter--$290 million vs. $359 million last quarter, but up from $194 million in the prior year. Tax-free sales were $1.2 billion vs. $1.3 billion last quarter. International equity was $1.835 billion vs. $2 billion in the prior quarter and $1.130 billion a year ago. This totals $4.163 billion in gross flows vs. $4.644 billion in the prior quarter and $2.8 billion a year ago

Net inflows were positive year/year for domestic equities and tax-free fixed income funds and were still negative for taxable fixed income funds. Long-term US equity funds' net inflows amounted $1.668 billion vs. slightly over $2 billion in the prior quarter and $582 million in the prior year. Distribution channels were comprised of: regional firms, 28%; wirehouses [large national brokerages] 24%; banks, 18%; planners, 19%; insurance, 11%.

Franklin Templeton has rolled out its full-featured 401(k) program. Road shows in ten cities have taken place this summer and mailings have gone out to 50-60,000 brokers on the mailing list.

Q & A

Net commission income would have been negative, under the old method, for the first time in this quarter. Canadian net commissions were to blame for this as back-end load sales are being sold, which pushes these commissions out into the timeframe when these shares are redeemed.

Regarding the departure of a few of their fund managers, the company said that it is indeed vulnerable to other firms' raiding of their personnel due to the bull market's continuance and the desire of other fund groups' growth or plans to expand. This has been part of the competitive landscape for years.

The acquisition of Heine Securities Corp. is being submitted to Heine shareholders and should close in Q1 FY 1997. Franklin's marketing efforts on the Heine Funds would begin immediately after the close of the acquisition. There will be some debt added to the balance sheet and the priority for free cash flow would be to pay down debt. The company takes an "opportunistic approach" to repurchasing its [BEN] shares. They may be "willing buyers when there are willing sellers" in the market.

Random notes: Canadian assets are $10 billion [presumably $US denominated]. The company's tax rate going forward should hold steady between 31 and 33 percent.

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