A bigger, more versatile Franklin Resources Inc. has regained the ground it had lost over the past few years in selling mutual funds through banks. Now it is gunning for the one company ahead of it: Putnam Investments.

Behind the comeback is Franklin's acquisition of two powerhouse mutual fund companies that have beefed up its product menu. And the company hopes that the introduction of a popular pricing structure that lets investors buy shares without paying an up-front sales charge will push it to the top of the bank heap.

"Once our pricing is in place, that's where we want to be," said Gregory E. Johnson, president of Franklin's distribution arm. "I don't think there's any excuse not to achieve it if we can continue to have good performance across our wide fund family."

Mr. Johnson's counterpart at Putnam, William N. Shiebler, suggested that Franklin, which was once about an equally big seller through banks, will be hard-pressed to turn back the clock. "Those kinds of things are always cute to say," he said.

But he quickly added, "They're a worthy competitor."

Mr. Shiebler has good reason to be confident: His company claims $10 billion in sales through banks last year, versus the $4 billion claimed by Franklin.

Whether it catches Putnam or not, 51-year-old Franklin-the nation's sixth-largest fund company, with $221 billion of assets under management- has certainly made impressive strides.

A few short years ago the San Mateo, Calif.-based company was taking a beating in the bank marketplace. After selling $4 billion of funds through banks in 1993, Franklin saw its sales plummet to $1.9 billion in 1994 and $1.8 billion in 1995. Low interest rates were driving investors away from the company's predominant product, bond funds, and toward equity funds.

"Not having a broad lineup in equities and stronger brand recognition with financial institutions, it was difficult for us to sell a lot of our equity funds," Mr. Johnson said.

Sales through brokerages, financial planners, and insurance agents suffered, but bank sales were particularly hard hit because they were weighted toward bond funds.

Franklin acted in time to prevent a further collapse. Seeing the trend toward equity funds, it bought Templeton Galbraith & Hansberger Inc., a renowned international fund company, in 1992. In 1996 it snapped up Heine Securities, a distinguished domestic value fund firm.

Bank customers flocked back to Franklin, buying $2.6 billion worth of its shares in 1996, and returning its bank sales last year to $4 billion- which amounted to 17% of Franklin's total sales.

"The acquisition of Templeton as well as Mutual Shares (the Heine fund family) has been an absolute boon for us," said H.G. "Toby" Mumford, the senior vice president who directs Franklin's sales through 250 banks.

Had Franklin not acquired a strong equity capability, it might now be in the position of bond-oriented fund companies like Dreyfus, Colonial, and Kemper that are playing catch-up, industry observers say.

Franklin's acquisitions also ensured it a place on banks' preferred- provider lists at a time when the lists were being shortened and purged of niche providers.

"They would have found themselves reduced to a minor role in any investment program," said Peter Wall, director of product research and development for Chase Manhattan Corp.'s investment products arm.

Jack Kopnisky, president of KeyCorp's brokerage subsidiary, said, "Companies that have broader product arrays-like Templeton does-are more likely to be requested by our clients."

Still, Mr. Johnson said he is not content with sales that are merely where they were four years ago. Part of the problem is that Franklin is only now adopting the popular back-end-load sales structure, which allows investors to pay fees when cashing out shares, rather than at the time of sale.

This "B shares" structure has been around for at least five years, and accounts for 55% of sales at banks, according to Franklin.

"We will not be where we should be in the bank channel until we have B shares available," Mr. Johnson said. "It's just too strong a pricing force through that distribution channel, and I think it cost us a lot in sales."

Franklin's board recently approved B shares, and the company plans to roll them out late this year or early next year. Franklin's rivals agree that the company is a tough competitor, even without the B shares.

"They have good performance and great name recognition at the shareholder and broker-dealer level," said Michael C. Vessels, national sales manager for the bank division of Houston-based AIM Management Group. "They've done smart marketing and they've made smart acquisitions. So they're tough."

Observers give the company credit for smoothly integrating the companies it has bought. It has centralized back-office operations while letting superstar fund managers like Heine's Michael Price and Templeton's Mark Mobius and Mark Holowesko operate without meddling from above.

There are hurdles ahead. Many of the funds that Franklin acquired are getting so big that performance may start to suffer, said Russel Kinnel, an editor at Morningstar.

Another key question is whether Franklin will be able to retain its heavy-hitter fund managers. For instance, it is widely expected that Mr. Price, the chief executive of Heine, will depart after his five-year contract expires.

If the company runs short of challenges, Putnam will be there to provide one, Mr. Shiebler said.

"I'm glad we've been put on notice," he said, "because we'll be ready."

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