To : The files

Date : March 31, 2010

Prepared by : Vipul J Shah updated by Parag Pabari

Subject : Memo on automated subscription receivable ledger

reconciliation process

Purpose

The purpose of this memorandum is to document our understanding of the automated

subscription receivable ledger reconciliation process performed by Desert Rose System
(DRS) of the Franklin Templeton Mutual Fund’s (‘FTMF’ or ‘the Fund’) Transfer Agency
(TA) and to assess the accuracy of the same.

Background

The purpose of reconciliation of subscription receivable ledger per FA matches with balance
in subscription receivable ledger per Desert Rose.

Units are marketed to the investors through various channels such as -

- Branches and district representatives;
- Special broker tie up arrangements with banks;
- Systematic Investment Plans (SIP) (through standing instructions to bank for debit ECS).

Cheques received on sale of units, at the first instance, are deposited in a collection account.
The Fund maintains collection accounts with various banks such as IDBI bank, HDFC Bank,
Citibank, American Express Bank, HSBC, Standard Chartered Bank, ICICI Bank, ABN Amro
Bank, UTI Bank, Indian Overseas Bank, Kotak Mahindra Bank, Deutsche Bank etc.

These collection accounts are categories as -

- High Value (‘HV’) account (e.g. Citibank HV account);
- Normal accounts (e.g. IDBI, HDFC and Citibank Normal Account etc.);
- Special Broker Tie up accounts (e.g. Amex, HSQINS, ICICI Web, Citi Retail Banking);
- Direct Transfers – (for liquid funds); and
- Standing Instructions (SIP) – (ABN Amro bank and HDFC SIP and HDFC ECS)

Effective from the month of August 2006, the Fund has devised an application in its units
processing system - Desert Rose System (DRS) for carrying out the process of reconciliation
of the subscription receivable ledger in an automated manner on a daily basis.

Significant classes of transactions involved in the Subscription process are –

- Processing of the subscription applications and allotment of units;

(Discussed in detailed in a separate memo on unit capital)

- Recording of unit capital;

(Discussed in detailed in a separate memo on recording of unit capital)
- Credit validation (also known as Matching Process); and

- Subscription ledger balance reconciliation.

Process of credit validation (The Matching Process)

- Every day morning, TA receives bank statements and Cheque Level Data (CLD) from all
non-high value banks in respect of the credits received in to those collection accounts
during the previous day. CLD contains fields like cheque number, amount, fund code,
name of the investors, etc. (In case of cheque dishonoured, amount is reflected as debit in
the CLD);

- CLD is also accompanied by a scheme wise debits and credits summary statement;

- CLD is compared with the bank statement and the summary statement;

- If CLD contain any the debit against any cheque number, then corresponding credit for
the same cheque number is searched in the same day’s CLD. If both the debit and credit
are matched, the same are manually removed from the CLD. (This is done to ensure that
the DRS does not cancel the allotment pertaining to those cheque numbers)

If corresponding credits are not found in the CLD, then it is queried in to the DRS records
to trace the date on which allotment is made. Once the date is traced, the corresponding
allotment details are also traced and reversal of the transaction is carried out by sending
mail to processing team by the TAC team;

- Then the adjusted / updated CLD file is uploaded in to the system;

- DRS show the number of cheques uploaded for control purpose;

- Based on the CLD uploaded, the Matching application in DRS is activated to match the
uploaded CLD vs. unrealised applications data as available in the DRS.

- For the purpose of this matching process, a period of 10 immediately preceding days is
selected (i.e. allotments of last 10 days are selected on which matching is to be applied);

- Matching activity is carried out by the DRS using the three key fields viz. Fund code,
cheque number and the application amount (in case of SIP transaction, since cheque
number is not available, investor’s account number is used as a key field);

- If the allotment is matched with the CLD, date of CLD (i.e. credit date) is updated in the
DRS against the allotment record. Similarly, the Matching date is also updated in the
DRS against the allotment record.

- Typically, between the matching date and the credit date there is a gap of one Business
Day. (i.e. if the credit date is say Monday, the matching date would be Tuesday. If the
credit date is say Friday, the matching date would be Monday (Saturday, Sunday being
non business days));

- The Matching Process is carried out everyday in the morning before 12.30 p.m. in the
DRS system; Matching Data is changed to next date, which would be used for the
purpose of matching to be done on the next day morning;
- TAC compiles the list of all the matched cases for the day and sends the report to the cash
management cell (CMC) for utilization of the funds from the collection accounts to the
respective scheme’s accounts;

- During the matching process, if the units get match with the credits received then the
allotment status is made “F” from “P”.

- After execution of the Matching process, following reports are generated:

a. Realised Not Allotted Report (‘RNA’) report

This report gives the transaction wise details of the credits received during the
selected period but allotment not made final till date.
b. Unrealised Allotment Report (‘UAR’)
This report gives the allotments made during a period but not realized till date.

WCGW
(1)During the comparison of CLD with bank statement or branch HV report if an item is
missed out due to human error.

Control
a. The HV summary will not tally. The bank balance will not tally.

Process of subscription receivable ledger reconciliation

- Every day the subscription receivable ledger balances as per Coda ledgers are uploaded in
to the DRS by way of an excel file;
- DRS system compares the balances so uploaded with the Unrealised Cheques / Allotment
data available with itself and automatically performs the reconciliation between the two
amounts;
- The difference between the two amounts as reflected by the DRS system, is investigated
by the TAC and the reason there-of are identified.

Process of collection bank reconciliations

- As discussed earlier, based on the matching exercise, the DRS system prepares RNA
report every day. (RNA report lists the credits received in the collection bank accounts
but against which, any allotment could not be traced).
- Using the RNA report, the DRS system automatically prepares collection bank accounts
reconciliations for each bank.

Change in the process of authorizations of reconciliations

Prior to April 2007, authorizations were taken on the reconciliations selected as samples.
From April 2007 onwards, we have received a checklist of authorizations covering different
areas like reconciliations for Current Account, Brokerage, Subscription, Redemption,
Dividend, Custody etc. This checklist is prepared on daily basis.
Work performed

Discussed the subject matter with the following personnel:

Mr. Sreelata – Manager, Treasury Accounting Control (TAC);

Mr. Renuka S. – Manager, Treasury Accounting Control (TAC);

Reviewed the following documents:

- Ledger extracts for subscription ledger balances;

- Unrealised cheques and the RNA reports as generated from the DRS system;
- Subscription receivable ledger reconciliations as prepared by the DRS system;
- Collection bank account reconciliations as prepared by the DRS system;