Washington, June 27 (Bloomberg) -- Farmer Brothers Co. shareholder Franklin Mutual Advisors LLC, a mutual fund group, is seeking to have the company separate its coffee distribution operations from its securities investment business.

The proposal would require Torrance, California-based Farmer Brothers to register as an investment company, which might lead to tax savings, according to Franklin Mutual's filing with the Securities and Exchange Commission. The investor, which controls a 9.7 percent stake and ranks as the third-largest shareholder, submitted the proposal to be voted on by all shareholders at the next annual meeting.

``We will give the attention it deserves and deal with it,'' said John Simmons, treasurer at Farmers Brothers. ``I can't imagine why we would want to be a registered investment company.''

Farmer Brothers had a reserve fund of $282 million, which represented 69.5 percent of all corporate assets, at the end of March, according to Franklin Mutual. By comparison, the company reported $263 million of cash and short-term investments at the end of June last year, according to SEC filings.

The increasing size of the reserve fund suggests that Farmer Brothers has become a ``de facto investment company, Franklin Mutual said in the filing.

``As the company is now conducted, public shareholders do not have sufficient information to know how well or badly their assets are being managed. This is not acceptable,'' Franklin Mutual said.

By registering as an investment company, Farmer Brothers would be required to detail its investments and disclose the expenses and relationships associated with the management of those assets, according to Franklin Mutual.

Separate management structures for the coffee and investment businesses should help executives ``realize the full potential'' of the food business that ``has stopped growing'' and may lead management to consider spinning off the investment fund, Franklin Mutual said in the filing.

Family-Owned Company

Franklin Mutual, based in Short Hills, New Jersey, opposed the reelection of Farmer Brothers' board in 2000. The investor said at the time that the company's management, run by Chairman Roy F. Farmer since 1951, is more like a closely held family operation than a public corporation.

Farmer and his sister Catherine Crowe, a former board member, control a combined 54 percent stake, according to the company's last proxy statement.

Farmer Brothers stock, which has gained 40 percent over the last six months, rose $6.96 today to $348.95.