As Filed with the Securities and Exchange Commission on June 27, 1997
SECURITIES ACT FILE NO. 33-
INVESTMENT COMPANY ACT FILE NO. 811-
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. / /
FRANKLIN FLOATING RATE TRUST
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD. SAN MATEO, CA 94404
(Address of Principal Executive Office)
Registrant's Telephone Number, Including Area Code (415) 312-2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)
With a copy to:
Merrill R. Steiner, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Approximate Date of Proposed Public Offering
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
CALCULATION OF REGISTRATION FEE
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Proposed
Title of Proposed Maximum
Securities Maximum Aggregate Amount of
Being Amount Being Offering Price Offering Registration
Registered Registered Per Unit Price Fee
================================================================================
Common Stock, par 10,000,000 $10.00 $100,000,000 $30,303
value $0.01 shares
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 8(a) OF THE SECURITIES ACT OF 1933
OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS
THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
FRANKLIN FLOATING RATE TRUST
FORM N-2 CROSS REFERENCE SHEET
PART A -
N-2
ITEM NUMBER CAPTION PROSPECTUS CAPTION
1. Outside Front Cover Outside Front Cover of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Page Page of Prospectus
3. Fee Table and Synopsis Expense Table; Prospectus Summary
4. Financial Highlights Not Applicable
5. Plan of Distribution Outside Front Cover, Prospectus
Summary; How to Buy Common Shares
of the Fund; Description of Common
Shares
6. Selling Shareholders Not Applicable
7. Use of Proceeds How Proceeds from Sales of Common
Shares Are Used; What Kinds of
Securities Does the Fund Purchase?;
Prospectus Summary
8. General Description of the Prospectus Summary; Information
Registrant About the Fund; What Kinds of
Securities Does the Fund Purchase?;
What Are the Investment
Restrictions on the Fund?;
Description of Common Shares
9. Management Who Manages the Fund?
10. Capital Stock, Long-Term Dividends and Distributions to
Debt, and Other Securities Shareholders; Taxation of the Fund
and its Shareholders; Dividend
Reinvestments
11. Defaults and Arrears on Not Applicable
Senior Securities
12. Legal Proceedings Not Applicable
13. Table of Contents of the Not Applicable
Statement of Additional
Information
FRANKLIN FLOATING RATE TRUST
FORM N-2 CROSS REFERENCE SHEET
PART B -
N-2
ITEM NUMBER CAPTION PROSPECTUS CAPTION
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information and Not Applicable
History
17. Investment Objective and Prospectus Summary; What Kinds of
Policies Securities Does the Fund Purchase?;
What Are the Investment Restrictions
on the Fund?; Portfolio Transactions
by the Fund
18. Management Who Manages the Fund?
19. Control Persons and Not Applicable
Principal Holders of
Securities
20. Investment Advisory and Who Manages the Fund?
Other Services
21. Brokerage Allocation and Portfolio Transactions by the Fund
Other Practices
22. Tax Status Taxation of the Fund and its
Shareholders
23. Financial Statements Financial Statements
Information required to be included in Part C is set forth under the
appropritate item, so numbered, in Part C of this Registration Statement.
SUBJECT TO COMPLETION - DATED JUNE 26, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
FRANKLIN FLOATING RATE TRUST
PROSPECTUS
_____________, 1997
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
- -----------------
INVESTMENT OBJECTIVE
Franklin Floating Rate Trust (the "Fund") is a closed-end investment company
whose goal is to provide as high a level of current income and preservation
of amounts invested in the Fund by shareholders ("capital") as is consistent
with investment primarily in senior secured corporate loans ("Corporate
Loans") and senior secured debt securities ("Corporate Debt Securities") that
meet credit standards established by Franklin Advisers, Inc. ("Advisers"),
the Fund's investment manager. Corporate Loans, as more fully described
below, are loans made to corporations that (i) are secured by collateral that
the corporation pledges to the lenders to become the property of the lenders
in case the corporation defaults in paying interest or principal on the loan
and (ii) will, in most instances, hold the most senior position in the
capitalization structure of the corporation, meaning that the lenders as
creditors of the corporation will have priority over all other creditors in
recovering the loan proceeds from the assets of the corporation in case the
corporation becomes insolvent. Corporate Debt Securities, as more fully
described below, are obligations entered into by corporations granting the
securityholders, in exchange for their investments in the corporation, the
right to receive income from the corporation and the return of their
investments in the corporation. The securityholders rights (i) are secured
by collateral that the corporation pledges to the securityholders to become
the property of the securityholders in case the corporation defaults in
paying interest on the obligations or in repaying the amount of the
investments to the securityholders and (ii) will, in most instances, hold the
most senior position in the capitalization structure of the corporation,
meaning that the securityholders as creditors of the corporation will have
priority over all other creditors in recovering the loan proceeds from the
assets of the corporation in case the corporation becomes insolvent.
Shares representing a beneficial interest in the Fund ("Common Shares") will
be offered initially, on the first day of the offering, expected to be
_______________, 1997 unless delayed, at $10 per share without a front-end
sales charge. At the conclusion of this first day, Common Shares will be
paid for and issued and the Fund will commence investment operations. After
the completion of the initial offering, the Fund expects to engage in a
continuous offering of Common Shares at a price equal to the next determined
net asset value per share without a front-end sales charge.
The Fund does not intend to list Common Shares on any national securities
exchange or arrange for quotation of the Common Shares on any
over-the-counter market and neither the Fund, Advisers nor Franklin/Templeton
Distributors, Inc. ("Distributors") intends to make a secondary market in
Common Shares at any time. Common Shares of the Fund have no history of
public trading, and there is not expected to be any secondary trading market
in Common Shares. Accordingly, an investment in Common Shares should be
considered illiquid, which means that you will not be able to readily sell
your Common Shares. To provide some shareholder liquidity, the Fund has
adopted a fundamental policy that requires it to make quarterly repurchase
offers to purchase a specified percentage (currently _____%) of the Fund's
outstanding Common Shares at the then-current net asset value. The initial
repurchase offer will occur in [December], 1997. See "Periodic Offers by the
Fund to Repurchase Common Shares From Its Shareholders."
PROSPECTUS INFORMATION
This Prospectus is intended to provide you with clear and concise information
about the Fund that you should know before investing. Please keep it for
future reference.
COMMON SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK. ALSO, COMMON SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. COMMON SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE COMMON SHARES IN ANY STATE IN WHICH
THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER, OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER INFORMATION MAY BE
OBTAINED FROM DISTRIBUTORS AT THE ADDRESS AND TOLL-FREE TELEPHONE NUMBER
LISTED ABOVE.
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PRICE TO SALES PROCEEDS
PUBLIC (1) LOAD (2) TO FUND (3)
- --------------------------------------------------------------------------------
Per Share $10.00 $0.00 $10.00
- --------------------------------------------------------------------------------
Total $ $0.00 $
- --------------------------------------------------------------------------------
(1) Common Shares are offered at a price equal to net asset value, which
initially is $10.00 per share, and are offered on a best efforts basis,
meaning that the Fund will commence operations regardless of the number
of Common Shares sold. See "Purchasing Common Shares of the Fund."
(2) Franklin Distributors, Inc., the Fund's distributor, will pay all sales
commissions to selected dealers from its own assets.
(3) Before deduction of expenses payable by the Fund that are incurred to
organize the Fund and to offer the Common Shares to investors,
estimated at $ and $ , respectively. Organizational expenses
will remain a liability of the Fund and will be gradually reduced as a
liability in equal installments over a period not to exceed 60 months
from the date the Fund commences investment operations. Offering
expenses will be deducted from net proceeds upon the completion of the
offering.
The date of this Prospectus and Statement
of Additional Information is , 1997.
CONTENTS Page
Expense Table.....................................................5
Prospectus Summary................................................6
Information About the Fund........................................14
How Proceeds from Sales of Common Shares Are Used.................14
What Kinds of Securities Does the Fund Purchase?..................14
What Are the Investment Restrictions on the Fund?.................31
What Are the Risks of This Investment? ...........................32
How to Buy Common Shares of the Fund..............................36
Periodic Offers by the Fund
to Repurchase Common Shares
From its Shareholders...........................................38
Early Withdrawal Charge to Shareholders...........................41
Who Manages the Fund?.............................................44
Portfolio Transactions by the Fund................................50
Dividends and Distributions to Shareholders.......................52
Taxation of the Fund and its Shareholders.........................53
Dividend Reinvestments............................................56
Automatic Investment Plan.........................................58
Exchange Privilege................................................58
Valuation of Common Shares........................................59
Description of Common Shares......................................60
Investment Performance Information................................62
Additional General Information....................................63
Financial Statements..............................................64
EXPENSE TABLE
The following tables may assist you in understanding the direct and indirect
expenses associated with investing in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Sales Charge (as a percentage of offering price) None
Dividend Reinvestment Plan Fees None
Early Withdrawal Charge1 1.00%
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO
COMMON SHARES)
Management Fees 0.95%
Administration Fees 0.25%
Other Expenses (including service fees of 0.15%) 0.20%
Total Annual Fund Operating Expenses 1.40%
- ----------------------
1Payable on tender and repurchase of Common Shares that have been held for
less than twelve months, as a percentage of the repurchase proceeds exclusive
of reinvestments and capital appreciation in the account and subject to
certain waivers described in "Early Withdrawal Charge to Shareholders" below.
Other Expenses are based on estimated amounts for the current fiscal year.
For a more detailed discussion of these fees, charges and expenses, you
should refer to the appropriate sections of this Prospectus.
EXAMPLE
As a shareholder you would pay the following expenses if you invested $1,000
in Common Shares over various time periods. This example assumes a 5% annual
rate of return on your investment:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Assuming no tender of Common Shares
for repurchase by the Fund $__ $__ $__ $__
Assuming tender of Common Shares for
repurchase by the Fund on last day of
period and, for the one-year period,
imposition of the early withdrawal
charge $__ $__ $__ $__
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF EXPENSES YOU WOULD
PAY IN THE FUTURE AS A SHAREHOLDER OF THE FUND. THE EXPENSES YOU WOULD PAY
MAY BE MORE OR LESS THAN THOSE SHOWN. Federal securities regulations require
the example to assume an annual return of 5%, but the Fund's actual return
may be more or less than 5%.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARIZES MORE DETAILED INFORMATION THAT IS COVERED ELSEWHERE
IN THIS PROSPECTUS. YOU SHOULD CAREFULLY CONSIDER THE MORE DETAILED
INFORMATION, WHICH IS MORE COMPLETE AND TAKES PRECEDENCE OVER THIS SUMMARY IN
CASE THERE ARE ANY DIFFERENCES BETWEEN THAT INFORMATION AND THIS SUMMARY.
FOR A MORE DETAILED DISCUSSION OF RISKS OF INVESTING IN THE FUND, SEE
"SPECIAL CONSIDERATIONS AND RISK FACTORS" BELOW.
THE FUND Franklin Floating Rate Trust (the "Fund") is a newly-organized,
continuously offered, investment company, organized as a Delaware business
trust on May , 1997. As a non-diversified, closed-end management
investment company, the Fund's principal business is investing assets on an
ongoing managed basis; the Fund does not issue redeemable shares (shares that
may be redeemed at any time); and the Fund is not limited by investment
company law as to the percentage of its assets that may be invested in any
single issuer of securities. See "Information About the Fund" below.
INITIAL AND CONTINUOUS OFFERING Franklin/Templeton Distributors, Inc.
("Distributors") and other securities dealers that have entered into selected
dealer agreements with Distributors, will offer and sell Common Shares of the
Fund on a continuous basis beginning with an initial offering on
______________, 1997, unless the initial offering date is delayed. The
public offering price of Common Shares initially will be $10.00 per share
without a front-end sales charge.
After the initial offering, the Fund will engage in a continuous offering of
Common Shares at a price equal to the next determined net asset value per
share without a front-end sales charge. The minimum initial purchase during
the initial and continuous offering periods is $1,000 and the minimum
subsequent investment in the continuous offering is $50, except with respect
to tax sheltered retirement plans, for which the minimum initial investment
is $250. The Fund reserves the right to waive or modify the initial and
subsequent minimum investment requirements at any time. Any purchase order
may be rejected by Distributors or the Fund and Distributors or the Fund may
suspend the continuous offering of Common Shares at any time.
The Fund does not intend to list Common Shares on any national securities
exchange or arrange for quotation of Common Shares on any over-the-counter
market. The Fund will, on a quarterly basis, make tender offers to
repurchase a portion of the Common Shares from shareholders. An early
withdrawal charge payable to Distributors will be imposed on the repurchase
proceeds of certain Common Shares that have been held for less than twelve
months and are tendered by shareholders and accepted for repurchase by the
Fund. See "How to Buy Common Shares of the Fund" and "Early Withdrawal
Charge to Shareholders."
INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is to
provide as high a level of current income and preservation of capital as is
consistent with investment in senior secured corporate loans ("Corporate
Loans") and senior secured debt securities ("Corporate Debt Securities") that
meet credit standards established by Franklin Advisers, Inc., the Fund's
investment manager ("Advisers"). Under normal market conditions, the Fund
will invest primarily, that is, at least 80% of its total assets, in
Corporate Loans and Corporate Debt Securities made to or issued by U.S. and
non-U.S. corporations, partnerships and other entities ("Borrowers"),
including those that: (i) have variable interest rates which adjust to a base
interest rate, such as the London InterBank Offered Rate ("LIBOR") or the
Certificate of Deposit ("CD") rate on set dates; and/or (ii) have interest
rates that float at a margin above a generally recognized base lending
interest rate such as the prime rate ("Prime Rate") of a designated U.S.
bank.
Under normal market conditions, the Fund may invest up to 20% of its total
assets in (i) senior loans and debt securities made on an unsecured basis to
Borrowers that meet the credit standards established by Advisers ("Unsecured
Corporate Loans and Unsecured Corporate Debt Securities"), (ii) secured or
unsecured short-term debt obligations rated within the four highest rating
categories assigned by a nationally recognized statistical rating
organization ("NRSRO"), or, if unrated, determined to be of comparable
quality by Advisers, (iii) fixed rate obligations of U.S. or non-U.S.
companies that meet the credit standards established by Advisers and that the
Fund expects to swap to a floating rate structure, or (iv) cash.
The Fund has no restrictions on portfolio maturity, but it is anticipated
that a majority of the Corporate Loans and Corporate Debt Securities in which
the Fund will invest will have stated maturities ranging from three to ten
years and the Fund's Corporate Loans and Corporate Debt Securities will have
an expected average life of three to five years.
The Fund will invest in a Corporate Loan or Corporate Debt Security only if,
in Advisers' judgment, the Borrower can meet debt service on such Corporate
Loan or Corporate Debt Security and will invest in an Unsecured Corporate
Loan or Unsecured Corporate Debt Security only if the Borrower meets the
credit standards established by Advisers for Corporate Loans and Corporate
Debt Securities.
A Corporate Loan in which the Fund may invest typically is negotiated and
structured by a group of lenders ("Lenders") consisting of commercial banks,
thrift institutions, insurance companies, finance companies or other
financial institutions, one or more of which administers the Loan on behalf
of all the Lenders (the "Agent Bank"). The investment of the Fund in a
Corporate Loan may take the form of participation interests in a Corporate
Loan ("Participation Interests") or assignments of a Corporate Loan
("Assignments"). Participation Interests may be acquired from a Lender or
other holders of Participation Interests ("Participants"). If the Fund
purchases an ASSIGNMENT from a Lender, the Fund will generally become a
"Lender" for purposes of the relevant loan agreement, with direct contractual
rights thereunder and under any related collateral security documents in
favor of the Lenders. On the other hand, if the Fund purchases a
PARTICIPATION INTEREST either from a Lender or a Participant, the Fund will
have a fractional interest in the Corporate Loan and will not have
established any direct contractual relationship with the Borrower and the
Fund is thus subject to the credit risk of both the Borrower and a Lender or
Participant who sold the Participation Interest. The Fund will invest in
Corporate Loans through the purchase of Participation Interests only if at
the time of investment, the outstanding debt obligations of the Agent Bank
and any Lenders and Participants interposed between the Fund and a Borrower
are investment grade; i.e., rated in the four highest ratings categories
assigned by an NRSRO such as BBB, A-3 or higher by Standard & Poor's
Corporation ("S&P"), or Baa, P-3 or higher by Moody's Investors Service, Inc.
("Moody's"), or, if unrated, determined to be of comparable quality in the
judgment of Advisers. See "What Kinds of Securities Does the Fund
Purchase?"
Corporate Debt Securities typically are in the form of notes or bonds issued
in a public or private placement in the securities markets. Corporate Debt
Securities will typically have substantially similar terms to Corporate
Loans, but will not be in the form of Participations or Assignments.
It is anticipated that a significant portion of the Corporate Loans and
Corporate Debt Securities in which the Fund invests may be issued in highly
leveraged transactions, such as leveraged buyout loans, leveraged
recapitalization loans, and other types of acquisition financing.
INVESTMENT MANAGER Franklin Advisers, Inc. ("Advisers") serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly owned holding company whose shares
are listed and traded on the New York Stock Exchange (the "Exchange").
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Together,
Advisers and its affiliates manage over $191 billion in assets. See "Who
Manages the Fund."
ADMINISTRATOR Franklin/Templeton Investor Services, Inc. is the Fund's
administrator ("Investor Services"). Investor Services is responsible for
managing the business affairs of the Fund, subject to the supervision of the
Fund's Board of Trustees. The administrative services to be provided by
Investor Services include providing certain services to the holders of the
Fund's Common Shares. Investor Services is a wholly-owned subsidiary of
Resources. See "Who Manages the Fund."
FEES AND EXPENSES The Fund will pay Advisers a monthly fee at an annual rate
of 0.95% of the average weekly managed assets of the Fund as defined below in
"Who Manages the Fund?" The advisory fee, while higher than the fees paid by
other management investment companies in general, is comparable to the fees
paid by several similar, publicly offered, closed-end management investment
companies with an investment objective and policies similar to those of the
Fund. The Fund will pay Investor Services a monthly fee at an annual rate of
0.25% of the average weekly managed assets of the Fund. See "Who Manages the
Fund."
DISTRIBUTIONS The Fund's policy will be to declare daily and pay monthly
distributions to holders of Common Shares of substantially all net investment
income of the Fund. Distributions to holders of Common Shares cannot be
assured, and the amount of each monthly distribution is likely to vary. Net
realized long-term capital gains, if any, are to be distributed to holders of
Common Shares at least annually. Holders of Common Shares may elect to have
distributions automatically reinvested in additional Common Shares. See
"Dividends and Distributions to Shareholders," "Taxation of the Fund and its
Shareholders" and "Dividend Reinvestments."
PERIODIC OFFERS TO REPURCHASE COMMON SHARES FROM SHAREHOLDERS Common Shares
will not be listed on any securities exchange or quoted on any
over-the-counter market and it is not currently anticipated that a secondary
market for Common Shares will develop. In view of this, the Fund will, as a
fundamental policy of the Fund, offer each calendar quarter to repurchase a
portion of the Common Shares from shareholders that tender such shares to the
Fund. These offers are called tender offers (each, a "Tender Offer") and
constitute an offer by the Fund to repurchase a portion of the Common Shares
from shareholders at a price per share equal to the net asset value per share
of the Common Shares determined at the close of business on the day the
Tender Offer terminates.
Common Shares that have been held for less than twelve months and which are
repurchased by the Fund pursuant to Tender Offers will be subject to an early
withdrawal charge of 1% of the lesser of the then current net asset value or
the original purchase price of the Common Shares being tendered, subject to
certain waivers for certain categories of shareholders or for Common Shares
that are tendered in exchange for shares of other investment companies
distributed by Distributors (the "Franklin Templeton Funds.") See "Periodic
Offers by the Fund to Repurchase Common Shares from Its Shareholders" and
"Early Withdrawal Charge to Shareholders" below.
SPECIAL CONSIDERATIONS AND RISK FACTORS:
FOREIGN INVESTMENTS. As noted above, the Fund may invest in Corporate Loans
and Corporate Debt Securities that are made to non-U.S. Borrowers, provided
that any such Borrower meets the credit standards established by Advisers for
U.S. Borrowers. The Fund similarly may invest in loans to and securities
issued by U.S. Borrowers with significant non-U.S. dollar-denominated
revenues, provided that the loans are U.S. dollar-denominated or otherwise
provide for payment in U.S. dollars. In all cases where the Corporate Loans
or Corporate Debt Securities are not denominated in U.S. dollars, provision
will be made for payments to the Lenders, including the Fund, in U.S. dollars
pursuant to foreign currency swap arrangements. Loans to, and securities
issued by, such non-U.S. Borrowers or U.S. Borrowers may involve risks not
typically involved in domestic investment including fluctuation in foreign
exchange rates, future foreign political and economic developments, and the
possible imposition of exchange controls or other foreign or U.S.
governmental laws or restrictions applicable to such loans.
INTEREST RATE FLUCTUATIONS. In general, the net asset value of the shares of
an investment company, like the Fund, that invests primarily in fixed-income
securities changes as the general level of interest rates fluctuates.
Because the Fund will invest primarily in floating and variable rate
Corporate Loans and Corporate Debt Securities and, to a lesser extent,
short-term instruments, Advisers expects the value of the Fund to fluctuate
less as a result of interest rate changes than would a portfolio of
fixed-rate obligations. The Fund's net asset value, however, may fluctuate
from time to time in the event of an imperfect correlation between the
interest rates on variable rate loans held by the Fund and prevailing
interest rates. Also, defaults on Corporate Loans and Corporate Debt
Securities and changes in the creditworthiness of Borrowers, and, in the case
of Corporate Loans, in the creditworthiness of Lenders or Participants
interposed between the Fund and the Borrowers could cause a decline in the
Fund's net asset value.
ILLIQUIDITY. As a newly-organized entity, the Fund has no operating history.
The Fund does not intend to list Common Shares for trading on any national
securities exchange. The Fund expects that there will be no secondary market
for Common Shares and an investment in Common Shares should be considered
illiquid. In the event that the Fund's Board of Trustees does not, at any
time or from time to time, authorize the Fund to engage in Tender Offers for
Common Shares, it is unlikely that a holder of Common Shares will be able to
otherwise sell Common Shares. Moreover, Distributors and other selected
dealers are prohibited under applicable law from making a market in Common
Shares while the Fund is making either a public offering of, or a Tender
Offer to repurchase, Common Shares. To the extent a secondary market for
Common Shares does develop, however, investors should be aware that the
shares of closed-end funds frequently trade in the secondary market at a
discount from their net asset value. Should there be a secondary market for
Common Shares, the market price in the secondary market of the shares may
vary from net asset value from time to time. Because the Fund intends to
offer Common Shares continuously at a price equal to net asset value, it is
unlikely that Common Shares would trade at a premium to net asset value
should a secondary market for Common Shares develop. Because of the lack of
a secondary market and the early withdrawal charge, the Fund is designed
primarily for long-term investors and should not be considered a vehicle for
short-term trading purposes.
NON-DIVERSIFICATION. The Fund has registered as a "non-diversified"
investment company for purposes of the Investment Company Act of 1940, as
amended (the "1940 Act"). This means that the Fund will be able to invest
more than 5% of the value of its assets in the obligations of any single
issuer, including Corporate Loans of a single Borrower or Participations
purchased from a single Lender subject to the diversification requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to the Fund. Since the Fund may invest a relatively high
percentage of its assets in the obligations of a limited number of issuers,
the Fund may be more susceptible than a more widely diversified fund to any
single economic, political or regulatory occurrence. However, the Fund has
no current intention of investing more than 15% of its assets in the
obligations of any single Borrower. The Fund has taken measures which it
believes significantly reduce its exposure to such risk. See "Information
About the Fund," "What Kinds of Securities Does the Fund Purchase? --
Description of Participation Interests and Assignments" and "What Are the
Investment Restrictions on the Fund."
CREDIT RISKS ASSOCIATED WITH CORPORATE LOANS AND CORPORATE DEBT SECURITIES.
The Corporate Loans, Corporate Debt Securities and other debt obligations in
which the Fund may invest are subject to the risk of nonpayment of scheduled
interest or principal payments.
In the event that a nonpayment occurs, the Fund may experience a decline in
the value of the debt obligations, resulting in a decline in the net asset
value of Common Shares. There is no assurance that the liquidation of
collateral underlying Corporate Loans and Corporate Debt Securities will
satisfy the related Borrowers' obligations in the event of nonpayment of
scheduled interest or principal, or that the collateral could be readily
resold. Corporate Loans and Corporate Debt Securities made in connection
with highly leveraged transactions are subject to greater credit risks than
other Corporate Loans and Corporate Debt Securities in which the Fund may
invest. These credit risks include a greater possibility of default or
bankruptcy of the Borrower and the assertion that the pledging of collateral
to secure the loan constituted a fraudulent conveyance or preferential
transfer that can be nullified or subordinated to the rights of other
creditors of the Borrower under applicable law. Highly leveraged Corporate
Loans and Corporate Debt Securities also may be less liquid than other
Corporate Loans and Corporate Debt Securities.
Generally, changes in interest rates may affect the market value of debt
investments, resulting in changes in the net asset value of the shares of
funds, like the Fund, investing in such investments. It is expected,
however, that a portfolio consisting primarily of floating and variable rate
Corporate Loans and Corporate Debt Securities and Unsecured Corporate Loans
and Unsecured Corporate Debt Securities, and, normally to an extent of less
than 20% of the Fund's total assets, short-term instruments, will experience
less significant fluctuations in value as a result of interest rate changes
than would a portfolio of medium or long-term fixed-rate obligations.
Prepayments of principal by Borrowers may result from a decline in interest
rates or excess cash flow. Such prepayments may require that the Fund
replace its Corporate Loan, Corporate Debt Security or other investment with
a lower yielding security, which may adversely affect the net asset value of
the Fund. Some or all of the Corporate Loans and Corporate Debt Securities
in which the Fund may invest will be considered to be illiquid, which means
that the Fund may not be able to sell the Corporate Loans or Corporate Debt
Securities at the price at which the Fund values such securities. This may
impair the Fund's ability to realize the full value of its assets in the
event of a voluntary or involuntary liquidation of such assets. To the
extent that such investments are illiquid, the Fund may have difficulty
disposing of portfolio securities and thus, have difficulty repurchasing
Common Shares pursuant to Tender Offers, if any. The Board of Trustees of
the Fund will consider the liquidity of the Fund's portfolio securities in
determining whether a Tender Offer should be made by the Fund and, if so, for
what percentage of the Fund's outstanding Common Shares the Tender Offer
should be made.
See "Valuation of Common Shares" for information with respect to the
valuation of illiquid Corporate Loans and Corporate Debt Securities.
LEVERAGE AND BORROWINGS. The Fund is authorized to borrow money in an amount
up to 33_% of the Fund's total assets (after giving effect to the amount
borrowed) for the purpose of obtaining short-term credits in connection with
Tender Offers by the Fund for Common Shares, for temporary, extraordinary or
emergency purposes. While it has no current intention of doing so, the Fund
may also borrow for the purpose of financing additional investments.
Leverage creates certain risks for holders of Common Shares, including the
risk of higher volatility in the net asset value per share of Common Shares.
Under certain conditions, the benefit of leverage to holders of Common Shares
would be reduced and the Fund's leveraged capital structure could result in a
lower rate of return to holders of Common Shares than if the Fund were not
leveraged. The rights of any lenders to the Fund to receive payments of
interest on, and repayments of principal of, such borrowings will be senior
to those of the holders of Common Shares, and the terms of any such
borrowings may contain provisions which limit certain activities of the Fund,
including the payment of dividends to holders of Common Shares in certain
circumstances. Furthermore, the terms of any such borrowings may, and the
provisions of the 1940 Act do (in certain circumstances), grant lenders
certain voting rights in the event of default in the payment of interest or
repayment of principal. In the event that such provisions would impair the
Fund's status as a regulated investment company under the Code, the Fund,
subject to its ability to liquidate its relatively illiquid portfolio
securities, intends to repay the borrowings. Interest payments and fees
incurred in connection with any such borrowings will reduce the amount of net
income available for payment to the holders of Common Shares.
CREDIT RISKS ASSOCIATED WITH INVESTMENTS IN PARTICIPATION INTERESTS. As
described in this Prospectus, the Fund will purchase Participation
Interests. With respect to any given Corporate Loan, the terms of related
Participation Interests are arrived at through private negotiations between
the Fund and the seller of such an interest in a Corporate Loan, and may
result in the Fund having rights which differ from, and are more limited
than, the rights of Lenders or of persons who acquire such interests by
Assignment. Participation Interests typically result in the Fund having a
contractual relationship with the Lender selling the Participation Interests,
but not with the Borrower. In the event of the insolvency of the Lender
selling the Participation Interest, the Fund may be treated as a general
creditor of such Lender, and may not have any exclusive or senior claim with
respect to such Lender's interest in, or the collateral with respect to, the
Corporate Loan. As such, the Fund may incur the credit risk of the Lender
selling the Participation Interest in addition to the credit risk of the
Borrower with respect to the Corporate Loan. Consequently, the Fund may not
benefit directly from the security provided by the collateral supporting the
Corporate Loan with respect to which such Participation Interest was sold.
The Fund has implemented measures designed to reduce such risk. The Fund may
pay a fee or forgo a portion of interest payments when acquiring
Participation Interests or Assignments. See "What Kinds of Securities Does
the Fund Purchase?"
CERTAIN INVESTMENT PRACTICES. The Fund may use various investment practices
that involve special considerations, including lending its portfolio
securities, entering into when-issued and delayed delivery transactions and
entering into repurchase agreements. In addition, the Fund has the authority
to engage in interest rate and other hedging and risk management
transactions. For further discussion of these practices and associated
special considerations, see "What Kinds of Securities Does the Fund Purchase."
ANTI-TAKEOVER PROVISIONS. The Fund's Declaration of Trust includes
provisions that could have the effect of limiting the ability of other
entities or persons to acquire control of the Fund or to change the
composition of its Board of Trustees and could have the effect of depriving
holders of Common Shares of an opportunity to sell their shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund. See "Description of Common Shares -- Certain
Anti-Takeover Provisions of the Declaration of Trust."
INFORMATION ABOUT THE FUND
Franklin Floating Rate Trust (the "Fund") is a newly- organized, continuously
offered, non-diversified, closed-end management investment company which was
organized as a Delaware business trust on May 20, 1997. The Fund's principal
office is located at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, CA
94403-7777 and its telephone number is 1-800/DIAL BEN.
HOW PROCEEDS FROM SALES OF
COMMON SHARES ARE USED
Assuming all Common Shares currently registered with the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act") are sold in the offering, the net proceeds from the sale of
Common Shares offered hereby will be $[200 MILLION] after payment of
organizational and offering expenses by the Fund and will be invested in
accordance with the Fund's investment objective and policies within
approximately [SIX MONTHS] after the initial offering of Common Shares,
depending on the availability of Corporate Loans and Corporate Debt
Securities and other relevant conditions. Pending such investment, it is
anticipated that the proceeds will be invested in short-term debt obligations
or instruments. See "What Kinds of Securities Does the Fund Purchase?"
WHAT KINDS OF SECURITIES DOES THE FUND PURCHASE?
(Some of the capitalized terms used in this section are defined in
"Prospectus Summary" above.) The Fund's investment objective is to provide
as high a level of current income and preservation of capital as is
consistent with investment in senior secured Corporate Loans and Corporate
Debt Securities that meet credit standards established by Advisers. This is a
fundamental policy of the Fund, which means that it may not be changed
without a vote of majority of the outstanding shares of the Fund. There can
be no assurance that the investment objective of the Fund will be achieved.
Except during interim periods pending investment of the net proceeds of the
initial public offering of the Fund's securities and during temporary
defensive periods when, in the opinion of Advisers, suitable Corporate Loans
and Corporate Debt Securities are not available for investment by the Fund or
prevailing market or economic conditions warrant, the Fund will invest at
least 80% of its total assets in interests in Corporate Loans and Corporate
Debt Securities made to or issued by Borrowers (which may include U.S. and
non-U.S.companies), including those that: (i) have variable rates which
adjust to a base rate, such as the LIBOR or the CD rate on set dates,
typically every 30 days but not to exceed one year; and/or (ii) have interest
rates that vary at a set margin above a generally recognized base lending
interest rate such as the Prime Rate of a designated U.S. bank.
The Fund may invest up to 20% of its total assets in any of the following:
(a) senior loans made and notes issued on an unsecured basis to Borrowers
that meet the credit standards established by Advisers ("Unsecured Corporate
Loans" and "Unsecured Corporate Debt Securities"); (b) secured or unsecured
short-term debt obligations including, but not limited to, U.S. Government
and Government agency securities (some of which may not be backed by the full
faith and credit of the United States), bank money instruments (such as
certificates of deposit and bankers' acceptances), corporate and commercial
obligations (such as commercial paper and medium-term notes) and repurchase
agreements, none of which are required to be secured but all of which will be
(or counterparties associated therewith will be) investment grade (rated Baa,
P-3 or higher by Moody's or BBB, A-3 or higher by S&P or, if unrated,
determined to be of comparable quality in the judgment of Advisers); (c)
fixed-rate obligations which the Fund will swap for a floating rate
structure; or (d) cash.
Securities rated Baa, BBB, P-3 or A-3 are considered to have adequate
capacity for payment of principal and interest, but are more susceptible to
adverse economic conditions than higher rated securities and, in the case of
securities rated BBB or Baa (or comparable unrated securities), have
speculative characteristics. Such securities or cash will not exceed 20% of
the Fund's total assets except (i) during interim periods pending investment
of the net proceeds of public offerings of the Fund's securities, (ii)
pending reinvestment of proceeds of the sale of a security, and (iii) during
temporary defensive periods when, in the opinion of Advisers, suitable
Corporate Loans and Corporate Debt Securities are not available for
investment by the Fund or prevailing market or economic conditions warrant.
Investments in Unsecured Corporate Loans and Unsecured Corporate Debt
Securities will be made on the same basis as investments in Corporate Loans
and Corporate Debt Securities as described herein, except with respect to
collateral requirements. To a limited extent, incidental to and in connection
with its lending activities, the Fund also may acquire warrants and other
equity securities.
The Fund has no restrictions on portfolio maturity, but it is anticipated
that a majority of the Corporate Loans and Corporate Debt Securities in which
it will invest will have stated maturities ranging from three to ten years.
However, Corporate Loans usually will require, in addition to scheduled
payments of interest and principal, the prepayment of the Corporate Loan from
excess cash flow, as discussed above, and may permit the Borrower to prepay
at its election. The degree to which Borrowers prepay Corporate Loans,
whether as a contractual requirement or at their election, cannot be
predicted with accuracy, and may be affected by general business conditions,
the financial condition of the Borrower and competitive conditions among
Lenders, among other factors. However, it is anticipated that the Fund's
Corporate Loans and Corporate Debt Securities will have an average expected
life of three to five years. See "Description of Corporate Loans and
Corporate Debt Securities."
BENEFITS OF INVESTING IN THE FUND. Investment in Common Shares of the Fund
offers several benefits. The Fund offers investors the opportunity to receive
a high level of current income by investing in a professionally managed
portfolio comprised primarily of Corporate Loans, a type of investment
typically not available directly to individual investors. In managing the
Fund, Advisers provides the Fund and its shareholders with professional
credit analysis and portfolio diversification. The Fund also relieves the
investor of the burdensome administrative details involved in managing a
portfolio of such investments, if available to individual investors. The
benefits are at least partially offset by the expenses involved in operating
an investment company. Such expenses primarily consist of the management and
administrative fees and operations costs.
RISKS FROM FLUCTUATIONS IN GENERAL INTEREST RATES. Generally, the net asset
value of the shares of an investment company which invests primarily in
fixed-income securities changes as the general levels of interest rates
fluctuate in the national and international markets for fixed income
securities and debt obligations. When interest rates decline, the value of a
fixed-income portfolio can be expected to decline. Advisers expects the
Fund's net asset value to be relatively stable during normal market
conditions, because the Fund's investments will consist primarily of three
types: (i) floating and variable rate Corporate Loans and Corporate Debt
Securities; (ii) fixed rate Corporate Loans and Corporate Debt Securities
hedged by interest rate swap transactions; and (iii) short-term instruments.
For these reasons, Advisers expects the value of the Fund to fluctuate as a
result of interest rate changes significantly less than would the value of a
portfolio of fixed-rate obligations. However, because variable interest rates
only reset periodically, the Fund's net asset value may fluctuate from time
to time in the event of an imperfect correlation between either the interest
rates on variable rate loans in the Fund's portfolio or the variable interest
rates on nominal amounts in the Fund's interest rate swap transactions, and
prevailing interest rates. Also, a default on a Corporate Loan or Corporate
Security in which the Fund has invested or a sudden and extreme increase in
prevailing interest rates may cause a decline in the Fund's net asset value.
Conversely, a sudden and extreme decline in interest rates could result in an
increase in the Fund's net asset value.
THE FUND'S NON-DIVERSIFIED CLASSIFICATION. The Fund is classified as
non-diversified within the meaning of the 1940 Act, which means that the Fund
is not limited by the 1940 Act in the proportion of its assets that it may
invest in securities of a single issuer. However, the Fund's investments will
be limited so as to enable the Fund to qualify as a "regulated investment
company" for purposes of the Code. Accordingly, the Fund will limit its
investments so that, at the close of each quarter of its taxable year, (i)
not more than 25% of the value of its total assets will be invested in the
securities (including Corporate Loans but excluding U.S. Government
securities) of a single issuer and (ii) with respect to 50% of the value of
its total assets, its investments will consist of cash, U.S. Government
securities and securities of other issuers limited, in respect of any one
issuer to not more than 5% of the value of its total assets and not more than
10% of the issuer's outstanding voting securities. To the extent the Fund
assumes large positions in the securities of a small number of issuers, the
Fund's yield may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers. However, the Fund has no current intention of
investing more than 15% of its total assets in the obligations of any single
Borrower.
DESCRIPTION OF CORPORATE LOANS AND
CORPORATE DEBT SECURITIES
The Corporate Loans and Corporate Debt Securities in which the Fund invests
primarily consist of obligations of a Borrower undertaken to finance the
growth of the Borrower's business through product development or marketing,
or to finance changes in the way the Borrower deploys its assets and invested
or borrowed financial resources, that is, capital restructurings. Corporate
Loan and Corporate Debt Securities may also include senior obligations of a
borrower issued in connection with a restructuring pursuant to Chapter 11 of
the United States Bankruptcy Code provided that such senior obligations meet
the credit standards established by Advisers. It is anticipated that a
significant portion of such Corporate Loans and Corporate Debt Securities may
be issued in transactions in which the Borrower assumes large amounts of debt
in order to control large amounts of financial resources to achieve business
objectives, transactions which are called "highly leveraged transactions".
Such transactions may include leveraged buyout loans, leveraged
recapitalization loans and other types of acquisition financing. Such
Corporate Loans and Corporate Debt Securities present special risks. See
"Special Considerations and Risk Factors." Such Corporate Loans may be
structured to include both term loans, which are generally fully funded at
the time of the Fund's investment, and revolving credit facilities, which
would require the Fund to make additional investments in the Corporate Loans
as required under the terms of the credit facility. Such Corporate Loans may
also include receivables purchase facilities, which are similar to revolving
credit facilities secured by a Borrower's receivables.
The Fund may invest in Corporate Loans and Corporate Debt Securities which
are made to non-U.S. Borrowers, provided that (i) the loans and securities
are U.S. dollar-denominated, that is, they provide for payment of the loaned
or invested amount, repayment of such amount and payment of interest,
dividends or distributions in U.S. dollars; and (ii) any such Borrower meets
the credit standards established by Advisers for U.S. Borrowers. The Fund
similarly may invest in Corporate Loans and Corporate Debt Securities made to
U.S. Borrowers with significant non-U.S. dollar denominated revenues,
provided that the loans are U.S. dollar-denominated or otherwise provide for
payment to the Fund in U.S. dollars. In all cases where the Corporate Loans
or Corporate Debt Securities are not denominated in U.S. dollars, provision
will be made for payments to the Lenders, including the Fund, in U.S. dollars
pursuant to foreign currency swap arrangements. Loans to such non-U.S.
Borrowers or U.S. Borrowers may involve risks not typically involved in
domestic investment, including fluctuation in foreign exchange rates (for
example, changes in the value of the French franc as compared to the U.S.
dollar), future foreign political and economic developments, and the possible
imposition of exchange controls or other foreign or U.S. governmental laws or
restrictions applicable to such loans. With respect to certain foreign
countries, there is the possibility that the government or a government
agency may take over the assets of the Fund for political or economic reasons
or impose taxation that is so heavy that it amounts to confiscation of the
assets taxed, political or social instability, or diplomatic developments
which could affect the Fund's investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payment position. In addition, information with respect to non-U.S. Borrowers
may differ from that available with respect to U.S. Borrowers, since foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. Borrowers.
The Corporate Loans and Corporate Debt Securities in which the Fund invests
will, in most instances, hold the most senior position in the capitalization
structure of the Borrower, which means that payment of obligations of the
Borrower to the Lenders as compared with all other securities or obligations
issued by the Borrower, will be made first. In any case, the Corporate Loans
and Corporate Debt Securities will, in the judgment of Advisers, be in the
category of senior debt of the Borrower. Each Corporate Loan and Corporate
Debt Security will generally be secured by collateral the value of which
generally will be determined by reference to financial statements of the
Borrower, by an independent appraisal, by obtaining the market value of such
collateral (e.g., cash or securities) if it is readily ascertainable and/or
by other customary valuation techniques considered appropriate in the
judgment of Advisers. In the event of a default, however, the ability of the
Lender to have access to the collateral may be limited by bankruptcy and
other insolvency laws. The value of the collateral may decline subsequent to
the Fund's investment in the loan or debt security. Under certain
circumstances, the collateral may be released with the consent of the Agent
Bank and Lenders or pursuant to the terms of the underlying credit agreement
with the Borrower or bond indenture. The credit agreement or bond indenture
is the document establishing the rights of Lenders with respect to a specific
offering of Corporate Loans or Corporate Debt Securities. There is no
assurance that the liquidation of the collateral would satisfy the Borrower's
obligation in the event of nonpayment of scheduled interest or principal, or
that the collateral could be readily liquidated. As a result, the Fund might
not receive payments to which it is entitled and thereby may experience a
decline in the value of the investment and, possibly, its net asset value.
In the case of highly leveraged loans, a Borrower generally is required to
pledge collateral which may include (i) working capital assets, such as
accounts receivable or inventory, (ii) tangible fixed assets, such as real
property, buildings and equipment (iii) intangible assets, such as
trademarks, copyrights and patent rights and (iv) security interests in
securities of subsidiaries or affiliates. In the case of Corporate Loans to
or Corporate Debt Securities of privately held companies, the companies'
owners may provide additional security by giving personal guarantees of
performance and/or agreeing to transfer other securities that they own to the
Lenders if the loans or investments are not repaid in accordance with the
terms of the loans or securities. There may be temporary periods in the
course of providing financing to a Borrower where the collateral for the loan
consists of common stock having a value not less than 200% of the value of
the loan on the date the loan is made. Under such circumstances, the Borrower
generally proceeds with a subsequent transaction which will permit it to
pledge assets of a company as collateral for the loan, although there can be
no assurance that the Borrower will be able to effect such transaction.
DESCRIPTION OF FLOATING OR VARIABLE INTEREST RATES. The rate of interest
payable on floating or variable rate Corporate Loans or Corporate Debt
Securities is established as the sum of a base lending rate plus a specified
margin. These base lending rates generally are LIBOR, the Prime Rate of a
designated U.S. bank, the CD rate, or another base lending rate used by
commercial lenders. The interest rate on Prime Rate-based Corporate Loans and
Corporate Debt Securities floats daily as the Prime Rate changes, while the
interest rate on LIBOR-based and CD-based Corporate Loans and Corporate Debt
Securities is reset periodically, typically every 30 days to one year.
Certain of the floating or variable rate Corporate Loans and Corporate Debt
Securities in which the Fund will invest may permit the Borrower to select an
interest rate reset period of up to one year. A portion of the Fund's
investments may consist of Corporate Loans with interest rates that are fixed
for the term of the loan. Investment in Corporate Loans and Corporate Debt
Securities with longer interest rate reset periods or fixed interest rates
may increase fluctuations in the Fund's net asset value as a result of
changes in interest rates. However the Fund will attempt to hedge all of its
fixed-rate Corporate Loans and Corporate Debt Securities against fluctuations
in interest rates by entering into interest rate swap transactions. The Fund
also will attempt to maintain a portfolio of Corporate Loans and Corporate
Debt Securities that will have a dollar weighted average period to the next
interest rate adjustment of no more than 90 days.
Corporate Loans and Corporate Debt Securities traditionally have been
structured so that Borrowers pay higher margins when they elect LIBOR and
CD-based borrower options, in order to permit Lenders to obtain generally
consistent yields on Corporate Loans and Corporate Debt Securities,
regardless of whether Borrowers select the LIBOR or CD-based options, or the
Prime-based option. In recent years, however, the differential between the
lower LIBOR and CD base rates and the higher Prime Rate base rates prevailing
in the commercial bank markets has widened to the point where the higher
margins paid by Borrowers for LIBOR and CD-based pricing options do not
currently compensate for the differential between the Prime Rate and the
LIBOR and CD base rates. Consequently, Borrowers have increasingly selected
the LIBOR-based pricing option, resulting in a yield on Corporate Loans and
Corporate Debt Securities that is consistently lower than the yield would be
if Borrowers selected the Prime Rate-based pricing option. This trend will
significantly limit the ability of the Fund to achieve a net return to
shareholders that consistently approximates the average published prime rate
of leading U.S. banks. At the date of this Prospectus, Advisers cannot
predict any significant change in this market trend.
The Fund may receive and/or pay certain fees in connection with its lending
activities. These fees are in addition to interest payments received and may
include facility fees, commitment fees, commissions and prepayment penalty
fees. When the Fund buys a Corporate Loan or Corporate Debt Security it may
receive a facility fee and when it sells a Corporate Loan or Corporate Debt
Security may pay a facility fee. In certain circumstances, the Fund may
receive a prepayment penalty fee on the prepayment of a Corporate Loan or
Corporate Debt Security by a Borrower. In connection with the acquisition of
Corporate Loans or Corporate Debt Securities, the Fund may also acquire
warrants and other equity securities of the Borrower or its affiliates. The
acquisition of such equity securities will only be incidental to the Fund's
purchase of a Corporate Debt Security or an interest in a Corporate Loan.
The Fund will invest in a Corporate Loan or Corporate Debt Security only if,
in Advisers' judgment, the Borrower can meet debt service on such loan. In
addition, Advisers will consider other factors deemed by it to be appropriate
to the analysis of the Borrower and the Corporate Loan or Corporate Debt
Security. Such factors include financial ratios of the Borrower such as
interest coverage, fixed charge coverage and leverage ratios. In its analysis
of these factors, Advisers also will be influenced by the nature of the
industry in which the Borrower is engaged, the nature of the Borrower's
assets and Advisers' assessment of the general quality of the Borrower. The
factors utilized have been reviewed and approved by the Fund's Board of
Trustees. The Corporate Loans and Corporate Debt Securities in which the Fund
invests generally are not rated by any NRSRO.
The primary consideration in selecting such Corporate Loans and Corporate
Debt Securities for investment by the Fund is the creditworthiness of the
Borrower. In evaluating Corporate Loans and Corporate Debt Securities, the
quality ratings assigned to other debt obligations of a Borrower may not be a
determining factor, since they will often be subordinated to the Corporate
Loans or Corporate Debt Securities. Instead, Advisers will perform its own
independent credit analysis of the Borrower, and of the collateral structure
for the loan or security. In making this analysis, Advisers will utilize any
offering materials and, in the case of Corporate Loans, information prepared
and supplied by the Agent Bank, Lender or Participant from whom the Fund
purchases its Participation Interest in a Corporate Loan. Advisers' analysis
will continue on an ongoing basis for any Corporate Loans and Corporate Debt
Securities in which the Fund has invested. Although Advisers will use due
care in making such analysis, there can be no assurance that such analysis
will disclose factors which may impair the value of the Corporate Loan or
Corporate Debt Security.
Corporate Loans and Corporate Debt Securities made in connection with highly
leveraged transactions are subject to greater credit risks than other
Corporate Loans and Corporate Debt Securities in which the Fund may invest.
These credit risks include a greater possibility of default or bankruptcy of
the Borrower and the assertion that the pledging of collateral to secure the
loan constituted a fraudulent conveyance or preferential transfer which can
be nullified or subordinated to the rights of other creditors of the Borrower
under applicable law. Highly leveraged Corporate Loans and Corporate Debt
Securities also may be less liquid than other Corporate Loans and Corporate
Debt Securities.
A Borrower also must comply with various restrictive covenants contained in
any Corporate Loan agreement between the Borrower and the lending syndicate
("Corporate Loan Agreement") or in any trust indenture or comparable document
in connection with a Corporate Debt Security ("Corporate Debt Security
Document"). A restrictive covenant is a promise by the Borrower to not take
certain actions which may impair the rights of Lenders. Such covenants, in
addition to requiring the scheduled payment of interest and principal, may
include restrictions on dividend payments and other distributions to
shareholders, provisions requiring the Borrower to maintain specific
financial ratios or relationships and limits on total debt. In addition, the
Corporate Loan Agreement or Corporate Debt Security Document may contain a
covenant requiring the Borrower to prepay the Corporate Loan or Corporate
Debt Security with any excess cash flow. Excess cash flow generally includes
net cash flow after scheduled debt service payments and permitted capital
expenditures, among other things, as well as the proceeds from asset
dispositions or sales of securities. A breach of a covenant (after giving
effect to any cure period) in a Corporate Loan Agreement which is not waived
by the Agent Bank and the lending syndicate normally is an event of
acceleration; i.e., the Agent Bank has the right to demand immediate
repayment in full of the outstanding Corporate Loan. Acceleration may also
occur in the case of the breach of a covenant in a Corporate Debt Security
Document.
It is expected that a majority of the Corporate Loans and Corporate Debt
Securities held by the Fund will have stated maturities ranging from three to
ten years, which means that a Lender will be completely repaid within that
time period. However, such Corporate Loans and Corporate Debt Securities
usually will require, in addition to scheduled payments of interest and
principal, the prepayment of the Corporate Loan or Corporate Debt Security
from excess cash flow, as discussed above, and may permit the Borrower to
prepay at its election. The degree to which Borrowers prepay Corporate Loans
and Corporate Debt Securities, whether as a contractual requirement or at
their election, may be affected by general business conditions, the financial
condition of the Borrower and competitive conditions among Lenders, among
other factors. Accordingly, prepayments cannot be predicted with accuracy.
Upon a prepayment, the Fund may receive both a prepayment penalty fee from
the prepaying Borrower and a facility fee on the purchase of a new Corporate
Loan or Corporate Debt Security with the proceeds from the prepayment of the
former. Such fees may help mitigate any adverse impact on the yield on the
Fund's investments which may arise as a result of prepayments and the
reinvestment of such proceeds in Corporate Loans or Corporate Debt Securities
bearing lower interest rates.
Loans to non-U.S. Borrowers and to U.S. Borrowers with significant non-U.S.
dollar-denominated revenues may provide for conversion of all or part of the
loan from a U.S. dollar-denominated obligation into a foreign currency
obligation at the option of the Borrower. The Fund may invest in Corporate
Loans and Corporate Debt Securities which have been converted into non-U.S.
dollar-denominated obligations only when provision is made for payments to
the lenders in U.S. dollars pursuant to foreign currency swap arrangements.
Foreign currency swaps involve the exchange by the lenders, including the
Fund, with another party (the "counterparty") of the right to receive the
currency in which the loans are denominated for the right to receive U.S.
dollars. The Fund will enter into a transaction subject to a foreign currency
swap only if, at the time of entering into such swap, the outstanding debt
obligations of the counterparty are investment grade, i.e., rated BBB or A-3
or higher by S&P or Baa or P-3 or higher by Moody's or determined to be of
comparable quality in the judgment of Advisers. The amounts of U.S. dollar
payments to be received by the Lenders and the foreign currency payments to
be received by the counterparty are fixed at the time the swap arrangement is
entered into. Accordingly, the swap protects the Fund from the fluctuations
in exchange rates and locks in the right to receive payments under the loan
in a predetermined amount of U.S. dollars. If there is a default by the
counterparty, the Fund will have contractual remedies pursuant to the swap
arrangements; however, the U.S. dollar value of the Fund's right to foreign
currency payments under the loan will be subject to fluctuations in the
applicable exchange rate to the extent that a replacement swap arrangement is
unavailable or the Fund is unable to recover damages from the defaulting
counterparty. If the Borrower defaults on or prepays the underlying Corporate
Loan or Corporate Debt Security, the Fund may be required pursuant to the
swap arrangements to compensate the counterparty to the extent of
fluctuations in exchange rates adverse to the counterparty. In the event of
such a default or prepayment, an amount of cash or high grade liquid debt
securities having an aggregate net asset value at least equal to the amount
of compensation that must be paid to the counterparty pursuant to the swap
arrangements will be maintained in a segregated account by the Fund's
custodian.
DESCRIPTION OF PARTICIPATION INTERESTS AND ASSIGNMENTS
A Corporate Loan in which the Fund may invest typically is originated,
negotiated and structured by a group of Lenders consisting of commercial
banks, thrift institutions, insurance companies, finance companies or other
financial institutions, which is administered on behalf of the syndicate by
an Agent Bank. The investment of the Fund in a Corporate Loan may take the
form of Participation Interests or Assignments. Participation Interests may
be acquired from a Lender or other Participants. If the Fund purchases a
Participation Interest either from a Lender or a Participant, the Fund will
not have established any direct contractual relationship with the Borrower.
The Fund would be required to rely on the Lender or the Participant that sold
the Participation Interest not only for the enforcement of the Fund's rights
against the Borrower but also for the receipt and processing of payments due
to the Fund under the Corporate Loans. The Fund is thus subject to the credit
risk of both the Borrower and a Participant. Lenders and Participants
interposed between the Fund and a Borrower, together with Agent Banks, are
referred to herein as "Intermediate Participants."
On the other hand, if the Fund purchases an Assignment from a Lender, the
Fund will generally become a "Lender" for purposes of the relevant loan
agreement. As such, the Fund will step into the shoes of the original Lender
and have direct contractual rights thereunder and under any related
collateral security documents in favor of the Lenders. An Assignment from a
Lender gives the Fund the right to receive payments of principal and interest
and other amounts directly from the Borrower and to enforce its rights as a
Lender directly against the Borrower. The Fund will not act as an Agent Bank
guarantor, sole negotiator or sole structuror with respect to a Corporate
Loan.
Because it may be necessary to assert through an Intermediate Participant
such rights as may exist against the Borrower, in the event the Borrower
fails to pay principal and interest when due, the Fund may be subject to
delays, expenses and risks that are greater than those that would be involved
if the Fund could enforce its rights directly against the Borrower. Moreover,
under the terms of a Participation, the Fund may be regarded as a creditor of
the Intermediate Participant (rather than of the Borrower), which means that
the Fund does not have any direct contractual rights against the Borrower.
As a creditor of the Intermediate Participant, the Fund may also be subject
to the risk that the Intermediate Participant may become insolvent. Similar
risks may arise with respect to the Agent Bank, as described below. Further,
in the event of the bankruptcy or insolvency of the Borrower, the obligation
of the Borrower to repay the Corporate Loan may be subject to certain
defenses that can be asserted by such Borrower as a result of improper
conduct by the Agent Bank or Intermediate Participant. The Fund will invest
in Corporate Loans only if, at the time of investment, all outstanding debt
obligations of the Agent Bank and Intermediate Participants are investment
grade, i.e., rated BBB or A-3 or higher by S&P or Baa or P-3 or higher by
Moody's or determined to be of comparable quality in the judgment of Advisers.
NON-CONCENTRATION IN A SINGLE INDUSTRY. The Fund has no current intention of
investing more than 20% of its assets in the obligations of Borrowers in any
single industry. The staff of the SEC takes the position that investing more
than 25% of the Fund's total assets in a single industry or group of
industries represents "concentration" in such industry or group of
industries. However, because the Fund will regard the issuer of a Corporate
Loan as including the Agent Bank and any Intermediate Participant as well as
the Borrower, the Fund may be deemed to be concentrated in securities of
issuers in the industry group consisting of financial institutions and their
holding companies, including commercial banks, thrift institutions, insurance
companies and finance companies. As a result, the Fund is subject to certain
risks associated with such institutions. Banking and thrift institutions are
subject to extensive governmental regulations which may limit both the
amounts and types of loans and other financial commitments which such
institutions may make and the interest rates and fees which such institutions
may charge. The profitability of these institutions is largely dependent on
the availability and cost of capital funds, and has shown significant recent
fluctuation as a result of volatile interest rate levels. In addition,
general economic conditions are important to the operations of these
institutions, with exposure to credit losses resulting from possible
financial difficulties of borrowers potentially having an adverse effect.
Insurance companies are also affected by economic and financial conditions
and are subject to extensive government regulation, including rate
regulation. The property and casualty companies may be exposed to material
risks, including reserve inadequacy, latent health exposure and inability to
collect from their reinsurance carriers. The financial services area is
currently undergoing relatively rapid change as existing distinctions between
financial service segments become less clear. In this regard, recent business
combinations have included insurance, finance and securities brokerage under
single ownership. Moreover, the federal laws generally separating commercial
and investment banking arc currently being studied by Congress.
In a typical Corporate Loan, the Agent Bank administers the terms of the
Corporate Loan Agreement and is responsible for the collection of principal
and interest and fee payments from the Borrower and the apportionment of
these payments to the credit of all Lenders which are parties to the
Corporate Loan Agreement. The Fund generally will rely on the Agent Bank or
an Intermediate Participant to collect its portion of the payments on the
Corporate Loan. Furthermore, the Fund will rely on the Agent Bank to use
appropriate creditor remedies against the Borrower. Typically, under
Corporate Loan Agreements, the Agent Bank is given broad discretion in
enforcing the Corporate Loan Agreement, and is obligated to use only the same
care it would use in the management of its own property. The Borrower
compensates the Agent Bank for these services. Such compensation may include
special fees paid on structuring and funding Corporate Loans and other fees
paid on a continuing basis. In the event that an Agent Bank becomes
insolvent, or has a receiver, conservator, or similar official appointed for
it by the appropriate bank regulatory authority or becomes a debtor in a
bankruptcy proceeding, assets held by the Agent Bank under the Corporate Loan
Agreement should remain available to holders of Corporate Loans. If, however,
assets held by the Agent Bank for the benefit of the Fund were determined by
an appropriate regulatory authority or court to be subject to the claims of
the Agent Bank's general or secured creditors, the Fund might incur certain
costs and delays in realizing payment on a Corporate Loan or suffer a loss of
principal and/or interest. In situations involving Intermediate Participants
similar risks may arise, as described above.
Intermediate Participants may have certain obligations pursuant to a
Corporate Loan Agreement, which may include the obligation to make future
advances to the Borrower in connection with revolving credit facilities in
certain circumstances. The Fund currently intends to reserve against such
contingent obligations by segregating sufficient investments in high quality,
short-term, liquid instruments. The Fund will not invest in Corporate Loans
that would require the Fund to make any additional investments in connection
with such future advances if such commitments would exceed 20% of the Fund's
total assets or would cause the Fund to fail to meet the diversification
requirements described under "Investment Objective and Policies."
ILLIQUID SECURITIES
Corporate Loans and Corporate Debt Securities are, at present, not readily
marketable and may be subject to significant restrictions on resale. Although
Corporate Loans and Corporate Debt Securities are transferred among certain
financial institutions, as described above, the Corporate Loans and Corporate
Debt Securities in which the Fund invests do not have the liquidity of
conventional investment grade debt securities traded in the secondary market
and may be considered illiquid. As the market for Corporate Loans and
Corporate Debt Securities matures, Advisers expects that liquidity will
improve. The Fund has no limitation on the amount of its investments which
are not readily marketable or are subject to restrictions on resale. Such
investments, which may be considered illiquid, may affect the Fund's ability
to realize the net asset value in the event of a voluntary or involuntary
liquidation of its assets. To the extent that such investments are illiquid,
the Fund may have difficulty disposing of securities in order to enable it to
repurchase Common Shares pursuant to Tender Offers, if any. The Board of
Trustees of the Fund will consider the liquidity of the Fund's investments in
determining whether a Tender Offer should be made by the Fund. See "Net Asset
Value" for information with respect to the valuation of illiquid Corporate
Loans and Corporate Debt Securities.
OTHER INVESTMENT POLICIES
The Fund has adopted certain other policies as set forth below:
LEVERAGE. The Fund is authorized to borrow money in amounts of up to 33_% of
the value of its total assets at the time of such borrowings. Borrowings by
the Fund (commonly known as "leveraging") create an opportunity for greater
total return but, at the same time, increase exposure to capital risk. In
addition, borrowed funds are subject to interest costs that may offset or
exceed the return earned on the borrowed funds. The Fund has no current
intention of borrowing in order to have additional funds available to it to
make additional investments. The Fund also may issue one or more series of
preferred shares, although it has no present intention to do so. See
"Special Considerations and Risk Factors -- Effects of Leverage."
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
respect to its permitted investments but currently intends to do so only with
financial institutions such as broker-dealers and brokers which are deemed
creditworthy by Advisers. In a repurchase agreement transaction, the Fund
purchases a U.S. government security from a bank or broker-dealer. The
agreement provides that the security must be sold back to the bank or
broker-dealer at an agreed-upon price and date. The repurchase date usually
is within seven days of the original purchase date. The bank or
broker-dealer must transfer to the Fund's custodian securities with an
initial value, including any earned but unpaid interest, equal to at least
102% of the dollar amount invested by the Fund in each repurchase agreement
as collateral. The value of the underlying U.S. government security is
determined daily so that the Fund has collateral of at least 100% of the
value of the repurchase agreement. A repurchase agreement is considered to
be a loan by the Fund under the federal securities laws which regulate mutual
funds. A default by the seller might cause the Fund to experience a loss or
delay in the liquidation of the collateral securing the repurchase
agreement. The Fund might also incur disposition costs in liquidating the
collateral. The collateral is held on behalf of the Fund by a custodian
approved by the Board of Trustees and is held pursuant to a written
agreement. In all cases, Advisers must be satisfied with the
creditworthiness of the other party to the agreement before entering into a
repurchase agreement. In the event of the bankruptcy (or other insolvency
proceeding) of the other party to a repurchase agreement, the Fund might
experience delays in recovering its cash. To the extent that, in the
meantime, the value of these securities the Fund purchases may have declined,
the Fund could experience a loss.
LENDING OF FUND SECURITIES. The Fund may from time to time lend its portfolio
securities with a value not exceeding 33_% of its total assets to qualified
securities dealers or other institutional investors. The borrower must
deposit with the Fund's custodian bank collateral with an initial market
value of at least 102% of the initial market value of the securities loaned,
including any accrued interest, with the value of the collateral and loaned
securities marked-to-market daily to maintain collateral coverage of at least
100%. This limitation is a fundamental policy, and it may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities, as defined in the 1940 Act. The collateral shall consist
of cash, securities issued by the United States Government, its agencies or
instrumentalities, or irrevocable letters of credit.
The purpose of such loans is to permit the borrower to use such securities
for delivery to purchasers when such borrower has sold short. If cash
collateral is received by the Fund, it is invested in short-term money market
securities, and a portion of the yield received in respect of such investment
is retained by the Fund. Alternatively, if securities are delivered to the
Fund as collateral, the Fund and the borrower negotiate a rate for the loaned
premium to be received by the Fund for lending its portfolio securities. In
either event, the total yield on the Fund is increased by loans of its
securities. Under the securities loan agreement, the Fund continues to be
entitled to all dividends or interest on the loaned securities, and the Fund
will have the right to regain record ownership of loaned securities to
exercise beneficial rights, such as voting rights and subscription rights.
Such loans are terminable at any time. The Fund may pay reasonable finder's,
administrative and custodial fees in connection with such loans. In the event
that the borrower defaults on its obligation to return borrowed securities,
because of insolvency or otherwise, the Fund could experience delays and
costs in gaining access to the collateral and could suffer a loss to the
extent that the value of the collateral falls below the market value of the
borrowed securities.
NON-DIVERSIFICATION. The Fund has registered as a "non-diversified"
investment company for purposes of the 1940 Act, so that it will be able to
invest more than 5% of the value of its assets in the obligations of any
single issuer, including Corporate Loans of a single Borrower or
Participations purchased from a single Lender subject to the diversification
requirements of Subchapter M of the Code, applicable to the Fund. The Code
requires the Fund to diversify its holdings so that at the end of each
quarter of the Fund's taxable year (i) at least 50% of the value of the
Fund's assets is represented by cash, U.S. government securities, securities
of other regulated investment companies, and other securities which, with
respect to any one issuer, do not represent more than 5% of the value of the
Fund's assets or more than 10% of the voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's assets is invested in the
securities of any one issuer (other than U.S. government securities or the
securities of other regulated investment companies). Since the Fund may
invest a relatively high percentage of its assets in the obligations of a
limited number of issuers, the Fund may be more susceptible than a more
widely diversified fund to any single economic, political or regulatory
occurrence. However, the Fund has no current intention of investing more
than 15% of its assets in the obligations of any single Borrower. The Fund
has taken measures which it believes significantly reduce its exposure to
such risk. See "Information About the Fund."
"WHEN-ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell interests in Corporate Loans and Corporate Debt Securities and other
portfolio debt securities on a "when-issued" and "delayed delivery" basis. No
income accrues to the Fund on such interests or securities in connection with
such transactions prior to the date the Fund actually takes delivery of such
interests or securities. These securities are subject to market fluctuation
before delivery to the Fund and generally do not earn interest until their
scheduled delivery date; the value of the interests in Corporate Loans and
Corporate Debt Securities and other portfolio debt securities at delivery may
be more or less than their purchase price, and yield generally available on
such interests or securities when delivery occurs may be higher than yields
on the interests or securities obtained pursuant to such transactions. In
when-issued and delayed delivery transactions, because the Fund relies on the
buyer or seller, as the case may be, to complete the transaction, the other
party's failure may cause the Fund to miss a price or yield considered
advantageous. When the Fund is the buyer in such a transaction, however, it
will maintain, in a segregated account with its custodian, cash, or other
liquid assets having an aggregate value equal to the amount of such purchase
commitments until payment is made. Although the Fund will generally make
commitments to purchase such interests or securities on a when-issued basis
with the intention of acquiring such interests or securities, the Fund may
sell them before the settlement date if it is deemed advisable. To the
extent the Fund engages in when-issued and delayed delivery transactions, it
will do so for the purpose of acquiring interests or securities for the Fund
consistent with the Fund's investment objective and policies and not for the
purpose of investment leverage. The Fund is not subject to any percentage
limit on the amount of its assets which may be invested in when-issued
securities.
INTEREST RATE HEDGING TRANSACTIONS. Certain federal income tax requirements
may limit the Fund's ability to engage in interest rate hedging transactions.
Gains from transactions in interest rate hedges distributed to shareholders
will be taxable as ordinary income or, in certain circumstances, as long-term
capital gains. See "Taxation."
The Fund will enter into interest rate swaps in order to hedge all of its
fixed rate Corporate Loans and Corporate Debt Securities against fluctuations
in interest rates. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest,
such as an exchange of fixed rate payments for floating rate payments. For
example, if the Fund holds a Corporate Loan or Corporate Security with an
interest rate that is reset only once each year, it may swap the right to
receive interest at this fixed rate for the right to receive interest at a
rate that is reset every week. This would enable the Fund to offset a decline
in the value of the Corporate Loan or Corporate Debt Security due to rising
interest rates, but would also limit its ability to benefit from falling
interest rates.
Inasmuch as these interest rate hedging transactions are entered into for
good faith hedging purposes, Advisers believes that such obligations do not
constitute senior securities under the federal securities laws. Accordingly,
the Fund will not treat hedging transactions as being subject to its
borrowing restrictions. The Fund usually will enter into interest rate swaps
on a net basis, i.e., the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations
over its entitlements with respect to each interest rate swap will be accrued
on a daily basis, and an amount of cash or high grade liquid debt securities
having an aggregate net asset value at least equal to the accrued excess will
be maintained in a segregated accounted by the Fund's custodian. If the
interest rate swap transaction is entered into on other than a net basis, the
full amount of the Fund's obligations will be accrued on a daily basis, and
the full amount of the Fund's obligations will be maintained in a segregated
account by the Fund's custodian. The Fund will not enter into any interest
rate hedging transaction unless Advisers considers the credit quality of the
unsecured senior debt or the claims-paying ability of the other party thereto
to be investment grade. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to the
agreements related to the transaction but such remedies may be subject to
bankruptcy and insolvency laws which could affect the Fund's rights as a
creditor. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. As a result, many
portions of the swap market has become relatively liquid in comparison with
other similar instruments traded in the interbank market. In addition,
although the terms of interest rate swaps may provide for termination, there
can be no assurance the Fund will be able to terminate an interest rate swap
or to sell or offset interest rate caps or floors that it has purchased.
The use of interest rate hedges is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio transactions. If Advisers is incorrect in its forecasts of
market values, interest rates and other applicable factors, the investment
performance of the Fund would diminish compared with what it would have been
if these investment techniques were not used.
Except as noted above, there is no limit on the amount of interest rate
hedging transactions that may be entered into by the Fund. These transactions
do not involve the delivery of securities or other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate hedges
is limited to the net amount of interest payments that the Fund is
contractually obligated to make. If the Corporate Loan underlying an interest
rate swap is prepaid and the Fund continues to be obligated to make payments
to the other party to the swap, the Fund would have to make such payments
from another source. If the other party to an interest rate swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that
the Fund contractually is entitled to receive. Since interest rate
transactions are individually negotiated, Advisers expects to achieve an
acceptable degree of correlation between the Fund's rights to receive
interest on Participation Interests and its rights and obligations to receive
and pay interest pursuant to interest rate swaps.
WHAT ARE THE INVESTMENT RESTRICTIONS ON THE FUND?
The following are fundamental investment restrictions of the Fund and, prior
to issuance of any preferred stock, may not be changed without the approval
of the holders of a majority of the Fund's outstanding Common Shares (which
for this purpose and under the 1940 Act means the lesser of (i) 67% of the
Common Shares represented at a meeting at which more than 50% of the
outstanding Common Shares are represented or (ii) more than 50% of the
outstanding Common Shares). Subsequent to the issuance of a class of
preferred stock, the following investment restrictions may not be changed
without the approval of a majority of the outstanding Common Shares and of
the preferred stock, voting together as a class, and the approval of a
majority of the outstanding shares of preferred stock, voting separately by
class. None of the following restrictions shall be construed to prevent the
Fund from investing all of its assets in another management investment
company with an investment objective and investment policies and restrictions
that are substantially the same as the investment objective and investment
policies and restrictions of the Fund. The Fund may not:
1. Borrow money or issue senior securities, except as permitted by Section
18 of the 1940 Act.
2. Underwrite securities of other issuers except insofar as the Fund may
be deemed an underwriter under the 1933 Act in selling portfolio
securities.
3. Make loans to other persons, except that the Fund may invest in loans
(including Assignments and Participations, and including secured or
unsecured corporate loans), purchase debt securities, enter into
repurchase agreements, and lend its portfolio securities.
4. Invest more than 25% of its total assets in the securities of issuers
in any one industry; provided that this limitation shall not apply with
respect to obligations issued or guaranteed by the U.S. Government or
by its agencies or instrumentalities; and provided further that the
Fund may invest more than 25% and may invest up to 100% of its assets
in securities of issuers in the industry group consisting of financial
institutions and their holding companies, including commercial banks,
thrift institutions, insurance companies and finance companies. For
purposes of this restriction, the term "issuer" includes the Borrower,
the Agent Bank and any Intermediate Participant (as defined under
"Investment Objective and Policies -- Description of Participation
Interests").
5. Purchase any securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of portfolio securities. The purchase of Corporate Loans,
Corporate Debt Securities, and other investment assets with the
proceeds of a permitted borrowing or securities offering will not be
deemed to be the purchase of securities on margin.
If a percentage restriction on investment policies or the investment or use
of assets set forth above is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not
be considered a violation.
WHAT ARE THE RISKS OF THIS INVESTMENT?
EFFECTS OF LEVERAGE. The Fund may borrow money in amounts up to 33_% of the
value of its total assets to finance Tender Offers, for temporary,
extraordinary or emergency purposes, or, while the Fund has no current
intention of doing so, for the purpose of financing additional investments.
See "Tender Offers." The Fund also may issue one or more series of preferred
shares, although it has no current intention to do so. The Fund may borrow to
finance additional investments or issue a class of preferred shares only when
it believes that the return that may be earned on investments purchased with
the proceeds of such borrowings or offerings will exceed the costs, including
debt service and dividend obligations, associated therewith. However, to the
extent such costs exceed the return on the additional investments, the return
realized by the Fund's Common Shareholders will be adversely affected.
Capital raised through leverage will be subject to interest costs or dividend
payments which may or may not exceed the interest on the assets purchased.
The Fund also may be required to maintain minimum average balances in
connection with borrowings or to pay a commitment or other fee to maintain a
line of credit; either of these requirements will increase the cost of
borrowing over the stated interest rate. The issuance of additional classes
of preferred shares involves offering expenses and other costs and may limit
the Fund's freedom to pay dividends on Common Shares or to engage in other
activities. Borrowings and the issuance of a class of preferred stock having
priority over Common Shares create an opportunity for greater income per
share of Common Shares, but at the same time such borrowing or issuance is a
speculative technique in that it will increase the Fund's exposure to capital
risk. Such risks may be reduced through the use of borrowings and preferred
stock that have floating rates of interest. Unless the income and
appreciation, if any, on assets acquired with borrowed funds or offering
proceeds exceeds the costs of borrowing or issuing additional classes of
securities, the use of leverage will diminish the investment performance of
the Fund compared with what it would have been without leverage.
[The Fund has entered into an agreement with a financial institution
providing for an unsecured, discretionary credit facility ("Facility"), the
proceeds of which may be used to finance, in part, the payment for Common
Shares tendered in a Tender Offer by the Fund. The Facility provides for the
borrowing by the Fund of up to the lesser of [INSERT DOLLAR AMOUNT AND
PERCENTAGE] of the Fund's total assets, on an unsecured, uncommitted basis.]
Under the 1940 Act, the Fund is not permitted to incur indebtedness unless
immediately after such incurrence the Fund has an asset coverage of 300% of
the aggregate outstanding principal balance of indebtedness. Additionally,
under the 1940 Act, the Fund may not declare any dividend or other
distribution upon any class of its capital stock, or purchase any such
capital stock, unless the aggregate indebtedness of the Fund has at the time
of the declaration of any such dividend or distribution or at the time of any
such purchase an asset coverage of at least 300% after deducting the amount
of such dividend, distribution, or purchase price, as the case may be.
The Fund's willingness to borrow money for investment purposes, and the
amount it will borrow, will depend on many factors, the most important of
which are investment outlook, market conditions and interest rates.
Successful use of a leveraging strategy depends on Advisers' ability to
predict correctly interest rates and market movements. There is no assurance
that a leveraging strategy will be successful during any period in which it
is employed.
CREDIT RISK. Corporate Loans and Corporate Debt Securities may constitute
substantially all of the Fund's investments. Corporate Loans and Corporate
Debt Securities are primarily dependent upon the creditworthiness of the
Borrower for payment of interest and principal. The nonreceipt of scheduled
interest or principal on a Corporate Loan or Corporate Debt Security may
adversely affect the income of the Fund or the value of its investments,
which may in turn reduce the amount of dividends or the net asset value of
the shares of the Fund. The Fund's ability to receive payment of principal of
and interest on a Corporate Loan or a Corporate Debt Security also depends
upon the creditworthiness of any institution interposed between the Fund and
the Borrower. To reduce credit risk, Advisers actively manages the Fund as
described above.
Corporate Loans and Corporate Debt Securities made in connection with
leveraged buy-outs, recapitalizations and other highly leveraged transactions
are subject to greater credit risks than many of the other Corporate Loans
and Corporate Debt Securities in which the Fund may invest. These credit
risks include the possibility of a default on the Corporate Loan or Corporate
Debt Security or bankruptcy of the Borrower. The value of such Corporate
Loans and Corporate Debt Securities are subject to a greater degree of
volatility in response to interest rate fluctuations and may be less liquid
than other Corporate Loans and Corporate Debt Securities. The Corporate Loans
and Corporate Debt Securities in which the Fund invests generally are not
rated by any NRSRO.
Although Corporate Loans and Corporate Debt Securities in which the Fund
invests will generally hold the most senior position in the capitalization
structure of the Borrowers, the capitalization of many Borrowers will include
non-investment grade subordinated debt. During periods of deteriorating
economic conditions, a Borrower may experience difficulty in meeting its
payment obligations under such bonds and other subordinated debt obligations.
Such difficulties may detract from the Borrower's perceived creditworthiness
or its ability to obtain financing to cover short-term cash flow needs and
may force the Borrower into bankruptcy or other forms of credit restructuring.
COLLATERAL IMPAIRMENT. Corporate Loans and Corporate Debt Securities
(excluding Unsecured Corporate Loans and Unsecured Corporate Debt Securities)
will be secured unless (i) the Fund's security interest in the collateral is
invalidated for any reason by a court or (ii) the collateral is fully
released under the terms of a loan agreement as the creditworthiness of the
Borrower improves. There is no assurance that the liquidation of collateral
would satisfy the Borrower's obligation in the event of nonpayment of
scheduled interest or principal, or that collateral could be readily
liquidated. The value of collateral generally will be determined by reference
to financial statements of the Borrower, an independent appraisal performed
at the request of the Agent Bank at the time the Corporate Loan was initially
made, the market value of such collateral (e.g., cash or securities) if it is
readily ascertainable and/or by other customary valuation techniques
considered appropriate in the judgment of Advisers. Collateral is generally
valued on the basis of the Borrower's status as a going concern and such
valuation may exceed the immediate liquidation value of the collateral.
Collateral may include (i) working capital assets, such as accounts
receivable and inventory; (ii) tangible fixed assets, such as real property,
buildings and equipment; (iii) intangible assets, such as trademarks and
patent rights (but excluding goodwill); and (iv) security interests in shares
of stock of subsidiaries or affiliates. To the extent that collateral
consists of the stock of the Borrower's subsidiaries or other affiliates, the
Fund will be subject to the risk that this stock will decline in value. Such
a decline, whether as a result of bankruptcy proceedings or otherwise, could
cause the Corporate Loan or Corporate Debt Security to be under
collateralized or unsecured. In most credit agreements there is no formal
requirement to pledge additional collateral. In the case of Corporate Loans
made to non-public companies, the company's shareholders or owners may
provide collateral in the form of secured guarantees and/or security
interests in assets that they own. In addition, the Fund may invest in
Corporate Loans guaranteed by, or fully secured by assets of, such
shareholders or owners, even if the Corporate Loans are not otherwise
collateralized by assets of the Borrower; provided, however, that such
guarantees are fully secured. There may be temporary periods when the
principal asset held by a Borrower is the stock of a related company, which
may not legally be pledged to secure a Corporate Loan or Corporate Debt
Security. On occasions when such stock cannot be pledged, the Corporate Loan
or Corporate Debt Security will be temporarily unsecured until the stock can
be pledged or is exchanged for or replaced by other assets, which will be
pledged as security for the Corporate Loan or Corporate Debt Security.
However, the Borrower's ability to dispose of such securities, other than in
connection with such pledge or replacement, will be strictly limited for the
protection of the holders of Corporate Loans.
If a Borrower becomes involved in bankruptcy proceedings, a court may
invalidate the Fund's security interest in the Corporate Loan or Corporate
Debt Security collateral or subordinate the Fund's rights under the Corporate
Loan or Corporate Debt Security to the interests of the Borrower's unsecured
creditors. Such action by a court could be based, for example, on a
"fraudulent conveyance" claim to the effect that the Borrower did not receive
fair consideration for granting the security interest in the Corporate Loan
or Corporate Debt Security collateral to the Fund. For Corporate Loans or
Corporate Debt Securities made in connection with a highly leveraged
transaction, consideration for granting a security interest may be deemed
inadequate if the proceeds of the Corporate Loan or Corporate Debt Security
were not received or retained by the Borrower, but were instead paid to other
persons (such as shareholders of the Borrower) in an amount which left the
Borrower insolvent or without sufficient working capital. There are also
other events, such as the failure to perfect a security interest due to
faulty documentation or faulty official filings, which could lead to the
invalidation of the Fund's security interest in Corporate Loan or Corporate
Debt Security collateral. If the Fund's security interest in Corporate Loan
or Corporate Debt Security collateral is invalidated or the Corporate Loan or
Corporate Debt Security is subordinated to other debt of a Borrower in
bankruptcy or other proceedings, it is unlikely that the Fund would be able
to recover the full amount of the principal and interest due on the Corporate
Loan or Corporate Debt Security.
PORTFOLIO MANAGEMENT AND OTHER CONSIDERATIONS. In the event of an increase in
short-term rates or other changed market conditions to the point where the
Fund's leverage could adversely affect holders of Common Shares as noted
above, or in anticipation of such changes, the Fund may attempt to shorten
the average maturity of its investment portfolio, which would tend to offset
the negative impact of leverage on holders of Common Shares. To do this, the
Fund would purchase securities with generally shorter maturities.
HOW TO BUY COMMON SHARES OF THE FUND
INITIAL OFFERING
Franklin/Templeton Distributors, Inc. ("Distributors") acts as the
distributor of Common Shares of the Fund. Distributors, and other securities
dealers which have entered into selected dealer agreements with Distributors,
will offer Common Shares of the Fund initially on the first day of the
offering, expected to be _______________, 1997 unless delayed. The initial
offering date may be delayed for up to an additional 30 days upon agreement
between the Fund and Distributors. At the conclusion of this first day of
offering, Common Shares will be paid for and issued and the Fund will
commence operations.
The public offering price of Common Shares during the initial offering is $10
per share and does not include a front-end sales charge. The proceeds per
share to the Fund from the sale of all shares sold during the initial
offering will be [$10]. As set forth below, Distributors may make payments to
selected dealers from its own assets. A selected dealer may charge its
customers a fee in connection with transactions executed for such customers
by such dealer.
CONTINUOUS OFFERING
After completion of the initial offering, the Fund will engage in a
continuous offering of Common Shares through Distributors and other
securities dealers that have entered into selected dealer agreements with
Distributors. During any continuous offering of Common Shares, Common Shares
of the Fund may be purchased from Distributors or selected dealers, or by
mailing a purchase order directly to Franklin/Templeton Investor Services,
Inc. ("Investor Services"). The Fund may, at any time, suspend the offering
and sale of Common Shares and may refuse any order for the purchase of Common
Shares. A selected dealer may charge its customers a fee in connection with
transactions executed for such customers by such dealer.
In connection with both the initial offering and the continuous offering, an
early withdrawal charge, which is paid to Distributors, will be imposed on
most shares held for less than twelve months which are accepted for
repurchase pursuant to a Tender Offer, as set forth under "Early Withdrawal
Charge to Shareholders".
From time to time the Fund may suspend the continuous offering of its Common
Shares. During any such suspension, shareholders who reinvest their
distributions in additional Common Shares will be permitted to continue such
reinvestments, and the Fund may permit tax sheltered retirement plans which
own Common Shares to purchase additional Common Shares of the Fund.
During the continuous offering of Common Shares, the applicable offering
price for Common Shares is the net asset value per share, next determined
after receipt of the purchase order by Distributors. As to purchase orders
received by Distributors [or securities dealers] prior to the close of
business on the New York Stock Exchange (the "NYSE") (generally, 1:00 p.m.,
Pacific Time), which includes orders received after the close of business on
the previous business day, the applicable offering price will be based on the
net asset value determined as of the close of business on the NYSE on that
day. If the purchase orders are not received by Distributors [or securities
dealers] prior to the close of business on the NYSE, such orders shall be
deemed received on the next business day. Any order may be rejected by
Distributors or the Fund. The Fund or Distributors may suspend the continuous
offering of Common Shares at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering from
time to time. Neither Distributors nor the dealers are permitted to withhold
placing orders to benefit themselves by a price change. Distributors is
required to advise the Fund promptly of all purchase orders and cause
payments for Common Shares to be delivered promptly to the Fund.
Due to the administrative complexities associated with a continuous offering,
administrative efforts may result in Distributors or an affiliate
inadvertently acquiring nominal numbers (in no event in excess of 5%) of
Common Shares which it may wish to resell. Such Common Shares will not be
subject to any investment restriction and may be resold pursuant to this
Prospectus.
Distributors compensates selected dealers at a rate of 1.00% of the dollar
amount of shares sold by the dealer, consisting of 0.85% of sales commission
and 0.15% of service fee (for the first year's services). If Common Shares
remain outstanding for at least one year from the date of their original
purchase, Distributors will, beginning in the thirteenth month, compensate
such dealers quarterly at an annual rate equal to 0.50% of the value of
Common Shares sold by such dealers and remaining outstanding. Compensation
paid to the selected dealers at the time of purchase and the monthly payments
mentioned above do not represent an additional expense to shareholders since
such payments will be made from the assets of Distributors, Advisers and
Investor Services. The compensation paid to selected dealers and
Distributors, including the compensation paid at the time of purchase, the
monthly payments mentioned above, [any additional incentives mentioned
below,] and the early withdrawal charge, if any, will not in the aggregate
exceed the applicable limit (currently 8.5%), as determined from time to time
by the National Association of Securities Dealers, Inc. ("NASD") unless the
approval of the NASD has been received.
[Distributors may also, from time to time, at its own expense, provide
additional cash incentives to selected dealers which employ registered
representatives who sell a minimum dollar amount of the Fund's Common Shares
and/or shares of other funds distributed by Distributors. Upon NASD
approval, Distributors may provide non-cash incentives to selected dealers.]
PERIODIC OFFERS BY THE FUND TO REPURCHASE
COMMON SHARES FROM ITS SHAREHOLDERS
In recognition of the likelihood that a secondary market for the Fund's
Common Shares will not exist, the Fund has taken actions that will provide
some liquidity to shareholders. The Fund has adopted certain share repurchase
policies as fundamental policies which may not be changed without the vote of
the holders of a majority of the Fund's outstanding voting securities (as
determined under the 1940 Act.) Each calendar quarter the Fund will make
Tender Offers, i.e., offers to repurchase a portion of the Common Shares from
shareholders at a price per share equal to the net asset value per share of
the Common Shares determined at the close of business on the day the Tender
Offer terminates.
REPURCHASE PROCEDURES. The Fund will establish a maximum of fourteen days
prior to the deadline for repurchase requests and the applicable repurchase
date such that repurchases of Common Shares may occur on the last business
day of [each calendar quarter.] The Board of Trustees is authorized to
establish other policies relating to repurchases of Common Shares that are
consistent with the 1940 Act. Additional dates for repurchases of Common
Shares may be established by the Board of Trustees in its sole discretion,
not more frequently than once every two years. Shares tendered by
shareholders on any repurchase date will be repurchased, subject to the
aggregate repurchase amounts established for any such dates, at the then
current net asset value per share. Repurchase proceeds will be repaid, in
cash, within seven days after each of the Fund's repurchase dates (each, a
"Repurchase Payment Deadline").
REPURCHASE AMOUNTS. The number of Common Shares that the Fund will offer to
repurchase on any repurchase date (the "Repurchase Offer Amount") will be
determined by the Board of Trustees, in its sole discretion, but will be at
least 5% and no greater than 25% of the total number of Common Shares
outstanding on any such date. Currently, the Board of Trustees has determined
that the initial repurchase offer will be set at [5%;] however, this may
change prior to the date of the repurchase offer at the sole discretion of
the Board of Trustees.
NOTICES. Notice of a discretionary repurchase offer at net asset value will
be given to each shareholder of record between twenty-one (21) and forty-two
(42) days before each repurchase request deadline. Such notice will state the
Repurchase Offer Amount and any fees applicable to such repurchase, the dates
of the repurchase request deadline, repurchase pricing date, and Repurchase
Payment Deadline. Shareholders will be advised of the risk of fluctuation in
the net asset value between the repurchase request deadline and the
repurchase pricing date, and the possibility that the Fund may use an earlier
repurchase pricing date under certain circumstances. Procedures by which
shareholders may tender their Common Shares, the procedures by which the Fund
may repurchase such shares on a pro rata basis, and the circumstances in
which the Fund may suspend or postpone a repurchase offer will be set forth
in the notice to shareholders. Procedures by which shareholders may withdraw
or modify their tenders until the repurchase request deadline will also be
set forth in the notice. Finally, the notice will set forth the net asset
value of the Common Shares to be repurchased no more than seven days before
the date of notification, and the means by which shareholders may ascertain
the net asset value thereafter, as well as the market price of such shares,
if any, on the date on which the net asset value was computed, and the means
to determine the market price thereafter.
If shareholders tender more than the repurchase offer amount, the Fund may
repurchase an additional amount of Common Shares, not to exceed two percent
(2%) of the shares outstanding on the repurchase request deadline. The Fund
will repurchase the Common Shares tendered on a pro rata basis. The Fund
may, however, accept all Tender Offers of shareholders who own less than one
hundred shares and who tender all their shares, before prorating other Tender
Offers, and may accept Common Shares by round lot when tendered by
shareholders who tender all their shares and who elect to have either all or
none or at least a minimum amount or none accepted, if the Fund first accepts
all shares tendered by shareholders who do not so elect.
The current net asset value of the Common Shares will be computed daily on
the five business days before a repurchase request deadline, at such times to
be determined by the Board of Trustees. During the period from notification
to shareholders of a repurchase pricing date to the repurchase request
deadline, the Fund will maintain liquid assets in an amount equal to 100
percent of the repurchase offer amount.
The Fund will not suspend or postpone a repurchase offer except pursuant to a
vote of a majority of the Fund's Trustees, including a majority of the
Trustees who are not "interested persons" of the Fund, as defined in the 1940
Act (the "Independent Trustees"). Furthermore, the Fund will suspend or
postpone a repurchase offer only if certain regulatory requirements are met.
The Fund will give shareholders notice of any such suspension or
postponement, and likewise will give notice of a renewed repurchase offer.
SPECIAL CONSIDERATIONS OF REPURCHASES. In compliance with the 1940 Act
requirements for periodic repurchase offers, a majority of the Fund's
Trustees are Independent Trustees and the selection and nomination of
additional Independent Trustees are within the discretion of the Independent
Trustees.
Subject to the Fund's investment restriction with respect to borrowings, the
Fund may borrow money to finance the repurchase of Common Shares pursuant to
any Tender Offers. See "Special Considerations and Risk Factors -- Effects of
Leverage" and "Investment Restrictions."
The Fund expects that ordinarily there will be no secondary market for the
Fund's Common Shares and that periodic Tender Offers will be the only source
of liquidity for Fund shareholders. Nevertheless, if a secondary market
develops for Common Shares of the Fund, the market price per share of the
Common Shares may vary from the net asset value per share of the Common
Shares from time to time. Such variance may be affected by, among other
factors, relative demand and supply of shares and the performance of the
Fund, especially as such factors affect the yield on and net asset value per
share of Common Shares of the Fund. The Tender Offers for Common Shares at
net asset value are expected to reduce any spread between net asset value and
market price that may otherwise develop. There can be no assurance, however,
that such action would result in Common Shares trading at a price that equals
or approximates net asset value per share.
Although the Board of Trustees believes that the Tender Offers generally will
be beneficial to holders of Common Shares, the acquisition of Common Shares
by the Fund will decrease the total assets of the Fund and therefore have the
likely effect of increasing the Fund's expense ratio (assuming such
acquisition is not offset by the issuance of additional Common Shares).
Furthermore, to the extent the Fund borrows to finance the making of Tender
Offers, interest on such borrowings would reduce the Fund's net investment
income.
[It is the Board of Trustees' announced policy, which may be changed by the
Board, not to repurchase Common Shares pursuant to a Tender Offer over the
minimum amount required by the Fund's fundamental policies regarding Tender
Offers if the Board of Trustees determines that such a repurchase is not in
the Fund's best interest.] Repurchases pursuant to Tender Offers could
significantly reduce the asset coverage of any borrowing or outstanding
senior securities. The Fund may not repurchase Common Shares to the extent
such repurchases would result in the asset coverage with respect to such
borrowing or senior securities being reduced below the asset coverage
requirements set forth in the 1940 Act. Accordingly, in order to repurchase
all Common Shares tendered, the Fund may have to repay all or part of any
then outstanding borrowing or redeem all or part of any then outstanding
senior securities to maintain the required asset coverage. See "Special
Considerations and Risk Factors -- Effects of Leverage." In addition, the
amount of Common Shares for which the Fund makes any particular Tender Offer
may be limited for the reasons set forth above or in respect of other
concerns to liquidity of the Fund.
[In the event that circumstances arise under which the Fund's Tender Offers
are often not sufficient to allow shareholders to have their Common Shares be
repurchased in amounts desired by such shareholders, the Board of Trustees
would consider alternative means of providing liquidity for holders of Common
Shares. Such action would include an evaluation of any secondary market that
then existed and a determination of whether such market provided liquidity
for holders of Common Shares. If the Board of Trustees determines that such
market, if any, fails to provide liquidity for the holders of Common Shares,
the Board expects that it will consider all then available alternatives to
provide such liquidity. Among the alternatives that the Board of Trustees may
consider is the listing of the Fund's Common Shares on a major domestic stock
exchange or quotation of such shares on an over-the-counter market in order
to provide such liquidity. The Board of Trustees also may consider causing
the Fund to repurchase its shares from time to time in open-market or private
transactions when it can do so on terms that represent a favorable investment
opportunity. In any event, the Board of Trustees expects that it will cause
the Fund to take whatever action it deems necessary or appropriate to provide
liquidity for the holders of Common Shares in light of the facts and
circumstances existing at such time.]
To consummate a Tender Offer for the repurchase of Common Shares, the Fund
may be required to liquidate portfolio securities, and realize gains or
losses, at a time when Advisers would otherwise consider it disadvantageous
to do so. In such event gains may be realized on securities held for less
than three months. In order for the Fund to qualify as a regulated investment
company under the Code, the Fund must limit such gains; and, accordingly, the
amount of gain that the Fund could realize in the ordinary course of its
portfolio management from sales of other securities held for less than three
months would be reduced. This may adversely affect the Fund's yield.
Additionally, such gains may reduce the ability of the Fund to sell other
securities held for less than three months that the Fund may wish to sell for
investment reasons. That inability may adversely affect the Fund's ability
to achieve its investment objective. See "Taxation."
The Fund may also make offers to repurchase shares of which it is the issuer
pursuant to any other applicable rules of the SEC, in effect at the time of
the offer.
The repurchase of tendered Common Shares by the Fund is a taxable event. See
"Taxation." The Fund will pay all costs and expenses associated with the
making of any Tender Offer. An Early Withdrawal Charge will be imposed on
certain Common Shares accepted for tender that have been held for less than
twelve months, subject to certain waivers of such charge. See "Early
Withdrawal Charge to Shareholders" below.
EARLY WITHDRAWAL CHARGE TO SHAREHOLDERS
An Early Withdrawal Charge to recover distribution expenses incurred by
Distributors will be charged against the shareholder's investment account and
paid to Distributors in connection with Common Shares held for less than
twelve months which are accepted by the Fund for repurchase pursuant to a
Tender Offer in the manner described herein and are not subject to a waiver
of the Early Withdrawal Charge as described below. The Early Withdrawal
Charge will be imposed on those Common Shares accepted for tender in an
amount equal to 1% of the lesser of the then current net asset value or the
original purchase price of the Common Shares being tendered. Accordingly, the
Early Withdrawal Charge is not imposed on increases in the net asset value
above the initial purchase price. In addition, the Early Withdrawal Charge is
not imposed on Common Shares derived from reinvestments of dividends or
capital gains distributions.
In determining whether an Early Withdrawal Charge is applicable to a tender
of Common Shares, the calculation will be determined in the manner that
results in the lowest possible amount being charged and it is assumed that
the acceptance of an offer to repurchase pursuant to a Tender Offer would be
made from the earliest purchase of Common Shares. Therefore, it will be
assumed that the tender is first of Common Shares held for over twelve
months, Common Shares acquired pursuant to reinvestment of dividends or
distributions and then Common Shares held longest during the twelve-month
period. The Early Withdrawal Charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase.
EXAMPLE:
Assume an investor purchased 1,000 Common Shares (at a cost of $10,000) and
in the sixth month after purchase, the net asset value per share is $10.15
and, during such time, the investor has acquired 100 additional Common Shares
upon dividend reinvestment. If at such time the investor makes his first
redemption of 500 Common Shares (proceeds of $5,075), 100 Common Shares will
not be subject to the Early Withdrawal Charge because of dividend
reinvestment. With respect to the remaining 400 Common Shares, the Early
Withdrawal Charge is applied only to the original cost of $10 per share and
not to the increase in net asset value of $0.15 per share. Therefore, $4,000
of the $5,075 redemption proceeds will be charged at a rate of 1.0% (the
applicable rate during the twelve months after purchase).
EXCHANGES OF COMMON SHARES FOR SHARES OF ANOTHER FRANKLIN TEMPLETON FUND.
For Common Shares that are held for less than twelve months after purchase,
there is no waiver of the Early Withdrawal Charge upon exchange of such
Common Shares for shares of a Franklin Templeton Fund. Common Shares may be
exchanged for (i) Class II shares of a Franklin Templeton Fund, or (ii) Class
I shares of a Franklin Templeton Fund if the shareholder is otherwise
eligible to purchase Class I shares at net asset value. Fund shareholders
that exchange Common Shares for Class II shares will be charged the front-end
sales charge applicable to purchases of such Class II shares, unless the
shareholder is otherwise eligible for a waiver or reduction of such sales
charge. If the Fund shareholder exchanges Common Shares that have been held
for less than twelve months (where the Early Withdrawal Charge is imposed)
for Class II shares, the front-end sales charge for such Class II shares will
be reduced by the amount of the Early Withdrawal Charge that is imposed. In
any exchange of Common Shares for shares of another Franklin Templeton Fund,
the holding period of the Common Shares will not carry over and reduce the
holding period for any Class I or Class II shares subject to a contingent
deferred sales charge ("CDSC").
EXCHANGES OF SHARES OF ANOTHER FRANKLIN TEMPLETON FUND FOR COMMON
Shares. If shares of another Franklin Templeton Fund are exchanged for
Common Shares, any CDSC applicable to such shares of the Franklin Templeton
Funds will be imposed at the time of the exchange and the Common Shares will
be subject to the Early Withdrawal Charge as though the Common Shares had
been purchased without any exchange.
WAIVERS OF THE EARLY WITHDRAWAL CHARGE. The Early Withdrawal Charge will be
waived as follows:
COMMON SHARES HELD BY RETIREMENT PLANS. The Early Withdrawal Charge will
be waived for Common Shares purchased by any of the following retirement
plans if there was NO broker of record and NO sales commission/service fee
was paid to a broker in connection with the purchase of such Common Shares.
The Early Withdrawal Charge will be waived for Common Shares purchased and
held for six months or more by any of the following retirement plans if there
was a broker of record and a sales commission/service fee was paid to a
broker in connection with the purchase of such Common Shares. The retirement
plans eligible for such waivers are the following:
1. Franklin Templeton Trust Company IRA retirement plan accounts;
2. Retirement plans that (i) are sponsored by an employer with at least 100
employees, (ii) have plan assets of $1 million or more, or (iii) agree to
invest at least $500,000 in the Franklin Templeton Funds over a 13-month
period. Retirement plans that are not Qualified Retirement Plans or SEPS,
such as 403(b) or 457 plans, are eligible for the waivers if the plan
o Was formed at least six months prior to the purchase,
o Has a purpose other than buying Common Shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between Fund representatives and group members,
o Agrees to include sales and other Franklin Templeton Fund materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares; and
3. Qualified Retirement Plans - An employer sponsored pension or
profit-sharing plan that qualifies under section 401 of the Code (examples
include 401(k), money purchase pension, profit sharing and defined benefit
plans).
WHO MANAGES THE FUND
THE BOARD. The Board of Trustees oversees the management of the Fund and
elects its officers. The officers are responsible for the Fund's day-to-day
operations.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. The Fund's investment manager is
Advisers. Advisers manages the Fund's assets and makes its investment
decisions. Advisers also performs similar services for other funds.
Advisers is wholly owned by Resources, a publicly owned holding company
engaged in the financial services industry through its subsidiaries. Charles
B. Johnson and RupertEH. Johnson, Jr. are the principal shareholders of
Resources.
Advisers provides investment research and portfolio management services,
including the selection of securities for the Fund to buy, hold or sell and
the selection of brokers through whom the Fund's portfolio transactions are
executed. Advisers' activities are subject to the review and supervision of
the Board of Trustees to whom Advisers renders periodic reports of the Fund's
investment activities. Advisers provides office space and furnishings,
facilities and equipment required for managing the business affairs of the
Fund. Advisers is covered by fidelity insurance on its officers, directors
and employees for the protection of the Fund.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. Advisers may give advice and take action
with respect to any of the other funds it manages, or for its own account,
that may differ from action taken by Advisers on behalf of the Fund.
Similarly, with respect to the Fund, Advisers is not obligated to recommend,
buy or sell, or to refrain from recommending, buying or selling any security
that Advisers may buy or sell for its own account or for the accounts of any
other fund. Advisers is not obligated to refrain from investing in
securities held by the Fund or other funds that it manages or administers.
Of course, any transactions for the accounts of Advisers will be made in
compliance with the requirements of the 1940 Act.
MANAGEMENT FEES. Under its management agreement, the Fund will pay Advisers
a monthly fee at the annual rate of 0.95% of the average [weekly] managed
assets of the Fund. The fee is computed at the close of business on the last
business day of each month.
MANAGEMENT TEAM.
Chauncey F. Lufkin
Age: 39
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and the portfolio manager of the Fund since its inception and
a Portfolio Manager of Franklin Advisers, Inc. since 1990. Formerly an
employee of Manufacturers Hanover Trust Co. (now The Chase Manhattan Bank),
where he worked in the Acquisition Finance Group specializing in structuring
and negotiation of leveraged transactions, and formerly an employee of
Security Pacific Bank (now Bank of America).
[ANY OTHER PORTFOLIO MANAGERS]
MANAGEMENT AGREEMENT. The management agreement is in effect until
_____________, 1999. It may continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of
the Board of Trustees or by a vote of the holders of a majority of the Fund's
outstanding voting securities, and in either event by a majority vote of the
Board members who are not parties to the management agreement or interested
persons of any such party (other than as members of the Board), cast in
person at a meeting called for that purpose. The management agreement may be
terminated without penalty at any time by the Board or by a vote of the
holders of a majority of the Fund's outstanding voting securities, or by
Advisers on 30 days' written notice, and will automatically terminate in the
event of its assignment, as defined in the 1940 Act.
ADMINISTRATOR [AND SHAREHOLDER SERVICING AGENT?]. Franklin/Templeton
Investor Services, Inc. ("Investor Services"), a wholly owned subsidiary of
Resources, [is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services also] provides
certain administrative services and facilities for the Fund, including
preparation and maintenance of books and records, preparation of tax and
financial reports, and monitoring of compliance with regulatory
requirements. Investor Services is employed through a subcontract with
Advisers and receives a monthly fee equivalent at the annual rate of 0.25% of
the Fund's average [ weekly ] managed assets.
SERVICE PLAN. In addition to advisory fees and other expenses, the Fund pays
service fees pursuant to a Service Plan (the "Plan") designed to meet the
service fee requirements of the sales charge rule of the NASD, as if such
rule were applicable. THE PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE
PAYMENTS FOR PERSONAL SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS
TO THE PRINCIPAL UNDERWRITER AND AUTHORIZED FIRMS AND OTHER PERSONS IN
AMOUNTS NOT EXCEEDING 0.25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR ANY
FISCAL YEAR. The Trustees of the Fund have initially implemented the Plan by
authorizing the Fund to make quarterly service fee payments to Distributors
and selected dealers in amounts not expected to exceed 0.15% of the Fund's
average daily net assets for each fiscal year. Distributors will retain the
service fee in the first year (as reimbursement for an initial service fee
payment of 0.15% to selected dealers at the time of sale). The Plan,
however, authorizes the Trustees of the Fund to increase payments without
further action by shareholders of the Fund, provided that the aggregate
amount of payments made to such persons under the Plan in any fiscal year of
the Fund does not exceed 0.25% of the Fund's average daily net assets.
The Plan has been approved by the Trustees of the Fund, who are not
interested persons of the Fund as defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan (the "Independent Trustees"), and by all of
the Trustees of the Fund.
The Plan remains in effect through and including ___________, 1999, and shall
continue in effect indefinitely thereafter for so long as such continuance is
approved at least annually by the vote of both a majority of (i) the
Independent Trustees of the Fund and (ii) all of the Trustees then in office,
cast in person at a meeting (or meetings) called for the purpose of voting on
this Plan. The Plan may not be amended to increase materially the payments
described herein without approval of the shareholders of the Fund, and all
material amendments of the Plan must also be approved by the Trustees of the
Fund in the manner described above. The Plan may be terminated at any time
by vote of a majority of the Independent Trustees or by a vote of a majority
of the outstanding voting securities of the Fund. Under the Plan, the
President or a Vice President of the Fund shall provide to the Trustees for
their review, and the Trustees shall review at least quarterly, a written
report of the amounts expended under the Plan and the purposes for which such
expenditures were made.
So long as the Plan is in effect, the selection and nomination of additional
Independent Trustees shall be committed to the discretion of the Independent
Trustees. The Trustees have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
CUSTODIAN. Bank of New York, Mutual Funds Division, 90 Washington Street,
New York, New York, 10286, acts as custodian of the securities and other
assets of the Fund. The custodian does not participate in decisions relating
to the purchase and sale of portfolio securities.
AUDITORS. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, are the Fund's independent auditors.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Fund, their ages and their
principal occupations during the last five years, are set forth below.
Trustees who are considered "interested persons" of the Fund under the 1940
Act are indicated by an asterisk (*).
<TABLE>
<CAPTION>
POSITION(S)
HELD WITH PRINCIPAL OCCUPATIONS DURING
NAME AND ADDRESS AGE FUND PAST 5 YEARS
<S> <C> <C> <C>
Frank H. Abbott, III 76 Trustee President and Director, Abbott
1045 Sansome Street Corporation (an investment company); and
San Francisco, CA 94111 director or trustee, as the case may be,
of 29 of the investment companies in the
Franklin Templeton Group of Funds.
Harris J. Ashton 65 Trustee President, Chief Executive Officer and
General Host Corporation Chairman of the Board, General Host
Metro Center, 1 Station Place Corporation (nursery and craft centers);
Stamford, CT 06904-2045 Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods (a meat
packing company); and director or
trustee, as the case may be, of 53 of the
investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato 64 Trustee Member of the law firm of Pitney, Hardin,
Park Avenue at Morris County Kipp & Szuch; Director, General Host
P.O. Box 1945 Corporation (nursery and craft centers);
Morristown, NJ 07962-1945 and director or trustee, as the case may
be, of 55 of the investment companies in
the Franklin Templeton Group of Funds.
David W. Garbellano 82 Trustee Private investor; Assistant
111 New Montgomery St. #402 Secretary/Treasurer and Director,
San Francisco, CA 94105 Berkeley Science Corporation (a venture
capital company); and director or
trustee, as the case may be, of 28 of the
investment companies in the Franklin
Templeton Group of Funds.
*Charles B. Johnson 64 Chairman of President, Chief Executive Officer and
777 Mariners Island Blvd. the Board Director, Franklin Resources, Inc.;
San Mateo, CA 94404 and Trustee Chairman of the Board and Director,
Franklin Advisers, Inc., Franklin
Advisory Services, Inc., Franklin
Investment Advisory Services, Inc. and
Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor
Services, Inc., Franklin Templeton
Services, Inc. and General Host
Corporation (nursery and craft centers);
and officer and/or director or trustee,
as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc.
and of 54 of the investment companies in
the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. 56 President Executive Vice President and Director,
777 Mariners Island Blvd. and Trustee Franklin Resources, Inc. and Franklin
San Mateo, CA 94404 Templeton Distributors, Inc.; President
and Director, Franklin Advisers, Inc.;
Senior Vice President and Director,
Franklin Advisory Services, Inc.;
Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or
director or trustee, as the case may be,
of most other subsidiaries of Franklin
Resources, Inc. and of 58 of the
investment companies in the Franklin
Templeton Group of Funds.
Frank W.T. LaHaye 68 Trustee General Partner, Peregrine Associates and
20833 Stevens Creek Blvd. Miller & LaHaye, which are General
Suite 102 Partners of Peregrine Ventures and
Cupertino, CA 95014 Peregrine Ventures II (venture capital
firms); Chairman of the Board and
Director, Quarterdeck Corporation
(software firm); Director, Fischer
Imaging Corporation (medical imaging
systems) and Digital Transmission
Systems, Inc. (wireless communications);
and director or trustee, as the case may
be, of 27 of the investment companies in
the Franklin Templeton Group of Funds.
Gordon S. Macklin 69 Trustee Chairman, White River Corporation
8212 Burning Tree Road (financial services); Director, Fund
Bethesda, MD 20817 American Enterprises Holdings, Inc., MCI
Communications Corporation, CCC
Information Services Group, Inc.
(information services), MedImmune, Inc.
(biotechnology), Shoppers Express (home
shopping), and Spacehab, Inc. (aerospace
services); and director or trustee, as
the case may be, of 50 of the investment
companies in the Franklin Templeton Group
of Funds; formerly Chairman, Hambrecht
and Quist Group, Director, H & Q
Healthcare Investors, and President,
National Association of Securities
Dealers, Inc.
Harmon E. Burns 52 Vice Executive Vice President, Secretary and
777 Mariners Island Blvd. President Director, Franklin Resources, Inc.;
San Mateo, CA 94404 Executive Vice President and Director,
Franklin Templeton Distributors, Inc. and
Franklin Templeton Services, Inc.;
Executive Vice President, Franklin
Advisers, Inc.; Director,
Franklin/Templeton Investor Services,
Inc.; and officer and/or director or
trustee, as the case may be, of most of
the other subsidiaries of Franklin
Resources, Inc. and 58 of the investment
companies in the Franklin Templeton Group
of Funds.
Martin L. Flanagan 37 Vice Senior Vice President, Chief Financial
777 Mariners Island Blvd. President Officer and Treasurer, Franklin
San Mateo, CA 94404 and Chief Resources, Inc.; Executive Vice President
Financial and Director, Templeton Worldwide, Inc.;
Officer Director, Executive Vice President and
Chief Operating Officer, Templeton
Investment Counsel, Inc.; Senior Vice
President and Treasurer, Franklin
Advisers, Inc.; Treasurer, Franklin
Advisory Services, Inc.; Treasurer and
Chief Financial Officer, Franklin
Investment Advisory Services, Inc.;
President, Franklin Templeton Services,
Inc.; Senior Vice President,
Franklin/Templeton Investor Services,
Inc.; officer, and or director or
trustee, as the case may be, of 58 of the
investment companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek 48 Vice Senior Vice President and General
777 Mariners Island Blvd. President Counsel, Franklin Resources, Inc.; Senior
San Mateo, CA 94404 and Secretary Vice President, Franklin Templeton
Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President,
Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice President,
Chief Legal Officer and Chief Operating
Officer, Franklin Investment Advisory
Services, Inc.; and officer of 58 of the
investment companies in the Franklin
Templeton Group of Funds.
Diomedes Loo-Tam 58 Treasurer Employee of Franklin Advisers, Inc.; and
777 Mariners Island Blvd. and officer of 35 of the investment companies
San Mateo, CA 94404 Principal in the Franklin Templeton Group of Funds.
Accounting
Officer
Chauncey F. Lufkin 39 Vice Employee of Franklin Advisers, Inc. since
777 Mariners Island Blvd. President 1990; formerly, an employee of
San Mateo, CA 94404 Manufacturers Hanover Trust Co. and
Security Pacific National Bank; and
officer of one investment company in the
Franklin Templeton Group of Funds.
Edward V. McVey 59 Vice Senior Vice President and National Sales
777 Mariners Island Blvd. President Manager, Franklin Templeton Distributors,
San Mateo, CA 94404 Inc.; and officer of 30 of the investment
companies in the Franklin Templeton Group
of Funds.
</TABLE>
The compensation of the officers and Trustees who are not Independent
Trustees of the Fund is paid by Advisers. The Fund pays the compensation of
all other officers and Trustees of the Fund.
PORTFOLIO TRANSACTIONS BY THE FUND
The selection of brokers and dealers to execute transactions in the Fund's
portfolio is made by Advisers in accordance with criteria set forth in the
management agreement and any directions that the Board of Trustees may give.
When placing a portfolio transaction, Advisers seeks to obtain prompt
execution of orders at the most favorable net price. When portfolio
transactions are done on a securities exchange, the amount of commission paid
by the Fund is negotiated between Advisers and the broker executing the
transaction. The determination and evaluation of the reasonableness of the
brokerage commissions paid in connection with portfolio transactions are
based to a large degree on the professional opinions of the persons
responsible for the placement and review of the transactions. These opinions
are based on, among others, the experience of these individuals in the
securities industry and information available to them about the level of
commissions being paid by other institutional investors of comparable size.
Advisers will ordinarily place orders to buy and sell over-the-counter
securities on a principal rather than agency basis with a principal market
maker unless, in the opinion of Advisers, a better price and execution can
otherwise be obtained. Purchases of portfolio securities from underwriters
will include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers will include a spread between the bid
and ask price.
The amount of commission is not the only factor Advisers considers in the
selection of a broker to execute a trade. If Advisers believes it is in the
Fund's best interest, Advisers may place portfolio transactions with brokers
who provide the type of services described below, even if it means the Fund
will pay a higher commission than if no weight were given to the broker's
furnishing of these services. This will be done only if, in the opinion of
Advisers, the amount of any additional commission is reasonable in relation
to the value of the services. Higher commissions will be paid only when the
brokerage and research services received are bona fide and produce a direct
benefit to the Fund or assist Advisers in carrying out its responsibilities
to the Fund, or when it is otherwise in the best interest of the Fund to do
so, whether or not such services may also be useful to Advisers in advising
other clients.
When Advisers believes several brokers are equally able to provide the best
net price and execution, it may decide to execute transactions through
brokers who provide quotations and other services to the Fund, in an amount
of total brokerage as may reasonably be required in light of these services.
Specifically, these services may include providing the quotations necessary
to determine the Fund's net asset value, as well as research, statistical and
other data.
It is not possible to place a dollar value on the special executions or on
the research services received by Advisers from dealers effecting
transactions in portfolio securities. The allocation of transactions in
order to obtain additional research services permits Advisers to supplement
its own research and analysis activities and to receive the views and
information of individuals and research staff of other securities firms. As
long as it is lawful and appropriate to do so, Advisers and its affiliates
may use this research and data in their investment advisory capacities with
other clients. If the Fund's officers are satisfied that the best execution
is obtained, the sale of Fund shares may also be considered a factor in the
election of broker-dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive
certain fees when the Fund tenders portfolio securities pursuant to a
tender-offer solicitation. As a means of recapturing brokerage for the
benefit of the Fund, any portfolio securities tendered by the Fund will be
tendered through Distributors if it is legally permissible to do so. In
turn, the next management fee payable to Advisers will be reduced by the
amount of any fees received by Distributors in cash, less any costs and
expenses incurred in connection with the tender.
If purchases or sales of securities of the Fund and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to
all by Advisers, taking into account the respective sizes of the funds and
the amount of securities to be purchased or sold. In some cases this
procedure would have a detrimental effect on the price or volume of the
security so far as the Fund is concerned. In other cases it is possible that
the ability to participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to the Fund.
The Fund engages in trading when Advisers has concluded that the sale of a
security owned by the Fund and/or the purchase of another security can
enhance principal and/or increase income. A security may be sold to avoid any
prospective decline in market value, or a security may be purchased in
anticipation of a market rise. Consistent with the Fund's investment
objective, a security also may be sold and a comparable security purchased
coincidentally in order to take advantage of what is believed to be a
disparity in the normal yield and price relationship between the two
securities.
The Fund's portfolio turnover rate is not expected to exceed 100%, but may
vary greatly from year to year and will not be a limiting factor when
Advisers deems portfolio changes appropriate. Although the Fund generally
does not intend to trade for short-term profits, the securities held by the
Fund will be sold whenever Advisers believes it is appropriate to do so,
without regard to the length of time a particular security may have been
held. A 100% portfolio turnover rate would occur if the lesser of the value
of purchases or sales of the Fund's securities for a year (excluding
purchases of U.S. Treasury and other securities with a maturity at the date
of purchase of one year or less) were equal to 100% of the average monthly
value of the securities, excluding short-term investments, held by the Fund
during such year. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
The Fund intends to distribute substantially all of its net investment
income, which consists generally of its share of the Fund's net investment
income, reduced by interest on the Fund's borrowings, and dividends or
interest on its senior securities, if any. Dividends from such income are
declared daily and paid monthly to holders of Common Shares. Substantially
all of the Fund's net realized long- and short-term capital gains, if any,
are distributed at least annually to Common Shareholders. Common Shares
accrue dividends as long as they are issued and outstanding (i.e., from the
settlement date of a purchase order to the settlement date of a Tender Offer).
Under the 1940 Act, the Fund is not permitted to incur indebtedness unless
immediately after such incurrence it has an asset coverage of at least 300%
of the aggregate outstanding principal balance of the indebtedness.
Additionally, under the 1940 Act, the Fund may not declare any dividend or
other distribution on any class of its capital stock or purchase any such
capital stock unless it has, at the time of the declaration of any such
distribution or at the time of any such purchase, asset coverage of at least
300% of the aggregate indebtedness after deducting the amount of such
distribution, or purchase price, as the case may be. This latter limitation
- -- and a limitation on the Fund's ability to declare any cash dividends or
other distributions on the Common Shares while any shares of preferred stock
are outstanding -- could under certain circumstances impair its ability to
maintain its qualification for taxation as a regulated investment company.
See "Special Considerations and Risk Factors -- Effects of Leverage" and
"Taxation."
Dividends and other distributions to Common Shareholders may be automatically
reinvested in Common Shares pursuant to the Fund's Dividend Reinvestment
Plan. See "Dividend Reinvestments." Dividends and other distributions will be
taxable to shareholders whether they are so reinvested in shares of the Fund
or received in cash. See "Taxation."
TAXATION OF THE FUND AND ITS SHAREHOLDERS
TAXATION OF THE FUND
The Fund has elected to be treated as a regulated investment company under
Subchapter M of the Code. The Board of Trustees reserves the right not to
maintain the qualification of the Fund as a regulated investment company if
it determines this course of action to be beneficial to shareholders. In
that case, the Fund will be subject to federal and possibly state corporate
taxes on its taxable income and gains, and distributions to shareholders will
be taxable to the extent of the Fund's available earnings and profits.
The Code requires all funds to distribute at least 98% of their taxable
ordinary income earned during the calendar year and at least 98% of their
capital gain net income earned during the 12 month period ending October 31
of each year (in addition to amounts from the prior year that were neither
distributed nor taxed to the Fund) to shareholders by December 31 of each
year in order to avoid the imposition of a federal excise tax. Under these
rules, certain distributions which are declared in October, November or
December but which, for operational reasons, may not be paid to shareholders
until the following January, will be treated for tax purposes as if paid by
the Fund and received by shareholders on December 31 of the calendar year in
which they are declared. The Fund intends as a matter of policy to declare
such dividends, if any, in December and to pay these dividends in December or
January to avoid the imposition of this tax, but does not guarantee that its
distributions will sufficient to avoid any or all federal excise taxes.
Repurchases and exchanges (if permitted) of Fund shares are taxable
transactions for federal and state income tax purposes. Gain or loss will be
recognized in an amount equal to the difference between the shareholder's
basis in the Common Shares and the amount the shareholder received, subject
to the rules described below. If such Common Shares are a capital asset in
the shareholder's hands, gain or loss will be capital gain or loss and will
be long-term for federal income tax purposes if the shareholder's Common
Shares have been held for more than one year.
In order for the Fund to qualify as a regulated investment company, at least
90% of the Fund's annual gross income must consist of dividends, interest and
certain other types of qualifying income, and no more than 30% of its annual
gross income may be derived from the sale or other disposition of securities
or certain other instruments held for less than three months. Foreign
exchange gains derived by the Fund with respect to the Fund's business of
investing in Corporate Loans or Corporate Debt Securities, are qualifying
income for purposes of this 90% limitation.
Currency speculation or the use of currency forward contracts or other
currency instruments for non-hedging purposes may generate gains deemed to be
not directly related to the Fund's principal business of investing in stock
or securities and related options or forward contracts. Under current law,
non-directly-related gains arising from foreign currency positions or
instruments held for less than three months are treated as derived from the
disposition of securities held less than three months in determining the
Fund's compliance with the 30% limitation. The Fund will limit its
activities involving foreign exchange gains to the extent necessary to comply
with these requirements.
Interest received by the Fund may be subject to income, withholding, or other
taxes imposed by foreign countries and U.S. possessions that would reduce the
yield on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate these foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors.
Gains or losses (1) from the disposition of foreign currencies, (2) on the
disposition of a debt security denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the
time the Fund accrues interest or other receivables or expenses or other
liabilities denominated in a foreign currency and the time it actually
collects the receivables or pays the liabilities, generally are treated as
ordinary income or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of
investment company taxable income available to the Fund for distribution to
its shareholders.
The federal income tax rules governing the taxation of interest rate swaps
are not entirely clear and may require the Fund to treat payments received
under such arrangements as ordinary income and to amortize payments under
certain circumstances. The Fund will limit its activity in this regard in
order to enable the Fund to maintain its qualification as a regulated
investment company.
TAXATION OF SHAREHOLDERS
Dividends paid by the Fund from its investment company taxable income,
whether received in cash or reinvested in Fund shares pursuant to the Plan
(as defined below), are taxable to its shareholders as ordinary income to the
extent of its earnings and profits. (Any distributions in excess of the
Fund's earnings and profits first will reduce the adjusted tax basis of a
holder's Common Shares and, after that basis is reduced to zero, will
constitute capital gains to the shareholder, assuming the Common Shares are
held as a capital asset.) Distributions, if any, from the Fund's net capital
gain, when designated as such, are taxable to its shareholders as long-term
capital gains, regardless of the length of time they have owned their Fund
shares and whether received by them in cash or reinvested in Fund shares
pursuant to the Plan. The Fund annually will provide its shareholders with a
written notice designating the amounts of any capital gain distributions.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
Distributions by the Fund generally will not be eligible for the
dividends-received deduction allowed to corporations.
The Fund must withhold 31% from dividends, capital gain distributions, and
proceeds from sales of Common Shares pursuant to a Tender Offer, if any,
payable to any individuals and certain other unincorporated shareholders who
have not furnished to the Fund a correct taxpayer identification number
("TIN") or a properly completed claim for exemption on Form W-8 or W-9
("backup withholding"). Withholding at that rate also is required from
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding. When establishing an account, an
investor must certify under penalty of perjury that the investor's TIN is
correct and that the investor is not otherwise subject to backup withholding.
A loss realized on a sale or exchange of Common Shares of the Fund will be
disallowed if other Common Shares are acquired (whether through the
reinvestment of distributions under the Plan or otherwise) within a 61-day
period beginning 30 days before and ending 30 days after the date that the
shares are disposed of. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss.
Dividends paid by the Fund to a shareholder who, as to the United States, is
a nonresident alien individual or nonresident alien fiduciary of a trust or
estate, foreign corporation, or foreign partnership ("foreign shareholder")
will be subject to U.S. withholding tax (at a rate of 30% or lower treaty
rate). Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected with the conduct of a U.S. trade or
business," in which case the reporting and withholding requirements
applicable to domestic shareholders will apply. Distributions of net capital
gain are not subject to withholding, but in the case of a foreign shareholder
who is a nonresident alien individual, those distributions ordinarily will be
subject to U.S. income tax at a rate of 30% (or lower treaty rate) if the
individual is physically present in the United States for more than 182 days
during the taxable year and the distributions are attributable to a fixed
place of business maintained by the individual in the United States. Foreign
shareholders are urged to consult their own tax advisers concerning the
applicability of this withholding tax.
TAXATION OF TENDER OFFERS
A holder of Common Shares who, pursuant to any Tender Offer, tenders all
Common Shares owned by such shareholder and any Common Shares considered
owned thereby under attribution rules contained in the Code will realize a
taxable gain or loss depending upon such shareholder's basis for the shares.
Such gain or loss will be treated as capital gain or loss if the shares are
held as capital assets and will be long-term or short-term depending on the
shareholder's holding period for the shares.
Different tax consequences may apply to tendering and non-tendering holders
of Common Shares in connection with a Tender Offer, and these consequences
will be disclosed in the related offering documents. For example, if a
tendering holder of Common Shares tenders less than all Common Shares owned
by or attributed to such shareholder, and if the payment to such shareholder
does not otherwise qualify as a sale or exchange, the proceeds received will
be treated as a taxable dividend, a return of capital, or capital gain
depending on the Fund's earnings and profits and the shareholder's basis for
the tendered shares. Also, there is a risk that nontendering holders of
Common Shares may be considered to have received a deemed distribution that
may be a taxable dividend in whole or in part. Holders of Common Shares may
wish to consult their tax advisers prior to tendering.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting the Fund and its shareholders. For further
information, reference should be made to the pertinent Code sections and the
regulations promulgated thereunder, which are subject to change by
legislative, judicial, or administrative action either prospectively or
retroactively. Investors are urged to consult their tax advisers regarding
specific questions as to federal, state, local, or foreign taxes. Foreign
investors should consider applicable foreign taxes in their evaluation of an
investment in the Fund.
DIVIDEND REINVESTMENTS
Pursuant to the Dividend Reinvestment Plan (the "Plan"), each shareholder
will be deemed to have elected to have all dividends and other distributions,
net of any applicable withholding taxes, automatically reinvested in
additional Common Shares, unless, [INVESTOR SERVICES?], as the Plan Agent
(the "Plan Agent"), is otherwise instructed by the shareholder in writing.
Shareholders who do not participate in the Plan will receive all dividends
and other distributions in cash, net of any applicable withholding taxes,
paid in U.S. dollars by check mailed directly to the shareholder by Investor
Services, as dividend-paying agent. Shareholders who do not wish to have
dividends and other distributions automatically reinvested should notify the
Plan Agent at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo,
California, 94403-7777. Dividends and other distributions with respect to
Common Shares registered in the name of a broker-dealer or other nominee
(i.e., in "street name") will be reinvested under the Plan unless such
service is not provided by the broker-dealer or nominee or the shareholder
elects to receive dividends and other distributions in cash. A shareholder
whose Common Shares are held by a broker-dealer or nominee that does not
provide a dividend reinvestment service may be required to have Common Shares
registered in his own name to participate in the Plan. Similarly, a
shareholder may be unable to transfer his account to certain broker-dealers
and continue to participate in the Plan. Investors who own Common Shares
registered in street name should contact the broker or nominee for details
concerning participation in the Plan.
The Plan Agent will maintain all participant accounts in the Plan and furnish
written confirmations of all transactions in the accounts, including
information needed by participants for personal and tax records. Common
Shares in the account of each participant may be held by the Plan Agent in
non-certificated form in the name of the Plan Agent or the Plan Agent's
nominee, and each shareholder's proxy will include those Common Shares
purchased pursuant to the Plan. Participants in the Plan may withdraw from
the Plan upon written notice to the Plan Agent.
In the case of a shareholder of record, such as a bank, broker-dealer or
nominee, that holds Common Shares for others who are the beneficial owners,
the Plan Agent will administer the Plan on the basis of the number of Common
Shares certified from time to time by the record shareholder as representing
the total amount registered in the shareholder's name and held for the
account of beneficial owners who participate in the Plan.
There will be no charge to participants for reinvesting dividends or other
distributions. The Plan Agent's fees for the handling of reinvestment of
distributions will be paid by the Fund.
All registered holders of Common Shares (other than brokers and nominees)
will be mailed information regarding the Plan, including a form with which
they may elect to terminate a participation in the Plan and receive further
dividends and other distributions in cash. An election to terminate
participation in the Plan must be made in writing to the Plan Agent and
should include the shareholder's name and address as they appear on the share
certificate. An election to terminate, until such election is changed, will
be deemed to be an election by a shareholder to take all subsequent
distributions in cash. An election will be effective only for distributions
declared and having a record date at least ten days after the date on which
the election is received.
The receipt of dividends and other distributions in Common Shares under the
Plan will not relieve participants of any income tax (including withholding
taxes) that may be payable on such distributions. See "Taxation."
Experience under the Plan may indicate that changes in the Plan are
desirable. Accordingly, the Fund and the Plan Agent reserve the right to
terminate the Plan as applied to any dividend or other distribution paid
subsequent to notice of the termination sent to the participants in the Plan
at least 30 days before the record date for the distribution. The Plan also
may be amended by the Fund or the Plan Agent but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to participants in the
Plan. All correspondence concerning the Plan should be directed to the Plan
Agent, 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777.
AUTOMATIC INVESTMENT PLAN
Investors may conveniently purchase Common Shares of the Fund through the
Franklin Automatic Investment Plan. Under the Automatic Investment Plan, an
amount specified by the shareholder of [$100] or more (or [$25] for
Individual Retirement Accounts, Code Section 403(b)(7) custodial accounts and
other tax-qualified employer-sponsored retirement accounts) on a monthly or
quarterly basis will be transferred automatically to [INVESTOR SERVICES] from
the investor's daily account for investment in the Fund. Participants in the
Automatic Investment Plan should not elect to receive dividends or other
distributions from the Fund in cash. Investors should contact their
investment representatives or [INVESTOR SERVICES] for more information. The
net asset value of the Fund's Common Shares may fluctuate and a systematic
investment plan will not assure a profit or protect against a loss. An
investor may discontinue the program at any time by notifying Investor
Services by mail or by phone.
EXCHANGE PRIVILEGE
Shareholders who tender their Common Shares pursuant to a Tender Offer have
the privilege of exchanging Common Shares at net asset value for shares of
the Franklin Templeton Funds, which are open-end investment companies
distributed by Distributors, subject to the Early Withdrawal Charge for the
Common Shares and charges applicable to the Franklin Templeton Funds. Common
Shares may be exchanged for (i) Class II shares of a Franklin Templeton Fund,
or (ii) Class I shares of a Franklin Templeton Fund if the shareholder is
otherwise eligible to purchase such Class I shares at net asset value. Any
such exchange is required to be effected in connection with a shareholder's
tender of Common Shares in a Tender Offer. See "Early Withdrawal Charge to
Shareholders" above for the applicability of the Early Withdrawal Charge and
certain other charges with respect to shareholders choosing to exchange their
Common Shares for shares of a Franklin Templeton Fund. Subject to any
applicable CDSC, shares of the Franklin Templeton Funds may also be exchanged
for Common Shares of the Fund. Any such exchange will be available only in
states where shares of the fund acquired may legally be sold and will be
subject to the Early Withdrawal Charge described above in "Early Withdrawal
Charge to Shareholders".
The Fund reserves the right to change the exchange privilege [on 60 days'
notice to shareholders] [on notice given to shareholders prior to a quarterly
Tender Offer for a change that is effective after such Tender Offer.]
VALUATION OF COMMON SHARES
The net asset value per share of Common Shares is determined Monday through
Friday as of the scheduled close of the NYSE (generally, 1:00 p.m., Pacific
Time), each day that the NYSE is open for trading. The Fund is informed
that, as of the date of this Prospectus, the NYSE observes the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day (day
observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and the preceding Friday or subsequent Monday when any of these holidays
falls on a Saturday or Sunday, respectively.
For the purposes of determining the net asset value of a share of Common
Shares, the Fund's uninvested assets plus its share of the value of the
securities and any cash or other assets (including interest accumulated but
not yet received) held by the Fund minus all liabilities (including accrued
expenses) of the Fund and its share of all liabilities (including accrued
expenses) of the Fund is divided by the total number of Common Shares
outstanding at such time. Expenses, including the fees payable to Advisers,
are accrued daily.
Advisers, subject to guidelines adopted and periodically reviewed by the
Fund's Board of Trustees, values the Corporate Loans and Corporate Debt
Securities at fair value, which approximates market value. In valuing a
Corporate Loan or Corporate Debt Security, Advisers considers, among other
factors, (i) the creditworthiness of the Borrower and any Intermediate
Participants, (ii) the current interest rate, period until next interest rate
reset and maturity of the Corporate Loan or Corporate Debt Security, (iii)
recent prices in the market for instruments of similar quality, rate, period
until next prices in the market for instruments of similar quality, rate,
period until next interest rate reset and maturity. Advisers believes that
Intermediate Participants selling Corporate Loans or otherwise involved in a
Corporate Loan transaction may tend, in valuing Corporate Loans for their own
accounts, to be less sensitive to interest rate and credit quality changes
and, accordingly, Advisers may not rely solely on such valuations in valuing
the Corporate Loans for the Fund's account. In addition, because a secondary
trading market in Corporate Loans and Corporate Debt Securities has not yet
fully developed, in valuing Corporate Loans and Corporate Debt Securities,
Advisers may not rely solely on but may consider prices or quotations
provided by banks, dealers or pricing services with respect to secondary
market transactions in Corporate Loans and Corporate Debt Securities. To the
extent that an active secondary market in Corporate Loans and Corporate Debt
Securities develops to a reliable degree, or exists in respect of other loans
or instruments deemed to be similar to Corporate Loans and Corporate Debt
Securities, Advisers may rely to an increasing extent on such market prices
and quotations in valuing the Corporate Loans and Corporate Debt Securities
held by the Fund.
Other portfolio securities (other than short-term obligations but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services which determine prices for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. In certain circumstances,
portfolio securities are valued at the last sale price on the exchange that
is the primary market for such securities, or the last quoted bid price for
those securities for which the over-the-counter market is the primary market
or for listed securities in which there were no sales during the day. The
value of interest rate swaps, caps and floors is determined in accordance
with a formula and then confirmed periodically by obtaining a bank quotation.
Positions in options are valued at the last sale price on the market where
any such option is principally traded. Obligations with remaining maturities
of 60 days or less are valued at amortized cost unless this method no longer
produces fair valuations. Repurchase agreements are valued at cost plus
accrued interest. Rights or warrants to acquire stock or stock acquired
pursuant to the exercise of a right or warrant, may be valued taking into
account various factors such as original cost to the Fund, earnings and net
worth of the issuer, market prices for securities of similar issuers,
assessment of the issuer's future prosperity, liquidation value or third
party transactions involving the issuer's securities. Securities for which
there exist no price quotations or valuations and all other assets are valued
at fair value as determined in good faith by or on behalf of the Board of
Trustees of the Fund.
DESCRIPTION OF COMMON SHARES
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, which may be offered in multiple classes. Although it has no
current intention of doing so, the Board of Trustees of the Fund is
authorized to classify and reclassify any unissued shares of beneficial
interest from time to time by setting or changing the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends or
terms and conditions of redemption of such shares by the Fund. The
description of the Common Shares and the description under "Description of
Common Shares--Certain Anti-Takeover Provisions of the Declaration of Trust"
are subject to the provisions contained in the Fund's Declaration of Trust
and Bylaws.
COMMON SHARES
Common Shares have no preemptive, conversion, exchange or redemption rights.
Each share has equal voting, dividend, distribution and liquidation rights.
The outstanding Common Shares are, and those offered hereby, when issued,
will be, fully paid and nonassessable. Shareholders are entitled to one vote
per share. All voting rights for the election of trustees are noncumulative,
which means that the holders of more than 50% of the shares can elect 100% of
the trustees then nominated for election if they choose to do so and, in such
event, the holders of the remaining shares will not be able to elect any
trustees.
As of the date of this Prospectus, Advisers owns 100% of the issued and
outstanding Common Shares of the Fund and, until such time as the Fund
completes the public offering of its Common Shares, Advisers will be deemed
to control the Fund under the 1940 Act.
Any additional offerings of the Fund's Common Shares, if made, will require
approval of its Board of Trustees and will be subject to the requirement of
the 1940 Act that shares may not be sold at a price below the then-current
net asset value, exclusive of underwriting discounts and commissions, except,
among other things, in connection with an offering to existing shareholders
or with the consent of a majority of the holders of the Fund's outstanding
voting securities. Common Shares will be held in book-entry form unless
physical certificates are requested in writing by a Common Shareholder.
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE DECLARATION OF TRUST. The Fund
presently has provisions in its Declaration of Trust that have the effect of
limiting (i) the ability of other entities or persons to acquire control of
the Fund, (ii) the Fund's freedom to engage in certain transactions, and
(iii) the ability of the Fund's trustees or shareholders to amend the
Declaration of Trust. These provisions of the Declaration of Trust may be
regarded as "anti-takeover" provisions. Under Delaware law and the Fund's
Declaration of Trust, the affirmative vote of the holders of at least a
majority of the votes entitled to be cast is required for the consolidation
of the Fund with another business trust, a merger of the Fund with or into
another business trust (except for certain mergers in which the Fund is the
successor), a statutory share exchange in which the Fund is not the
successor, a sale or transfer of all or substantially all of the Fund's
assets, the dissolution of the Fund and any amendment to the Fund's
Declaration of Trust. In addition, the affirmative vote of the holders of at
least 66 2/3% (which is higher than that required under Delaware law or the
1940 Act) of the Fund's outstanding shares of beneficial interest is required
generally to authorize any of the following transactions or to amend the
provisions of the Declaration of Trust relating to such transactions:
o merger, consolidation or statutory share exchange of the Fund with or into
any other business trust;
o issuance of any securities of the Fund to any person or entity for cash;
o sale, lease or exchange of all or any substantial part of the assets of
the Fund to any entity or person (except assets having an aggregate
market value of less than $1,000,000); or
o sale, lease or exchange to the Fund, in exchange for securities of the Fund,
of any assets of any entity or person (except assets having an aggregate fair
market value of less than $1,000,000) if such trust, person or entity is
directly, or indirectly through affiliates, the beneficial owner of more than
5% of the outstanding shares of the Fund (a "Principal Shareholder"). A
similar vote also would be required for any amendment of the Declaration of
Trust to convert the Fund to an open-end investment company by making any
class of the Fund's shares a "redeemable security," as that term is defined
in the 1940 Act. Such vote would not be required with respect to any of the
foregoing transactions, however, when, under certain conditions, the Board of
Trustees approves the transaction, although in certain cases involving
merger, consolidation or statutory share exchange or sale of all or
substantially all of the Fund's assets or the conversion of the Fund to an
open-end investment company, the affirmative vote of the holders of a
majority of the Fund's outstanding shares would nevertheless be required.
Reference is made to the Declaration of Trust of the Fund, on file with the
SEC, for the full text of these provisions.
The provisions of the Declaration of Trust described above and the Fund's
right to make a tender offer for its shares could have the effect of
depriving the shareholders of opportunities to sell their shares at a premium
over net asset value by discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar transaction. The overall
effect of these provisions is to render more difficult the accomplishment of
a merger or the assumption of control by a Principal Shareholder. They
provide, however, the advantage of potentially requiring persons seeking
control of the Fund to negotiate with its management regarding the price to
be paid and facilitating the continuity of the Fund's management, investment
objectives and policies. The Board of Trustees of the Fund has considered the
foregoing anti-takeover provisions and concluded that they are in the best
interest of the Fund and its shareholders.
INVESTMENT PERFORMANCE INFORMATION
From time to time, the Fund may include its yield and/or total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders.
The yield of the Fund refers to the income generated by an investment in the
Fund over a stated period. Yield is calculated by analyzing the most recent
monthly distribution and dividing the product by the average maximum offering
price.
The Fund also may quote annual total return and aggregate total return
performance data. Total return quotations for the specified periods will be
computed by finding the rate of return (based on net investment income and
any capital gains or losses on portfolio investments over such periods) that
would equate the initial amount invested to the redeemable value of such
investment at the end of the period.
The calculation of yield and total return does not reflect the imposition of
any Early Withdrawal Charges or the amount of any shareholder's tax liability.
Yield and total return figures are based on the Fund's historical performance
and are not intended to indicate future performance. The Fund's yield is
expected to fluctuate, and its total return will vary, depending on market
conditions, the Corporate Loans, Corporate Debt Securities and other
securities comprising the Fund's investments, the Fund's operating expenses
and the amount of net realized and unrealized capital gains or losses during
the period.
On occasion, the Fund may compare its yield to (1) LIBOR, quoted daily in THE
WALL STREET JOURNAL, (2) the Prime Rate, quoted daily in THE WALL STREET
JOURNAL as the base rate on corporate loans at large U.S. money center
commercial banks, (3) the CD rate, quoted daily in THE WALL STREET JOURNAL as
the average of top rates paid by major New York banks on primary new issues
of negotiable CDs, usually on amounts of $1 million and more, (4) one or more
averages compiled by Donoghue's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market mutual
funds, (5) the average yield reported by the Bank Rate Monitor National
Index(R) for money market deposit accounts offered by the 100 leading banks and
thrift institutions in the ten largest standard metropolitan statistical
areas, (6) yield data published by Lipper Analytical Services, Inc., or (7)
the yield on an investment in 90-day Treasury bills on a rolling basis,
assuming quarterly compounding. In addition, the Fund may compare the Prime
rate, the CD rate, the Donoghue's averages and the other yield data described
above to each other. As with yield quotations, yield comparisons should not
be considered indicative of the Fund's yield or relative performance for any
future period.
ADDITIONAL GENERAL INFORMATION
LEGAL MATTERS. Certain legal matters in connection with the Common Shares
offered hereby will be passed on for the Fund by Stradley, Ronon, Stevens &
Young, LLP.
FURTHER INFORMATION. Further information concerning the Common Shares and
the Fund may be found in the Registration Statement, filed electronically
with the SEC. [internet address?]
FINANCIAL STATEMENTS
The Fund will send unaudited semiannual and audited annual financial
statements of the Fund to shareholders, including a list of the portfolio of
investments held by the Fund. The following are the audited financial
statements for the initial capitalization of the Fund and the report of
Coopers & Lybrand L.L.P., independent auditors of the Fund, dated ,
1997. [To be supplied.]
FRANKLIN FLOATING RATE TRUST
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
Included in Parts A/B:
Report of Independent Auditors [to be supplied]
Statement of Assets and Liabilities [to be supplied]
(2) EXHIBITS:
(a) Agreement and Declaration of Trust [filed herewith]
(b) By-Laws [filed herewith]
(c) Not Applicable
(d) Not Applicable
(e) Dividend Reinvestment Plan [to be supplied, if applicable]
(f) Not Applicable
(g) (1) Form of Investment Management Contract [to be
supplied]
(2) Form of Administration Contract [to be supplied]
(h) (1) Form of Distribution Agreement [to be supplied]
(2) Form of Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Securities Dealers [to be
supplied]
(i) Not Applicable
(j) Form of Custodian Agreement [to be supplied]
(k) Not Applicable
(l) Opinion and Consent of Counsel [to be supplied]
(m) Not Applicable
(n) Consent of Independent Accountants [to be supplied]
(o) Not Applicable
(p) Letter of investment intent [to be supplied]
(q) Not Applicable
(r) Not Applicable
(s) Power of Attorney dated May 13, 1997
ITEM 25. MARKETING ARRANGEMENTS
None
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses to be incurred in
connection with the offering described in this Registration Statement:
Securities and Exchange Commission Fees.................$
National Association of
Securities Dealers, Inc. Fees...........................
Printing and Engraving Expenses..........................
Legal Fees...............................................
Accounting Expenses......................................
Blue Sky Filing Fees and Expenses........................
Miscellaneous Expenses...................................
Total...................................................$
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Until such time as the Registrant completes the public offering of its
Shares, Franklin Resources, Inc. will be a control person of the
Registrant.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD
SHAREHOLDERS AS OF
TITLE OF CLASS June 26, 1997
Shares of Common Stock,
par value $0.01 per share...... None
ITEM 29. INDEMNIFICATION
Under Article III, Section 7 of Registrant's Agreement and Declaration
of Trust, if any shareholder or former shareholder of Registrant (each, a
"Shareholder") shall be exposed to liability by reason of a claim or demand
relating to his or her being or having been a Shareholder, and not because of
his or her acts or omissions, the Shareholder or former Shareholder (or his
or her heirs, executors, administrators, or other legal representatives or in
the case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified out of
the assets of the Registrant against all loss and expense arising from such
claim or demand.
Under Article VII, Section 2 of Registrant's Agreement and Declaration
of Trust, the Trustees of Registrant (each, a "Trustee," and collectively,
the "Trustees") shall not be responsible or liable in any event for any
neglect or wrong-doing of any officer, agent, employee, the investment
manager or principal underwriter of the Registrant, nor shall any Trustee be
responsible for the act or omission of any other Trustee, and the Registrant
out of its assets shall indemnify and hold harmless each and every Trustee
from and against any and all claims and demands whatsoever arising out of or
related to each Trustee's performance of his or her duties as a Trustee of
the Registrant; provided that nothing contained in Registrant's Agreement and
Declaration of Trust shall indemnify, hold harmless or protect any Trustee
from or against any liability to the Registrant or any Shareholder to which
he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court or appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Franklin Advisers, Inc.
See "Who Manages the Fund?"
The officers and directors of the Registrant's manager also serve as officers
and/or directors for (1) the manager's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin Templeton Group
of Funds. In addition, Mr. Charles B. Johnson is a director of General Host
Corporation. For additional information please see Schedules A and D of Form
ADV of the Funds' Investment Manager (SEC File 801-26292) incorporated herein
by reference, which sets forth the officers and directors of the Investment
Manager and information as to any business, profession, vocation or
employment of a substantial nature engaged in by those officers and directors
during the past two years.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 are kept by the Registrant or its
shareholder services agent, Franklin/Templeton Investor Services, Inc., both
of whose address is 777 Mariners Island Blvd., San Mateo, CA 94404.
ITEM 32. MANAGEMENT SERVICES
Not Applicable
ITEM 33. UNDERTAKINGS
(1) Registrant undertakes to suspend the offering of its shares until
it amends its Prospectus if-
(a) subsequent to the effective date of this Registration
Statement, the net asset value per share declines more than
10% from its net asset value per share as of the effective
date of the Registration Statement; or
(b) The net asset value increases to an amount greater than its
net proceeds as stated in the Prospectus.
(2) Registrant undertakes:
(a) to file, during any period in which offers or sales are
being made, a post-effective amendment to the registration
statement:
(1) to include any prospectus required by Section
10(a)(3) of the 1933 Act;
(2) to reflect in the prospectus any facts or
events after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(3) to include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement.
b. that, for the purpose of determining any liability under
the 1933 Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of those
securities at that time shall be deemed to be the initial
bona fide offering thereof; and
c. to remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
3. Registrant further undertakes to send by first class mail or
other means designed to ensure equally prompt delivery, within
two business days of receipt of a written or oral request, any
Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of San Mateo, and the State of California, on the
26th day of June, 1997.
FRANKLIN FLOATING RATE TRUST
(Registrant)
BY /S/ RUPERT H. JOHNSON, JR., PRESIDENT
Rupert H. Johnson, Jr., President
Pursuant to the requirements of the Securities Act of 1933 this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated:
SIGNATURE TITLE DATE
CHARLES B. JOHNSON* Trustee & June 26, 1997
Charles B. Johnson Chairman of
the Board
FRANK H. ABBOTT, III* Trustee June 26, 1997
Frank H. Abbott, III
HARRIS J. ASHTON* Trustee June 26, 1997
Harris J. Ashton
RUPERT H. JOHNSON, JR.* Trustee June 26, 1997
Rupert H. Johnson, Jr. & President
MARTIN L. FLANAGAN* Principal Financial June 26, 1997
Martin L. Flanagan Officer
DIOMEDES LOO-TAM* Principal June 26, 1997
Diomedes Loo-Tam Accounting Officer
S. JOSEPH FORTUNATO* Trustee June 26, 1997
S. Joseph Fortunato
FRANK W. T. LAHAYE* Trustee June 26, 1997
Frank W. T. LaHaye
DAVID W. GARBELLANO* Trustee June 26, 1997
David W. Garbellano
GORDON S. MACKLIN* Trustee June 26, 1997
Gordon S. Macklin
*BY /s/Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
FRANKLIN FLOATING RATE TRUST
REGISTRATION STATEMENT
EXHIBIT INDEX
Exhibit No. Description Location
EX-99.2a Agreement and Declaration of Trust (filed herewith)
EX-99.2b By-Laws (filed herewith)
EX-99.2c Not Applicable
EX-99.2d Not Applicable
EX-99.2e Dividend Reinvestment Plan (to be supplied)
EX-99.2f Not Applicable
EX-99.2g(1) Form of Investment Management Contract (to be supplied)
EX-99.2g(2) Form of Administration Contract (to be supplied)
EX-99.2h(1) Form of Distribution Agreement (to be supplied)
EX-99.2h(2) Form of Dealer Agreement between (to be supplied)
Franklin/Templeton Distributors, Inc.
and Securities Dealers
EX-99.2i Not Applicable
EX-99.2j Form of Custodian Agreement (to be supplied)
EX-99.2k Not Applicable
EX-99.2l Opinion and Consent of Counsel (to be supplied)
EX-99.2m Not Applicable
EX-99.2n Consent of Independent Auditors (to be supplied)
EX-99.2o Not Applicable
EX-99.2p Letter of investment intent (to be supplied)
EX-99.2q Not Applicable
EX-99.2r Not Applicable
EX-99.2s Power of Attorney dated May 13, 1997 (filed herewith)
Effective as of
, 1997
AGREEMENT AND DECLARATION OF TRUST
of
FRANKLIN FLOATING RATE TRUST
a Delaware Business Trust
Principal Place of Business:
777 Mariners Island Boulevard
San Mateo, California 94403-7777
TABLE OF CONTENTS
Page
ARTICLE I....................................................................1
Name and Definitions...................................................1
Section 1. Name.................................................1
Section 2. Definitions..........................................1
(a) Trust...........................................1
(b) Trust Property..................................1
(c) Trustees........................................1
(d) Shares..........................................2
(e) Shareholder.....................................2
(f) Person..........................................2
(g) 1940 Act........................................2
(h) Commission and Principal
Underwriter....................................2
(i) Declaration of Trust............................2
(j) By-Laws.........................................2
(k) Interested Person...............................2
(1) Investment Manager..............................2
(m) Series..........................................2
ARTICLE II...................................................................3
Purpose of Trust.......................................................3
ARTICLE III..................................................................3
Shares.................................................................3
Section 1. Division of Beneficial Interest......................3
Section 2. Ownership of Shares..................................4
Section 3. Investments in the Trust.............................4
Section 4. Status of Shares and Limitation of
Personal Liability.................................4
Section 5. Power of Board of Trustees to Change
Provisions Relating to Shares......................5
Section 6. Establishment and Designation of
Shares.............................................5
(a) Assets Held with Respect to a Particular Series......5
(b) Liabilities Held with Respect to a Particular Series.6
(c) Dividends, Distributions, Redemptions, and Repurchases
7
(d) Voting...............................................7
(e) Equality.............................................7
(f) Fractions............................................7
(g) Exchange Privilege...................................8
(h) Combination of Series................................8
(i) Elimination of Series................................8
Section 7. Indemnification of Shareholders......................8
ARTICLE IV...................................................................8
The Board of Trustees..................................................8
Section 1. Number, Election and Tenure..........................8
Section 2. Effect of Death, Resignation, etc. of
a Trustee..........................................9
Section 3. Powers...............................................9
Section 4. Payment of Expenses by the Trust....................13
Section 5. Payment of Expenses by Shareholders.................13
Section 6. Ownership of Assets of the Trust....................14
Section 7. Service Contracts...................................14
ARTICLE V...................................................................16
Shareholders' Voting Powers and Meetings..............................16
Section 1. Voting Powers.......................................16
Section 2. Meetings............................................16
Section 3. Quorum and Required Vote............................16
Section 4. Action by Written Consent...........................17
Section 5. Record Dates........................................17
Section 6. Additional Provisions...............................17
ARTICLE VI..................................................................18
Net Asset Value, Distributions, and Redemptions.......................18
......Section 1. Determination of Net Asset Value, Net
Income, and Distributions.........................18
ARTICLE VII.................................................................18
Compensation and Limitation of Liability of Trustees..................18
Section 1. Compensation........................................18
Section 2. Indemnification and Limitation of
Liability.........................................18
Section 3. Trustee's Good Faith Action, Expert
Advice, No Bond or Surety.........................19
Section 4. Insurance...........................................19
ARTICLE VIII................................................................19
Miscellaneous.........................................................19
......Section 1. Liability of Third Persons Dealing
with Trustees.....................................19
Section 2. Termination of Trust or Series......................19
Section 3. Merger and Consolidation............................20
Section 4. Amendments..........................................20
Section 5. Filing of Copies, References, Headings..............21
Section 6. Applicable Law......................................21
Section 7. Provisions in Conflict with Law or
Regulations.......................................21
Section 8. Business Trust Only.................................22
Section 9. Use of the name "Franklin"..........................22
ARTICLE IX..................................................................22
Certain Transactions..................................................22
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN FLOATING RATE TRUST
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is made and
entered into as of the date set forth below by the Trustees named hereunder
for the purpose of forming a Delaware business trust in accordance with the
provisions hereinafter set forth,
NOW, THEREFORE, the Trustees hereby direct that a Certificate of
Trust be filed with the office of the Secretary of State of the State of
Delaware and do hereby declare that the Trustees will hold IN TRUST all cash,
securities and other assets which the Trust now possesses or may hereafter
acquire from time to time in any manner and manage and dispose of the same
upon the following terms and conditions for the PRO RATA benefit of the
holders of Shares in this Trust.
ARTICLE I.
Name and Definitions
SECTION 1. NAME. This trust shall be known as "Franklin
Floating Rate Trust" and the Trustees shall conduct the business of the Trust
under that name or any other name as they may from time to time determine.
SECTION 2. DEFINITIONS. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust
established by this Agreement and Declaration of Trust, as amended from time
to time;
(b) The "Trust Property" means any and all property,
real or personal, tangible or intangible, which is owned or held by or for
the account of the Trust, including without limitation the rights referenced
in Article VIII, Section 9 hereof;
(c) "Trustees" refers to the persons who have signed
this Agreement and Declaration of Trust, so long as they continue in office
in accordance with the terms hereof, and all other persons who may from time
to time be duly elected or appointed to serve on the Board of Trustees in
accordance with the provisions hereof, and reference herein to a Trustee or
the Trustees shall refer to such person or persons in their capacity as
trustees hereunder;
(d) "Shares" means the shares of beneficial interest
into which the beneficial interest in the Trust shall be divided from time to
time and includes fractions of Shares as well as whole Shares;
(e) "Shareholder" means a record owner of outstanding
Shares;
(f) "Person" means and includes individuals,
corporations, partnerships, trusts, associations, joint ventures, estates and
other entities, whether or not legal entities, and governments and agencies
and political subdivisions thereof, whether domestic or foreign;
(g) The 1940 Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder, all as amended from time to
time;
(h) The terms "Commission" and "Principal Underwriter"
shall have the respective meanings given them in Section 2(a)(7) and Section
(2)(a)(29) of the 1940 Act;
(i) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time;
(j) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time and incorporated herein by reference;
(k) The term "Interested Person" has the meaning given
it in Section 2(a)(19) of the 1940 Act;
(l) "Investment Manager" or "Manager" means a party
furnishing services to the Trust pursuant to any contract described in
Article IV, Section 7(a) hereof;
(m) "Series" refers to each Series of Shares established
and designated under or in accordance with the provisions of Article III and
shall mean an entity such as that described in Section 18(f)(2) of the 1940
Act, and subject to Rule 18f-2 thereunder.
ARTICLE II.
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the
business of a management investment company registered under the 1940 Act
through one or more Series investing primarily in securities.
ARTICLE III.
Shares
SECTION 1. DIVISION OF BENEFICIAL INTEREST. The beneficial
interest in the Trust shall at all times be divided into an unlimited number
of Shares, with a par value of $ .01 per Share. The Trustees may authorize
the division of Shares into separate Series and the division of Series into
separate classes of Shares. The different Series shall be established and
designated, and the variations in the relative rights and preferences as
between the different Series shall be fixed and determined, by the Trustees.
If only one or no Series (or classes) shall be established, the Shares shall
have the rights and preferences provided for herein and in Article III,
Section 6, hereof to the extent relevant and not otherwise provided for
herein, and all references to Series (and classes) shall be construed (as the
context may require) to refer to the Trust.
Subject to the provisions of Section 6 of this Article III, each
Share shall have voting rights as provided in Article V hereof, and holders
of the Shares of any Series shall be entitled to receive dividends, when, if
and as declared with respect thereto in the manner provided in Article VI,
Section 1 hereof. No Shares shall have any priority or preference over any
other Share of the same Series with respect to dividends or distributions
upon termination of the Trust or of such Series made pursuant to Article
VIII, Section 2 hereof. All dividends and distributions shall be made
ratably among all Shareholders of a particular (class of a) Series from the
assets held with respect to such Series according to the number of Shares of
such (class of such) Series held of record by such Shareholder on the record
date for any dividend or distribution or on the date of termination, as the
case may be. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust or
any Series. The Trustees may from time to time divide or combine the Shares
of any particular Series into a greater or lesser number of Shares of that
Series without thereby materially changing the proportionate beneficial
interest of the Shares of that Series in the assets held with respect to that
Series or materially affecting the rights of Shares of any other Series.
SECTION 2. OWNERSHIP OF SHARES. The ownership of Shares shall
be recorded on the books of the Trust or a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each
Series (or class). No certificates certifying the ownership of Shares shall
be issued except as the Board of Trustees may otherwise determine from time
to time. The Trustees may make such rules as they consider appropriate for
the transfer of Shares of each Series (or class) and similar matters. The
record books of the Trust as kept by the Trust or any transfer or similar
agent, as the case may be, shall be conclusive as to who are the Shareholders
of each Series (or class) and as to the number of Shares of each Series (or
class) held from time to time by each.
SECTION 3. INVESTMENTS IN THE TRUST. Investments may be
accepted by the Trust from such Persons, at such times, on such terms, and
for such consideration as the Trustees from time to time may authorize. Each
investment shall be credited to the individual Shareholder's account in the
form of full and fractional Shares of the Trust, of such Series (or class) as
the purchaser shall select, at the net asset value per Share next determined
for such Series (or class) after receipt of the investment; provided,
however, that the Trustees may, in their sole discretion, impose a sales
charge upon investments in the Trust.
SECTION 4. STATUS OF SHARES AND LIMITATION OF PERSONAL
LIABILITY. Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to
the terms hereof and to have become a party hereto. The death of a
Shareholder during the existence of the Trust shall not operate to terminate
the Trust, nor entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere against the Trust or
the Trustees, but entitles such representative only to the rights of said
deceased Shareholder under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
Property or right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the Shareholders as
partners. Neither the Trust nor the Trustees, nor any officer, employee or
agent of the Trust shall have any power to bind personally any Shareholders,
nor, except as specifically provided herein, to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other than such as
the Shareholder may at any time personally agree to pay.
SECTION 5. POWER OF BOARD OF TRUSTEES TO CHANGE PROVISIONS
RELATING TO SHARES. Notwithstanding any other provisions of this Declaration
of Trust and without limiting the power of the Board of Trustees to amend the
Declaration of Trust as provided elsewhere herein, the Board of Trustees
shall have the power to amend this Declaration of Trust, at any time and from
time to time, in such manner as the Board of Trustees may determine in their
sole discretion, without the need for Shareholder action, so as to add to,
delete, replace or otherwise modify any provisions relating to the Shares
contained in this Declaration of Trust, provided that before adopting any
such amendment without Shareholder approval the Board of Trustees shall
determine that it is consistent with the fair and equitable treatment of all
Shareholders or that Shareholder approval is not otherwise required by the
1940 Act or other applicable law. If Shares have been issued, Shareholder
approval shall be required to adopt any amendments to this Declaration of
Trust which would adversely affect to a material degree the rights and
preferences of the Shares of any Series (or class) or to increase or decrease
the par value of the Shares of any Series (or class).
Subject to the foregoing Paragraph, the Board of Trustees may
amend the Declaration of Trust to amend any of the provisions set forth in
paragraphs (a) through (i) of Section 6 of this Article III.
SECTION 6. ESTABLISHMENT AND DESIGNATION OF SHARES. The
establishment and designation of any Series (or class) of Shares shall be
effective upon the resolution by a majority of the then Trustees, adopting a
resolution which sets forth such establishment and designation and the
relative rights and preferences of such Series (or class). Each such
resolution shall be incorporated herein by reference upon adoption.
Shares of each Series (or class) established pursuant to this
Section 6, unless otherwise provided in the resolution establishing such
Series, shall have the following relative rights and preferences:
(a) ASSETS HELD WITH RESPECT TO A PARTICULAR SERIES. All
consideration received by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof
from whatever source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds in whatever form
the same may be, shall irrevocably be held with respect to that Series for
all purposes, subject only to the rights of creditors, and shall be so
recorded upon the books of account of the Trust. Such consideration, assets,
income, earnings, profits and proceeds thereof, from whatever source derived,
including, without limitation, any proceeds derived from the sale, exchange
or liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be, are herein
referred to as "assets held with respect to" that Series. In the event that
there are any assets, income, earnings, profits and proceeds thereof, funds
or payments which are not readily identifiable as assets held with respect to
any particular Series (collectively "General Assets"), the Trustees shall
allocate such General Assets to, between or among any one or more of the
Series in such manner and on such basis as the Trustees, in their sole
discretion, deem fair and equitable, and any General Asset so allocated to a
particular Series shall be held with respect to that Series. Each such
allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
(b). LIABILITIES HELD WITH RESPECT TO A PARTICULAR
SERIES. The assets of the Trust held with respect to each particular Series
shall be charged against the liabilities of the Trust held with respect to
that Series and all expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as being held with respect to any particular Series shall be
allocated and charged by the Trustees to and among any one or more of the
Series in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. The liabilities, expenses, costs,
charges, and reserves so charged to a Series are herein referred to as
"liabilities held with respect to" that Series. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all Series for all purposes. All
Persons who have extended credit which has been allocated to a particular
Series, or who have a claim or contract which has been allocated to any
particular Series, shall look, and shall be required by contract to look
exclusively, to the assets of that particular Series for payment of such
credit, claim, or contract. In the absence of an express contractual
agreement so limiting the claims of such creditors, claimants and contract
providers, each creditor, claimant and contract provider will be deemed
nevertheless to have impliedly agreed to such limitation unless an express
provision to the contrary has been incorporated in the written contract or
other document establishing the claimant relationship.
(c). DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS, AND
REPURCHASES. Notwithstanding any other provisions of this Declaration of
Trust, including, without limitation, Article VI, no dividend or distribution
including, without limitation, any distribution paid upon termination of the
Trust or of any Series (or class) with respect to, nor any redemption or
repurchase of, the Shares of any Series (or class) shall be effected by the
Trust other than from the assets held with respect to such Series, nor,
except as specifically provided in Section 7 of this Article III, shall any
Shareholder of any particular Series otherwise have any right or claim
against the assets held with respect to any other Series except to the extent
that such Shareholder has such a right or claim hereunder as a Shareholder of
such other Series. The Trustees shall have full discretion, to the extent
not inconsistent with the 1940 Act, to determine which items shall be treated
as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
(d). VOTING. All Shares of the Trust entitled to
vote on a matter shall vote separately by Series (and, if applicable, by
class): that is, the Shareholders of each Series (or class) shall have the
right to approve or disapprove matters affecting the Trust and each
respective series (or class) as if the Series (or classes) were separate
companies. There are, however, two exceptions to voting by separate Series
(or classes). First, if the 1940 Act or the Declaration of Trust requires
all Shares of the Trust to be voted in the aggregate without differentiation
between the separate Series (or classes), then all the Trust's Shares shall
be entitled to vote on a one-vote-per-Share basis. Second, if any matter
affects only the interests of some but not all Series (or classes), then only
the Shareholders of such affected Series (or classes) shall be entitled to
vote on the matter.
(e). EQUALITY. All the Shares of each particular
Series shall represent an equal proportionate undivided interest in the
assets held with respect to that Series (subject to the liabilities held with
respect to that Series and such rights and preferences as may have been
established and designated with respect to classes of Shares within such
Series), and each Share of any particular Series shall be equal to each other
Share of that Series.
(f). FRACTIONS. Any fractional Share of a Series
shall carry proportionately all the rights and obligations of a whole share
of that Series, including rights with respect to voting, receipt of dividends
and distributions, redemption of Shares and termination of the Trust.
(g). EXCHANGE PRIVILEGE. The Trustees shall have
the authority to provide that the holders of Shares of any Series shall have
the right to exchange said Shares for Shares of one or more other Series of
Shares in accordance with such requirements and procedures as may be
established by the Trustees.
(h). COMBINATION OF SERIES. The Trustees shall have
the authority, without the approval of the Shareholders of any Series unless
otherwise required by applicable law, to combine the assets and liabilities
held with respect to any two or more series into assets and liabilities held
with respect to a single series.
(i). ELIMINATION OF SERIES. At any time that there
are no Shares outstanding of any particular Series (or class) previously
established and designated, the Trustees may by resolution of a majority of
the then Trustees abolish that Series (or class) and rescind the
establishment and designation thereof.
SECTION 7. INDEMNIFICATION OF SHAREHOLDERS. If any
Shareholder or former Shareholder shall be exposed to liability by reason of
a claim or demand relating to his or her being or having been a Shareholder,
and not because of his or her acts or omissions, the Shareholder or former
Shareholder (or his or her heirs, executors, administrators, or other legal
representatives or in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled to be held harmless
from and indemnified out of the assets of the Trust against all loss and
expense arising from such claim or demand.
ARTICLE IV.
The Board of Trustees
SECTION 1. NUMBER, ELECTION AND TENURE. The number of Trustees
constituting the Board of Trustees shall be fixed from time to time by a
written instrument signed, or by resolution approved at a duly constituted
meeting, by a majority of the Board of Trustees, provided, however, that the
number of Trustees shall in no event be less than one (1) nor more than
fifteen (15). The Board of Trustees, by action of a majority of the then
Trustees at a duly constituted meeting, may fill vacancies in the Board of
Trustees or remove Trustees with or without cause. Each Trustee shall serve
during the continued lifetime of the Trust until he or she dies, resigns, is
declared bankrupt or incompetent by a court of appropriate jurisdiction, or
is removed, or, if sooner, until the next meeting of Shareholders called for
the purpose of electing Trustees and until the election and qualification of
his or her successor. Any Trustee may resign at any time by written
instrument signed by him and delivered to any officer of the Trust or to a
meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee
resigning and no Trustee removed shall have any right to any compensation for
any period following his or her resignation or removal, or any right to
damages on account of such removal. The Shareholders may fix the number of
Trustees and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose. Any Trustee may be removed at any meeting of
Shareholders by a vote of two-thirds of the outstanding Shares of the Trust.
A meeting of Shareholders for the purpose of electing or removing one or more
Trustees may be called (i) by the Trustees upon their own vote or (ii) upon
the demand of Shareholders owning 10% or more of the Shares of the Trust in
the aggregate.
SECTION 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A
Trustee. The death, declination, resignation, retirement, removal, or
incapacity of one or more Trustees, or all of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust. Whenever a vacancy in the Board of
Trustees shall occur, until such vacancy is filled as provided in Article IV,
Section 1, the Trustees in office, regardless of their number, shall have all
the powers granted to the Trustees and shall discharge all the duties imposed
upon the Trustees by this Declaration of Trust. As conclusive evidence of
such vacancy, a written instrument certifying the existence of such vacancy
may be executed by an officer of the Trust or by a majority of the Board of
Trustees. In the event of the death, declination, resignation, retirement,
removal, or incapacity of all the then Trustees within a short period of time
and without the opportunity for at least one Trustee being able to appoint
additional Trustees to fill vacancies, the Trust's Investment Manager(s) are
empowered to appoint new Trustees subject to the provisions of Section 16(a)
of the 1940 Act.
SECTION 3. POWERS. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the Board
of Trustees, and such Board shall have all powers necessary or convenient to
carry out that responsibility including the power to engage in securities
transactions of all kinds on behalf of the Trust. Trustees in all instances
shall act as principals, and are and shall be free from the control of the
Shareholders. The Trustees shall have full power and authority to do any and
all acts and to make and execute any and all contracts and instruments that
they may consider necessary or appropriate in connection with the
administration of the Trust. Without limiting the foregoing, the Trustees
may: adopt By-Laws not inconsistent with this Declaration of Trust providing
for the regulation and management of the affairs of the Trust and may amend
and repeal them to the extent that such By-Laws do not reserve that right to
the Shareholders; fill vacancies in or remove from their number, and may
elect and remove such officers and appoint and terminate such agents as they
consider appropriate; appoint from their own number and establish and
terminate one or more committees consisting of two or more Trustees which may
exercise the powers and authority of the Board of Trustees to the extent that
the Trustees determine; employ one or more custodians of the assets of the
Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities or with a Federal Reserve Bank, retain a transfer
agent or a shareholder servicing agent, or both; provide for the issuance and
distribution of Shares by the Trust directly or through one or more Principal
Underwriters or otherwise; redeem, repurchase and transfer Shares pursuant to
applicable law; set record dates for the determination of Shareholders with
respect to various matters; declare and pay dividends and distributions to
Shareholders of each Series from the assets of such Series; establish from
time to time, in accordance with the provisions of Article III, Section 6
hereof, any Series (or class) of Shares, each such Series (or class) to
operate as a separate and distinct investment medium and with separately
defined investment objectives and policies and distinct investment purpose;
and in general delegate such authority as they consider desirable to any
officer of the Trust, to any committee of the Trustees and to any agent or
employee of the Trust or to any such custodian, transfer or shareholder
servicing agent, or Principal Underwriter. Any determination as to what is
in the interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. Unless
otherwise specified or required by law, any action by the Board of Trustees
shall be deemed effective if approved or taken by a majority of the Trustees
then in office. Any action required or permitted to be taken at any meeting
of the Board of Trustees, or any committee thereof, may be taken without a
meeting if all members of the Board of Trustees or committee (as the case may
be) consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of the Board of Trustees, or committee.
Without limiting the foregoing, the Trust shall have power and
authority:
(a). To invest and reinvest cash, to hold cash uninvested, and
to subscribe for, invest in, reinvest in, purchase or otherwise acquire, own,
hold, pledge, sell, assign, transfer, exchange, distribute, write options on,
lend or otherwise deal in or dispose of contracts for the future acquisition
or delivery of fixed income or other securities, and securities of every
nature and kind, including, without limitation, all types of bonds,
debentures, stocks, preferred stocks, negotiable or non-negotiable
instruments, obligations, evidences of indebtedness, certificates of deposit
or indebtedness, commercial paper, repurchase agreements, bankers'
acceptances, and other securities of any kind, issued, created guaranteed, or
sponsored by any and all Persons, including, without limitation, states,
territories, and possessions of the United States and the District of
Columbia and any political subdivision, agency, or instrumentality thereof,
any foreign government or any political subdivision of the U.S. Government or
any foreign government, or any international instrumentality, or by any bank
or savings institution, or by any corporation or organization organized under
the laws of the United States or of any state, territory, or possession
thereof, or by any corporation or organization organized under any foreign
law, or in "when issued" contracts for any such securities, to change the
investments of the assets of the Trust; and to exercise any and all rights,
powers, and privileges of ownership or interest in respect of any and all
such investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto, with
power to designate one or more Persons, to exercise any of said rights,
powers, and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage,
hypothecate, lease, or write options with respect to or otherwise deal in any
property rights relating to any or all of the assets of the Trust or any
Series, subject to any requirements of the 1940 Act;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and to
execute and deliver proxies or powers of attorney to such person or persons
as the Trustees shall deem proper, granting to such person or persons such
power and discretion with relation to securities or property as the Trustees
shall deem proper;
(d) To exercise powers and right of subscription or
otherwise which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not
indicating that it is trust property, whether in bearer, unregistered or
other negotiable form, or in its own name or in the name of a custodian or
subcustodian or a nominee or nominees or otherwise or to authorize the
custodian or a subcustodian or a nominee or nominees to deposit the same in a
securities depository, subject in each case to proper safeguards according to
the usual practice of investment companies or any rules or regulations
applicable thereto;
(f) To consent to, or participate in, any plan for the
reorganization, consolidation or merger of any corporation or issuer of any
security which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer; and to
pay calls or subscriptions with respect to any security held in the Trust;
(g) To join with other security holders in acting through
a committee, depositary, voting trustee or otherwise, and in that connection
to deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims
in favor of or against the Trust or any matter in controversy, including but
not limited to claims for taxes;
(i) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) To borrow funds or other property in the name of the
Trust exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or
other obligations of any Person; to make contracts of guaranty or suretyship,
or otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust
Property such insurance as the Trustees may deem necessary or appropriate for
the conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust or payment of distributions and
principal on its portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment advisers,
principal underwriters, or independent contractors of the Trust, individually
against all claims and liabilities of every nature arising by reason of
holding Shares, holding, being or having held any such office or position, or
by reason of any action alleged to have been taken or omitted by any such
Person as Trustee, officer, employee, agent, investment adviser, principal
underwriter, or independent contractor, including any action taken or omitted
that may be determined to constitute negligence, whether or not the Trust
would have the power to indemnify such Person against liability; and
(m) To adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
The Trust shall not be limited to investing in obligations
maturing before the possible termination of the Trust or one or more of its
Series. The Trust shall not in any way be bound or limited by any present or
future law or custom in regard to investment by fiduciaries. The Trust shall
not be required to obtain any court order to deal with any assets of the
Trust or take any other action hereunder.
SECTION 4. PAYMENT OF EXPENSES BY THE TRUST. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust or Series (or class), or partly out of the principal and partly out of
income, and to charge or allocate the same to, between or among such one or
more of the Series (or class) that may be established or designated pursuant
to Article III, Section 6, as they deem fair, all expenses, fees, charges,
taxes and liabilities incurred or arising in connection with the Trust or
Series (or class), or in connection with the management thereof, including,
but not limited to, the Trustees' compensation and such expenses and charges
for the services of the Trust's officers, employees, investment adviser or
manager, principal underwriter, auditors, counsel, custodian, transfer agent,
Shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or
proper to incur.
SECTION 5. PAYMENT OF EXPENSES BY SHAREHOLDERS. The
Trustees shall have the power, as frequently as they may determine, to cause
each Shareholder, or each Shareholder of any particular Series, to pay
directly, in advance or arrears, for charges of the Trust's custodian or
transfer, Shareholder servicing or similar agent, an amount fixed from time
to time by the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends owed such Shareholder and/or
by reducing the number of Shares in the account of such Shareholder by that
number of full and/or fractional Shares which represents the outstanding
amount of such charges due from such Shareholder.
SECTION 6. OWNERSHIP OF ASSETS OF THE TRUST. Title to all
of the assets of the Trust shall at all times be considered as vested in the
Trust, except that the Trustees shall have power to cause legal title to any
Trust Property to be held by or in the name of one or more of the Trustees,
or in the name of the Trust, or in the name of any other Person as nominee,
on such terms as the Trustees may determine. The right, title and interest
of the Trustees in the Trust Property shall vest automatically in each Person
who may hereafter become a Trustee. Upon the resignation, removal or death of
a Trustee he or she shall automatically cease to have any right, title or
interest in any of the Trust Property, and the right, title and interest of
such Trustee in the Trust Property shall vest automatically in the remaining
Trustees. Such vesting and cessation of title shall be effective whether or
not conveyancing documents have been executed and delivered.
SECTION 7. SERVICE CONTRACTS.
(a) Subject to such requirements and restrictions as nay
be set forth in the By-Laws, the Trustees may, at any time and from time to
time, contract for exclusive or nonexclusive advisory, management and/or
administrative services for the Trust or for any Series with any corporation,
trust, association or other organization; and any such contract may contain
such other terms as the Trustees may determine, including without limitation,
authority for the Investment Manager or administrator to determine from time
to time without prior consultation with the Trustees what investments shall
be purchased, held, sold or exchanged and what portion, if any, of the assets
of the Trust shall be held uninvested and to make changes in the Trust's
investments, or such other activities as may specifically be delegated to
such party.
(b) The Trustees may also, at any time and from time to
time, contract with any corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or
Principal Underwriter for the Shares of one or more of the Series (or
classes) or other securities to be issued by the Trust. Every such contract
shall comply with such requirements and restrictions as may be set forth in
the By-Laws; and any such contract may contain such other terms as the
Trustees may determine.
(c) The Trustees are also empowered, at any time and from
time to time, to contract with any corporations, trusts, associations or
other organizations, appointing it or them the custodian, transfer agent
and/or shareholder servicing agent for the Trust or one or more of its
Series. Every such contract shall comply with such requirements and
restrictions as may be set forth in the By-Laws or stipulated by resolution
of the Trustees.
(d) The Trustees are further empowered, at any tine and
from time to time, to contract with any entity to provide such other services
to the Trust or one or more of the Series, as the Trustees determine to be in
the best interests of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers
of the Trust is a shareholder, director, officer, partner,
trustee, employee, Manager, adviser, Principal Underwriter,
distributor, or affiliate or agent of or for any corporation,
trust, association, or other organization, or for any parent or
affiliate of any organization with which an advisory, management
or administration contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or
other type of service contract may have been or may hereafter be
made, or that any such organization, or any parent or affiliate
thereof, is a Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory, management or administration
contract or principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other type of service contract
may have been or may hereafter be made also has an advisory,
management or administration contract, or principal underwriter's
or distributor's contract, or transfer, shareholder servicing or
other service contract with one or more other corporations,
trust, associations, or other organizations, or has other
business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing
the same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to the
requirements of the 1940 Act.
ARTICLE V.
Shareholders' Voting Powers and Meetings
SECTION 1. VOTING POWERS. Subject to the provisions of Article
III, Section 6(d), the Shareholders shall have power to vote only (i) for the
election or removal of Trustees as provided in Article IV, Section 1, and
(ii) with respect to such additional matters relating to the Trust as may be
required by this Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and
each fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. Shares may
be voted in person or by proxy. A proxy with respect to Shares held in the
name of two or more persons shall be valid if executed by any one of them
unless at or prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy purporting to
be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger.
SECTION 2. MEETINGS. Meetings of the Shareholders may be
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1, and for such other purposes as may be prescribed by
law, by this Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to tine for the
purpose of taking action upon any other matter deemed by the Trustees to be
necessary or desirable. A meeting of Shareholders may be held at any place
designated by the Trustees. Written notice of any meeting of Shareholders
shall be given or caused to be given by the Trustees in accordance with the
By-Laws.
SECTION 3. QUORUM AND REQUIRED VOTE. Except when a larger
quorum is required by applicable law, by the By-Laws or by this Declaration
of Trust, forty percent (40%) of the Shares entitled to vote shall constitute
a quorum at a Shareholders' meeting. When any one or more Series (or
classes) is to vote as a single class separate from any other Shares, forty
percent (40%) of the Shares of each such Series (or classes) entitled to vote
shall constitute a quorum at a Shareholder's meeting of that Series. Any
meeting of Shareholders may be adjourned from time to time by a majority of
the votes properly cast upon the question of adjourning a meeting to another
date and time, whether or not a quorum is present, and the meeting may be
held as adjourned as provided in the By-Laws. Subject to the provisions of
Article III, Section 6(d), when a quorum is present at any meeting, a
majority of the Shares voted shall decide any questions and a plurality shall
elect a Trustee, except when a larger vote is required by any provision of
this Declaration of Trust or the By-Laws or by applicable law.
SECTION 4. ACTION BY WRITTEN CONSENT. Any action taken by
Shareholders may be taken without a meeting if Shareholders holding a
majority of the Shares entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of this
Declaration of Trust or by the By-Laws) and holding a majority (or such
larger proportion as aforesaid) of the Shares of any Series (or class)
entitled to vote separately on the matter consent to the action in writing
and such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken
at a meeting of Shareholders.
SECTION 5. RECORD DATES. For the purpose of determining
the Shareholders of any Series (or class) who are entitled to vote or act at
any meeting or any adjournment thereof or to give consent to any action
without a meeting, the Trustees may from time to time fix a date, which shall
be not more than ninety (90) days nor less than seven (7) days before the
date of any meeting of Shareholders, as the record date for determining the
Shareholders of such Series (or class) having the right to notice of and to
vote at such meeting and any adjournment thereof, and in such case only
Shareholders of record on such record date shall have such right,
notwithstanding any transfer of Shares on the books of the Trust after the
record date. For the purpose of determining the Shareholders of any Series
(or class) who are entitled to receive payment of any dividend or of any
other distribution, the Trustees may from time to time fix a date, which
shall be before the date for the payment of such dividend or such other
payment, as the record date for determining the Shareholders of such Series
(or class) having the right to receive such dividend or distribution.
Without fixing a record date the Trustees may for voting and/or distribution
purposes close the register or transfer books for one or more Series for all
or any part of the period between a record date and a meeting of Shareholders
or the payment of a distribution. Nothing in this Section shall be construed
as precluding the Trustees from setting different record dates for different
Series (or classes).
SECTION 6. ADDITIONAL PROVISIONS. The By-Laws may include
further provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI.
Net Asset Value, Distributions, and Redemptions
SECTION 1. DETERMINATION OF NET ASSET VALUE, NET INCOME, AND
DISTRIBUTIONS. Subject to Article III, Section 6 hereof, the Trustees, in
their absolute discretion, may prescribe and shall set forth in the By-Laws
or in a duly adopted vote of the Trustees such bases and time for determining
the per Share or net asset value of the Shares of any Series or net income
attributable to the Shares of any Series, or the declaration and payment of
dividends and distributions on the Shares of any Series, as they may deem
necessary or desirable.
ARTICLE VII.
Compensation and Limitation of Liability of Trustees
SECTION 1. COMPENSATION. The Trustees as such shall be entitled
to reasonable compensation from the Trust, and they may fix the amount of
such compensation. Nothing herein shall in any way prevent the employment of
any Trustee for advisory, management, legal, accounting, investment banking
or other services and payment for the same by the Trust.
SECTION 2. INDEMNIFICATION AND LIMITATION OF LIABILITY.
The Trustees shall not be responsible or liable in any event for any neglect
or wrong-doing of any officer, agent, employee, Manager or Principal
Underwriter of the Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee, and the Trust out of its assets shall
indemnify and hold harmless each and every Trustee from and against any and
all claims and demands whatsoever arising out of or related to each Trustee's
performance of his or her duties as a Trustee of the Trust; provided that
nothing herein contained shall indemnify, hold harmless or protect any
Trustee from or against any liability to the Trust or any Shareholder to
which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his or her office.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever issued, executed or done
by or on behalf of the Trust or the Trustees or any of them in connection
with the Trust shall be conclusively deemed to have been issued, executed or
done only in or with respect to their or his or her capacity as Trustees or
Trustee, and such Trustees or Trustee shall not be personally liable thereon.
SECTION 3. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND
OR SURETY. The exercise by the Trustees of their powers and discretion
hereunder shall be binding upon everyone interested. A Trustee shall be
liable to the Trust and to any Shareholder solely for his or her own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees may take advice
of counsel or other experts with respect to the meaning and operation of this
Declaration of Trust, and shall be under no liability for any act or omission
in accordance with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any surety if a
bond is required.
SECTION 4..INSURANCE. The Trustees shall be entitled and
empowered to the fullest extent permitted by law to purchase with Trust
assets insurance for liability and for all expenses reasonably incurred or
paid or expected to be paid by a Trustee in connection with any claim,
action, suit or proceeding in which he or she becomes involved by virtue of
his or her capacity or former capacity with the Trust, whether or not the
Trust would have the power to indemnify him or her against such liability
under the provisions of this Article.
ARTICLE VIII.
Miscellaneous
SECTION 1. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No
Person dealing with the Trustees shall be bound to make any inquiry
concerning the validity of any transaction made or to be made by the Trustees
or to see to the application of any payments made or property transferred to
the Trust or upon its order.
SECTION 2. TERMINATION OF TRUST OR SERIES. Unless
terminated as provided herein, the Trust shall continue without limitation of
time. The Trust may be terminated at any time by vote of a majority of the
Shares of each Series entitled to vote, voting separately by Series, or by
the Trustees by written notice to the Shareholders. Any Series may be
terminated at any time by vote of a majority of the Shares of that Series or
by the Trustees by written notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may
be), after paying or otherwise providing for all charges, taxes, expenses and
liabilities held, severally, with respect to each Series (or the applicable
Series, as the case may be), whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall, in accordance with such
procedures as the Trustees consider appropriate, reduce the remaining assets
held, severally, with respect to each Series (or the applicable Series, as
the case may be), to distributable form in cash or shares or other
securities, or any combination thereof, and distribute the proceeds held with
respect to each Series (or the applicable Series, as the case nay be), to the
Shareholders of that Series, as a Series, ratably according to the number of
Shares of that Series held by the several Shareholders on the date of
termination.
SECTION 3. MERGER AND CONSOLIDATION. The Trustees may cause (i)
the Trust or one or more of its Series to the extent consistent with
applicable law to be merged into or consolidated with another business trust
or any other business entity, (ii) the Shares of the Trust or any Series to
be converted into beneficial interests in another business trust (or series
thereof) created pursuant to this Section 3 of Article VIII, or (iii) the
Shares to be exchanged under or pursuant to any state or federal statute to
the extent permitted by law. Such merger or consolidation, Share conversion
or Share exchange must be authorized by vote of a majority of the outstanding
Shares of the Trust, as a whole, or any affected Series, as may be
applicable; provided that in all respects not governed by statute or
applicable law, the Trustees shall have power to prescribe the procedure
necessary or appropriate to accomplish a sale of assets, merger or
consolidation including the power to create one or more separate business
trusts to which all or any part of the assets, liabilities, profits or losses
of the Trust may be transferred and to provide for the conversion of Shares
of the Trust or any Series into beneficial interests in such separate
business trust or trusts (or series thereof).
SECTION 4. AMENDMENTS. This Declaration of Trust may be
restated and/or amended at any time by an instrument in writing signed by a
majority of the then Trustees and, if required, by approval of such amendment
by Shareholders in accordance with Article V, Section 3 hereof. Any such
restatement and/or amendment hereto shall be effective immediately upon
execution and approval. The Certificate of Trust of the Trust may be
restated and/or amended by a similar procedure, and any such restatement
and/or amendment shall be effective immediately upon filing with the Office
of the Secretary of State of the State of Delaware or upon such future date
as may be stated therein.
SECTION 5. FILING OF COPIES, REFERENCES, HEADINGS. The
original or a copy of this instrument and of each restatement and/or
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any such
restatements and/or amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were
the original, may rely on a copy certified by an officer of the Trust to be a
copy of this instrument or of any such restatements and/or amendments. In
this instrument and in any such restatements and/or amendment, references to
this instrument, and all expressions like "herein," "hereof" and "hereunder,"
shall be deemed to refer to this instrument as amended or affected by any
such restatements and/or amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this instrument.
Whenever the singular number is used herein, the same shall include the
plural; and the neuter, masculine and feminine genders shall include each
other, as applicable. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
SECTION 6. APPLICABLE LAW. This Declaration of Trust is
created under and is to be governed by and construed and administered
according to the laws of the State of Delaware and the Delaware Business
Trust Act, as amended from time to time (the "Act"). The Trust shall be a
Delaware business trust pursuant to such Act, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a business trust.
SECTION 7. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of the Declaration of Trust are
severable, and if the Trustees shall determine, with the advice of counsel,
that any of such provisions is in conflict with the 1940 Act, the regulated
investment company provisions of the Internal Revenue Code of 1986, as
amended (or any successor statute) or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have
constituted a part of the Declaration of Trust; provided, however, that such
determination shall not affect any of the remaining provisions of the
Declaration of Trust or render invalid or improper any action taken or
omitted prior to such determination.
(b) If any provision of the Declaration of Trust shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or
any other provision of the Declaration of Trust in any jurisdiction.
SECTION 8. BUSINESS TRUST ONLY. It is the intention of
the Trustees to create a business trust pursuant to the Act and thereby to
create only the relationship of trustee and beneficial owners within the
meaning of the Act between the Trustees and each Shareholder. It is not the
intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a business trust pursuant to the Act. Nothing
in this Declaration of Trust shall be construed to make the Shareholders,
either by themselves or with the Trustees, partners or members of a joint
stock association.
SECTION 9. USE OF THE NAME "FRANKLIN". The name
"Franklin" and all rights to the use of the name "Franklin" belongs to
Franklin Resources, Inc. ("Franklin"), the sponsor of the Trust. Franklin
has consented to the use by the Trust of the identifying word "Franklin" and
has granted to the Trust a non-exclusive license to use the name "Franklin"
as part of the name of the Trust and the name of any Series of Shares. In
the event Franklin or an affiliate of Franklin is not appointed as Manager
and/or Principal Underwriter or ceases to be the Manager and/or Principal
Underwriter of the Trust or of any Series using such names, the non-exclusive
license granted herein may be revoked by Franklin and the Trust shall cease
using the name "Franklin" as part of its name or the name of any Series of
Shares, unless otherwise consented to by Franklin or any successor to its
interests in such names.
ARTICLE IX.
Certain Transactions
Notwithstanding any other provision of the Declaration of Trust
to the contrary and subject to the exception provided in this Article IX, the
transactions described in this Article IX shall require the affirmative vote
or consent of the holders of sixty-six and two-thirds percent (66_%) of the
outstanding Shares. Notwithstanding any other provision in the Declaration
of Trust, such affirmative vote shall be in addition to, and not in lieu of,
the vote or consent of the Shareholders otherwise required by law (including
any separate vote by Series (or class) that may be required by the 1940 Act),
by the terms of any Series (or class) that is now or hereafter authorized, or
between the Trust and any national securities exchange.
For purposes of this Article IX, the term "Principal Shareholder"
shall mean any Person or group (within the meaning of Rule 13d-5 under the
Securities Exchange Act of 1934), which is the beneficial owner, directly or
indirectly, of more than five percent (5%) of the outstanding Shares of the
Trust and shall include any affiliate or associate, as such terms are defined
in clause (2) below, of a Principal Shareholder. For the purposes of this
Article IX, in addition to the Shares which a Person or group beneficially
owns directly, any Person or group shall be deemed to be the beneficial owner
of any Shares (1) which it has the right to acquire pursuant to any agreement
or upon exercise of conversion rights or warrants, or otherwise or (2) which
are beneficially owned, directly or indirectly (including Shares deemed owned
through application of clause (1) above), by any other Person or group with
which it or its "affiliate" or "associate," as those terms are defined in
Rule 12b-2 under the Securities Exchange Act of 1934, has any agreement,
arrangement, or understanding for the purpose of acquiring, holding, voting,
or disposing of Shares, or which is its "affiliate" or "associate" as so
defined. For purposes of this Article IX, calculation of the outstanding
Shares shall not include Shares deemed owned through application of clause
(1) above.
This Article IX shall apply to the following transactions:
1. Merger, consolidation or statutory Share exchange of the
Trust with or into any other business trust or other business entity;
2. Issuance of any securities of the Trust to any Person for
cash;
3. Sale, lease, or exchange of all or any substantial part of
the assets of the Trust to any Person (except assets having an aggregate fair
market value of less than $1,000,000); or
4. Sale, lease, or exchange to the Trust, in exchange for
securities of the Trust, of any assets of any Person (except assets having an
aggregate fair market value of less than $1,000,000).
The provisions of this Article IX shall not apply to any
transaction described above if the Board of Trustees authorizes such
transaction by an affirmative vote of a majority of the Trustees, including a
majority of the Trustees who are not "interested persons" of the Trust, as
that term is defined in the 1940 Act.
IN WITNESS WHEREOF, the Trustees named below do hereby make and
enter into this Declaration of Trust as of the day of , 1997.
Frank H. Abbott, III Charles B. Johnson
1045 Sansome Street 777 Mariners Island Blvd.
San Francisco, CA 94111 San Mateo, CA 94404
Harris J. Ashton Rupert H. Johnson, Jr.
Metro Center, 1 Station Place 777 Mariners Island Blvd.
Stamford, CT 06904 San Mateo, CA 94404
S. Joseph Fortunato Frank W.T. LaHaye
Park Avenue at Morris County 20833 Stevens Creek Blvd.
P.O. Box 1945 Suite 102
Morristown, NJ 07962-1945 Cupertino, CA 95104
David W. Garbellano Gordon S. Macklin
111 New Montgomery St. #402 8212 Burning Tree Road
San Francisco, CA 94105 Bethesda, MD 20817
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS 777 Mariners
Island Boulevard, San Mateo, California 94403-7777
BY-LAWS
OF
FRANKLIN FLOATING RATE TRUST
A Delaware Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix and,
from time to time, may change the location of the principal executive office
of the Trust at any place within or outside the State of Delaware.
Section 2. OTHER OFFICES. The Board of Trustees may at any time
establish branch or subordinate offices at any place or places where the
Trust intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
at any place within or outside the State of Delaware designated by the Board
of Trustees. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the Trust.
Section 2. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings
of shareholders shall be sent or otherwise given in accordance with Section 3
of this Article II not less than seven (7) days nor more than seventy-five
(75) days before the date of the meeting. The notice shall specify (i) the
place, date and hour of the meeting and (ii) the general nature of the
business to be transacted. The notice of any meeting at which trustees are
to be elected also shall include the name of any nominee or nominees whom at
the time of the notice are intended to be presented for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a trustee has a direct or indirect financial
interest, (ii) an amendment of the Agreement and Declaration of Trust, (iii)
a reorganization of the Trust, or (iv) a voluntary dissolution of the Trust,
the notice shall also state the general nature of that proposal.
Section 3. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
any meeting of shareholders shall be given either personally or by
first-class mail or telegraphic or other written communication, charges
prepaid, addressed to the shareholder at the address of that shareholder
appearing on the books of the Trust or its transfer agent or given by the
shareholder to the Trust for the purpose of notice. If no such address
appears on the Trust's books or is given, notice shall be deemed to have been
given if sent to that shareholder by first-class mail or telegraphic or other
written communication to the Trust's principal executive office, or if
published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been given at
the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the Trust is returned to the Trust by
the United States Postal Service marked to indicate that the Postal Service
is unable to deliver the notice to the shareholder at that address, all
future notices or reports shall be deemed to have been duly given without
further mailing if these shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the Trust for
a period of one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the secretary, assistant secretary
or any transfer agent of the Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.
Section 4. ADJOURNED MEETING; NOTICE. When any meeting of
shareholders is adjourned to another time or place, notice need not be given
of the adjourned meeting at which the adjournment is taken, unless a new
record date of the adjourned meeting is fixed or unless the adjournment is
for more than sixty (60) days from the date set for the original meeting, in
which case the Board of Trustees shall set a new record date. Notice of any
such adjourned meeting shall be given to each shareholder of record entitled
to vote at the adjourned meeting in accordance with the provisions of
Sections 2 and 3 of this Article II. At any adjourned meeting, the Trust may
transact any business which might have been transacted at the original
meeting.
Section 5. VOTING. The shareholders entitled to vote at any meeting
of shareholders shall be determined in accordance with the provisions of the
Agreement and Declaration of Trust, as in effect at such time. The
shareholders, vote may be by voice vote or by ballot, provided, however, that
any election for trustees must be by ballot if demanded by any shareholder
before the voting has begun. on any matter other than elections of trustees,
any shareholder may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or vote them against the proposal,
but if the shareholder fails to specify the number of shares which the
shareholder is voting affirmatively, it will be conclusively presumed that
the shareholder's approving vote is with respect to the total shares that the
shareholder is entitled to vote on such proposal.
Section 6. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy
and if either before or after the meeting, each person entitled to vote who
was not present in person or by proxy signs a written waiver of notice or a
consent to a holding of the meeting or an approval of the minutes. The
waiver of notice or consent need not specify either the business to be
transacted or the purpose of any meeting of shareholders.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of
the meeting to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the
beginning of the meeting.
Section 7. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any meeting of shareholders may be taken
without a meeting and without prior notice if a consent in writing setting
forth the action so taken is signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted. All such consents shall be filed
with the Secretary of the Trust and shall be maintained in the Trust's
records. Any shareholder giving a written consent or the shareholder's proxy
holders or a transferee of the shares or a personal representative of the
shareholder or their respective-proxy-holders may revoke the consent by a
writing received by the Secretary of the Trust before written consents of the
number of shares required to authorize the proposed action have been filed
with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the shareholders without a meeting. This
notice shall be given in the manner specified in Section 3 of this Article
II. In the case of approval of (i) contracts or transactions in which a
trustee has a direct or indirect financial interest, (ii) indemnification of
agents of the Trust, and (iii) a reorganization of the Trust, the notice
shall be given at least ten (10) days before the consummation of any action
authorized by that approval.
Section 8. RECORD DATE FOR SHAREHOLDER NOTICE; VOTING AND GIVING
CONSENTS. If the Board of Trustees does not fix a record date for purposes
of determining the shareholders entitled to vote or act at any meeting or
adjournment thereof or to give consent to any action without a meeting:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business
on the business day next preceding the day on which notice is given or if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to action in writing without a meeting, (i) when no prior action by
the Board of Trustees has been taken, shall be the day on which the first
written consent is given, or (ii) when prior action of the Board of Trustees
has been taken, shall be at the close of business on the day on which the
Board of Trustees adopt the resolution relating to that action or the
seventy-fifth day before the date of such other action, whichever is later.
Section 9. PROXIES. Every person entitled to vote for trustees or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the Secretary of the Trust. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not
state that it is irrevocable shall continue in full force and effect unless
(i) revoked by the person executing it before the vote pursuant to that proxy
by a writing delivered to the Trust stating that the proxy is revoked or by a
subsequent proxy executed by or attendance at the meeting and voting in
person by the person executing that proxy; or (ii) written notice of the
death or incapacity of the maker of that proxy is received by the Trust
before the vote pursuant to that proxy is counted; provided however, that no
proxy shall be valid after the expiration of eleven (11) months from the date
of the proxy unless otherwise provided in the proxy. The revocability of a
proxy that states on its face that it is irrevocable shall be governed by the
provisions of the General Corporation Law of the State of Delaware.
Section 10. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Trustees may appoint any persons other than
nominees for office to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the chairman of
the meeting may and on the request of any shareholder or a shareholder's
proxy shall, appoint inspectors of election at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting on the request of one or more shareholders or proxies, the
holders of a majority of shares or their proxies present at the meeting shall
determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
the chairman of the meeting may and on the request of any shareholder or a
shareholder's proxy, shall appoint a person to fill the vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum and
the authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings
of the Board of Trustees may be held at any place within or outside the State
of Delaware that has been designated from time to time by resolution of the
Board. In the absence of such a designation, regular meetings shall be held
at the principal executive office of the Trust. Any meeting, regular or
special, may be held by conference telephone or similar communication
equipment, so long as all trustees participating in the meeting can hear one
another and all such trustees shall be deemed to be present in person at the
meeting.
Section 2. REGULAR MEETINGS. Regular meetings of the Board of
Trustees shall be held without call at such tine as shall from time to time
be fixed by the Board of Trustees. Such regular meetings may be held without
notice.
Section 3. SPECIAL MEETINGS. Special meetings of the Board of
Trustees for any purpose or purposes may be called at any time by the
chairman of the board or the president or any vice president or the secretary
or any two (2) trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each trustee at that trustee's
address as it is shown on the records of the Trust. In case the notice is
mailed, it shall be deposited in the United States mail at least seven (7)
days before the tine of the holding of the meeting. In case the notice is
delivered personally, by telephone, to the telegraph company, or by express
mail or similar service, it shall be given at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the trustee or to a
person at the office of the trustee who the person giving the notice has
reason to believe will promptly communicate it to the trustee. The notice
need not specify the purpose of the meeting or the place if the meeting is to
be held at the principal executive office of the Trust.
Section 4. QUORUM. A majority of the authorized number of trustees
shall constitute a quorum for the transaction of business, except to adjourn
as provided in Section 6 of this Article III. Every act or decision done or
made by a majority of the trustees present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Trustees,
subject to the provisions of the Agreement and Declaration of Trust. A
meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of trustees if any action taken is
approved by a least a majority of the required quorum for that meeting.
Section 5. WAIVER OF NOTICE. Notice of any meeting need not be given
to any trustee who either before or after the meeting signs a written waiver
of notice, a consent to holding the meeting, or an approval of the minutes.
The waiver of notice or consent need not specify the purpose of the meeting.
All such waivers, consents, and approvals shall be filed with the records of
the Trust or made a part of the minutes of the meeting. Notice of a meeting
shall also be deemed given to any trustee who attends the meeting without
protesting before or at its commencement the lack of notice to that trustee.
Section 6. ADJOURNMENT. A majority of the trustees present, whether
or not constituting a quorum, may adjourn any meeting to another time and
place.
Section 7. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given unless the meeting is
adjourned for more than forty-eight (48) hours, in which case notice of the
time and place shall be given before the time of the adjourned meeting in the
manner specified in Section 3 of this Article III to the trustees who were
present at the time of the adjournment.
Section 8. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the Board of Trustees may be taken without a meeting if a
majority of the members of the Board of Trustees shall individually or
collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a majority vote of the Board
of Trustees. Such written consent or consents shall be filed with the
minutes of the proceedings of the Board of Trustees.
Section 9. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees.
Section 10. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall fewer than two (2) Trustees personally exercise the powers granted
to the Trustees under this Declaration of Trust except as otherwise expressly
provided herein or by resolution of the Board of Trustees.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may by
resolution adopted by a majority of the authorized number of trustees
designate one or more committees, each consisting of two (2) or more
trustees, to serve at the pleasure of the Board. The Board may designate one
or more trustees as alternate members of any committee who may replace any
absent member at any meeting of the committee. Any committee to the extent
provided in the resolution of the Board, shall have the authority of the
Board, except with respect to:
(a) the approval of any action which under applicable law also
requires shareholders' approval or approval of the outstanding shares, or
requires approval by a majority of the entire Board or certain members of
said Board;
(b) the filling of vacancies on the Board of Trustees or in any
committee;
(c) the fixing of compensation of the trustees for serving on the
Board of Trustees or on any committee;
(d) the amendment or repeal of the Agreement and Declaration of Trust
or of the By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board of
Trustees which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the Trust, except at a rate
or in a periodic amount or within a designated range determined by the Board
of Trustees; or
(g) the appointment of any other committees of the Board of Trustees
or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings
of committees may be determined either by resolution of the Board of Trustees
or by resolution of the committee. Special meetings of committees may also
be called by resolution of the Board of Trustees, and notice of special
meetings of committees shall also be given to all alternate members who shall
have the right to attend all meetings of the committee. The Board of
Trustees may adopt rules for the government of any committee not inconsistent
with the provisions of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a president,
a secretary, and a treasurer. The Trust may also have, at the discretion of
the Board of Trustees, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any number of offices may be held by the same
person.
Section 2. ELECTION OF OFFICERS. The officers of the Trust, except
such officers as may appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen by the Board of Trustees, and
each shall serve at the pleasure of the Board of Trustees, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint
and may empower the president to appoint such other officers as the business
of the Trust may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in these By-Laws
or as the Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an officer under any contract of employment, any officer
may be removed, either with or without cause, by the Board of Trustees at any
regular or special meeting of the Board of Trustees or except in the case of
an officer upon whom such power of removal may be conferred by the Board of
Trustees.
Any officer may resign at any time by giving written notice to the
Trust. Any resignation shall take effect at the date of the receipt of that
notice or at any later time specified in that notice; and unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Trust under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled
in the manner prescribed in these By-Laws for regular appointment to that
office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such
an officer is elected, shall if present preside at meetings of the Board of
Trustees and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or prescribed by the
By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Trustees to the chairman of the board, if there
be such an officer, the president shall be the chief executive officer of the
Trust and shall, subject to the control of the Board of Trustees, have
general supervision, direction and control of the business and the officers
of the Trust. He shall preside at all meetings of the shareholders and in
the absence of the chairman of the board or if there be none, at all meetings
of the Board of Trustees. He shall have the general powers and duties of
management usually vested in the office of president of a corporation and
shall have such other powers and duties as may be prescribed by the Board of
Trustees or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by
the Board of Trustees or if not ranked, a vice president designated by the
Board of Trustees, shall perform all the duties of the president and when so
acting shall have all powers of and be subject to all the restrictions upon
the president. The vice presidents shall have such other powers and perform
such other duties as from time to time may be prescribed for them
respectively by the Board of Trustees or by these By-Laws and the president
or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept at
the principal executive office of the Trust or such other place as the Board
of Trustees may direct a book of minutes of all meetings and actions of
trustees, committees of trustees and shareholders with the time and place of
holding, whether regular or special, and if special, how authorized, the
notice given, the names of those present at trustees' meetings or committee
meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings.
The secretary shall keep or cause to be kept at the principal executive
office of the Trust or at the office of the Trust's transfer agent or
registrar, as determined by resolution of the Board of Trustees, a share
register or a duplicate share register showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same and the number and date
of cancellation of every certificate surrendered for cancellation.
The secretary shall give or cause to be given notice of all meetings of
the shareholders and of the Board of Trustees required by these By-Laws or by
applicable law to be given and shall have such other powers and perform such
other duties as may be prescribed by the Board of Trustees or by these
By-Laws.
Section 10. TREASURER. The treasurer shall be the chief financial
officer of the Trust and shall keep and maintain or cause to be kept and
maintained adequate and correct books and records of accounts of the
properties and business transactions of the Trust, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by-any trustee.
The treasurer shall deposit all monies and other valuables in the name
and to the credit of the Trust with such depositories as may be designated by
the Board of Trustees. He shall disburse the funds of the Trust as may be
ordered by the Board of Trustees, shall render to the president and trustees,
whenever they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the Trust and shall have
other powers and perform such other duties as may be prescribed by the Board
of Trustees or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was an officer, employee or other
agent of this Trust or is or was serving at the request of this Trust as a
trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of
such predecessor entity; "proceeding" means any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes without limitation attorney's fees and
any expenses of establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify
any person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason
of the fact that such person is or was an agent of this Trust, against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if that person acted
in good faith and in a manner that person reasonably believed to be in the
best interests of this Trust and in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contenders or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a manner which
the person reasonably believed to be in the best interests of this Trust or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
Section 3. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action by or in the right of this Trust to
procure a judgment in its favor by reason of the fact that the person is or
was an agent of this Trust, against expenses actually and reasonably incurred
by that person in connection with the defense or settlement of that action if
that person acted in good faith, in a manner that person believed to be in
the best interests of this Trust and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any
provision to the contrary contained herein, there shall be no right to
indemnification for any liability arising by reason of willful misfeasance,
bad faith, gross negligence, or the reckless disregard of the duties involved
in the conduct of the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue or matter as to which that person
shall have been adjudged to be liable in the performance of that person's
duty to this Trust, unless and only to the extent that the court in which
that action was brought shall determine upon application that in view of all
the circumstances of the case, that person was not liable by reason of the
disabling conduct set forth in the preceding paragraph and is fairly and
reasonably entitled to indemnity for the expenses which the court shall
determine; or
(b) In respect of any claim, issue, or matter as to which that person
shall have been adjudged to be liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an
action taken in the person's official capacity; or
(c) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval, or of expenses
incurred in defending a threatened or pending action which is settled or
otherwise disposed of without court approval, unless the required approval
set forth in Section 6 of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent
of this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim,
issue or matter therein, before the court or other body before whom the
proceeding was brought, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith,
provided that the Board of Trustees, including a majority who are
disinterested, non-party trustees, also determines that based upon a review
of the facts, the agent was not liable by reason of the disabling conduct
referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust
only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of
this Article and is not prohibited from indemnification because of the
disabling conduct set forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of trustees who are not
parties to the proceeding and are not interested persons of the Trust (as
defined in the Investment Company Act of 1940); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article, provided
the agent provides a security for his undertaking, or a majority of a quorum
of the disinterested, non-party trustees, or an independent legal counsel in
a written opinion, determine that based on a review of readily available
facts, there is reason to believe that said agent ultimately will be found
entitled to indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this
Article shall affect any right to indemnification to which persons other than
officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6 in any
circumstances where it appears:
(a) That it would be inconsistent with a provision of the Agreement
and Declaration of Trust, a resolution of the shareholders, or an agreement
in effect at the time of accrual of the alleged cause of action asserted in
the proceeding in which the expenses were incurred or other amounts were paid
which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by
the Board of Trustees of this Trust to purchase such insurance, this Trust
shall purchase and maintain insurance on behalf of any agent of this Trust
against any liability asserted against or incurred by the agent in such
capacity or arising out of the agent's status as such, but only to the extent
that this Trust would have the power to indemnify the agent against that
liability under the provisions of this Article.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does
not apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person' s capacity as such,
even though that person may also be an agent of this Trust as defined in
Section 1 of this Article. Nothing contained in this Article shall limit any
right to indemnification to which such a trustee, investment manager, or
other fiduciary may be entitled by contract or otherwise which shall be
enforceable to the extent permitted by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. This Trust
shall keep at its principal executive office or at the office of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the Board of Trustees, a record of its shareholders, giving the names and
addresses of all shareholders and the number and series of shares held by
each shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall
keep at its principal executive office the original or a copy of these
By-Laws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The
accounting books and records and minutes of proceedings of the shareholders
and the Board of Trustees and any committee or committees of the Board of
Trustees shall be kept at such place or places designated by the Board of
Trustees or in the absence of such designation, at the principal executive
office of the Trust. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection upon the written
demand of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours for a purpose reasonably related
to the holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney
and shall include the right to copy and make extracts.
Section 4. INSPECTION BY TRUSTEES. Every trustee shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the Trust. This
inspection by a trustee may be made in person or by an agent or attorney and
the right of inspection includes the right to copy and make extracts of
documents.
Section 5. FINANCIAL STATEMENTS. A copy of any financial statements
and any income statement of the Trust for each quarterly period of each
fiscal year and accompanying balance sheet of the Trust as of the end of each
such period that has been prepared by the Trust shall be kept on file in the
principal executive office of the Trust for at least twelve (12) months and
each such statement shall be exhibited at all reasonable times to any
shareholder demanding an examination of any such statement or a copy shall be
mailed to any such shareholder.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer
of the Trust that the financial statements were prepared without audit from
the books and records of the Trust.
ARTICLE VIII
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed by such person or persons and in such manner as from time to time
shall be determined by resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
Trustees, except as otherwise provided in these By-Laws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the Trust and this authority
may be general or confined to specific instances; and unless so authorized or
ratified by the Board of Trustees or within the agency power of an officer,
no officer, agent, or employee shall have any power or authority to bind the
Trust by any contract or engagement or to pledge its credit or to render it
liable for any purpose or for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust may be issued to a
shareholder upon his request when such shares are fully paid. All
certificates shall be signed in the name of the Trust by the chairman of the
board or the president or vice president and by the treasurer or an assistant
treasurer or the secretary or any assistant secretary, certifying the number
of shares and the series of shares owned by the shareholders. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed on a certificate shall have ceased to be that officer, transfer
agent, or registrar before that certificate is issued, it may be issued by
the Trust with the same effect as if that person were an officer, transfer
agent or registrar at the date of issue. Notwithstanding the foregoing, the
Trust may adopt and use a system of issuance, recordation and transfer of its
shares by electronic or other means.
Section 4. LOST CERTIFICATES. Except as provided in this Section 4,
no new certificates for shares shall be issued to replace an old certificate
unless the latter is surrendered to the Trust and canceled at the same time.
The Board of Trustees may in case any share certificate or certificate for
any other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the Board of Trustees
may require, including a provision for indemnification of the Trust secured
by a bond or other adequate security sufficient to protect the Trust against
any claim that may be made against it, including any expense or liability on
account of the alleged loss, theft, or destruction of the certificate or the
issuance of the replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST.
The chairman of the board, the president or any vice president or any other
person authorized by resolution of the Board of Trustees or by any of the
foregoing designated officers, is authorized to vote or represent on behalf
of the Trust any and all shares of any corporation, partnership, trusts, or
other entities, foreign or domestic, standing in the name of the Trust. The
authority granted may be exercised in person or by a proxy duly executed by
such designated person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall be fixed
and changed from time to time by resolution of the Trustees. The fiscal year
of the Trust shall be the taxable year of each Series of the Trust.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by
applicable law or by the Agreement and Declaration of Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of
shareholders as provided in Section 1 of this Article to adopt, amend or
repeal By-Laws, and except as otherwise provided by law or by the Agreement
and Declaration of Trust, these By-Laws may be adopted, amended, or repealed
by the Board of Trustees.
POWER OF ATTORNEY
The undersigned officers and trustees of FRANKLIN FLOATING RATE TRUST
(the "Registrant"), hereby appoint MARK H. PLAFKER, HARMON E BURNS, DEBORAH
R. GATZEK, KAREN L. SKIDMORE AND LARRY L. GREENE (with full power to each of
them to act alone) as attorney-in-fact and agent, in all capacities, to
execute, and to file any of the documents referred to below relating to the
Notification of Registration on Form N-8A registering the Registrant as an
investment company under the Investment Company Act of 1940, as amended, and
the Registrant's registration statement on Form N-2 under the Investment
Company Act of 1940, as amended, and under the Securities Act of 1933,
including any and all amendments thereto, covering the registration of the
Registrant as an investment company and the sale of shares by the Registrant,
including all exhibits and any and all documents required to be filed with
respect thereto with any regulatory authority, including applications for
exemptive order rulings. Each of the undersigned grants to each of said
attorneys, full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes, as he could do if
personally present, thereby ratifying all that said attorneys-in-fact and
agents, may lawfully do or cause to be done by virtue hereof.
The undersigned officers and trustees hereby execute this Power of
Attorney as of this 13th day of May, 1997.
/S/ RUPERT H. JOHNSON, JR. /S/ CHARLES B. JOHNSON
Rupert H. Johnson, Jr., Charles B. Johnson,
Principal Executive Officer Trustee
and Trustee
/S/ FRANK H. ABBOTT, III /S/ HARRIS J. ASHTON
Frank H. Abbott, III, Harris J. Ashton,
Trustee Trustee
/S/ S. JOSEPH FORTUNATO /S/ DAVID W. GARBELLANO
S. Joseph Fortunato, David W. Garbellano,
Trustee Trustee
/S/ FRANK W. T. LAHAYE /S/ GORDON S. MACKLIN
Frank W. T. LaHaye, Gordon S. Macklin,
Trustee Trustee
/S/ DIOMEDES LOO-TAM /S/ MARTIN L. FLANAGAN
Diomedes Loo-Tam, Martin L. Flanagan,
Principal Accounting Officer Principal Financial Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of Franklin Floating
Rate Trust (the "Trust").
As Secretary of the Trust, I further certify that the following
resolution was adopted by a majority of the Trustees of the Trust present at
a meeting held at 777 Mariners Island Boulevard, San Mateo, California on May
13, 1997.
RESOLVED, that a Power of Attorney, substantially in the form of the
Power of Attorney presented to this Board, appointing Harmon E. Burns,
Deborah R. Gatzek, Karen L. Skidmore, Larry L. Greene and Mark H.
Plafker as attorneys-in-fact for the purpose of filing documents with
the Securities and Exchange Commission, be executed by each Trustee and
designated officer.
I declare under penalty of perjury that the matters set forth in this
certificate are true and correct of my own knowledge.
Dated: May 13, 1997 /s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
