As filed with the Securities and Exchange Commission on March 24, 2000.
File No. 811-09869
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-2
[ X ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ _ ] Amendment No. ___
FRANKLIN FLOATING RATE MASTER TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
777 Mariners Island Boulevard, San Mateo, CA 94404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
650-312-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------,
777 Mariners Island Boulevard, San Mateo, CA 94404
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)
---------------
Please Send A Copy of Communications to:
Merrill R. Steiner, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[__] THIS [POST-EFFECTIVE] AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR
A PREVIOUSLY FILED [POST-EFFECTIVE AMENDMENT] [REGISTRATION STATEMENT].
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE IMMEDIATELY UPON FILING
UNDER THE INVESTMENT COMPANY ACT OF 1940.
FRANKLIN/TEMPLETON GROUP OF FUNDS
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
(INVESTMENT STRATEGY: INCOME)
March 23, 2000
FORM N-2, PART A:
RESPONSES TO ITEMS 1 AND 2 HAVE BEEN OMITTED PURSUANT TO PARAGRAPH 3 OF
INSTRUCTION G OF THE GENERAL INSTRUCTIONS TO FORM N-2.
In this Prospectus certain terms begin with capital letters. This means the
term is explained under "Useful Terms and Definitions."
ITEM 3. FEE TABLE
EXPENSE SUMMARY
This table is designed to help the shareholder understand the costs of
investing in the fund. The fund's actual expenses may vary. For additional
information regarding the fees and expenses, please review Item 9 entitled
"Management" on page 22.
A. SHAREHOLDER TRANSACTION EXPENSES AMOUNT
Maximum Sales Charge (Load)
(as a percentage of offering price) None
B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO COMMON SHARES)
Management fees 0.80%
Other expenses 0.59%
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Total annual fund operating expenses 1.39%
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- - ----------------------------------------------------
Other expenses are based on estimated amounts for the current fiscal year.
C. Example
Assume the fund's annual return is 5%, operating expenses are as
described above, and the shareholder sells its Common Shares after the number
of years shown. These are projected amounts the shareholder would pay for
each $1,000 that the shareholder invests in Common Shares.
1 YEAR 3 YEARS
------ -------
Assuming no tender of Common Shares
for repurchase by the fund $142 $440
This is just an example. It does not represent past or future expenses or
returns. Actual expenses and returns may be more or less than those shown.
The fund pays its operating expenses. The effects of these expenses are
reflected in its Net Asset Value or dividends and are not directly charged to
the shareholder's account.
RESPONSES TO ITEMS 3.2, 4, 5, 6 AND 7 HAVE BEEN OMITTED PURSUANT TO PARAGRAPH
3 OF INSTRUCTION G OF THE GENERAL INSTRUCTIONS TO FORM N-2.
ITEM 8. GENERAL DESCRIPTION OF THE REGISTRANT
ITEM 8.1. GENERAL
The Franklin Floating Rate Master Trust (the "Trust") was organized as a
Delaware business trust and filed its Certificate of Trust in the State of
Delaware on November 16, 1999. The Trust is registered as a closed-end
management investment company with the SEC and has one series of shares of
beneficial interest, the Franklin Floating Rate Master Series (the "fund").
The fund is a non-diversified investment company. This means the fund is not
limited in the amount of assets that it may invest in any single issuer of
securities except to the extent that any adverse tax consequences would
arise.
ITEM 8.2. INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVE
The fund's investment goal is to provide as high a level of current income
and preservation of capital as is consistent with investment primarily in
senior secured Corporate Loans and Corporate Debt Securities with Floating
Interest Rates. This investment goal is a fundamental policy of the fund,
which means that the goal may not be changed without a vote of a majority of
the outstanding shares of the fund. There can be no assurance that the
investment goal of the fund will be achieved.
The fund intends to invest the net proceeds from the sale of Common Shares in
accordance with the fund's investment goal and policies as soon as
practicable, based on market conditions. The fund's immediate ability to
pursue its investment goal will depend on economic and market conditions,
including the availability of Corporate Loans and Corporate Debt Securities.
If the manager determines that market conditions are not favorable, the
manager will initially invest the proceeds in short-term debt obligations or
instruments that the fund may normally purchase. During periods when the
fund is experiencing a large inflow of assets, there is a risk that the
assets may not be promptly and effectively invested.
INVESTMENT POLICIES
The manager uses its credit analysis to select Corporate Loans and Corporate
Debt Securities that are suitable for investment by the fund. Under normal
conditions, the fund will invest at least 65% of its total assets in senior
secured Corporate Loans and Corporate Debt Securities that are made to, or
issued by, Borrowers and that have Floating Interest Rates. Floating
Interest Rates are: (i) variable rates which adjust to a base rate, such as
LIBOR or the CD Rate on set dates, typically every 30 days but not to exceed
one year; (ii) interest rates that vary at a set margin above a generally
recognized base lending interest such as the Prime Rate of a designated U.S.
bank; or (iii) one of the foregoing interest rates and are convertible to
fixed rate instruments. Upon conversion of any such loans or securities to
fixed rate instruments, the fund will as promptly as is reasonable rebalance
its investments to meet the 65% level described above. The fund may not meet
the 65% level during periods pending investment of the proceeds from the
offering of the fund's Common Shares. It also may not meet the 65% level
during temporary defensive periods when the manager believes that suitable
Corporate Loans and Corporate Debt Securities are not available or prevailing
market or economic conditions warrant.
At least 65% of the fund's total assets will be invested in Corporate Loans
or Corporate Debt Securities that are rated by an NRSRO with the equivalent
of a B or higher rating by S&P or Moody's, or, if unrated, determined to be
of comparable quality by the manager. The fund may, however, invest up to
35% of its total assets in Corporate Loans or Corporate Debt Securities that
are rated less than such a B rating by an NRSRO or, if unrated, determined to
be of comparable quality by the manager. The fund will make such an
investment only after the manager determines that the investment is suitable
for the fund based on the manager's independent credit analysis. See "The
Manager's Credit Analysis."
Corporate Loans are loans made to corporations. In return, the corporation
pays interest and principal to the Lenders. Corporate Loans include
Participation Interests in Corporation Loans or Assignments of Corporate
Loans. Corporate Debt Securities are investments by securityholders in
obligations issued by corporations. In exchange for their investment in the
corporation, securityholders receive income from the corporation and the
return of their investments in the corporation.
The fund will invest primarily in Corporate Loans and Corporate Debt
Securities that will be secured by collateral, which has been pledged by the
corporation to the Lenders or securityholders of such debt obligations. This
means that the corporation has entered into a written promise to deliver, or
has actually delivered, to the Lenders or securityholders property that will
legally become the property of the Lenders or securityholders in case the
corporation Defaults in paying interest or principal.
In addition, these secured Corporate Loans and Corporate Debt Securities will
hold the most senior secured position in the capitalization structure of the
corporation. This means that, in case the corporation becomes insolvent, the
Lenders or securityholders of such debt obligations will be paid before other
creditors of the corporation from the assets of the corporation.
The fund's investments may be either unrated or rated by one or more NRSROs,
which are independent rating organizations such as S&P or Moody's. These
organizations rate obligations by grading the company issuing the obligations
based upon its financial soundness. If the fund is going to invest in an
obligation that is unrated, the manager will determine its quality. The
Corporate Loans and Corporate Debt Securities in which the fund invests
generally are currently not rated by any NRSRO.
The fund may invest up to 100% of its portfolio in Corporate Loans or
Corporate Debt Securities that may be high yield, high risk, debt securities
that are rated less than investment grade. These entail Default and other
risks greater than those associated with higher-rated securities. Lists of
these ratings are shown in the Appendix to this prospectus. Generally, the
lower the rating category, the more risky is the investment. Debt securities
rated BBB or lower by S&P or Baa or lower by Moody's are considered to be
high yield, high risk investments, commonly known as "junk bonds." However,
the Corporate Loans and Corporate Debt Securities in which the fund primarily
invests are not junk bonds. They have features that junk bonds generally do
not have. Corporate Loans and Corporate Debt Securities are senior
obligations of the Borrower and are secured by collateral. They generally
are subject to certain restrictive covenants in favor of the Lenders or
securityholders that invest in the Corporate Loans or Corporate Debt
Securities.
Under normal conditions, the fund may invest up to 35% of its total assets in
certain types of debt obligations other than senior secured Corporate Loans
or Corporate Debt Securities, as described below, or in cash. The fund may
invest in Unsecured Corporate Loans and Unsecured Corporate Debt Securities.
This means that the Corporate Loans and Corporate Debt Securities are not
backed by collateral. The manager will only make such investments if it
determines that the Borrowers in such transactions are creditworthy, under
the same analysis that the manager uses for Corporate Loans and Corporate
Debt Securities. The fund may also invest in secured or unsecured short-term
debt obligations. These include U.S. government securities, U.S. government
agency securities (some of which may not be backed by the full faith and
credit of the United States), bank money market instruments (such as CDs),
corporate and commercial obligations (such as commercial paper and
medium-term notes) and repurchase agreements. None of these short-term debt
obligations are required to be backed by collateral. However, short-term
debt obligations purchased by the fund will be (or counterparties associated
therewith will be) investment grade. This means that they will be 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 by the manager. The fund may also
invest in fixed rate obligations of U.S. companies, foreign companies or U.S.
subsidiaries of foreign companies. The manager will determine that the
companies issuing these obligations are creditworthy. When the fund invests
in fixed rate obligations, it may also enter into an interest rate swap in
order to limit the exposure of such obligations against fluctuations in
interest rates.
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 (other than Corporate Loans and
Corporate Debt Securities) and cash and cash equivalents will not exceed 35%
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 the manager,
suitable Corporate Loans and Corporate Debt Securities are not available 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.
MATURITIES. The fund has no restrictions on portfolio maturity. The fund
anticipates 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. This means that the Borrower is required to fully repay
the obligation within that time period. The fund also anticipates that the
Corporate Loans and Corporate Debt Securities will have an average expected
life of three to five years.
The expected average life of the Corporate Loans and Corporate Debt
Securities is less than their stated maturity because it is anticipated that
some Borrowers will pay off their obligations early. Corporate Loans usually
will require the Borrower to prepay the Corporate Loan if the Borrower has
excess cash flow. Also, Corporate Loans usually 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, cannot be predicted with accuracy. General business
conditions, the financial condition of the Borrower and competitive
conditions among Lenders are all factors that affect prepayments. Such
prepayments may require the fund to replace a Corporate Loan, Corporate Debt
Security or other investment with a lower yielding security. This may
adversely affect the Net Asset Value of Common Shares.
NON-CONCENTRATION IN SINGLE INDUSTRY. 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. With the exception noted below, the fund has no current
intention of investing more than 20% of its assets in the obligations of
Borrowers in any single industry. The fund will invest more than 25% (and
may invest up to 100%) of its total assets in the securities of the following
industry group: commercial banks, thrift institutions, insurance companies
and finance companies. The fund may invest at these levels because the fund
regards the issuers of the Corporate Loans in which the fund may invest to
include the Agent Bank that administers the Corporate Loan, and any
Intermediate Participant, as well as the Borrower. As a result, the fund is
subject to certain risks associated with such institutions, both individually
and as a group. The availability of Corporate Loans, Participation
Interests, Assignments and Corporate Debt Securities may from time to time
reduce the fund's ability to readily comply with this investment policy.
MORE ABOUT CORPORATE LOANS AND CORPORATE DEBT SECURITIES. Before the fund
invests in a Corporate Loan or Corporate Debt Security, the manager will
analyze whether the Borrower can make the required payments on the Corporate
Loan or Corporate Debt Security.
A Corporate Loan in which the fund may invest typically is structured by a
group of Lenders. This means that the Lenders participate in the
negotiations with the Borrower and in the drafting of the terms of the
Corporate Loan. The group of Lenders often consists of commercial banks,
thrift institutions, insurance companies, finance companies or other
financial institutions. The fund will not act as the sole negotiator or sole
originator for a Corporate Loan. One or more of the Lenders usually
administers the Loan on behalf of all the Lenders. This Lender is referred
to as the Agent Bank. For more information about the activities of an Agent
Bank, see "Description of Participation Interests and Assignments."
The fund may invest in a Corporate Loan in one of three ways. It may make a
direct investment in the Corporate Loan by participating as one of the
Lenders. It may purchase a Participation Interest or it may purchase an
Assignment. Participation Interests are interests issued by a Lender or
other financial institution which represent a fractional interest in a
Corporate Loan. The fund may acquire Participation Interests from a Lender
or other holders of Participation Interests. Holders of Participation
Interests are referred to as Participants. An Assignment represents a
portion of a Corporate Loan previously attributable to a different Lender.
Unlike a Participation Interest, the fund will generally become a Lender for
the purposes of the relevant loan agreement by purchasing an Assignment.
It can be advantageous to the fund to make a direct investment in a Corporate
Loan as one of the Lenders. Such an investment is typically made at par.
This means that the fund receives a return at the full interest rate for the
Corporate Loan. On the other hand, when the fund invests in a Participation
Interest or an Assignment, it will normally pay a fee or forego a portion of
the interest payment. Consequently, the fund's return on such an investment
may be lower than it would have been if the fund had made a direct investment
in the underlying Corporate Loan. However, the fund may be able to invest in
Corporate Loans only through Participation Interests or Assignments at
certain times when reduced direct investment opportunities in Corporate Loans
may exist.
If the fund purchases an Assignment from a Lender, the fund will generally
have direct contractual rights against the Borrower 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 typically will have established a direct
contractual relationship with the seller of the Participation Interest, but
not with the Borrower. Consequently, the fund is subject to the credit risk
of the Lender or Participant who sold the Participation Interest to the fund,
in addition to the usual credit risk of the Borrower. Therefore, when the
fund invests in Corporate Loans through the purchase of Participation
Interests, the manager must consider the creditworthiness of the Agent Bank
and any Lenders and Participants interposed between the fund and a Borrower.
These parties are referred to as Intermediate Participants. At the time of
investment, the Intermediate Participant's outstanding debt obligations must
be investment grade. That is, they must be rated in the four highest rating
categories assigned by an NRSRO, such as BBB, A-3 or higher by S&P or Baa,
P-3 or higher by Moody's. If unrated, the manager must determine that the
obligations are of comparable quality.
Corporate Debt Securities typically are in the form of notes or bonds. They
may be issued in a public or private offering in the securities markets.
Corporate Debt Securities will have terms similar to Corporate Loans, but
will not be in the form of Participation Interests or Assignments. Unlike
Corporate Loans, Corporate Debt Securities often are part of a large issue of
securities that are held by a large group of investors.
THE FUND'S NON-DIVERSIFIED CLASSIFICATION. The fund is non-diversified under
the 1940 Act. This means that there is no limit on the amount of assets that
the fund may invest in the securities of any one issuer. However, under the
Code, the fund will limit its investments so that, at the close of each
quarter of its taxable year: (i) not more than 25% of its total assets will
be invested in the securities (including Corporate Loans but excluding U.S.
government securities or the securities of other regulated investment
companies) of a single issuer, and (ii) with respect to 50% of its total
assets, not more than 5% of the fund's assets will be invested in the
securities of any one issuer and will not consist of more than 10% of any
single issuer's outstanding voting securities.
To the extent the fund invests a large portion of its assets in the
securities of a small number of issuers, the fund's Net Asset Value may
fluctuate more than if the fund were a diversified company. Also, the fund
may be more susceptible than a more widely diversified company to any single
economic, political or regulatory event or to changes in the financial
condition or in the market's assessment of a single issuer. However, the
fund does not intend to invest more than 10% of its total assets in the
obligations of any single Borrower. For purposes of the diversification
requirements, the fund regards the issuer of a Corporate Loan in which the
fund may invest to include both the Borrower involved in a Corporate Loan and
the Agent Bank that administers the Corporate Loan. In addition, it also
includes any Intermediate Participants interpositioned between the Lender and
the fund with respect to a Participation Interest. The manager has taken
measures that it believes significantly reduce the fund's exposure to such
risk.
HIGHLY LEVERAGED TRANSACTIONS. The Corporate Loans and Corporate Debt
Securities in which the fund invests primarily consist of capital
restructurings. This means that a Borrower has undertaken the obligations in
order to finance the growth of the Borrower's business through product
development or marketing, or to finance changes in the way the Borrower
utilizes its assets and invested or borrowed financial resources. Corporate
Loans and Corporate Debt Securities may also include senior obligations of a
Borrower issued in connection with a restructuring pursuant to Chapter 11 of
the U.S. Bankruptcy Code, provided that such senior obligations are
determined by the manager upon its credit analysis to be a suitable
investment by the fund. A significant portion of such Corporate Loans and
Corporate Debt Securities (which may be as much as 100% of the fund's total
assets) may be issued in highly leveraged transactions. This means that the
Borrower is assuming large amounts of debt in order to have large amounts of
financial resources to attempt to achieve its business objectives. Such
business objectives may include: management's taking over control of a
company (leveraged buyout); reorganizing the assets and liabilities of a
company (leveraged recapitalization); or acquiring another company. Such
Corporate Loans and Corporate Debt Securities present special risks.
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 at the Borrower's demand. Such Corporate Loans may also include
receivables purchase facilities, which are similar to revolving credit
facilities secured by a Borrower's receivables.
FOREIGN BORROWERS. The fund may invest in Corporate Loans and Corporate Debt
Securities which are made to, or issued by, foreign Borrowers and U.S.
subsidiaries of foreign Borrowers. For purposes of this prospectus,
Corporate Loans and Corporate Debt Securities of foreign Borrowers include
such loans or debt securities that have one or more of the following
characteristics: (1) the principal trading market of the loan or security is
in a country other than the U.S.; (2) at least 50% of the revenue of the
Borrower is generated from goods produced or sold, investments made, or
services performed in a country other than the U.S.; (3) the Borrower is
organized under the laws of a country other than the U.S.; or (4) at least
50% of the assets of the Borrower are situated in a country other than the
U.S. The fund normally invests primarily in U.S. Borrowers, but may invest
up to 65% of its assets in foreign Borrowers in developed countries other
than the U.S. The fund may from time to time invest in foreign Borrowers in
emerging market countries, but currently does not intend to invest more than
35% of its assets in foreign Borrowers in emerging market countries. The
fund considers a country to be an emerging market country if it is defined as
a country with an emerging or developing economy by any one of the following:
the International Bank for Reconstruction and Development (commonly known as
the World Bank), the International Finance Corporation, or the United Nations
or its agencies or authorities.
The manager will evaluate the creditworthiness of foreign Borrowers and U.S.
subsidiaries of foreign Borrowers by using the same analysis as it uses for
U.S. Borrowers.
The fund will invest in Corporate Loans and Corporate Debt Securities of
foreign Borrowers and U.S. subsidiaries of foreign Borrowers, provided that
the loans and securities are U.S. dollar-denominated, or the fund uses a
foreign currency swap for payments in U.S. dollars. U.S. dollar-denominated
loans and securities are loans and securities for which the fund pays in U.S.
dollars and the Borrower pays principal, interest, dividends or distributions
in U.S. dollars. The fund may invest in a Corporate Loan or Corporate Debt
Security that is not denominated in U.S. dollars if the fund arranges for
payments in U.S. dollars by entering into a foreign currency swap. See
"Foreign Currency Swaps."
Loans to, and securities issued by, foreign Borrowers and U.S. subsidiaries
of foreign Borrowers may involve risks not typically involved in domestic
investments and loans to, and securities issued by, foreign Borrowers and
U.S. subsidiaries of foreign Borrowers in emerging market countries involve
additional risks.
THE MANAGER'S CREDIT ANALYSIS. The manager generally will determine the
value of the collateral backing a Corporate Loan or Corporate Debt Security
by customary valuation techniques that it considers appropriate. Such
valuation techniques may include reference to financial statements of the
Borrower, independent appraisal, or obtaining the market value of such
collateral (e.g., cash or securities) if it is readily ascertainable. The
value assigned to the collateral by the manager may be higher than the value
at which the Borrower values the collateral on the Borrower's books. The
Agent Bank may rely on independent appraisals as to the value of specific
collateral. The Agent Bank, however, may not obtain an independent appraisal
in all cases. However, there are risks that the collateral may not be
sufficient in the event that a Borrower or issuer Defaults in paying interest
or principal.
The terms of each secured Corporate Loan and Corporate Debt Security require
that collateral have a fair market value at least equal to 100% of the amount
of such Corporate Loan or Corporate Debt Security. The manager generally will
determine the value of the collateral by customary valuation techniques that
it considers appropriate. However, the value of the collateral may decline
following the fund's investment. Also, collateral may be difficult to sell
and there are other risks which may cause the collateral to be insufficient
in the event of a Default. Consequently, the fund might not receive payments
to which it is entitled.
The collateral may consist of various types of assets or interests. It may
include working capital assets, such as accounts receivable or inventory.
Inventory is the goods a company has in stock, including finished goods,
goods in the process of being manufactured and the supplies used in the
process of manufacturing. Accounts receivable are the monies due to a
company for merchandise or securities that it has sold, or for the services
it has provided. It may also include tangible fixed assets, such as real
property, buildings and equipment or intangible assets, such as trademarks,
copyrights and patent rights, or securities of subsidiaries or affiliates.
Where the Borrower is a privately held company, the company's owners may
provide additional security. They may do this by giving personal guarantees
of performance or by agreeing to transfer other securities that they own to
the Lenders in the event that the obligations are not repaid. In addition,
the fund may invest in Corporate Loans that are fully collateralized by
assets of such shareholders or owners, rather than by assets of the
Borrower. However, such guarantees will be fully secured.
The fund will invest in a Corporate Loan or Corporate Debt Security only if
the manager judges that the Borrower can meet the scheduled payments on the
obligation. In addition, the manager will consider other factors it believes
are appropriate to the analysis of the Borrower and the Corporate Loan or
Corporate Debt Security. Such factors may include financial ratios of the
Borrower, such as the Interest Coverage Ratio and Leverage Ratio. The
manager also will consider the nature of the industry in which the Borrower
is engaged, the nature of the Borrower's assets and the general quality of
the Borrower. The Board will review and approve factors used by the
manager. The Corporate Loans and Corporate Debt Securities in which the fund
invests generally are not rated by an NRSRO.
When the manager selects Corporate Loans and Corporate Debt Securities for
investment by the fund, it primarily considers the creditworthiness of the
Borrower. The manager will not base its selection upon the quality ratings
of other debt obligations of a Borrower. These other debt obligations are
often subordinated to the Corporate Loans or Corporate Debt Securities.
Instead, the manager will perform its own independent credit analysis of the
Borrower, and of the collateral structure for the Corporate Loan or Corporate
Debt Security. In making its analysis, the manager 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. After the fund invests in a Corporate
Loan and Corporate Debt Security, the manager will continue to evaluate the
Corporate Loan or Corporate Debt Security on an ongoing basis.
DESCRIPTION OF FLOATING INTEREST RATES. The rate of interest payable on
Corporate Loans or Corporate Debt Securities with Floating Interest Rates 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 lenders loaning money
to companies, so-called 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 at regular intervals ranging between 30 days and one year.
Certain of the Floating Interest 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. The fund may attempt to limit the exposure 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.
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 available from 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. For more information
about this trend, see the section in the SAI entitled "How Does the Fund
Invest Its Assets? - Description of Floating or Variable Interest Rates."
FEES. 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 the fund 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.
CURRENCY CONVERSIONS. Loans to U.S. subsidiaries of 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. Foreign currency swaps involve the exchange by the
fund with another party of the right to receive foreign currency (paid under
a Corporate Loan or Corporate Debt Security) for the right to receive U.S.
dollars. The fund will enter into a foreign currency swap only if, at the
time of entering into the transaction, the counterparty's outstanding debt
obligations are investment grade. This means they are rated BBB or A-3 or
higher by S&P or Baa or P-3 or higher by Moody's, or determined by the
manager to be of comparable quality. The amounts of U.S. dollar payments to
be received by the fund and the foreign currency payments to be received by
the counterparty are fixed at the time the swap arrangement is entered into.
This locks in the fund's right to receive payments under a Corporate Loan or
Corporate Debt Security in a predetermined amount of U.S. dollars. In this
way, the swap protects the fund from the fluctuations in exchange rates. For
more information about foreign currency swaps, see the section in the SAI
entitled "Investment Policies - Foreign Currency Swaps."
DESCRIPTION OF PARTICIPATION INTERESTS AND ASSIGNMENTS. The fund may invest
in a Corporate Loan in one of three ways: (1) a direct investment in the
Corporate Loan by the fund serving as one of the Lenders; (2) Participation
Interests; or (3) an Assignment. Participation Interests are interests issued
by a Lender or other financial institution which represent a fractional
interest in a Corporate Loan. The fund may acquire Participation Interests
from a Lender or other holders of Participation Interests. Holders of
Participation Interests are referred to as Participants. (For a general
description of Lenders and Agent Banks, see "More About Corporate Loans and
Corporate Debt Securities.") An Assignment represents a portion of a
Corporate Loan. Unlike a Participation Interest, the fund will generally
become a "Lender" for the purposes of the terms of the Corporate Loan by
purchasing an Assignment. It can be most advantageous to the fund to make a
direct investment in a Corporate Loan as one of the Lenders. Such an
investment is typically made at par. This means that the fund receives a
return at the full interest rate for the Corporate Loan.
On the other hand, when the fund invests in a Participation Interest or an
Assignment, it will normally pay a fee or forego a portion of the interest
payment. Consequently, the fund's return on the investment may not be as
great as it would have been if the fund had made a direct investment in the
underlying Corporate Loan.
Opportunities for direct investments in Corporate Loans and to a lesser
degree, of investments in Participation Interests or Assignments may, from
time to time, be limited. The fund may not be able to invest in Corporate
Loans other than through Participation Interests or Assignments. Due to
these possible limitations on supply, there is a risk that the fund may not
be able to invest 65% or more of its total assets as described above.
The Lenders or the Agent Bank may have an incentive to market the less
desirable Corporate Loans, Participation Interests or Assignments to
investors such as the fund while retaining the more desirable investments for
their own inventory. This reduces the availability of the more desirable
investments.
The SEC has for some time been considering a proposal that would require that
any investment company, such as the fund, whose name implies that the
investment company invests primarily in a given type of security must invest
no less than 80% of its total assets in that type of security, under normal
market conditions. The current requirement is that no less than 65% of an
investment company's total assets must be invested in that type of security.
If the SEC adopts this proposal, the fund will be required to increase, from
65% to 80%, the amount of its total assets invested in Corporate Loans and
Corporate Debt Securities. Due to the limited availability of these types of
investments, there is a risk that the fund may not be able to meet such a
high level of investment in Corporate Loans and Corporate Debt Securities, as
discussed above. The current requirement is that no less than 65% of an
investment company's total assets must be invested in that type of security.
If the SEC adopts this proposal, the fund will be required to increase, from
65% to 80%, the amount of its total assets invested in Corporate Loans and
Corporate Debt Securities. Due to the limited availability of these types of
investments, there is a risk that the fund may not be able to meet such a
high level of investment in Corporate Loans and Corporate Debt Securities, as
discussed above.
The terms of the Participation Interests are privately negotiated between the
fund and the seller. Typically, the fund will not have established any direct
contractual relationship with the Borrower. The fund will be required to
rely on the Lender or the Participant that sold the Participation Interest
for the enforcement of the fund's rights against the Borrower. It also will
have to rely on that party for the receipt and processing of payments due to
the fund under the Corporate Loans. Consequently, the fund is subject to the
credit risk of both the Lender or Participant, in addition to the usual
credit risk of the Borrower. Lenders and Participants interposed between the
fund and a Borrower, together with Agent Banks, are referred to as
Intermediate Participants.
If the fund purchases an Assignment from a Lender, the fund will step into
the shoes of the original Lender and will have direct contractual rights
against the Borrower. An Assignment from a Lender gives the fund the right
to receive payments directly from the Borrower and to enforce its rights as a
Lender directly against the Borrower.
In the event the Borrower fails to pay principal and interest when due, the
fund may have to assert rights against the Borrower through an Intermediate
Participant. This may subject the fund 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 Interest, the fund may be regarded as a creditor of the
Intermediate Participant rather than of the Borrower. This means that the
fund does not have any direct contractual rights against the Borrower. Also,
in the event of the insolvency of the Lender selling the Participation
Interest, the fund may not have any exclusive or senior claim with respect to
the Lender's interest in the Corporate Loan, or in the collateral securing
the Corporate Loan. Consequently, the fund may not benefit directly from the
collateral supporting the underlying Corporate Loan. There is a risk that
the Intermediate Participant may become insolvent. Similar risks may arise
with respect to the Agent Bank.
The Agent Bank is a Lender that administers the Corporate Loan. The Agent
Bank typically is responsible for collecting principal, interest and fee
payments from the Borrower. The Agent Bank then distributes these payments
to all Lenders that are parties to the Corporate Loan. The fund will not act
as an Agent Bank. It generally will rely on the Agent Bank or an
Intermediate Participant to collect its portion of the payments. The fund
will also rely on the Agent Bank to take appropriate actions against a
Borrower that is not making payments as scheduled. Typically, the Agent Bank
is given broad discretion in enforcing the terms of the Corporate Loan, and
is required 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 at the start of Corporate
Loans and other fees paid on a continuing basis.
In the event that a Borrower becomes bankrupt or insolvent, the Borrower may
attempt to assert certain legal defenses 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 manager's judgment.
There is also a risk that an Agent Bank may have financial difficulty. An
Agent Bank could even declare bankruptcy, or have a receiver, conservator, or
similar official appointed for it by a regulatory authority. If this
happens, assets held by the Agent Bank under the Corporate Loan should remain
available to holders of Corporate Loans, including the fund. However, a
regulatory authority or court may determine that assets held by the Agent
Bank for the benefit of the fund are subject to the claims of the Agent
Bank's general or secured creditors. The fund might incur costs and delays
in realizing payment on a Corporate Loan or might suffer a loss of principal
or interest. Similar risks arise in situations involving Intermediate
Participants, as described above.
Intermediate Participants may have an obligation to make future advances to
the Borrower at the demand of the Borrower in connection with what are known
as revolving credit facilities and may have certain other obligations
pursuant to the terms of Corporate Loans. The fund will set aside in a
separate account with its custodian bank amounts that are earmarked to meet
such future obligations. These amounts will be invested in high quality,
short-term, liquid instruments. Because the fund will maintain sufficient
amounts in separate accounts for such contingent obligations, the manager
believes that such obligations do not constitute senior securities under the
1940 Act as interpreted by the SEC. The fund will not invest in Corporate
Loans that would require the fund to make future advances that exceed in the
aggregate for all such Corporate Loans 20% of the fund's total assets. The
fund also will not invest in Corporate Loans that would cause the fund to
fail to meet the diversification requirements previously described.
ITEM 8.3. RISK FACTORS
LIMITATIONS ON AVAILABILITY OF CORPORATE LOANS, PARTICIPATION INTERESTS,
ASSIGNMENTS AND CORPORATE DEBT SECURITIES. Direct investments in Corporate
Loans and, to a lesser degree, investments in Participation Interests or
Assignments may from time to time have only limited availability.
Consequently, there is a risk that the fund may not be able to invest 65% or
more of its total assets in Corporate Loans, Participation Interests,
Assignments and Corporate Debt Securities, as described above. Limitations on
the availability of these investments may be due to a number of factors.
There may be more willing purchasers of direct Corporate Loans compared to
the available loans. Direct Lenders may also allocate only a small number of
Corporate Loans to investors, such as the fund. Also, the Lenders or the
Agent Bank may have an incentive to market the less desirable Corporate
Loans, Participation Interests or Assignments to investors such as the fund
while retaining the more attractive investments for themselves. This reduces
the availability of the more desirable investments.
ILLIQUID SECURITIES. The fund does not limit the amount of its investments
that are not readily marketable or are subject to restrictions on resale.
Corporate Loans and Corporate Debt Securities in which the fund invests are,
at present, not readily marketable and may be subject to significant
restrictions on resale. They do not have the liquidity of conventional
investment grade debt securities and may be considered Illiquid. As the
market for Corporate Loans and Corporate Debt Securities matures, the manager
expects that liquidity will improve.
In the event that the fund voluntarily or involuntarily liquidates these
assets, it may not get the full value of the assets. The fund may have
difficulty disposing of Illiquid portfolio securities. This may make it
difficult for the fund to raise proceeds to repurchase Common Shares in a
Repurchase Offer. This may make it difficult for the fund to raise proceeds
necessary to repurchase Common Shares in a Repurchase Offer. The Board will
consider liquidity when it determines the percentage of the fund's
outstanding Common Shares that the fund will offer to repurchase in a
Repurchase Offer. The Board will also consider the liquidity of the fund's
portfolio securities when it determines whether to suspend or postpone a
Repurchase Offer.
RISKS FROM FLUCTUATIONS IN GENERAL INTEREST RATES. Changes in interest rates
in the national and international markets generally affect the market value
of fixed-income securities and debt obligations. In turn, the Net Asset
Value of the shares of an investment company which invests primarily in
fixed-income securities fluctuates. When interest rates rise, the value of a
fixed-income portfolio can be expected to fall. However, the manager expects
the fund's Net Asset Value to be relatively stable during normal market
conditions, because the fund's investments will consist primarily of: (i)
Corporate Loans and Corporate Debt Securities with Floating Interest Rates;
(ii) fixed rate Corporate Loans and Corporate Debt Securities hedged by
interest rate swap transactions; and (iii) short-term instruments. Because
the fund will invest primarily in these instruments, the manager expects the
Net Asset Value of the fund to fluctuate less as a result of interest rate
changes than would a portfolio comprised mostly of medium or long-term
fixed-rate obligations.
However, some Floating Interest Rates reset only periodically. This means
that there are periods during which the interest rate does not change.
During such periods, prevailing interest rates and the interest rates on some
obligations with Floating Interest Rates held by the fund (including the
interest rates on nominal amounts in the fund's interest rate swap
transactions) will not move precisely in the same direction or amount, in
other words, there will be an imperfect correlation between these rates.
These imperfect correlations may cause the fund's Net Asset Value to
fluctuate. 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. Also, a decline in the Net Asset Value could result from a
Borrower Defaulting on a Corporate Loan or Corporate Debt Security and from
changes in the creditworthiness of a Borrower. In the case of Corporate
Loans, a decline in the Net Asset Value may also result from changes in the
creditworthiness of Intermediate Participants interposed between the fund and
the Borrowers.
FINANCIAL INSTITUTIONS. As discussed above, the fund will invest more than
25% of its total assets in the securities of the following issuers as a
group: commercial banks, thrift institutions, insurance companies and finance
companies. As a result, the fund is subject to certain risks associated with
these institutions, both individually and as a group.
Banking and thrift institutions are subject to extensive governmental
regulations. These regulations may limit both the amounts and types of loans
and other financial commitments which the institutions may make and the
interest rates and fees which the institutions may charge. The profitability
of these institutions largely depends upon the availability and cost of
capital funds. Their profits have recently fluctuated significantly as a
result of volatile interest rate levels. In addition, general economic
conditions influence the operations of these institutions. Financial
institutions are exposed to credit losses which result when borrowers suffer
financial difficulties.
Insurance companies are also affected by economic and financial conditions
and are subject to extensive government regulation, including rate
regulation. Property and casualty companies may be exposed to material
risks, including reserve inadequacy, latent health exposure and inability to
collect from their reinsurance carriers.
These industries are currently undergoing rapid change as existing
distinctions between different businesses become blurred. On November 12,
1999, the Gramm-Leach-Bliley Act was signed into law. This new law,
effective March 11, 2000, repealed the sections of the Glass-Steagall Act
prohibiting banks and bank holding companies, and their subsidiaries, from
engaging in the business of underwriting securities, distributing securities,
or sponsoring, organizing or controlling a registered open-end investment
company that continuously offers its shares. Banks and bank holding
companies that satisfy certain capitalization, managerial and other criteria
are now permitted to engage in such underwriting and distribution
activities. Recent business combinations have included insurance, finance
and securities brokerage under single ownership.
EFFECTS OF LEVERAGE. The fund is authorized to borrow money and has arranged
a credit facility with a bank, which permits it to borrow funds to meet
unfunded commitments in connection with investments or to make repurchases of
shares in Repurchase Offers for Common Shares. However, the fund will only
borrow money under this facility for temporary, extraordinary or emergency
purposes. Under the 1940 Act, the fund is required with respect to all
borrowings to maintain minimum asset coverage of at least 300% immediately
following any such borrowing and on an ongoing basis as a condition of
declaring dividends and repurchasing shares.
There is a risk that the costs of borrowing may exceed the income and
appreciation, if any, on assets acquired with the borrowed funds. If this
occurs, the use of leverage will reduce the investment performance of the
fund compared with what it would have been without leverage. The costs
associated with such borrowings include interest payments, fees and
dividends. 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. When the fund borrows
money, the lender will have the right to receive scheduled interest and
principal payments. The lender's right to such payments will be senior to
those of the holders of Common Shares. The terms of any such borrowings may
limit certain activities of the fund, including the payment of dividends to
holders of Common Shares. Furthermore, the lenders may be granted certain
voting rights if the fund Defaults in the payment of interest or repayment of
principal. Subject to its ability to liquidate its relatively Illiquid
portfolio securities, the fund intends to repay the borrowings in the event
that the borrowings would impair the fund's status as a regulated investment
company under the Code. Interest payments and fees paid by the fund on any
borrowings will reduce the amount of income it has available to pay as
dividends to the fund's shareholders.
Leverage creates certain risks for holders of Common Shares. Leveraging by
the fund creates an opportunity for greater total return but, at the same
time, increases exposure to losses. The Net Asset Value of Common Shares may
be more volatile than if the fund were not leveraged. These risks may be
reduced through the use of borrowings that have Floating Interest Rates.
The fund's willingness to borrow money for investment purposes, and the
amount it will borrow, will depend on many factors. The most important
factors are investment outlook, market conditions and interest rates.
Successful use of a leveraging strategy depends on the manager's 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.
COMMITMENTS OF THE FUND TO MAKE ADDITIONAL PAYMENTS TO BORROWERS. Corporate
Loans may be structured to include both term loans and revolving credit
facilities. Unlike term loans, revolving credit facilities would require the
fund to loan additional amounts at the demand of the Borrower. Where the
fund purchases a Participation Interest, the Intermediate Participant may
have the obligation to make such future advances to the Borrower. The fund
currently intends to limit investments in such Corporate Loans or
Participation Interests to amounts that would not require commitments for
future advances to exceed 20% of the fund's total assets. In addition, the
fund intends to set aside in a separate account amounts that are earmarked to
meet such future advances. These amounts will be invested in high quality,
short-term, liquid instruments.
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. If the Borrower fails to pay
scheduled interest or principal on a Corporate Loan or Corporate Debt
Security, the income of the fund or the value of its investments may be
adversely affected. In turn, this may reduce the amount of dividends or the
Net Asset Value of the fund's Common Shares. The fund's receipt of principal
and interest payments on a Corporate Loan or a Corporate Debt Security also
depends upon the creditworthiness of any Intermediate Participant. To reduce
credit risk, the manager actively manages the fund as described above.
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 an increased possibility that the Borrower may
Default on the Corporate Loan or Corporate Debt Security, or may go into
bankruptcy. The fund may have more difficulty selling highly leveraged
Corporate Loans and Corporate Debt Securities than other Corporate Loans and
Corporate Debt Securities because they are less liquid. The value of such
Corporate Loans and Corporate Debt Securities is more volatile in response to
interest rate fluctuations. The Corporate Loans and Corporate Debt
Securities in which the fund invests generally are not rated by any NRSRO.
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. However, many Borrowers will have non-investment grade
subordinated debt. During periods of deteriorating economic conditions, a
Borrower may have difficulty making its payments under such bonds and other
subordinated debt obligations. These difficulties may damage the Borrower's
credit rating or its ability to obtain financing for short-term cash flow
needs. This 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 with the consent of the Agent Bank and Lenders or under the terms of
a loan agreement as the creditworthiness of the Borrower improves.
There are risks which may cause the collateral to be insufficient in the
event that a Borrower Defaults on a Corporate Loan or Corporate Debt
Security. Although the terms of the Corporate Loans and Corporate Debt
Securities require that the collateral be maintained at a value at least
equal to 100% of the amount of such Corporate Loan or Corporate Debt
Security, the value of the collateral may decline subsequent to the fund's
investment in the Corporate Loan or Corporate Debt Security. 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.
There is also the risk that the collateral may be difficult to liquidate. In
fact, a majority of the collateral may be Illiquid. Consequently, the fund
might not receive payments to which it is entitled. This may result in a
decline in the value of the investment and, in turn, a decline in the Net
Asset Value of the fund's Common Shares.
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 a pledge or replacement,
will be strictly limited for the protection of the holders of Corporate Loans
or Corporate Debt Securities.
If a Borrower becomes involved in bankruptcy proceedings, the fund's access
to the collateral may be limited by bankruptcy and other laws. A court may
find that the fund's interest in the collateral is invalid or it may find
that other creditors of the Borrower should be paid before the fund. Such
action by a court could be based on a number of legal theories. For example,
faulty loan documentation or faulty official filings could lead to an
invalidation by a court. Corporate Loans or Corporate Debt Securities made
in connection with a highly leveraged transaction are at increased risk. In
the event that a court decides that the fund's access to the collateral is
limited or void, it is unlikely that the fund would be able to recover the
full amount of the principal and interest due to it.
FOREIGN INVESTMENTS. As noted above, the fund may invest in Corporate Loans
and Corporate Debt Securities that are made to, or issued by, foreign
Borrowers and U.S. subsidiaries of foreign Borrowers, if the Borrower passes
the same creditworthiness analysis that the manager uses for U.S. Borrowers
and the loans and securities are U.S. dollar-denominated, or the fund uses a
foreign currency swap for payments in U.S. dollars. These obligations may
involve risks not typically involved in domestic investments and the risks
can be significantly magnified for investments in foreign countries that are
emerging market countries.
CURRENCY FLUCTUATIONS. To the extent the fund uses foreign currency swaps
for Corporate Loans or Corporate Debt Securities, transactions in foreign
securities may be conducted in local currencies. In these transactions U.S.
dollars must often be exchanged for another currency when an obligation is
bought or sold or a dividend is paid. Likewise, security price quotations
and total return information reflect conversion into U.S. dollars.
Fluctuations in foreign exchange rates can significantly increase or decrease
the U.S. dollar value of a foreign investment, boosting or offsetting its
local market return. Currency risk cannot be eliminated entirely.
INCREASED COSTS. It is more expensive for the fund to purchase and sell
Corporate Loans and Corporate Debt Securities in foreign markets than in the
U.S. markets. Investment companies, such as the fund, offer an efficient way
for individuals to invest abroad, but the overall expense ratios of
international investment companies are usually higher than the overall
expense ratios of investment companies that invest in U.S. obligations.
POLITICAL AND ECONOMIC FACTORS. The economies, markets, and political
structures of a number of the countries in which the fund can invest do not
compare favorably with the U.S. and other mature economies in terms of wealth
and stability. Therefore, investments in these countries will entail greater
risk and may be subject to erratic and abrupt price movements. This is
especially true for emerging market countries.
LEGAL, REGULATORY, AND OPERATIONAL. Certain foreign countries may impose
restrictions on foreign investors, such as the fund. These restrictions may
take the form of prior governmental approval, limits on the amount and type
of obligations held by foreigners, limits on the types of companies in which
foreigners may invest, exchange controls and other actions that restrict the
purchase or sale of assets or result in a loss of assets. Diplomatic
developments could affect the fund's investments in these countries. In
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.
Certain foreign countries lack uniform accounting, auditing, and financial
reporting standards, have less governmental supervision of financial markets
than in the U.S., and do not honor legal rights enjoyed in the U.S. In
certain foreign countries, the financial institutions with which the fund
deals may have custody and settlement practices, such as delays, which could
subject the fund to risks not customary in the U.S. Information about foreign
Borrowers may differ from that available for 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. In addition, the markets for Corporate Loans
and Corporate Debt Securities in foreign countries have substantially lower
trading volumes than U.S. markets, resulting in less liquidity and more
volatility than in the United States.
PRICING. Corporate Loans and Corporate Debt Securities may be purchased or
sold on days (such as Saturdays) when the fund does not account for their
prices in calculating its Net Asset Value. As a result, the fund's Net Asset
Value may change significantly on days when shareholders cannot purchase
Common Shares, or for repurchases of Common Shares, between the date on which
a shareholder tenders Common Shares for repurchase by the fund and the date
on which the repurchase price of the Common Shares is determined.
EURO. On January 1, 1999, the European Economic and Monetary Union
introduced a new single currency called the euro. By July 1, 2002, the euro
will have replaced the national currencies of the following countries:
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain. Currently, the exchange rate of the
currencies of each of these countries is fixed to the euro and the new
European Central Bank has control over each country's monetary policies. The
government of each of these countries, however, continues to have the
authority to set its own tax and spending policies and public debt levels.
The change to the euro as a single currency is new and untested. It is not
possible to predict the impact of the euro on currency values or on the
business or financial condition of European countries and issuers and issuers
in other regions whose securities the fund may hold, or the impact, if any,
on fund performance. The fund's non-U.S. dollar (euro or other) denominated
investments will still be exposed to currency risk due to fluctuations among
those currencies and versus the U.S. dollar.
RISK OF DECLINE IN NAV DUE TO REPURCHASES. The NAV may decline as a result
of the fund's sales of portfolio securities to finance a Repurchase Offer.
The fund may be required to sell portfolio securities to raise cash to
finance a Repurchase Offer, which may cause the market prices of the fund's
portfolio securities, and hence the fund's NAV, to decline. If such a
decline occurs, the fund cannot predict its magnitude or whether such a
decline would be temporary or continue until or beyond the Repurchase Pricing
Date. Since the price per share to be paid in the Repurchase Offer will
depend upon the NAV per share as determined on the actual pricing date, the
consideration received by tendering shareholders would be reduced if the
decline continued until the actual pricing date. In addition, the sale of
portfolio securities will increase the fund's transaction expenses, and the
fund may receive proceeds from the sale of portfolio securities that are less
than their valuations by the fund. Accordingly, because of the Repurchase
Offer, the fund's NAV per share may decline more than it otherwise might,
thereby reducing the amount of proceeds received by tendering shareholders
and the NAV per share for non-tendering shareholders.
PORTFOLIO MANAGEMENT AND OTHER CONSIDERATIONS. In the event that short-term
interest rates increase or other market conditions change, the fund's
leverage could adversely affect holders of Common Shares, as noted above. If
such changes occur or are anticipated, the fund may attempt to shorten the
average maturity of its investment portfolio. This would tend to decrease
the negative impact of leverage on holders of Common Shares. To do this, the
fund would purchase securities with generally shorter maturities.
ILLIQUIDITY OF COMMON SHARES. An investment in Common Shares of the fund
should be considered Illiquid. The fund does not intend to list its Common
Shares for trading on any securities exchange. The fund expects that there
will be no secondary market for Common Shares. The fund is designed
primarily for long-term investors. It should not be considered a vehicle for
short-term trading purposes, given its lack of a secondary market.
Under certain limited circumstances, the fund may suspend or postpone a
quarterly Repurchase Offer for the repurchase of Common Shares from the
fund's shareholders. (The fund must meet certain regulatory requirements and
must give notice to shareholders in order to suspend or postpone a Repurchase
Offer.) In that event, shareholders will likely be unable to sell their
Common Shares.
Even if a secondary market for Common Shares develops, the shares of
closed-end funds, such as the fund, frequently trade at a discount from (a
price below) their Net Asset Value in the secondary market. This means that
the market price of the Common Shares will probably be less than the Net
Asset Value, should a secondary market develop. It is unlikely that Common
Shares would trade at a premium to (a price above) Net Asset Value should a
secondary market for Common Shares develop. A premium is unlikely since
investors may purchase Common Shares at Net Asset Value from the fund.
ITEM 8.4. OTHER INVESTMENT POLICIES
The fund has adopted certain other policies set forth below:
REPURCHASE AGREEMENTS. The fund generally will have a portion of its assets
in cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn
income on this portion of its assets, the fund may enter into repurchase
agreements. Under a repurchase agreement, the fund agrees to buy securities
guaranteed as to payment of principal and interest by the U.S. government or
its agencies from a qualified bank or broker-dealer and then to sell the
securities back to the bank or broker-dealer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the fund's custodian securities with an
initial market value of at least 102% of the dollar amount invested by the
fund in each repurchase agreement. The manager will monitor the value of
such securities daily to determine that the value equals or exceeds the
repurchase price. Repurchase agreements may involve risks in the event of
default or insolvency of the bank or broker-dealer, including possible delays
or restrictions upon the fund's ability to sell the underlying securities.
The fund will enter into repurchase agreements only with parties who meet
certain creditworthiness standards, i.e., banks or broker-dealers that the
manager has determined present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
transaction.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The fund may purchase and
sell interests in Corporate Loans and Corporate Debt Securities and other
debt securities on a when-issued and delayed delivery basis. There is no
limit on the amount of assets which the fund may invest in when-issued
securities. A when-issued obligation refers to an obligation whose price is
fixed at the time the commitment to purchase is made, but has not been
issued. Delayed delivery refers to the delivery of securities later than the
customary time for delivery of securities.
No income accrues to the fund prior to the date the fund actually takes
delivery of the interests or securities. These interests and securities are
subject to market fluctuation before delivery to the fund. The value of the
interests or securities at delivery may be more or less than their purchase
price. By the time delivery occurs, better yields may be generally available
than the yields on the interests or securities obtained pursuant to such
transactions.
In when-issued and delayed delivery transactions, the fund relies on the
buyer or seller, as the case may be, to complete the transaction. Therefore,
if the other party fails to complete the transaction the fund may miss an
advantageous price or yield. When the fund is the buyer in such a
transaction, it will maintain, in a separate account, an amount equal to the
purchase price, until it makes payment. This amount will be in the form of
cash or other liquid assets. The fund will generally make commitments to
purchase interests or securities on a when-issued basis with the intention of
acquiring the interests or securities. The fund may, however, find it
advisable to sell them before the settlement date. The fund will not engage
in when-issued and delayed delivery transactions for the purpose of
investment leverage.
INTEREST RATE AND HEDGING TRANSACTIONS. The fund may enter into interest
rate swaps in order to limit the exposure 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 or rights to pay or receive interest, such as an
exchange of fixed rate payments for Floating Interest Rate payments. For
example, if the fund holds a Corporate Loan or Corporate Debt 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. Thus, if interest rates rise, the increased
interest received by the fund would offset a decline in the value of the
Corporate Loan or Corporate Debt Security. On the other hand, if interest
rates fall, the fund's benefit from falling interest rates would be decreased.
To the extent that the fund enters into these transactions for hedging
purposes, the manager believes that such obligations do not constitute senior
securities under the 1940 Act. Accordingly, the fund will not include
hedging transactions in its limitation on borrowing.
Except as noted above, there is no limit on the amount of interest rate
hedging transactions that may be entered into by the fund. The risk of loss
with respect to interest rate hedges is limited to the net amount of interest
payments that the fund is obligated to make. 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 is entitled to receive. The fund
will only enter into an interest rate swap after the manager has evaluated
the creditworthiness of the other party to the swap. The risks associated
with interest rate swaps are further described in the SAI under the title
"Investment Policies - Interest Rate Swaps."
ITEM 8.5 SHARE PRICE DATA
TIMING OF PRICING. The fund engages in a continuous offering of its Common
Shares at a price equal to the Net Asset Value per share next determined
after a purchase order is received. No sales charge is imposed on Common
Shares. Consequently, sales commissions do not reduce the proceeds of the
offering available to the fund for investment. As of March 23, 2000, the Net
Asset Value per share for Common Shares was $10.00.
The fund calculates the Net Asset Value per share as of the close of the
NYSE, normally 1:00 p.m. Pacific time, each day that the NYSE is open for
trading. As of the date of this Prospectus, the fund is informed that the
NYSE observes the following holidays: New Year's Day, Martin Luther King Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
VALUATION OF PORTFOLIO SECURITIES AFFECTING PRICING. For the purposes of
determining the Net Asset Value of Common Shares, the fund's cash and
uninvested assets plus the value of the securities and any other assets
(including interest accumulated but not yet received) held by the fund minus
all liabilities (including accrued expenses) is divided by the total number
of Common Shares outstanding at such time. Expenses, including the fees
payable to the manager, are accrued daily.
The fund values Corporate Loan or Corporate Debt Securities traded in the
over-the-counter market at the last quoted sales price of the day, or if
there is no reported sale, within the range of the most recent bid and asked
prices. With the approval of the Board, the fund may use a pricing service,
bank or securities dealer to perform these functions.
The manager, subject to guidelines adopted and periodically reviewed by the
Board, values Corporate Loans and Corporate Debt Securities, for which there
are no readily available market quotations, at fair value, which approximates
market value.
Non-loan 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, non-loan portfolio securities are valued at the last
sale price on the exchange that is the primary market for such securities, or
the mean between the bid and the asked 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.
LIQUIDITY OF COMMON SHARES AFFECTING PRICING. The fund may suspend the
continuous offering of Common Shares at any time without prior notice.
Similarly, the fund may resume the offering at any time. If there is a
suspension of the offering of Common Shares, shareholders that reinvest their
distributions in additional Common Shares will be permitted to continue to
make those reinvestments.
The fund issues Common Shares only in private placement transactions that do
not involve a public offering within the meaning of Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). This prospectus
is not offering to sell or soliciting any offer to buy, any security to the
public within the meaning of the Securities Act. Investments in the fund may
not be transferred, except upon exemption from the registration requirements
of the Securities Act of 1933, but an investor may withdraw all or any
portion of their investment at any time at net asset value. In the interest
of economy and convenience, certificates for fund shares will not be issued.
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the fund. Accredited investors include common or
commingled trust funds, investment companies and other institutional
investors.
It is expected that certain shareholders of the fund will be investment
companies that seek to achieve their investment objectives by investing all
of their investable assets in Common Shares of the fund (the "Feeder
Funds"). Each of the Feeder Funds will have the same investment objective,
policies and limitations as the fund. The master-feeder structure is unlike
many other investment companies that directly acquire and manage their own
portfolio of securities. The investment experience of each of the Feeder
Funds will correspond directly with the investment experience of the fund.
No market currently exists for Common Shares. It is not currently
anticipated that a secondary market will develop for Common Shares. The fund
and the manager do not intend to make a secondary market in Common Shares or
to list Common Shares on any securities exchange or arrange for their
quotation on any over-the-counter market. Common Shares are not readily
marketable and should be treated as an illiquid investment. This means that
shareholders may not be able to freely sell their Common Shares.
To provide shareholders a means to sell their Common Shares at Net Asset
Value, the fund will make quarterly Repurchase Offers to repurchase Common
Shares from shareholders. Each Repurchase Offer will be for a specified
percentage (between 5% and 25%) of the fund's outstanding Common Shares as
set by the fund's Board. Common Shares will be repurchased at the Net Asset
Value determined as of the close of business (1:00 p.m., Pacific time) on the
day the Repurchase Offer ends or within a maximum of fourteen days after the
Repurchase Offer ends as described in "Periodic Offers By the Fund to
Repurchase Common Shares From Shareholders." Each Repurchase Offer will last
for a period between six weeks and three weeks. The fund will send to its
shareholders a written notification about each Repurchase Offer at the
beginning of the Repurchase Offer. A Repurchase Offer is expected to
conclude near the end of every three months after the end of March 2000.
ITEM 9. MANAGEMENT
ITEM 9.1A. BOARD OF TRUSTEES
The Board of Trustees oversees the management of the Trust and the fund. The
Trustees are elected for an indefinite term and generally hold regular
meetings each calendar quarter. The Board elects the officers of the Trust.
The officers are responsible for the fund's day-to-day operations.
As required by Rule 23c-3 under the 1940 Act, a majority of the Board
consists of Independent Trustees. In addition, the Independent Trustees will
select and nominate any additional Independent Trustees.
ITEM 9.1B. INVESTMENT MANAGER
Franklin Advisers, Inc, 777 Mariners Island Blvd., P.O. Box 777, San Mateo,
CA 94404, manages the fund's assets and makes its investment decisions. The
manager also performs similar services for other funds. It is wholly-owned
by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson,
Jr. are the principal shareholders of Resources. Together, the manager and
its affiliates manage over $226 billion in assets. Under its investment
management Agreement with the fund, the manager receives fees at an annual
rate of 0.80% of the average daily net assets of the fund.
ITEM 9.1C. PORTFOLIO MANAGEMENT
Portfolio Manager.
Chauncey F. Lufkin
Senior Vice President of Franklin Advisers, Inc.
Mr. Lufkin is a Vice President of the fund and has been the portfolio manager
of the fund since its inception. Mr. Lufkin has been a portfolio manager of
Franklin Advisers, Inc. since 1990. He was 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 National Bank (now, Bank of America).
ITEM 9.1D. ADMINISTRATORS
FT Services provides certain administrative services and facilities for the
fund. Under its agreement with the fund, FT Services is entitled to a
monthly fee equal to an annual rate of 0.15% of the fund's average daily net
assets up to $200 million, 0.135% of average daily net assets over $200
million up to $700 million, 0.10% of average daily net assets over $700
million up to $1.2 billion, and 0.075% of average daily net assets over $1.2
billion. The fund may reimburse FT Services for certain out-of-pocket
expenses. The administrator may end this arrangement at any time upon notice
to the Board.
SHAREHOLDER SERVICING AND TRANSFER AGENT. 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 is
not compensated for its services, however, the fund may reimburse Investor
Services for certain out-of-pocket expenses.
ITEM 9.1E. 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.
ITEM 9.1F. EXPENSES
The fund pays its own operating expenses. These expenses include the
manager's management fees; taxes, if any; custodian, legal and auditing fees;
the fees, if any, and expenses of Board members who are not members of,
affiliated with, or interested persons of the manager; fees of any personnel
not affiliated with the manager; insurance premiums; trade association dues;
expenses of obtaining quotations for calculating the fund's Net Asset Value;
and printing and other expenses that are not expressly assumed by the manager.
ITEM 9.1G. AFFILIATED BROKERAGE
PORTFOLIO TRANSACTIONS BY THE FUND. The manager tries to obtain the best
execution on all transactions. If the manager believes more than one broker
or dealer can provide the best execution, it may consider research and
related services and the sale of Common Shares, as well as shares of other
funds in the Franklin Templeton Group of Funds, when selecting a broker or
dealer.
The fund engages in trading when the manager 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 goal, 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.
Distributors is a wholly-owned subsidiary of Resources, a registered
broker-dealer and a member of the NASD. Because Distributors is a member of
the NASD, Distributors may sometimes receive certain fees when the fund
tenders portfolio securities pursuant to a tender-offer solicitation. To
recapture 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 the
manager 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.
ITEM 9.2. NON-RESIDENT MANAGERS. Not applicable.
ITEM 9.3. CONTROL PERSONS.
As of March 23, 2000, there were no control persons of the Trust
ITEM 10. CAPITAL STOCK, LONG-TERM DEBT, AND OTHER SECURITIES.
ITEM 10.1. CAPITAL STOCK
DESCRIPTION OF COMMON SHARES.
The fund is authorized to issue an unlimited number of its shares of
beneficial interest, the Common Shares. The fund's Common Shares may be
offered in multiple classes. Although the Board does not currently intend to
do so, it may classify and reclassify any unissued Common Shares at any
time. For example, the Board is permitted to set or change the preferences,
conversion or other rights, voting powers, restrictions, dividend limitations
or terms and conditions of repurchase of the fund's Common Shares. The
description of Common Shares and the discussion under "Certain Anti-Takeover
Provisions of the Declaration of Trust" below are subject to the terms of the
Trust's Declaration of Trust and Bylaws.
Common Shares do not have preemptive, conversion, exchange or redemption
rights. Each Common Share has equal voting, dividend, distribution and
liquidation rights. Both the outstanding Common Shares (i.e., the Common
Shares issued prior to the date of this prospectus) and the Common Shares
offered by this prospectus (once they are issued) are fully paid and
nonassessable. Shareholders are entitled to one vote per share.
The fund has noncumulative voting rights. This gives holders of more than
50% of the Common Shares voting the ability to elect all of the members of
the Board. If this happens, holders of the remaining Common Shares voting
will not be able to elect anyone to the Board.
In addition, the fund expects that it will arrange with the Feeder Funds for
voting rights as provided in Section 12(d)(1)(E)(iii)(a) of the 1940 Act.
The Board has approved the offering of Common Shares that are being offered
by this prospectus. The 1940 Act requires that Common Shares be sold at a
price equal to the then-current Net Asset Value (not including underwriting
discounts and commissions, none of which apply to the Common Shares). There
are exceptions to this requirement, such as an offering to existing
shareholders or if a majority of the holders of the fund's outstanding
securities approve it. Common Shares will be held in book-entry form.
Common Shares of the fund are not deposits or obligations of, or guaranteed
or endorsed by, any bank, and Common Shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency of the U.S. government. Common Shares of the fund involve
investment risks, including the possible loss of principal.
PERIODIC OFFERS BY THE FUND TO REPURCHASE COMMON SHARES FROM SHAREHOLDERS.
The fund is not aware of any currently existing secondary market for Common
Shares and does not anticipate that a secondary market will develop for
Common Shares. A secondary market is a market, exchange facility or system
for quoting bid and asking prices where securities such as the Common Shares
can be readily bought and sold among holders of the securities after they are
initially distributed. Without a secondary market, Common Shares are not
liquid, which means that they are not readily marketable. However, the fund
has taken action to provide liquidity to shareholders. The fund has adopted
share repurchase policies as fundamental policies. This means the policies
may not be changed without the vote of the holders of a majority of the
fund's outstanding voting securities. These policies provide that each
quarter, the fund will make a Repurchase Offer to repurchase a portion of the
outstanding Common Shares from shareholders who request repurchases. The
fund will suspend or delay a Repurchase Offer only if certain regulatory
requirements (described in the notice of the Repurchase Offer) are met. See
"Suspension or Postponement of Repurchase Offer." The price of the
repurchases of Common Shares normally will be the Net Asset Value per share
determined as of the close of business (1:00 p.m. Pacific time) on the date
the Repurchase Offer ends or within a maximum of fourteen days after the
Repurchase Offer ends as described below.
REPURCHASE PROCEDURES. At the beginning of each Repurchase Offer, the fund
will send to its shareholders a written notification about the Repurchase
Offer, how they may request that the fund repurchase their Common Shares and
the deadline for shareholders to provide their repurchase requests to
Investor Services (the "Repurchase Request Deadline"), which is the date the
Repurchase Offer ends. The time between the notification to the shareholders
and the Repurchase Request Deadline may vary from no more than six weeks to
no less than three weeks. For each Repurchase Offer the fund will establish
the Repurchase Request Deadline based on factors, such as market conditions,
liquidity of the fund's assets and shareholder servicing considerations. The
repurchase price of the Common Shares will be the Net Asset Value as of the
close of the NYSE on the date on which the repurchase price of the Common
Shares will be determined (the "Repurchase Pricing Date"). It is anticipated
that normally the Repurchase Pricing Date will be the same date as the
Repurchase Request Deadline, and if so, the Repurchase Request Deadline will
be set for a time no later than the close of the NYSE on such date. The fund
has determined that the Repurchase Pricing Date may occur no later than the
fourteenth day after the Repurchase Request Deadline or the next business day
if the fourteenth day is not a business day. Within such fourteen-day
period, the fund may use an earlier Repurchase Pricing Date under certain
circumstances.
The Board may establish other policies for repurchases of Common Shares that
are consistent with the 1940 Act and other pertinent laws. Once every two
years, the Board may, if it chooses, make an additional Repurchase Offer for
repurchase of Common Shares in addition to regular quarterly Repurchase
Offers. Common Shares tendered by shareholders by any Repurchase Request
Deadline will be repurchased subject to the aggregate repurchase amounts
established for that Repurchase Request Deadline. Repurchase proceeds will
be paid to shareholders, in cash, within seven days after each Repurchase
Pricing Date. The end of the seven days is referred to as the "Repurchase
Payment Deadline."
REPURCHASE AMOUNTS. The Board, in its sole discretion, will determine the
number of Common Shares that the fund will offer to repurchase (the
"Repurchase Offer Amount") for a given Repurchase Request Deadline. The
Repurchase Offer Amount will be at least 5% and no more than 25% of the total
number of Common Shares outstanding on the Repurchase Request Deadline. A
Repurchase Offer is expected to conclude near the end of every calendar
quarter each year.
If shareholders tender more than the Repurchase Offer Amount for a given
Repurchase Offer, the fund may repurchase an additional amount of Common
Shares of up to 2% of the Common Shares outstanding on the Repurchase Request
Deadline. If fund shareholders tender more Common Shares than the fund
decides to repurchase, whether the Repurchase Offer Amount or the Repurchase
Offer Amount plus the 2% additional Common Shares, the fund will repurchase
the Common Shares on a pro rata basis, rounded down to the nearest full
share. The fund may, however, accept all Common Shares tendered by
shareholders who own less than one hundred Common Shares and who tender all
their Common Shares, before accepting on a pro rata basis Common Shares
tendered by other shareholders.
NOTICES TO SHAREHOLDERS. Notice of each quarterly Repurchase Offer (and any
additional discretionary repurchase offers) will be sent to each beneficial
owner of Common Shares between twenty-one and forty-two days before each
Repurchase Request Deadline. The notice will include instructions on how to
tender Common Shares. The notice will state the Repurchase Offer Amount.
The notice will also identify the dates of the Repurchase Request Deadline,
latest Repurchase Pricing Date, and latest Repurchase Payment Deadline. The
notice will state that the NAV may fluctuate between the Repurchase Request
Deadline and the Repurchase Pricing Date, if such dates do not coincide, and
the possibility that the fund may use an earlier Repurchase Pricing Date than
the latest Repurchase Pricing Date under certain circumstances. The notice
will describe (i) the procedures for tender of Common Shares for repurchase
by the fund, (ii) the procedures for the fund to repurchase Common Shares on
a pro rata basis, (iii) the circumstances in which the fund may suspend or
postpone a Repurchase Offer, and (iv) the procedures that will enable the
shareholder to withdraw or modify its tender of Common Shares prior to the
Repurchase Request Deadline.
REPURCHASE PRICE. The current Net Asset Value of the Common Shares is
computed daily and will be computed daily on the five business days before a
Repurchase Request Deadline. The Board has determined that the time at which
the Net Asset Value will be computed will be as of the close of the NYSE. A
shareholder may call Fund Information at 1-800/DIAL BEN to learn the Net
Asset Value per share. The notice of the repurchase offer will give the Net
Asset Value per share as of a recent date, and a toll-free number for
information regarding the Repurchase Offer. During the period from
notification to shareholders of a Repurchase Offer until the Repurchase
Pricing Date, the fund will maintain liquid assets equal to 100% of the
Repurchase Offer Amount.
SUSPENSION OR POSTPONEMENT OF REPURCHASE OFFER. The fund will not suspend or
postpone a Repurchase Offer except if a majority of the Board, including a
majority of the Board members who are not "interested persons" of the fund,
as defined in the 1940 Act (Independent Trustees), vote to do so, and only
(a) if the Repurchase Offer would cause the fund to lose its status as a
regulated investment company under Subchapter M of the Code; (b) for any
period during which the NYSE or any market in which the securities owned by
the fund are principally traded is closed, other than customary weekend and
holiday closings, or during which trading in such market is restricted; (c)
for any period during which any emergency exists as a result of which
disposal by the fund of securities owned by it is not reasonably practicable,
or during which it is not reasonably practicable for the fund fairly to
determine its NAV; or (d) for such other periods as the SEC may by order
permit for the protection of shareholders of the fund. The fund will send to
its shareholders notice of any suspension or postponement and notice of any
renewed repurchase offer after a suspension or postponement.
SPECIAL CONSIDERATIONS OF REPURCHASES. The fund has arranged a credit
facility with a bank under which it may borrow to finance the repurchase of
Common Shares through Repurchase Offers. Any such borrowings will comply
with the fund's investment restrictions on borrowing.
Because there likely will not be a secondary market for Common Shares,
quarterly and any additional discretionary Repurchase Offers will provide the
only source of liquidity for shareholders. If a secondary market were to
develop for Common Shares, however, the market price per share of the Common
Shares could, at times, vary from the Net Asset Value per share. A number of
factors could cause these differences, including relative demand and supply
of Common Shares and the performance of the fund. Repurchase Offers for
Common Shares at Net Asset Value would be expected to reduce any spread or
gap that might develop between Net Asset Value and market price. However,
there is no guarantee that these actions would cause Common Shares to trade
at a market price that equals or approximates Net Asset Value per share.
Although the Board believes that Repurchase Offers will generally benefit
shareholders, the fund's repurchase of Common Shares will decrease the fund's
total assets. The fund's expense ratio may also increase as a result of
Repurchase Offers (assuming the repurchases are not offset by the issuance of
additional Common Shares). Such Repurchase Offers may also result in less
investment flexibility for the fund depending on the number of Common Shares
repurchased and the success of the fund's continuous offering of Common
Shares. In addition, when the fund borrows money for the purpose of
financing the repurchase of Common Shares in a Repurchase Offer, interest on
the borrowings will reduce the fund's net investment income. It is the
Board's announced policy (which the Board may change) not to repurchase
Common Shares in a Repurchase Offer over the minimum amount required by the
fund's fundamental policies regarding Repurchase Offers if the Board
determines that the repurchase is not in the fund's best interest.
Repurchases through Repurchase Offers may significantly reduce the asset
coverage of any borrowings or outstanding senior securities. The fund may
not repurchase Common Shares if the repurchases result in its asset coverage
levels falling below the levels required by the 1940 Act. As a result, in
order to repurchase all Common Shares tendered, the fund may have to repay
all or part of its outstanding borrowings or redeem all or part of its
outstanding senior securities to maintain the required asset coverage. Also,
the size of any particular Repurchase Offer may be limited (beyond the
minimum amount required for the fund's fundamental policies) for the reasons
discussed above or as a result of liquidity concerns.
To complete a Repurchase Offer for the repurchase of Common Shares, the fund
may be required to sell portfolio securities. This may cause the fund to
realize gains or losses at a time when the manager would otherwise not do so.
The Board will consider other means of providing liquidity for shareholders
if Repurchase Offers are ineffective in enabling the fund to repurchase the
amount of Common Shares tendered by shareholders. These actions may include
an evaluation of any secondary market that may exist for Common Shares, and a
determination of whether that market provides liquidity for shareholders. If
the Board determines that a secondary market (if any) failed to provide
liquidity for shareholders, the Board intends to consider all available
options to provide liquidity. One possibility that the Board may consider is
listing the Common Shares on a major domestic stock exchange or arranging for
the quotation of Common Shares on an over-the-counter market. Alternatively,
the fund might repurchase Common Shares periodically in open-market or
private transactions, provided the fund can do so on favorable investment
terms. The Board will cause the fund to take any action the Board deems
necessary or appropriate to provide liquidity for the shareholders in light
of the specific facts and circumstances.
The fund's repurchase of tendered Common Shares is a taxable event. The fund
will pay all costs and expenses associated with the making of any Repurchase
Offer. In accordance with applicable rules of the SEC in effect at the time
of the offer, the fund may also make other offers to repurchase shares that
it has issued.
CERTAIN ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST.
The Declaration of Trust includes provisions that limit (i) the ability of
other entities or persons to acquire control of the fund and (ii) the fund's
freedom to engage in certain transactions. These terms may be regarded as
"anti-takeover" provisions. Under Delaware law and the Declaration of Trust,
the affirmative vote of the holders of at least a majority of the Common
Shares outstanding and entitled to be cast as a whole or with respect to any
affected series of the Trust is required to approve the fund's or the series'
consolidation with another business entity, a merger of the fund with or into
another business trust or any other business entity, a statutory share
exchange and the sale, lease, or exchange of all or any substantial part of
the assets of the Trust. In addition, the affirmative vote of the holders of
at least 66 2/3% (which is higher than the vote required under Delaware law
or the 1940 Act) of the fund's outstanding Common Shares entitled to be cast
is required generally to authorize any of the following transactions:
o merger, consolidation or statutory share exchange of the fund with or
into any Principal Holder;
o issuance of any securities of the fund to any Principal Holder for
cash;
o sale, lease or exchange of all or any substantial part of the fund's
assets to any Principal Holder (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 fund securities,
of all or any substantial part of the assets of any Principal Holder
(except assets having an aggregate fair market value of less than
$1,000,000).
A Principal Holder is any person or group (within the meaning of Rule 13d-5
under the Securities Exchange Act of 1934, as amended (the "1934 Act")), that
is the beneficial owner, directly or indirectly, of more than 10% of the
outstanding Common Shares of the Trust and shall include any affiliate or
associate (as such terms are defined in Rule 12b-2 under the 1934 Act) of a
Principal Holder, but shall not include Resources or any affiliated person of
Resources.
This type of vote is not required when, under certain conditions, the Board
approves the transaction. In certain cases involving merger, consolidation
or statutory share exchange, however, the affirmative vote of the holders of
a majority of the fund's outstanding Common Shares would nevertheless be
required. The Declaration of Trust is on file with the SEC and a shareholder
may request a copy from the SEC for a more detailed explanation of these
terms.
The provisions of the Declaration of Trust described above and the fund's
right to make a Repurchase Offer for its Common Shares may deprive
shareholders of opportunities to sell their Common Shares at a premium over
Net Asset Value. This is because a third party will be discouraged from
attempting to obtain control of the fund by making a tender offer for shares
of the Trust or similar transaction. The overall impact of these provisions
is to reduce the possibility of a merger or of a shareholder that is the
beneficial owner of more than 10% of the outstanding shares of the fund
assuming control of the fund either directly or indirectly through
affiliates. These terms, at the same time, present advantages. The
provisions likely will require 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 goal and policies. The
Board has considered these anti-takeover provisions and concluded that they
are in the best interest of the fund and its shareholders.
ITEM 10.2. LONG-TERM DEBT. Not applicable.
ITEM 10.3. GENERAL (OTHER CLASSES OF SECURITIES). Not applicable.
ITEM 10.4. TAXES.
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends from its net investment income. The fund's net
investment income is reduced by interest on the fund's borrowings, and
dividends or interest on any senior securities issued by the fund. Dividends
are declared daily (on business days) and paid monthly to shareholders.
Capital gains, if any, are distributed at least annually to shareholders,
usually in December. Shares accrue dividends beginning the day the fund
receives the shareholder's money and continues to accrue until the day before
the shareholder's request that the fund repurchase its shares is processed
after the Repurchase Request Deadline.
FEDERAL INCOME TAXES
As a partnership, the fund is not subject to U.S. federal income tax.
Instead, each shareholder reports separately on its own income tax return its
distributive share of the fund's income, gains, losses, deductions and
credits (including foreign tax credits or deductions for creditable or
deductible foreign taxes imposed on the fund). Each shareholder is required
to report its distributive share of such items regardless of whether it has
received or will receive a corresponding distribution of cash or property
from the fund. In general, cash distributions by the fund to a shareholder
will represent a non-taxable, downward basis adjustment up to the amount of
the shareholder's adjusted tax basis in the fund shares.
When a shareholder sells or exchanges shares of the fund, the shareholder may
have a capital gain or loss.
In general, a distribution in partial or complete redemption of a
shareholder's shares of the fund is taxable as a sale or exchange only to the
extent the amount of money received exceeds the tax basis of the
shareholder's entire interest in the fund. Any loss may be recognized only
if the shareholder redeems its entire interest in the fund for money.
An allocable share of a tax-exempt shareholder's income may be "unrelated
business taxable income" ("UBTI") to the extent that the fund borrows money
to acquire property or invests in assets that produce UBTI.
The fund will not be a "regulated investment company" for federal income tax
purposes.
For a more complete discussion of the federal income tax consequences of
investing in the fund, see Item 22 in the SAI.
ITEM 10.5 OUTSTANDING SECURITIES.
NET ASSET VALUE AND SHARES OUTSTANDING
The Net Asset Value per share for Common Shares on March 23, 2000 was $10.00.
The following table sets forth certain information with respect to Common
Shares as of March 23, 2000:
(1) (2) (3) (4)
Title Amount Amount Held By Amount Outstanding
of Class Authorized Fund or for Its Exclusive of Amount
Own Account Shown Under (3)
----------------------------------------------------------------------
Common Shares
of beneficial Unlimited None 0
interest
ITEM 10.6 SECURITIES RATINGS. Not applicable.
ITEM 11. DEFAULTS AND ARREARS ON SENIOR SECURITIES. Not applicable.
ITEM 12. LEGAL PROCEEDINGS. Not applicable.
ITEM 13. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.
Item 14. Cover Page....................................Cover page
Item 15. Table of Contents......................................2
Item 16. General Information and History........................2
Item 17. Investment Objectives and Policies.....................2
Item 18. Management.............................................8
Item 19. Control Persons and Principal Holders of Securities...13
Item 20. Investment Advisory and Other Services................13
Item 21. Brokerage Allocation and Other Practices..............15
Item 22. Tax Status............................................16
Item 23. Financial Statements..................................18
USEFUL TERMS AND DEFINITIONS
1940 Act - The Investment Company Act of 1940, as amended. The 1940 Act
governs the operations of the fund.
Agent Bank - A Lender that administers a Corporate Loan on behalf of all
Lenders on a Corporate Loan. The Agent Bank typically is responsible for the
collection of principal and interest and fee payments from the Borrower, and
distributes these payments to the other Lenders. The Agent Bank is usually
responsible for enforcing the terms of the Corporate Loan. The Agent Bank is
compensated for these services.
Assignment - An interest in a portion of a Corporate Loan. The purchaser of
an Assignment steps into the shoes of the original Lender. An Assignment
from a Lender gives the fund the right to receive payments directly from the
Borrower and to enforce its rights as a Lender directly against the Borrower.
Board - The Board of Trustees of the Trust
Borrower - A corporation that borrows money under a Corporate Loan or issues
Corporate Debt Securities. The Borrower is obligated to make interest and
principal payments to the Lender of a Corporate Loan or to the holder of a
Corporate Debt Security.
CD - Certificate of deposit
CD Rate - The interest rate currently available on certificates of deposit
Code - Internal Revenue Code of 1986, as amended
Common Shares - Shares of beneficial interest in the fund
Corporate Debt Securities - Obligations issued by corporations in return for
investments by securityholders. In exchange for their investment in the
corporation, securityholders receive income from the corporation and the
return of their investments. The corporation typically pledges to the
securityholders collateral which will become the property of the
securityholders in case the corporation Defaults in paying interest or in
repaying the amount of the investments to securityholders.
Corporate Loan - A loan made to a corporation. In return, the corporation
makes payments of interest and principal to the Lenders. The corporation
typically pledges collateral which becomes the property of the Lenders, in
case the corporation Defaults in paying interest or principal on the loan.
Corporate Loans include Assignments of and Participation Interests in
Corporate Loans.
Declaration of Trust - The Agreement and Declaration of Trust, as amended, of
the fund, which is the basic charter document of the fund.
Default - Failure to pay an obligation that is owed. For example, a Borrower
that has Defaulted on a Corporate Loan has failed to make interest or
principal payments that were due to the Lender.
Distributors - Franklin/Templeton Distributors, Inc. is a wholly owned
subsidiary of Resources, a registered broker-dealer and a member of the
NASD. The SAI lists the fund's officers and Board members who are affiliated
with Distributors. See "Item 18.1 Officers and Trustees."
Eligible Governmental Authority - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined
the fund is a legally permissible investment.
Equity Securities - Securities which entitle the holder to participate in a
company's general operating success or failure. Public trading for Equity
Securities is typically a stock exchange but trading can also take place
between broker-dealers. Equity Securities generally take the form of common
stock or preferred stock.
Floating Interest Rate(s) - One of the following: (i) a variable interest
rate which adjusts to a base interest rate, such as LIBOR or the CD Rate on
set dates; or (ii) an interest rate that floats at a margin above a generally
recognized base lending interest rate such as the Prime Rate of a designated
U.S. bank.
Franklin Templeton Funds - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Templeton
Variable Insurance Products Trust, Templeton Capital Accumulator Fund, Inc.,
and Templeton Variable Products Series Fund
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
Franklin Templeton Group of Funds - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
FT Services - Franklin Templeton Services, Inc., the fund's administrator
Illiquid - Illiquid property or securities cannot be sold within seven days,
in the ordinary course of business, at approximately the valued price.
Interest Coverage Ratio - A ratio which is used to show how many times
interest has been earned. This is of use particularly to long-term lenders.
It is the sum of the pre-tax net income and interest expense, divided by the
interest expense.
Intermediate Participant - A Lender, Participant or Agent Bank interposed
between the fund and a Borrower, when the fund invests in a Corporate Loan
through a Participation Interest.
Investor Services - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Lender - The party that loans money to a corporation under a Corporate Loan.
A Corporate Loan in which the fund may invest is often negotiated and
structured by a group of Lenders. The Lenders typically consist of
commercial banks, thrift institutions, insurance companies, finance companies
or other financial institutions. The fund acts as a Lender when it directly
invests in a Corporate Loan or when it purchases an Assignment.
Leverage Ratio - A ratio of a company's debt to equity. This ratio is
commonly used by lenders to determine the amounts they are willing to lend to
a borrower.
LIBOR - The London InterBank Offered Rate, the interest rate that the most
creditworthy international banks charge each other for large loans.
Moody's - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - The net asset value of an investment company is
determined by deducting the company's liabilities from the total assets of
the company. The net asset value per share is determined by dividing the net
asset value of the company by the number of shares outstanding.
NRSRO - a nationally recognized statistical rating organization, such as S&P
or Moody's
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
Participant - A holder of a Participation Interest in a Corporate Loan.
Participation Interest - An interest which represents a fractional interest
in a Corporate Loan. The fund may acquire Participation Interests from a
Lender or other holders of Participation Interests.
Prime Rate - The interest rate charged by leading U.S. banks on loans to
their most creditworthy customers
Repurchase Offers - The quarterly offers by the fund to repurchase a
designated percentage of the outstanding Common Shares owned by the fund's
shareholders. Once every two years the Board may determine in its sole
discretion to have one additional Repurchase Offer in addition to the regular
quarterly Repurchase Offers.
Repurchase Payment Deadline - The date by which the fund must pay
shareholders for Common Shares repurchased in a Repurchase Offer, as stated
in the shareholder notification. The Repurchase Payment Deadline may be no
later than seven days after the Repurchase Pricing Date.
Repurchase Pricing Date - The date on or after the Repurchase Request
Deadline on which the fund determines the Net Asset Value applicable to the
repurchase of Common Shares in a Repurchase Offer, as scheduled in the
shareholder notification or, under certain circumstances, an earlier date
than the scheduled date, but not earlier than the Repurchase Request
Deadline. As set by fundamental policy of the fund, the Repurchase Pricing
Date must occur not later than the fourteenth day after the Repurchase
Request Deadline or the next business day, if the fourteenth day is not a
business day.
Repurchase Request Deadline - The date by which Investor Services, on behalf
of the fund, must receive the shareholders' requests for repurchase of their
Common Shares in conjunction with a Repurchase Offer, as stated in the
shareholder notification.
Resources - Franklin Resources, Inc.
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
Trust - the Franklin Floating Rate Trust
Trust Company - Franklin Templeton Trust Company. Trust Company is an
affiliate of Distributors and is a wholly owned subsidiary of Resources.
Unsecured Corporate Loans and Unsecured Corporate Debt Securities - Corporate
Loans and Corporate Debt Securities that are not backed by collateral. Thus,
if a Borrower Defaults on an Unsecured Corporate Loan or Unsecured Corporate
Debt Security, it is unlikely that the fund would be able to recover the full
amount of the principal and interest due.
Warrant - A security that gives the holder the right, but not the obligation,
to subscribe for newly created securities of the issuer or a related company
at a fixed price either at a certain date or during a set period.
We/Our/Us - Unless the context indicates a different meaning, these terms
refer to the fund and/or Investor Services, or other wholly owned
subsidiaries of Resources.
APPENDIX
DESCRIPTION OF RATINGS
CORPORATE BOND RATINGS
MOODY'S
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present that make the
long-term risks appear somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. These issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong and, in the majority of
instances, differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While these bonds will likely have some
quality and protective characteristics, they are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating also may reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually their promissory obligations not having an original maturity
in excess of nine months. Moody's employs the following designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are
graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues within the "A" category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FORM N-2, PART B
ITEM 14. COVER PAGE
WHEN READING THIS SAI, YOU WILL SEE CERTAIN TERMS BEGINNING WITH
CAPITAL LETTERS. THIS MEANS THE TERM IS EXPLAINED UNDER "USEFUL
TERMS AND DEFINITIONS."
Franklin Floating Rate Master Trust (the "Trust") is a non-diversified
closed-end management investment company that has one series of shares of
beneficial interest, the Franklin Floating Rate Master Series (the "fund").
The fund's goal is to provide as high a level of current income and
preservation of capital as is consistent with investment primarily in senior
secured Corporate Loans and Corporate Debt Securities with Floating Interest
Rates.
The Prospectus, dated March 23, 2000, which the Trust may amend from time to
time, contains the basic information a shareholder should know before
investing in the fund. For a free copy, call 1-800/DIAL BEN.
This SAI is not a prospectus. It contains information in addition to and in
more detail than set forth in the Prospectus. This SAI is intended to
provide you with additional information regarding the activities and
operations of the fund, and should be read in conjunction with the Prospectus.
Investment company shares, annuities, and other investment products:
o are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other agency of the U.S. government;
o are not deposits or obligations of, or guaranteed or endorsed by, any bank;
o are subject to investment risks, including the possible loss of principal.
ITEM 15. TABLE OF CONTENTS
Item 14. Cover Page....................................Cover page
Item 15. Table of Contents......................................2
Item 16. General Information and History........................2
Item 17. Investment Objectives and Policies.....................2
Item 18. Management.............................................8
Item 19. Control Persons and Principal Holders of Securities...13
Item 20. Investment Advisory and Other Services................13
Item 21. Brokerage Allocation and Other Practices..............15
Item 22. Tax Status............................................16
Item 23. Financial Statements..................................18
ITEM 16. GENERAL INFORMATION AND HISTORY. Not applicable.
ITEM 17. INVESTMENT OBJECTIVES AND POLICIES
How Does the Fund Invest Its Assets?
INVESTMENT GOAL. The fund's goal is to provide as high a level of current
income and preservation of capital as is consistent with investment primarily
in senior secured Corporate Loans and Corporate Debt Securities with Floating
Interest Rates.
ITEM 17.1 INVESTMENT POLICIES.
Franklin Advisers, Inc., the fund's investment manager, uses its credit
analysis to select suitable investments for the fund. The fund seeks to
achieve its goal by investing at least 65% of its total assets in such loans
or debt securities that are rated by an NRSRO with the equivalent of a B or
higher rating by S&P or Moody's, or, if unrated, determined to be of
comparable quality by the manager.
The following gives more detailed information about the fund's investment
policies and the types of securities that it may buy. Please read this
information together with the section "Investment Policies" in the Prospectus.
RESTRICTIVE COVENANTS. The Borrower under a Corporate Loan and the issuer of
a Corporate Debt Security must comply with various restrictive covenants
contained in any Corporate Loan agreement between the Borrower and the
lending syndicate or in any trust indenture or comparable document in
connection with a Corporate Debt Security. A restrictive covenant is a
promise by the Borrower to not take certain actions which may impair the
rights of Lenders. These 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, a covenant may require 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. This means that 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.
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 between 30 days and 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 may attempt to hedge all of its
fixed rate Corporate Loans and Corporate Debt Securities against interest
rate fluctuations 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 available
from 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. Because changes to this trend are inherently unpredictable, the
manager cannot predict whether or not the trend will continue.
FOREIGN CURRENCY SWAPS. Foreign currency swaps involve the exchange by the
fund with another party of the right to receive foreign currency (paid under
a Corporate Loan or Corporate Debt Security) for the right to receive U.S.
dollars. The fund will enter into a foreign currency swap only if, at the
time of entering into the transaction, the counterparty's outstanding debt
obligations are investment grade. If there is a counterparty default, the
fund will have contractual remedies pursuant to the swap arrangements.
However, if a replacement swap arrangement is unavailable or if the fund is
unable to recover damages from the defaulting counterparty, the fund's right
to foreign currency payments under the loan will be subject to fluctuations
based upon changes in the applicable exchange rate. 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 for fluctuations in exchange rates adverse to the counterparty.
In the event of such a default or prepayment, the fund will set aside in a
segregated account an amount of cash or high-grade liquid debt securities at
least equal to the amount of compensation that must be paid to the
counterparty.
LOANS OF PORTFOLIO SECURITIES. To generate additional income, the fund may
lend certain of its portfolio securities to qualified banks and
broker-dealers. These loans may not exceed 33 1/3% of the value of the
fund's total assets, measured at the time of the most recent loan. This
limitation is a fundamental policy, which means it may not be changed without
the approval of the holders of a majority of the fund's Common Shares. For
each loan, the borrower must maintain with the fund's custodian collateral
(consisting of any combination of cash, securities issued by the U.S.
government and its agencies and instrumentalities, or irrevocable letters of
credit) with a value at least equal to 100% of the current market value of
the loaned securities. The fund retains all or a portion of the interest
received on investment of the cash collateral or receives a fee from the
borrower. The fund also continues to receive any distributions paid on the
loaned securities. The fund may terminate a loan at any time and obtain the
return of the securities loaned within the normal settlement period for the
security involved.
Where voting rights with respect to the loaned securities pass with the
lending of the securities, the manager intends to call the loaned securities
to vote proxies, or to use other practicable and legally enforceable means to
obtain voting rights, when the manager has knowledge that, in its opinion, a
material event affecting the loaned securities will occur or the manager
otherwise believes it necessary to vote. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral in
the event of default or insolvency of the borrower. The fund will loan its
securities only to parties who meet creditworthiness standards approved by
the fund's board of trustees, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the loan.
INTEREST RATE SWAPS. The fund may enter into interest rate swaps in order to
limit the exposure 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 or rights to pay or receive interest, such as an exchange of
fixed rate payments for Floating Interest Rate payments. The fund usually
will enter into interest rate swaps on a net basis. This means that the fund
will receive or pay, as the case may be, only the difference between the two
payments. The net amount of the fund's obligations over its entitlements, if
any, with respect to each interest rate swap will be accrued on a daily
basis. The fund will then set aside in a segregated account an amount at
least equal to the accrued net obligation. 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 fund will
segregate an amount equal to the fund's full obligations.
To the extent that the fund enters into these transactions for hedging
purposes, the manager believes that such obligations do not constitute senior
securities under the 1940 Act. Accordingly, the fund will not include
hedging transactions in its limitation on borrowing.
There is no limit on the amount of interest rate transactions that may be
entered into by the fund. The risk of loss with respect to interest rate
hedges is limited to the net amount of interest payment that the fund is
obligated to make. 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 is entitled to receive.
The fund will not enter into any interest rate hedging transaction unless the
manager considers the credit quality of the unsecured senior debt or the
claims-paying ability of the other party to be investment grade. If there is
a default by the counterparty to such a transaction, bankruptcy and
insolvency laws could affect the fund's rights as a creditor. In recent
years, the swap market has grown substantially and many portions of the swap
market have become relatively liquid, in comparison with other similar
instruments traded in the interbank market. However, there can be no
assurance that the fund will be able to terminate an interest rate swap or be
able to sell or offset interest rate caps or floors that it has purchased.
The use of interest rate hedges is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio transactions. If the manager 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.
Since interest rate transactions are individually negotiated, the manager
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.
WARRANTS AND OTHER EQUITY SECURITIES. To a limited extent, the fund also may
acquire Warrants and other Equity Securities. The fund will only acquire
such Warrants and Equity Securities to the extent that they are acquired in
connection with or incidental to the fund's other investment activities.
EFFECTS OF LEVERAGE - PREFERRED SHARES. The fund also may issue one or more
series of preferred shares, although it has no current intention to do so.
There is a risk that the costs of issuing additional classes of securities
may exceed the income and appreciation, if any, on assets acquired with the
offering proceeds. If this occurs, the use of leverage will reduce the
investment performance of the fund compared with what it would have been
without leverage. The costs associated with such offerings include interest
payments, fees and dividends. The issuance of additional classes of
preferred shares involves offering expenses and other costs. Also, it may
limit the fund's freedom to pay dividends on Common Shares or to engage in
other activities.
Leverage creates certain risks for holders of Common Shares. Leveraging by
the fund creates an opportunity for greater total return but at the same
time, increases exposure to losses. The Net Asset Value of Common Shares may
be more volatile than if the fund were not leveraged. These risks may be
reduced through the use of preferred stock that has Floating Interest Rates.
ITEM 17.2. INVESTMENT RESTRICTIONS
The fund has adopted the following restrictions as fundamental policies.
Prior to issuance of any preferred stock, these restrictions may not be
changed without the approval of a majority of the fund's outstanding Common
Shares. Under the 1940 Act, this 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. Following 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 goal,
policies and restrictions that are substantially the same as the investment
goal, policies and restrictions of the fund. As a matter of fundamental
policy, the fund may not:
1. Borrow money or issue senior securities, except as permitted by Section 18
of the 1940 Act and except to the extent that the fund's investment in
foreign currency swaps, when-issued and delayed delivery securities, interest
rate hedging transactions and Corporate Loans in connection with revolving
credit facilities may be deemed senior securities.
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 Participation Interests, 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 will 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 in the Prospectus).
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.
6. Buy or sell real estate (other than (i) interests in real estate
investment trusts, (ii) loans or securities that are secured, directly or
indirectly, by real estate, or (iii) securities issued by companies that
invest or deal in real estate), provided that the fund may hold for prompt
sale and sell real estate or interests in real estate to which the fund may
gain an ownership interest through the forfeiture of collateral securing
loans or debt securities held by the fund.
7. Buy or sell commodities or commodity contracts (other than financial
futures), provided that forward foreign currency exchange contracts shall not
be deemed to be commodity contracts.
If a percentage restriction is met at the time of investment, a later
increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities or the amount of assets will not be
considered a violation of any of the foregoing restrictions, except that with
respect to borrowing, if the borrowing exceeds the fund's percentage
restriction on borrowing, the fund will reduce its borrowing within three
days to no more than the percentage restriction.
ITEM 17.3 ADDITIONAL NON-FUNDAMENTAL INVESTMENT POLICIES.
In addition, the fund has adopted the following non-fundamental investment
policies, which may be changed without shareholder approval:
1. The fund requires that at the end of the close of each business quarter
not more than 25% of its total assets will be invested in securities of a
single issuer (including corporate loans but excluding US government
securities or the securities of regulated investment companies) and in
respect of 50% of its total assets, not more than 5% of its assets will be
invested in the securities of any one issuer and securities held by the fund
will not consist of more than 10% of any single issuer's outstanding voting
securities.
2. The fund does not intend to invest more than 20% of its assets in the
obligations of entities in any single industry.
3. The fund may not invest more than 20% of its net assets in illiquid
securities. Illiquid securities for these purposes are securities which may
not be converted to cash for a period of 10 days.
4. The fund may not invest more than 10% of its net assets in securities that
are not listed, traded or dealt in on Recognized Markets.
5. Subject to (6) and (7) below, the fund may not invest more than 10% of its
net assets in securities issued by a single issuer. Related
companies/institutions are regarded as a single issuer for the purpose of
this restriction.
6. The fund may not maintain more than 10% of its net assets on deposit with
any one institution. This limit is increased to 30% for deposits with, or
securities evidencing deposits issued by, or securities guaranteed by; (i) an
EU credit institution; (ii) a bank authorized in a member state of the
European Free Trade Association (EFTA); (iii) a bank authorized by a
signatory state (other than an EU Member State of EFTA) to the Basle Capital
Convergence Agreement of July 1998 (Canada, Japan, United States); or (iv)
the Custodian of the Company or a bank that is an affiliate of the Custodian
of the Company. Related companies and institutions are regarded as a single
issuer for the purposes of this restriction.
7. The fund may invest up to 100% of its net assets in different securities
issued or guaranteed by any EU member state or any local authority of an EU
member state or by Australia, Canada, Japan, New Zealand, Norway, Switzerland
and the United States of America or by any of the following public
international bodies of which one or more EU member states are members: the
European Investment Bank, the Asian Investment Bank, the World Bank, Euratom,
the European Coal and Steel Community, the European Bank for Reconstruction
and Development; the International Finance Corporation, the International
Bank for Reconstruction and Development and the Inter-American Development
Bank. In such circumstances the fund must hold securities from at least six
different issues with securities from any one issue not exceeding 30% of its
Net Asset Value.
8. The fund may not own more than 10% of any class of security issued by any
single issuer, unless the issuer is an open-ended collective investment
scheme. The fund may not invest more than 20% of it net assets in another
open-ended collective investment scheme. Where investment is made into
another collective investment scheme managed by the same management company
or by an associated or related company, the manager of the scheme in which
the investment is being made will waive the preliminary/initial charge which
it is entitled to charge for its own account in relation to the acquisition
of units. If a commission is received by the Manager by virtue of an
investment in the shares of another collective investment scheme and that
other collective investment scheme is managed by a related company then this
commission will be paid into the property of the fund.
9. The fund may not make short sales of securities or trade securities not
owned by it or for its account or otherwise maintain a short position.
10. The fund' borrowings may not exceed 25% of its net asset value.
Repurchase and securities lending agreements used for efficient portfolio
management purposes shall not be regarded as borrowings for the purposes of
this limitation.
11. The fund may not invest more than 5% of its net assets in warrants.
The non-fundamental investment restrictions referred to above, except with
respect to borrowing, apply at the time of the purchase of the investments.
If the limits set out above are exceeded for reasons beyond the control of
the fund, or as a result of the exercise of subscription rights, the fund
must adopt as a priority objective the remedying of that situation, taking
due account of the interests of shareholders. For the avoidance of doubt the
fund will not take or seek to take legal or management control of the issuer
of any of its underlying investments.
ITEM 17.4 PORTFOLIO TURNOVER.
The fund's annual portfolio turnover rate is not expected to exceed 100%.
The rate may vary greatly from year to year and will not be a limiting factor
when the manager 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 the manager believes it is appropriate
to do so. Sales will be made without regard to the length of time the
security may have been held. Large Common Share repurchases by the fund
during the quarterly or discretionary Repurchase Offers may require the fund
to liquidate portions of its securities holdings for cash to repurchase the
Common Shares. The liquidation of such holdings may result in a higher than
expected annual portfolio turnover rate. A 100% annual 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.
ITEM 18. MANAGEMENT
ITEM 18.1 OFFICERS AND TRUSTEES AND ITEM 18.2 POSITIONS HELD WITH
AFFILIATED PERSONS OR PRINCIPAL UNDERWRITERS OF THE TRUST.
The Board has the responsibility for the overall management of the fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the fund who are responsible for
administering the fund's day-to-day operations.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the trust, and principal occupations during
the past five years are shown below.
Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 28 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold
Mines Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food
processing) (until 1996).
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 48 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 50 of the investment companies in the
Franklin Templeton Group of Funds.
Edith E. Holiday (48)
3239 38th Street, N.W., Washington, DC 20016
TRUSTEE
Director, Amerada Hess Corporation (exploration and refining of oil and gas)
(1993-present), Hercules Incorporated (chemicals, fibers and resins)
(1993-present), Beverly Enterprises, Inc. (health care) (1995-present), H.J.
Heinz Company (processed foods and allied products) (1994-present) and RTI
International Metals, Inc. (manufacture and distribution of titanium) (July
1999-present); director or trustee, as the case may be, of 25 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Assistant to the President of the United States and Secretary of the Cabinet
(1990-1993), General Counsel to the United States Treasury Department
(1989-1990), and Counselor to the Secretary and Assistant Secretary for
Public Affairs and Public Liaison-United States Treasury Department
(1988-1989).
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND TRUSTEE
Chairman of the Board, Chief Executive Officer, Member - Office of the
Chairman and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services,
Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and Franklin Templeton Services,
Inc.; officer and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 49 of the investment
companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment
Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services,
LLC; 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 of 52 of the investment companies in the
Franklin Templeton Group of Funds.
Frank W.T. LaHaye (70)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
TRUSTEE
Chairman, Peregrine Venture Management Company (venture capital); Director,
The California Center for Land Reclamation (redevelopment); director or
trustee, as the case may be, of 28 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, General Partner, Miller &
LaHaye and Peregrine Associates, the general partners of Peregrine Venture
funds.
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Martek Biosciences Corporation, MCI WorldCom, Inc. (information
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 48 of the investment companies in the Franklin Templeton Group of Funds;
and FORMERLY, Chairman, White River Corporation (financial services) (until
1998) and Hambrecht & Quist Group (investment banking) (until 1992), and
President, National Association of Securities Dealers, Inc. (until 1987).
Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc. and Franklin Templeton Services, Inc.; Executive Vice
President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory
Services, Inc. and 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 of 52 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
President, Member - Office of the President, Franklin Resources, Inc.; Senior
Vice President, Chief Financial Officer and Director, Franklin/Templeton
Investor Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial
Officer and Director, Templeton Worldwide, Inc.; Executive Vice President,
Chief Operating Officer and Director, Templeton Investment Counsel, Inc.;
Executive Vice President and Chief Financial Officer, Franklin Advisers,
Inc.; Chief Financial Officer, Franklin Advisory Services, LLC and Franklin
Investment Advisory Services, Inc.; Director, Franklin Templeton Services,
Inc.; officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; and officer and/or director or trustee, as the case may be,
of 52 of the investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (51)
1840 Gateway Drive, San Mateo, CA 94404
SECRETARY
Partner, Stradley, Ronon, Stevens & Young, LLP; officer of 34 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Senior Vice President and General Counsel, Franklin Resources, Inc., Senior
Vice President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc., Executive Vice President, Franklin Advisers, Inc., Vice
President, Franklin Advisory Services, LLC and Franklin Mutual Advisers, LLC,
and Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc. (until January 2000).
David Goss (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Chief Executive Officer and Director, Franklin Select Realty
Trust, Property Resources, Inc., Property Resources Equity Trust and Franklin
Real Estate Management, Inc.; President and Chief Executive Officer, Franklin
Properties, Inc.; officer of 53 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, President, Chief Executive Officer
and Director, Franklin Real Estate Income Fund and Franklin Advantage Real
Estate Income Fund (until 1996).
Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior
Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 53 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Deputy Director, Division of Investment
Management, Executive Assistant and Senior Advisor to the Chairman, Counselor
to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and
Exchange Commission (1986-1995), Attorney, Rogers & Wells, and Judicial
Clerk, U.S. District Court (District of Massachusetts).
Chauncey F. Lufkin (42)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and Portfolio Manager, Franklin Advisers, Inc. and officer
of two of the investment companies in the Franklin Templeton Group of Funds.
Edward V. McVey (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 29 of the investment companies in the
Franklin Templeton Group of Funds.
Kimberley Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Vice President, Franklin Templeton Services, Inc.; and officer of 33 of the
investment companies in the Franklin Templeton Group of Funds.
Murray L. Simpson (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer of 53 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Chief Executive Officer and Managing Director, Templeton
Franklin Investment Services (Asia) Limited (until January 2000) and
Director, Templeton Asset Management Ltd. (until 1999).
- - -----------------------------
*This board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
ITEM 18.3 NON-RESIDENT TRUSTEES. Not applicable.
ITEM 18.4 COMPENSATION.
Board members who are not interested persons of the fund or the manager are
not currently paid by the fund although they may receive fees in the future.
Board members who serve on the audit committee of the Trust and other funds
in the Franklin Templeton Group of Funds receive a flat fee of $2,000 per
committee meeting attended, a portion of which is allocated to the Trust.
Members of a committee are not compensated for any committee meeting held on
the day of a board meeting. Noninterested trustees also may serve as
directors or trustees of other investment companies in the Franklin Templeton
Group of Funds and may receive fees from these funds for their services. The
fees payable to noninterested trustees by the Trust are subject to reductions
resulting from fee caps limiting the amount of fees payable to trustees who
serve on other boards within the Franklin Templeton Group of Funds. The
following table provides the total fees paid to noninterested trustees by the
Franklin Templeton Group of Funds.
NAME Total Fees Received Number of Boards in the
From Franklin Templeton Franklin Templeton Group
GROUP OF FUNDS* of FUNDS ON WHICH EACH
SERVES**
Frank H. Abbott, III $156,060 27
Harris J. Ashton $363,165 47
S. Joseph Fortunato $363,238 49
Edith E. Holiday $237,265 24
Frank W.T. LaHaye $156,060 27
Gordon S. Macklin $363,165 47
- - ------------------------------------------
*For the calendar year ended December 31, 1999.
**We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the Board members are responsible. The Franklin Templeton Group of
Funds currently includes 53 registered investment companies, with
approximately 155 U.S. based funds or series.
Noninterested trustees are reimbursed for expenses incurred in connection
with attending board meetings, paid pro rata by each fund in the Franklin
Templeton Group of Funds for which they serve as director or trustee. NO
OFFICER OR BOARD MEMBER RECEIVES ANY OTHER COMPENSATION, INCLUDING PENSION OR
RETIREMENT BENEFITS, DIRECTLY OR INDIRECTLY, FROM THE FUND OR OTHER FUNDS IN
THE FRANKLIN TEMPLETON GROUP OF FUNDS. Certain officers or Board members who
are shareholders of Resources may be deemed to receive indirect remuneration
by virtue of their participation, if any, in the fees paid to its
subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February
1998, this policy was formalized through adoption of a requirement that each
board member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds and
one-third of fees received for serving as a director or trustee of a Franklin
fund in shares of one or more Franklin funds until the value of such
investments equals or exceeds five times the annual fees paid such Board
member. Investments in the name of family members or entities controlled by
a Board member constitute fund holdings of such Board member for purposes of
this policy, and a three-year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
Board member's fund holdings existing on February 27, 1998 are valued as of
such date with subsequent investments valued at cost.
As of March 23, 2000, the officers and Board members, as a group, owned of
record and beneficially less than 1% of the total outstanding shares of the
fund. Many of the Board members own shares in other funds in the Franklin
Templeton Group of Funds.
ITEM 18.5 CODES OF ETHICS.
The fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that are
being considered for the fund or that are currently held by the fund, subject
to certain general restrictions and procedures. The personal securities
transactions of access persons of the fund, its manager and principal
underwriter will be governed by the code of ethics.
The code of ethics is on file with, and can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-202-942-8090. The codes of ethics are also available on the EDGAR Database
on the SEC's Internet website at http://www.sec.gov. Copies of the codes of
ethics may be obtained, after paying a duplicating fee, by electronic request
at the following E-mail address: [email protected], or by writing the SEC's
Public Reference Section, Washington, D.C. 20549-0102.
ITEM 19. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 23, 2000, there were no control persons or principal holders of
the Trust.
ITEM 20. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICE PROVIDED. The fund's investment manager is
Franklin Advisers, Inc. The manager 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. The manager's activities are
subject to the review and supervision of the Board to whom the manager
renders periodic reports of the fund's investment activities. The manager and
its officers, directors and employees are covered by fidelity insurance for
the protection of the fund.
The manager and its affiliates act as investment manager to numerous other
investment companies and accounts. The manager 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 the manager on behalf of the
fund. Similarly, with respect to the fund, the manager is not obligated to
recommend, buy or sell, or to refrain from recommending, buying or selling
any security that the manager and access persons, as defined by the 1940 Act,
may buy or sell for its or their own account or for the accounts of any other
fund. The manager is not obligated to refrain from investing in securities
held by the fund or other funds that it manages. Of course, any transactions
for the accounts of the manager and other access persons will be made in
compliance with the fund's Code of Ethics.
MANAGEMENT FEES. The fund pays its own operating expenses. These expenses
include the manager's management fees; taxes, if any; custodian, legal and
auditing fees; the fees and expenses of Board members who are not members of,
affiliated with, or interested persons of the manager; fees of any personnel
not affiliated with the manager; insurance premiums; trade association dues;
expenses of obtaining quotations for calculating the fund's Net Asset Value;
and printing and other expenses that are not expressly assumed by the manager.
The fund pays the manager a fee equal to an annual rate of 0.80% of the
average daily net assets of the fund. The fee is computed daily according to
the terms of the management agreement.
ADMINISTRATIVE SERVICES. FT Services provides certain administrative
services and facilities for the fund. These include preparing and maintaining
books, records, and tax and financial reports, and monitoring compliance with
regulatory requirements. FT Services is a wholly owned subsidiary of
Resources.
The fund pays FT Services a monthly fee equal to an annual rate of 0.15% of
the fund's average daily net assets up to $200 million, 0.135% of average
daily net assets over $200 million up to $700 million, 0.10% of average daily
net assets over $700 million up to $1.2 billion, and 0.075% of average daily
net assets over $1.2 billion.
SHAREHOLDER SERVICING AGENT. The fund will reimburse Investor Services for
certain out-of-pocket expenses, which may include payments by Investor
Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the fund.
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.
AUDITOR. PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105, is the fund's independent auditor. The auditor's services
will consist of rendering an opinion on the financial statements of the fund
included in the fund's Annual Report to Shareholders for each fiscal year.
ITEM 21. BROKERAGE ALLOCATION AND OTHER PRACTICES
The manager selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the Board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid by the
fund is negotiated between the manager and the broker executing the
transaction. The determination and evaluation of the reasonableness of the
brokerage commissions paid are based to a large degree on the professional
opinions of the persons responsible for placement and review of the
transactions. These opinions are based on 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. The manager 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 the manager, 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 manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to the manager include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that provides
lawful and appropriate assistance to the manager in carrying out its
investment advisory responsibilities. These services may not always directly
benefit the fund. They must, however, be of value to the manager in carrying
out its overall responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions in
order to obtain additional research services allows the manager to supplement
its own research and analysis activities and to receive the views and
information of individuals and research staffs of other securities firms. As
long as it is lawful and appropriate to do so, the manager 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 the fund's Common Shares, as well as shares of other
funds in the Franklin Templeton Group of Funds, also may be considered a
factor in the selection of broker-dealers to execute the fund's portfolio
transactions.
If purchases or sales of securities of the fund and one or more other
investment companies or clients supervised by the manager 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 the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some
cases this procedure could 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 may improve
execution and reduce transaction costs to the fund.
Due to the nature of the primary investments by the fund, the fund will
generally pay no brokerage commissions or very little brokerage commissions.
As of March 23, 2000, the fund did not own securities of its regular
broker-dealers.
ITEM 22. TAX STATUSA
CLASSIFICATION OF THE FUND
The fund will be treated as a separate partnership for federal income tax
purposes and not as an association taxable as a corporation. The fund will
not be a "regulated investment company." The fund intends to monitor the
number of its shareholders so as not to be treated as a "publicly traded
partnership" under certain safe harbors provided in Treasury Regulations.
TAXATION OF PARTNERSHIP OPERATIONS GENERALLY
As a partnership, the fund will not be subject to U.S. federal income tax.
Instead, each shareholder in the fund will be required to report separately
on its own income tax return its distributive share of items of the fund's
income, gain, losses, deductions and credits, and to do so regardless of
whether it has received or will receive corresponding distributions of cash
or property from the fund. In general, cash distributions by the fund to a
shareholder will represent a non-taxable, downward basis adjustment up to the
amount of such shareholder's adjusted tax basis in its fund shares.
CALCULATION OF INVESTOR'S "ADJUSTED BASIS" AND "AT RISK BASIS"
Each shareholder's adjusted basis in its fund shares will equal its purchase
price for the shares, increased by the amount of its share of items of income
and gain of the fund and reduced, but not below zero, by: (a) the amount of
its share of fund deductions and losses; (b) expenditures which are neither
properly deductible nor properly chargeable to its capital account; and (c)
the amount of any distributions received by such shareholder.
CURRENT DISTRIBUTIONS BY THE FUNDS; REDEMPTIONS
CURRENT DISTRIBUTIONS/PARTIAL REDEMPTIONS. A current cash distribution by
the fund with respect to shares held by a shareholder will result in taxable
gain to the distributee shareholder only to the extent that the amount of
cash distributed exceeds the shareholder's adjusted basis in its fund
shares. Gain recognized as a result of such distributions is considered gain
from the sale or exchange of the shareholder's shares in the fund. Loss is
not recognized by a shareholder as a result of a current distribution by the
fund. A current distribution reduces the distributee shareholder's adjusted
basis in its fund shares, but not below zero.
LIQUIDATION OF A SHAREHOLDER'S ENTIRE INTEREST IN THE FUND. Generally, a
distribution or series of distributions by the fund to a shareholder that
results in termination of its entire interest in the fund results in gain to
the distributee shareholder to the extent that cash, if any, distributed
exceeds the shareholder's adjusted basis in its fund shares. When only cash
is distributed, loss is recognized to the extent that the shareholder's
adjusted basis in its fund shares exceeds the amount of cash distributed.
Any gain or loss recognized as a result of such distributions is considered
gain or loss from the sale or exchange of the distributee shareholder's fund
shares and generally is capital gain or loss.
PRE-CONTRIBUTION GAIN. Certain tax rules limit the use of partnerships such
as the fund to eliminate taxation of built-in gain on appreciated assets
contributed to a partnership. Under these rules, pre-contribution gain or
loss is recognized by a shareholder that contributes property to the fund if
the property is subsequently distributed to another shareholder within seven
years after the date of the original contribution. A similar seven-year
limitation applies to a redeeming shareholder if the fund distributes
appreciated property to the shareholder and the shareholder had previously
contributed different property to the fund. In the latter case,
pre-contribution gain (but not loss) is recognized by the redeeming
shareholder to the extent of the lesser of the amount of appreciation in the
property on the distribution date and amount of pre-contribution gain.
TAX TREATMENT OF CAPITAL GAINS AND LOSSES
Amounts realized from the sale or exchange of assets of the fund will
generally be treated as capital gains or losses. A net capital loss
allocated to a shareholder may be used to offset other capital gains.
Present law taxes both long-term and short-term capital gains of corporations
at the rates applicable to ordinary income. Shareholders other than
corporations are generally subject to the tax rules applicable to
individuals.
U.S. GOVERNMENT OBLIGATIONS
States grant tax-free status to a shareholder's allocable share of interest
earned by the fund on direct obligations of the U.S. government, subject in
some states to minimum investment requirements that must be met by the fund.
Investments in Government National Mortgage Association or Federal National
Mortgage Association securities, bankers' acceptances, commercial paper and
repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this
income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION
Because the fund's income primarily consists of interest rather than
dividends, none of its income allocated to a U.S. corporate shareholder will
generally be eligible for the dividends-received deduction.
INVESTMENT IN COMPLEX SECURITIES
The fund may invest in complex securities. These investments may be subject
to numerous special and complex tax rules. These rules could affect whether
gains and losses recognized by the fund are treated as ordinary income or
capital gain, accelerate the recognition of income to the fund and/or defer
the fund's ability to recognize losses. In turn, these rules may affect the
amount, timing or character of the income allocated to shareholders of the
fund. If the fund purchases shares in certain foreign investment entities
called "passive foreign investment companies," shareholders of the fund may
be subject to U.S federal income tax and a related interest charge on a
portion of any "excess distribution" or gain from the disposition of these
shares even if the fund distributes such income to its shareholders.
TAX-EXEMPT INVESTORS
Certain tax-exempt organizations are subject to a tax on "unrelated business
taxable income" ("UBTI"). Income from certain types of investments made by
the fund which is allocated to tax-exempt shareholders could be treated as
UBTI subject to tax. In addition, to the extent that the fund borrows in
connection with the acquisition of any property, income from such
debt-financed property may be subject to the tax on UBTI. If the fund incurs
UBTI, it intends to furnish annually to each tax-exempt shareholder after the
end of the fund's fiscal year the information necessary to enable the
shareholder to determine the portion of its distributive share of each item
of income, gain and deduction that is to be taken into account in determining
UBTI.
FOREIGN INCOME TAXES
The fund may pay or accrue foreign income taxes in connection with its
investments. Such amounts will be deemed to be paid to the foreign
government by the shareholders of the fund. A shareholder may (subject to
certain limitations) elect each taxable year to treat its share of these
foreign income taxes as a credit against its U.S. income tax liability or to
deduct such amount from its U.S. taxable income. However, a shareholder's
ability to obtain a credit or deduction for such taxes depends on the
particular circumstances applicable to that shareholder, and it is possible
that a shareholder may get little or no benefit with respect to its share of
foreign taxes paid or accrued by the fund.
NON-U.S. INVESTORS
Non-U.S. shareholders in the fund will generally not be subject to U.S.
federal income tax or U.S. withholding tax on their distributive share of
U.S. source "portfolio" interest and capital gains and foreign source income
of the fund. Non-U.S. shareholders will be subject to a 30% withholding tax
(unless reduced by an applicable treaty and not otherwise subject to
limitation of benefits under the Internal Revenue Code) on their distributive
share, if any, of other fixed and determinable income from U.S. sources that
is not effectively connected with the conduct of a U.S. trade or business.
Non-U.S. shareholders who are individuals may also be subject to U.S. estate
tax as a result of an investment in the fund.
STATE AND LOCAL TAXATION
A shareholder's distributive share of the fund's taxable income or loss
generally is taken into account in determining the shareholder's state and
local income tax liability in a jurisdiction in which such shareholder is a
resident or does business.
THE FOREGOING ANALYSIS IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL INCOME TAX
PLANNING. PROSPECTIVE FUND SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE EFFECTS OF THIS INVESTMENT IN THEIR OWN TAX
SITUATION.
ITEM 23. FINANCIAL STATEMENTS
As of March 23, 2000, there were no financial statements or auditor's report.
USEFUL TERMS AND DEFINITIONS
1940 Act - Investment Company Act of 1940, as amended. The 1940 Act governs
the operations of the fund.
1933 Act - Securities Act of 1933, as amended
Agent Bank - A Lender that administers a Corporate Loan on behalf of all
Lenders on a Corporate Loan. The Agent Bank typically is responsible for the
collection of principal and interest and fee payments from the Borrower, and
distributes these payments to the other Lenders. The Agent Bank is usually
responsible for enforcing the terms of the Corporate Loan. The Agent Bank is
compensated for these services.
Assignment - An interest in a portion of a Corporate Loan. The purchaser of
an Assignment steps into the shoes of the original Lender. An Assignment from
a Lender gives the fund the right to receive payments directly from the
Borrower and to enforce its rights as a Lender directly against the Borrower.
Board - The Board of Trustees of the Trust
Borrower - A corporation that borrows money under a Corporate Loan or issues
Corporate Debt Securities. The Borrower is obligated to make interest and
principal payments to the Lender of a Corporate Loan or to the holder of a
Corporate Debt Security.
CD - Certificate of deposit
CD Rate - The interest rate currently available on certificates of deposit
Code - Internal Revenue Code of 1986, as amended
Common Shares - Shares of beneficial interest in the fund
Corporate Debt Securities - Obligations issued by corporations in return for
investments by securityholders. In exchange for their investment in the
corporation, securityholders receive income from the corporation and the
return of their investments. The corporation typically pledges to the
securityholders collateral which will become the property of the
securityholders in case the corporation defaults in paying interest or in
repaying the amount of the investments to securityholders.
Corporate Loan - A loan made to a corporation. In return, the corporation
makes payments of interest and principal to the Lenders. The corporation
typically pledges collateral which becomes the property of the Lenders, in
case the corporation defaults in paying interest or principal on the loan.
Corporate Loans include Participation Interests in Corporate Loans and
Assignments of Corporate Loans.
Declaration of Trust - The Agreement and Declaration of Trust of the fund,
which is the basic charter document of the fund
Distributors - Franklin/Templeton Distributors, Inc., is a wholly owned
subsidiary of Resources, a registered broker-dealer and member of the NASD.
This SAI lists the fund's officers and Board members who are affiliated with
Distributors.
Floating Interest Rate - One of the following: (i) a variable interest rate
which adjusts to a base interest rate, such as LIBOR or the CD Rate on set
dates; or (ii) an interest rate that floats at a margin above a generally
recognized base lending interest rate such as the Prime Rate of a designated
U.S. bank.
Franklin Templeton Funds - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Templeton
Variable Insurance Products Trust, Templeton Capital Accumulator Fund, Inc.,
and Templeton Variable Products Series Fund
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
Franklin Templeton Group of Funds - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
FT Services - Franklin Templeton Services, Inc., the fund's administrator
Illiquid - Illiquid property or securities cannot be sold within seven days,
in the ordinary course of business, at approximately the valued price.
Intermediate Participant - A Lender, Participant or Agent Bank interposed
between the fund and a Borrower, when the fund invests in a Corporate Loan
through a Participation Interest.
Investor Services - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Lender - The party that loans money to a corporation under a Corporate Loan.
A Corporate Loan in which the fund may invest is often negotiated and
structured by a group of Lenders. The Lenders typically consist of commercial
banks, thrift institutions, insurance companies, finance companies or other
financial institutions. The fund acts as a Lender when it directly invests in
a Corporate Loan or when it purchases an Assignment.
LIBOR - The London InterBank Offered Rate, the interest rate that the most
creditworthy international banks charge each other for large loans.
Moody's - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - The net asset value of an investment company is
determined by deducting the company's liabilities from the total assets of
the company. The net asset value per share is determined by dividing the net
asset value of the company by the number of shares outstanding.
NRSRO - a nationally recognized statistical rating organization, such as S&P
or Moody's
NYSE - New York Stock Exchange
Participant - A holder of a Participation Interest in a Corporate Loan
Participation Interest - An interest which represents a fractional interest
in a Corporate Loan. The fund may acquire Participation Interests from a
Lender or other holders of Participation Interests.
Prime Rate - The interest rate charged by leading U.S. banks on loans to
their most creditworthy customers
Prospectus - The prospectus for the fund dated December 1, 1999, which we may
amend from time to time
Recognized Market - Includes the following Stock Exchanges: (i) all stock
exchanges in a Member State of the European Union; (ii) all stock exchanges
in a Member State of the European Economic Area (EEA) (Norway, Iceland and
Liechtenstein); and (iii) a stock exchange located in any of the following
countries: Australia, Canada, Japan, Hong Kong, New Zealand, Switzerland and
USA. It also includes the following Markets: (i) the market organized by the
International Securities Markets Association; (ii) the market conducted by
the "listed money market institutions" as described in the Bank of England
publication "The Regulation of the Wholesale Cash and OTC Derivatives (in
Sterling, foreign currency and bullion); (iii) AIM - the Alternative
Investment Market in the UK, regulated and operated by the London Stock
Exchange; (iv) the over-the-counter market in Japan regulated by the
Securities Dealers Association of Japan; (v) NASDAQ in the United States;
(vi) the market in U.S. government securities conducted by primary dealers
regulated by the Federal Reserve Bank of New York; (vii) the over-the-counter
market in the United States regulated by the National Association of
Securities Dealers Inc. (May also be described as: the over-the-counter
market in the United States conducted by primary and secondary dealers by the
Securities and Exchanges Commission and by the National Association of
Securities Dealers (and by banking institutions regulated by the U.S.
Comptroller of the Currency, the Federal Reserve System or Federal Deposit
Insurance Corporation)); (viii) the French market for "Titres de Creance
Negotiable (over-the-counter market in negotiable debt instruments); (ix)
EASDAQ (European Association of Securities Dealers Automated Quotation); and
(x) the over-the-counter market in Canadian Government Bonds, regulated by
the Investment Dealers Association of Canada.
Repurchase Offers - The quarterly offers by the fund to repurchase a
designated percentage of the outstanding Common Shares owned by the fund's
shareholders. Once every two years the Board may determine in its sole
discretion to have one additional Repurchase Offer in addition to the regular
quarterly Repurchase Offers.
Repurchase Payment Deadline - The date by which the fund must pay
shareholders for Common Shares repurchased in a Repurchase Offer, as stated
in the shareholder notification. The Repurchase Payment Deadline may be no
later than seven days after the Repurchase Pricing Date.
Repurchase Pricing Date - The date after the Repurchase Request Deadline on
which the fund determines the Net Asset Value applicable to the repurchase of
Common Shares in a Repurchase Offer, as stated in the shareholder
notification or, under certain circumstances, an earlier date than the
scheduled date, but not earlier than the Repurchase Request Deadline. As set
by fundamental policy of the fund, the Repurchase Pricing Date must occur not
later than the fourteenth day after the Repurchase Request Deadline or the
next business day, if the fourteenth day is not a business day.
Repurchase Request Deadline - The date by which Investor Services, on behalf
of the fund, must receive the shareholders' request for repurchase of their
Common Shares in conjunction with a Repurchase Offer, as stated in the
shareholder notification.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
Unsecured Corporate Loans and Unsecured Corporate Debt Securities - Corporate
Loans and Corporate Debt Securities that are not backed by collateral. Thus,
if a Borrower Defaults on an Unsecured Corporate Loan or Unsecured Corporate
Debt Security, it is unlikely that the fund would be able to recover the full
amount of the principal and interest due.
We/Our/Us - Unless a different meaning is indicated by the context, these
terms refer to the fund and/or Investor Services, or other wholly owned
subsidiaries of Resources.
FRANKLIN FLOATING RATE MASTER TRUST
FORM N-2
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
1) Financial Statements.
Included in Part A: None.
Included in Part B: None.
(2) Exhibits:
(a) Charter
(i) Certificate of Trust dated November 16, 1999
(ii) Amendment to the Certificate of Trust dated
March 21, 2000
(iii) Agreement and Declaration of Trust dated
November 16, 1999
(iv) Amendment to Agreement and Declaration of Trust
dated March 21, 2000
(b) By-Laws
(i) By-Laws dated March 21, 2000
(c) Voting Trust Agreements
Not Applicable
(d) (i) Specimen: Not Applicable
(ii) Agreement and Declaration of Trust
ARTICLE III, SHARES.
SECTIONS 3.01 - 3.07.
ARTICLE V - HOLDERS' VOTING POWERS AND
MEETINGS.
SECTIONS 5.01-5.02.
ARTICLE VI - NET ASSET VALUE, DISTRIBUTIONS, AND
REPURCHASE OF SHARES.
ARTICLE VIII - MISCELLANEOUS.
SECTIONS 8.02 - 8.03.
ARTICLE IX - CERTAIN TRANSACTIONS.
By-Laws
ARTICLE II - MEETINGS OF HOLDERS.
ARTICLE VIII - DIVIDENDS.
ARTICLE IX - GENERAL MATTERS: SECTIONS 3. - 7.
Part A: Prospectus
ITEM 10.1.
(e) Dividend Reinvestment Plan
Not Applicable
(f) Long-Term Debt Instruments
Not Applicable
(g) Investment Advisory Contracts
(i) Form of Investment Advisory Agreement between
the Registrant and Franklin Advisers Inc
(h) Underwriting Agreement
Not Applicable
(i) Bonus, Profit Sharing, Pension Plans
Not Applicable
(j) Custodian Agreements and Depository Contracts
(i) Master Custody Agreement dated February 16, 1996
(ii) Amendment dated May 7, 1997 to Master Custody
Agreement dated February 16, 1996
(iii) Amendment dated February 27, 1998 to Master
Custody Agreement dated February 16, 1996
(iv) Amendment dated March 21, 2000, to Exhibit A
of the Master Custody Agreement dated February
16, 1996
(v) Terminal Link Agreement between Registrant and
Bank of America dated February 16, 1996
(vi) Foreign Custody Manager made as of July 30,
1998, effective as of February 27, 1998
(vii) Amendment dated March 21, 2000 to Schedule 1
of the Foreign Custody Manager Agreement dated
July 30, 1998.
(k) Other Material Contracts
(i) Form of Administration Agreement between
Registrant and Franklin Templeton Services, Inc.
(l) Opinions
Not Applicable
(m) Non-Resident Officers/Directors - Consent to Service
of Process
Not Applicable
(n) Other Opinions
Not Applicable
(o) Omitted Financial Statements
Not Applicable
(p) Initial Capital
(i) Form of Subscription Agreement dated March 24,
2000 between the Registrant and Franklin Resources, Inc.
(ii) Form of Subscription Agreement dated March 24,
2000 between the Registrant and Templeton Investment Counsel,
Inc.
(q) Retirement Plans
Not Applicable
(r) Codes of Ethics
(i) Code of Ethics of the Registrant and Franklin
Advisers, Inc.
(s) (i) Power of Attorney dated March 21, 2000
(ii) Certificate of Secretary dated March 21, 2000
ITEM 25. MARKETING ARRANGEMENTS.
None.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses already incurred and
expected to be incurred in connection with the issuance and distribution of
the Common Shares of the Registrant being registered in this registration
statement under the Investment Company Act of 1940, other than underwriting
discounts and commissions.
Federal Taxes $0
State Taxes and Fees $440
Trustees' Expenses $0
Printing and Mailing Expenses $1,000
Rating Agency Expenses $0
Legal Audit & Accounting Services Fees Expenses $80,030
Administrative Services Fees $30,000
--------
Total $111,030
----
* Estimated.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL.
Not Applicable.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
As of March 23, 2000:
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Common Shares,
par value $0.01
per share 0
ITEM 29. INDEMNIFICATION.
Under Article III, Section 3.07 of Registrant's Agreement and
Declaration of Trust, as amended, if any Holder or former Holder shall be
exposed to liability by reason of a claim or demand relating solely to his or
her being or having been a Holder of the Trust (or by having been a Holder of
a particular Series), and not because of such Person's acts or omissions, the
Holder or former Holder (or, in the case of a natural person, 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 or out of the assets of the applicable Series (as the
case may be) against, all loss and expense arising from such claim or demand;
provided that such indemnification shall be limited in amount to no more than
the net assets held with respect to such Series or the Trust (where there is
no Series).
Under Article VII, Section 7.02 of the Registrant's Agreement and
Declaration of Trust, as amended, the Trustees of the Registrant 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 Registrant,
nor shall any Trustee be responsible for the act or omission of any other
Trustee, and the Registrant out of its assets may indemnify and hold harmless
each and every Trustee and officer of the Registrant from and against any and
all claims, demands, costs, losses, expenses and damages whatsoever arising
out of or related to the performance of his or her duties as a Trustee or
officer of the Registrant; provided that nothing contained in Registrant's
Agreement and Declaration of Trust shall indemnify, hold harmless or protect
any Trustee or officer from or against any liability to the Registrant or any
Holder 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.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT
ADVISER.
The officers and directors of the Registrant's investment
adviser, Franklin Advisers, Inc., also serve as officers and/or directors for:
(1) the investment adviser's corporate parent, Franklin
Resources, Inc., 777 Mariners Island Blvd., San Mateo, CA 94404; and/or
(2) other investment companies in the Franklin Templeton Group
of Funds. In addition, Mr. Charles B. Johnson was formerly a director of
General Host Corporation, Metro Center, One Station Place, Stamford, CT
06904-2045.
For additional information please see Schedules A and D of Form
ADV of the Registrant's investment adviser (SEC File 801-26292) incorporated
herein by reference, which sets forth the officers and directors of the
Registrant's investment adviser 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, as amended, 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.
Not Applicable.
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Mateo, the State of California, on the 23RD day of March, 2000.
FRANKLIN FLOATING RATE MASTER TRUST
Registrant
/S/ RUPERT H. JOHNSON, JR.*
Rupert H. Johnson, Jr.
President
(Signature and Title)
*By: /S/ DAVID P. GOSS
David P. Goss, Attorney-in-Fact
(pursuant to Power of Attorney filed herewith.)
FRANKLIN FLOATING RATE MASTER TRUST
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.(a) (i) Certificate of Trust dated November Attached
16, 1999
EX-99.(a) (ii) Amendment to the Certificate of Trust Attached
dated March 21, 2000
EX-99.(a) (iii) Agreement and Declaration of Trust Attached
dated November 16, 1999
EX-99.(a) (iv) Amendment to Agreement and Attached
Declaration of Trust dated March 21,
2000
EX-99.(b) (i) By-Laws dated March 21, 2000 Attached
EX-99.(g) (i) Form of Investment Advisory Agreement Attached
between the Registrant and Franklin
Advisers, Inc.
EX-99.(j) (i) Master Custody Agreement dated Attached
February 16, 1996
EX-99.(j) (ii) Amendment dated May 7, 1997 to Master Attached
Custody Agreement dated February 16,
1996
EX-99.(j) (iii) Amendment dated February 27, 1998 to Attached
Master Custody Agreement dated
February 16, 1996
EX-99.(j) (iv) Amendment dated March 21, 2000, to Attached
Exhibit A of the Master Custody
Agreement dated February 16, 1996
EX-99.(j) (v) Terminal Link Agreement between Attached
Registrant and Bank of America dated
February 16, 1996
EX-99.(j) (vi) Foreign Custody Manager Agreement Attached
made as of July 30, 1998, effective
as of February 27, 1998
EX-99.(j) (vii) Amendment dated March 21, 2000 to Attached
Schedule 1 of the Foreign Custody
Manager Agreement dated July 30,
1998.
EX-99.(k) (i) Form of Administration Agreement Attached
between Registrant and Franklin
Templeton Services, Inc.
EX-99.(p) (i) Form of Subscription Agreement dated Attached
March 24, 2000 between the Registrant and
Franklin Resources, Inc.
EX-99.(p) (ii) Form of Subscription Agreement dated Attached
March 24, 2000 between the Registrant and
Templeton Investment Counsel, Inc.
EX-99.(r) (i) Code of Ethics of the Registrant and Attached
Franklin Advisers, Inc.
EX-99.(s) (i) Power of Attorney dated March 21, 2000 Attached
EX-99.(s) (ii) Certificate of Secretary dated March Attached
21, 2000
CERTIFICATE OF TRUST OF
FLOATING RATE MASTER TRUST
THIS Certificate of Trust of Floating Rate Master Trust (the "Trust"),
dated as of this 16th day of November 1999, is being duly executed and filed
by the undersigned trustees, in order to form a business trust pursuant to
the Delaware Business Trust Act (12 Del. C. ss. 3801 et seq.) (the "Act").
1. NAME. The name of the business trust formed hereby is "Floating Rate
Master Trust."
2. REGISTERED OFFICE AND REGISTERED AGENT. The Trust will become, prior
to the issuance of shares of beneficial interest, a registered investment
company under the Investment Company Act of 1940, as amended (15 U.S.C.
ss.ss.80a-1 et seq.) In accordance with section 3807(b) of the Act, the Trust
has and shall maintain in the State of Delaware a registered office and a
registered agent for service of process.
(A) REGISTERED OFFICE. The registered office of the Trust in the
State of Delaware is The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
(B) REGISTERED AGENT. The registered agent for service of process on
the Trust in the State of Delaware is The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware 19801.
3. LIMITATION OF LIABILITY. Pursuant to section 3804(a) of the Act, the
debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular series, whether such series
is now authorized and existing pursuant to the governing instrument of the
Trust or is hereafter authorized and existing pursuant to said governing
instrument, shall be enforceable against the assets associated with such
series only, and not against the assets of the Trust generally or any other
series thereof, and, except as otherwise provided in the governing instrument
of the Trust, none of the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to the Trust
generally or any other series thereof shall be enforceable against the assets
of such series.
IN WITNESS WHEREOF, the Trustees named below, being all of the Trustees of
the Trust, do hereby execute this Certificate of Trust as of the date
first-above written.
/s/ Frank H. Abbott, III /s/ Harris J. Ashton
- - ----------------------------- -------------------------
Frank H. Abbott, III, Trustee Harris J. Ashton, Trustee
/s/ S. Joseph Fortunato /s/ Edith E. Holiday
- - ----------------------------- -------------------------
S. Joseph Fortunato, Trustee Edith E. Holiday, Trustee
/s/ Charles B. Johnson /s/ Rupert H. Johnson, Jr.
- - ----------------------------- -------------------------
Charles B. Johnson, Trustee Rupert H. Johnson, Jr.,
Trustee
/s/ Frank W.T. LaHaye /s/ Gordon S. Macklin
- - ----------------------------- -------------------------
Frank W.T. LaHaye, Trustee Gordon S. Macklin, Trustee
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF TRUST
OF
FLOATING RATE MASTER TRUST
The undersigned certifies that:
1. The name of the business trust is Floating Rate Master Trust (the
"Business Trust").
2. The amendment to the Certificate of Trust of the Business Trust set
forth below (the "Amendment") has been duly authorized by the Board of
Trustees of the Business Trust pursuant to the authority granted to the
Trustees of the Business Trust under ss.3810(b) of the Delaware Business Trust
Act (12 Del.C. ss.3801 et seq.) (the "Act") and pursuant to the authority set
forth in the governing instrument of the Business Trust.
3. The first Article of the Certificate of Trust is hereby amended to read
as follows:
1. NAME: The name of the business trust is "Franklin
Floating Rate Master Trust."
4. Pursuant to ss.3810(b) of the Act this Certificate of Amendment to the
Certificate of Trust of the Business Trust shall become effective immediately
upon filing with the Office of the Secretary of State of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned, being a Trustee of the
Business Trust, has duly executed this Certificate of Amendment this 21st
day of March, 2000.
/s/ S. Joseph Fortunato
--------------------------
Name:
Trustee
AGREEMENT AND DECLARATION OF TRUST
OF
FLOATING RATE MASTER 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
1.01 Name..............................................................1
1.02 Registered Agent and Registered Office............................1
1.03 Definitions.......................................................1
(a) Board of Trustees............................................1
(b) Certificate of Trust.........................................1
(c) Trust........................................................1
(d) Trust Property...............................................1
(e) Trustees.....................................................2
(f) Shares.......................................................2
(g) Shareholder or Holder........................................2
(h) Person.......................................................2
(i) The 1940 Act.................................................2
(j) Commission and Principal Underwriter.........................2
(k) Declaration of Trust.........................................2
(l) By-Laws......................................................2
(m) Interested Person............................................2
(n) Investment Manager or Manager................................2
(o) Series.......................................................2
(p) Book Capital Account........................................2
(q) Act..........................................................3
ARTICLE II...................................................................3
Purpose of Trust.......................................................3
ARTICLE III..................................................................5
Shares.................................................................5
3.01 Division of Beneficial Interest...................................5
3.02 Ownership of Shares...............................................6
3.03 Investments in the Trust..........................................6
3.04 Status of Shares and Limitation of Personal Liability.............6
3.05 Power of Board of Trustees to Change Provisions Relating to
Shares.................................................................7
3.06 Establishment and Designation of Shares...........................7
(a) Assets Held with Respect to a Particular Series..............7
(b) Liabilities Held with Respect to a Particular Series.........8
(c) Net Asset Value..............................................9
(d) Dividends, Distributions, and Repurchases....................9
(e) Voting.......................................................9
(f) Equality.....................................................9
(g) Fractions...................................................10
(h) Exchange and Conversion Privileges..........................10
(i) Combination of Series.......................................10
(j) Elimination of Series.......................................10
(k) Transferability.............................................10
(l) Dissolution of a Series.....................................10
(m) Series Established as a Partnership.........................10
3.07 Indemnification of Holders.......................................11
ARTICLE IV..................................................................11
The Board of Trustees.................................................11
4.01 Powers...........................................................11
4.02 Effect of Death, Resignation, Etc. of a Trustee..................12
4.03 Payment of Expenses by the Trust.................................12
4.04 Payment of Expenses by Holders...................................13
4.05 Ownership of Assets of the Trust.................................13
4.06 Service Contracts................................................13
ARTICLE V...................................................................14
Holders' Voting Powers and Meetings...................................14
5.01 Voting Powers....................................................14
5.02 Action by Written Consent........................................15
5.03. Additional Provisions...........................................15
ARTICLE VI..................................................................15
Net Asset Value, Distributions, and Repurchase of Shares..............15
6.01 Determination of Net Asset Value, Net Income, and
Distributions.........................................................15
6.02 Repurchase of Shares.............................................15
6.03 Repurchase at the Option of the Trust............................16
6.04 Transfer of Shares...............................................16
ARTICLE VII.................................................................16
Compensation and Limitation of Liability of Trustees..................16
7.01 Compensation.....................................................16
7.02 Indemnification and Limitation of Liability......................16
7.03 Trustee's Good Faith Action, Expert Advice, No Bond or Surety....17
7.04 Insurance........................................................17
ARTICLE VIII................................................................17
Miscellaneous.........................................................17
8.01 Liability of Third Persons Dealing with Trustees.................17
8.02 Dissolution of Trust or Series...................................17
8.03 Merger, Consolidation, Share Exchange and Sale of Assets.........18
8.04 Amendments.......................................................19
8.05 Filing of Copies, References, Headings...........................20
8.06 Applicable Law...................................................20
8.07 Provisions in Conflict with Law or Regulations...................20
8.08 Business Trust Only..............................................20
8.09 Use of the name "Franklin".......................................21
ARTICLE IX..................................................................21
Certain Transactions..................................................21
9.01 Required Holder Vote.............................................21
9.02 Applicable Transactions..........................................22
AGREEMENT AND DECLARATION OF TRUST
OF
FLOATING RATE MASTER TRUST
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is made and entered
into on the date set forth below by the Trustees named hereunder for the
purpose of forming a Delaware statutory 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 that the Trust now possesses or may hereafter
acquire from time to time in any manner and will manage and dispose of the
same upon the following terms and conditions for the benefit of the Holders
of the Trust.
ARTICLE I.
Name and Definitions
1.01 NAME. The Delaware statutory business trust established hereby
shall be known as the "Floating Rate Master 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.
1.02 REGISTERED AGENT AND REGISTERED OFFICE. The name of the
registered agent of the Trust and the address of the registered office of the
Trust are as set forth on the Certificate of Trust.
1.03 DEFINITIONS. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) "Board of Trustees" means the governing body of the Trust,
which is comprised of the Trustees of the Trust.
(b) "Certificate of Trust" means the certificate of trust filed
with the Office of the Secretary of State of the State of Delaware as
required under the Act to form the Trust.
(c) The "Trust" refers to the Delaware statutory business trust
established by this Agreement and Declaration of Trust, as amended from time
to time;
(d) The "Trust Property" means any and all property, real or
personal, tangible or intangible, that is owned or held by or for the account
of the Trust, including, without limitation, the rights referenced in Article
VIII, Section 8.09 hereof;
(e) "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;
(f) "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;
(g) "Shareholder" or "Holder" means a record owner of outstanding
Shares;
(h) "Person" means and includes individuals, corporations,
partnerships, trusts, foundations, plans, associations, joint ventures,
estates and other entities, whether or not legal entities, and governments
and agencies and political subdivisions thereof, whether domestic or foreign;
(i) The "1940 Act" refers to the Investment Company Act of 1940
and the rules and regulations thereunder, all as amended from time to time
and references herein to specific sections of the 1940 Act shall be deemed to
include such rules and regulations as are applicable to such sections as
determined by the Trustees or their designees;
(j) The terms "Commission" and "Principal Underwriter" have the
respective meanings given them in Section 2(a)(7) and Section (2)(a)(29) of
the 1940 Act;
(k) "Declaration of Trust" means this Agreement and Declaration
of Trust, as amended or restated from time to time;
(l) "By-Laws" means the By-Laws of the Trust as amended from time
to time and incorporated herein by reference;
(m) The term "Interested Person" has the meaning given it in
Section 2(a)(19) of the 1940 Act;
(n) "Investment Manager" or "Manager" means a party furnishing
services to the Trust pursuant to any contract described in Article IV,
Section 4.07(a) hereof;
(o) "Series" refers to each series of Shares established and
designated under or in accordance with the provisions of Article III;
(p) "Book Capital Account" has the meaning as may be provided
for in Article III, section 3.06(m) hereof; and
(q) The "Act" refers to the Delaware Business Trust Act (12
Del.C. ss.3801, ET SEQ.), as amended from time to time.
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, debt
obligations, or other investment contracts.
Without limiting the foregoing, the Trust shall have power and
authority:
(a) (i) To invest and reinvest cash and cash equivalents, to hold
cash and cash equivalents 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, (x) 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, reverse repurchase agreements,
bankers' acceptances, and other securities of any kind that are issued,
created, guaranteed or sponsored by any 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, any international
instrumentality, any bank or savings institution, any corporation or
organization organized under the laws of the United States or of any state,
territory, or possession thereof, or any corporation or organization
organized under any foreign law; or (y) "when issued" contracts for any such
securities; (ii) to change the investments of the assets of the Trust or any
Series; and (iii) 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 such rights, powers and privileges in respect of
any of such investments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
lease, 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) (i) To vote, give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and (ii) 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 other property as the
Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise
that in any manner arise out of ownership of securities;
(e) (i) 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,
subcustodian, nominee or nominees or otherwise; and (ii) to authorize a
custodian, subcustodian, nominee or nominees to deposit the security or
property 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) (i) To consent to, or participate in, any plan for the
reorganization, consolidation or merger of any corporation or issuer of any
security or other investment contract that is held in the Trust; (ii) to
consent to any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer; (iii) and to pay calls or subscriptions with
respect to any security or other investment contract held in the Trust;
(g) (i) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection to
deposit any security or other investment contract with, or transfer any
security or other investment contract to, any such committee, depositary or
trustee; (ii) to delegate to any such committee, depositary or trustee such
power and authority with relation to any security or other investment
contract (whether or not so deposited or transferred) as the Trustees shall
deem proper; and (iii) 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 litigate, compromise, arbitrate, settle or otherwise
adjust claims in favor of or against the Trust or a Series on any matter in
controversy, including, without limitation, claims for taxes;
(i) To borrow funds or other property in the name of the Trust
exclusively for the Trust;
(j) To enter into joint ventures, general or limited partnerships
and any other combinations or associations;
(k) (i) To endorse or guarantee the payment of any notes or other
obligations of any Person; and (ii) to make contracts of guaranty or
suretyship, or otherwise assume liability for payment of such notes or other
obligations;
(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary, desirable or appropriate for
the conduct of the business of the Trust, including, without limitation,
insurance policies insuring the Trust Property or payment of distributions
and principal on its portfolio investments, and insurance policies insuring
the Holders, Trustees, officers, employees, agents, Investment Managers,
Principal Underwriters or independent contractors of the Trust, individually
against all claims and liabilities of every nature arising by reason of
holding Shares, by reason of holding, being nominated for, 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 Manager, Principal Underwriter or independent contractor,
including, without limitation, 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 implement pension, profitsharing,
share bonus, share purchase, savings, thrift and other retirement, incentive
and benefit plans, trusts and provisions, including, without limitation, 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 dissolution of the Trust or one or more of its Series.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by fiduciaries. Neither the
Trust nor the Trustees shall be required to obtain any court order to deal
with any Trust Property or take any other action hereunder.
ARTICLE III.
Shares
3.01 DIVISION OF BENEFICIAL INTEREST. The beneficial interest in the
Trust shall at all times be divided into Shares, with a par value of $ 0.01
per Share; provided that the Shares of Series that are established by the
Trustees to be taxable as a separate partnership for federal income tax
purposes shall have no par value. The number of Shares authorized hereunder
is unlimited. The Trustees may, from time to time, authorize the division of
Shares into separate Series and the division of Series into separate classes
of Shares. The different Series (or classes) shall be established and
designated, and the variations in the relative rights and preferences as
between the different Series (or classes) 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 3.06 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 3.06 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 and
distributions, if, when, and as declared with respect thereto in the manner
provided in Article VI, Section 6.01 hereof. No Shares shall have any
priority or preference over any other Share of the same Series (i) with
respect to the net assets held with respect to such Series, as described in
this Article III, Section 3.06, or (ii) with respect to dividends or
distributions upon termination of the Trust or of such Series made pursuant
to Article VIII, Section 8.02 hereof. All dividends and distributions shall
be made ratably among all Holders of a particular Series (or class thereof)
from the net assets held with respect to such Series according to the number
of Shares of such Series (or class of such Series) held of record by such
Holder on the record date for any dividend or distribution or on the date of
termination of the Trust or any Series, as the case may be. Holders 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 a Series into a greater or
lesser number of Shares of such Series without thereby materially changing
the proportionate beneficial interest of the Shares of such Series in the
assets held with respect to such Series or materially affecting the rights of
Shares of any other Series.
Any Trustee, officer or other agent of the Trust, and any organization
in which any such Person is interested, may acquire, own, hold and dispose of
Shares of the Trust to the same extent as if such Person were not a Trustee,
officer or other agent of the Trust; and the Trust may issue and sell or
cause to be issued and sold and may purchase Shares from any such Person or
any such organization subject only to the general limitations, restrictions
or other provisions applicable to the sale or purchase of such Shares
generally.
3.02 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 evidencing 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 and, by
resolution, may restrict the transfer of Shares of a Series. 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 Holders of each Series
(or class) and as to the number of Shares of each Series (or class) held from
time to time by each Holder.
3.03 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 Holder's account in the form
of full or fractional Shares of the Trust, or, to the extent there are Series
(or classes), of such Series (or class) as the purchaser shall select, at the
net asset value per Share next determined for the Trust or such Series (or
class) after receipt of the investment; provided, that the Trustees may, in
their sole discretion, impose a sales charge or reimbursement fee upon
investments in the Trust.
3.04 STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares
shall be deemed to be personal property giving only the rights provided by
this Declaration of Trust and under applicable law. Every Holder, by virtue
of having become a Holder, shall be held to have expressly assented and
agreed to the terms thereof and to have become a party hereto. The death of
a Holder during the existence of the Trust shall not operate to terminate the
Trust, nor entitle the representative of any deceased Holder 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 Holder under this Declaration of Trust. Ownership of Shares shall
not entitle the Holder 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 Holders
as partners or joint venturers except as specifically provided for pursuant
to Article III, Section 3.06 herein or by resolution of the Board of
Trustees. Neither the Trust nor the Trustees, nor any officer, employee or
agent of the Trust shall have any power to bind personally any Holders, nor,
except as specifically provided herein, to call upon any Holder for the
payment to the Trust of any sum of money or assessment whatsoever other than
such as the Holder may at any time personally agree to pay; provided, that
the Holders shall pay such sales charges, deferred or otherwise, exchange,
redemption or transfer fees, or other similar fees, as set forth in the then
effective prospectus of the Trust, as amended or restated from time to time.
3.05 POWER OF BOARD OF TRUSTEES TO CHANGE PROVISIONS RELATING TO
Shares. Except as provided in Article VIII, Section 8.04 hereof, and
notwithstanding any other provisions of the Declaration of Trust to the
contrary, and without limiting the power of the Board of Trustees to amend
the Declaration of Trust or the Certificate of Trust as provided elsewhere
herein, the Board of Trustees shall have the power to amend this Declaration
of Trust or the Certificate of Trust, at any time and from time to time, in
such manner as the Board of Trustees may determine in their sole discretion,
by the affirmative vote or written consent of a majority of the Trustees then
in office, without the need for Holder action, so as to add to, delete,
replace or otherwise modify any provisions relating to the Shares contained
in this Declaration of Trust or the Certificate of Trust, provided that
before adopting any such amendment without Holder approval, the Board of
Trustees shall determine that it is consistent with the fair and equitable
treatment of all Holders or that Holder approval is not otherwise required by
the 1940 Act or other applicable law. If Shares have been issued, Holder
approval shall be required to adopt any amendments to this Declaration of
Trust that 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 3.06 of this Article III.
3.06 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 that
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
3.06, 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, including dividends and distributions paid by, and
reinvested in, such 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 with respect
to such Series, 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 held by the Trust
that 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 Assets so allocated to a
particular Series shall thereupon be assets held with respect to that
Series. Each such allocation by the Trustees shall be conclusive and binding
upon the Holders of all Series for all purposes in the absence of manifest
error.
(b) LIABILITIES HELD WITH RESPECT TO A PARTICULAR SERIES. All
liabilities, expenses, costs, fees, charges and reserves incurred by or
assumed by the Trust that are incurred on behalf of, or attributable to, a
particular Series, and any interest, fees or penalties payable by the Trust
due to or arising from such liabilities, expenses, costs, fees, charges and
reserves, in whatever form the same may be, shall irrevocably be charged with
respect to that Series for all purposes and shall be so recorded upon the
books of account of the Trust. Such liabilities, expenses, costs, fees,
charges, and reserves, and any interest, fees or penalties payable by the
Trust due to or arising from such liabilities, expenses, costs, fees, charges
and reserves, in whatever form the same may be, so charged to a Series are
herein referred to as "liabilities held with respect to" that Series. In the
event that there are any liabilities, expenses, costs, fees, charges or
reserves incurred by or assumed by the Trust, or interest, fees or penalties
payable by the Trust due to or arising from such liabilities, expenses,
costs, fees, charges or reserves, in whatever form the same may be, that are
not readily identifiable as liabilities held with respect to any particular
Series (collectively, "General Liabilities"), the Trustees shall allocate
such General Liabilities 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 Liabilities so allocated to a
particular Series shall thereupon be liabilities held with respect to that
Series. Each such allocation by the Trustees shall be conclusive and binding
upon the Holders of all Series for all purposes in the absence of manifest
error. All Persons that have extended credit that has been allocated to a
particular Series, or that have a claim or contract that has been allocated
to any particular Series, shall look, and shall be required by contract to
look exclusively, to the assets held with respect to that particular Series
for payment of such credit, claim, or contract. In the absence of an express
agreement so limiting the claims of such creditors, claimants and contracting
parties, each creditor, claimant and contracting party will be deemed
nevertheless to have agreed to such limitation unless an express provision to
the contrary has been incorporated in the written contract or other document
establishing the contractual relationship.
Subject to the right of the Board of Trustees in its discretion
to allocate General Liabilities as provided herein, the debts, liabilities,
obligations and expenses incurred, contracted for or otherwise existing with
respect to a particular Series, whether such Series is now authorized and
existing pursuant to this Declaration of Trust or is hereafter authorized and
existing pursuant to this Declaration of Trust, shall be enforceable against
the assets held with respect to such particular Series only, and not against
the assets of any other Series or the General Assets of the Trust and none of
the General Liabilities of the Trust or the debts, liabilities, obligations
and expenses incurred, contracted for or otherwise existing with respect to
any other Series thereof shall be enforceable against the assets held with
respect to such particular Series. Notice of this limitation on liabilities
between and among Series shall be set forth in the Certificate of Trust of
the Trust (whether originally or by amendment) as filed or to be filed in the
office of the Secretary of State of the State of Delaware pursuant to the
Act, and upon the giving of such notice in the Certificate of Trust, the
statutory provisions of Section 3804 of the Act relating to limitations on
liabilities between and among Series (and the statutory effect under Section
3804 of setting forth such notice in the Certificate of Trust) shall become
applicable to the Trust and each Series.
(c) NET ASSET VALUE. The "net assets held with respect to" a
particular Series shall be the value determined by deducting the liabilities
held with respect to that Series from the assets held with respect to that
Series. The net asset value per Share of that Series shall be the value
determined by dividing the net assets held with respect to that Series by the
number of Shares of that Series that are issued and outstanding.
(d) DIVIDENDS, DISTRIBUTIONS, AND REPURCHASES. Notwithstanding
any other provisions of this Declaration of Trust, including, without
limitation, Article VI, to the contrary, no dividend or distribution
including, without limitation, any distribution paid upon dissolution of the
Trust or of any Series with respect to, nor any 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 3.07 of this Article III, shall any Holder 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 Holder has such a right or
claim hereunder as a Holder of such other Series. The Trustees shall have
sole 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 Holders in the absence of manifest error.
(e) VOTING. All Shares of the Trust entitled to vote on a matter
shall vote on the matter, separately by Series (and, if applicable, by
class): that is, the Holders 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 two exceptions to such voting by separate Series (or classes).
First, if the 1940 Act requires all Shares of the Trust to be voted in the
aggregate without differentiation between the separate Series (or classes),
then all of 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 Holders of such
affected Series (or classes) shall be entitled to vote on the matter.
(f) 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 (subject to the rights and preferences with respect to separate
classes of such Series).
(g) 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, repurchase of Shares and dissolution of that Series or the
Trust.
(h) EXCHANGE AND CONVERSION PRIVILEGES. The Trustees shall have
the authority to provide that the Holders of any Series shall have the right
to exchange the Shares of such Series for Shares of one or more other Series
of Shares in accordance with such requirements and procedures as may be
established by the Trustees. The Trustees shall have the authority to
provide that the Shares of a particular Series will convert into the Shares
of another Series upon the passage of time or some other event or condition,
without the necessity of the Holders of either of such Series taking any
action or providing any consent.
(i) COMBINATION OF SERIES. The Trustees shall have the
authority, without the approval of the Holders of any Series unless otherwise
required by the 1940 Act or 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; PROVIDED that upon
completion of such combination of Series, the proportionate interest of each
Holder of each Series that is combined, in the assets and liabilities held
with respect to the combined Series shall equal the proportionate interest
that each such Holder held in the assets and liabilities held with respect to
the particular Series that is combined.
(j) ELIMINATION OF SERIES. At any time that there are no Shares
outstanding of a 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. Each such resolution shall be incorporated herein by reference upon
adoption.
(k) TRANSFERABILITY. The Trustees shall have the authority to
provide that the Shares of a Series are nontransferable.
(l) DISSOLUTION OF A SERIES. The Trustees shall have the
authority to provide that upon the bankruptcy or insolvency of a Holder or in
the case of the repurchase of the entire interest of a Holder in a Series,
that such Series will be dissolved unless a majority in interest of the
remaining Holders in the Series approve the continuing existence of the
Series.
(m) SERIES ESTABLISHED AS A PARTNERSHIP. The Trustees shall have
the authority to create Series intended to be classified as a Partnership for
federal income tax purposes. Pursuant to such authority, the Trustees may
provide that (i) Book Capital Accounts (as defined in any resolution
establishing and designating such Series) are to be determined and maintained
for each Holder in accordance with Section 704(b) of the Internal Revenue
Code of 1986, as amended (the "Code") (and any successor provision thereto)
and the Treasury Regulations promulgated thereunder; (ii) upon liquidation of
a Series (or any Holder's interest therein), liquidating distributions shall
be made in accordance with the positive Book Capital Account balances of the
Holders; and, (iii) if any Holder in such Series has a deficit balance in his
Book Capital Account following the liquidation of his interest in the Series,
such Holder is unconditionally required to restore the amount of such deficit
balance to the Series, or in lieu thereof, the resolution establishing the
Series contain a "qualified income offset" within the meaning of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d).
3.07 INDEMNIFICATION OF HOLDERS. If any Holder or former Holder shall
be exposed to liability by reason of a claim or demand relating solely to his
or her being or having been a Holder of the Trust (or by having been a Holder
of a particular Series), and not because of such Person's acts or omissions,
the Holder or former Holder (or, in the case of a natural person, 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 or out of the assets of the applicable Series (as the
case may be) against, all loss and expense arising from such claim or demand;
provided that such indemnification shall be limited in amount to no more than
the net assets held with respect to such Series or the Trust (where there is
no Series).
ARTICLE IV.
The Board of Trustees
4.01 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. 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. The Trustees shall not be
bound or limited by present or future laws or customs with regard to
investment by trustees or fiduciaries, but shall have full authority and
absolute power and control over the assets of the Trust and the business of
the Trust to the same extent as if the Trustees were the sole owners of the
assets and the business of the Trust in their own right, including such
authority, power and control to do all acts and things as they, in their sole
discretion, shall deem proper to accomplish the purposes of this Trust.
Without limiting the foregoing, the Trustees may do the following, subject to
the 1940 Act and applicable law: 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 such By-Laws to the extent that
such By-Laws do not reserve that right to the Holders; fill vacancies of
Trustees or remove Trustees from their number, and may elect and remove such
officers and appoint and terminate such agents as the Trustees consider
appropriate; appoint to committees from their own number and establish and
terminate one or more committees consisting of two or more Trustees that 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; repurchase and transfer Shares pursuant to
applicable law; set record dates for the determination of Holders with
respect to various matters; declare and pay dividends and distributions to
Holders of each Series from the assets of such Series; establish from time to
time, in accordance with the provisions of Article III, Section 3.06 hereof,
any Series (or class) of Shares, each such Series 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 the Trustees consider desirable to any officer of
the Trust, any committee of the Trustees, any agent or employee of the Trust,
any custodian or transfer or shareholder servicing agent of the Trust, 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 approved or taken by a majority of the
Trustees then in office shall be deemed effective as an action taken by the
Board of Trustees. 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 then in office or
committee then in office (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, except as otherwise provided in the 1940 Act.
The Trustees shall devote to the affairs of the Trust such time as may
be necessary for the proper performance of their duties hereunder, but the
Trustees are not expected to devote their full time to the performance of
such duties. The Trustees, or any affiliate partner or employee thereof, may
engage in, possess an interest in, any other business or venture of any
nature and description, independently or with or for the account of others.
4.02 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 dissolve 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 the By-Laws, 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, subject to the provisions of the 1940 Act.
4.03 PAYMENT OF EXPENSES BY THE TRUST. Subject to the provisions of
Article III, Section 3.06(b), 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 the income, and to charge or
allocate the same to, between or among such one or more of the Series (or
classes) that may be established or designated pursuant to Article III,
Section 3.06, 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, without
limitation, the Trustees' compensation and such expenses and charges for the
services of the Trust's officers, employees, Investment Manager, Manager,
Principal Underwriter, auditors, counsel, custodian, transfer agent,
shareholder servicing agent, and other agents or independent contractors, and
such other expenses and charges as the Trustees may deem necessary or proper
to incur.
4.04 PAYMENT OF EXPENSES BY HOLDERS. The Trustees shall have the
power, as frequently as they may determine, to cause each Holder, or each
Holder 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 Holder from declared but unpaid dividends owed
such Holder and/or by reducing the number of Shares in the account of such
Holder by that number of full and/or fractional Shares that represents the
outstanding amount of such charges due from such Holder.
4.05 OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the Trust
Property 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 is now or may
hereafter become a Trustee. Upon the resignation, incompetency, bankruptcy,
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
right, title and interest in Trust Property shall be effective whether or not
conveyancing documents have been executed and delivered in connection
therewith. The Trustees may determine that the Trust shall be deemed to hold
beneficial ownership of any income earned on the securities owned by the
Trust, whether domestic or foreign.
4.06 SERVICE CONTRACTS.
(a) Subject to such requirements and restrictions as may 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 Person; and
any such contract may contain such other terms as the Trustees may determine,
including without limitation, authority for the Investment Manager or
administrator: (i) 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; (ii) to make changes in the Trust's investments; or (iii) to
engage in such other activities as may specifically be delegated to such
Person.
(b) The Trustees may also, at any time and from time to time,
contract with any Persons, appointing such Persons 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 Persons, appointing such Persons to serve as 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 time and from time
to time, to contract with any Persons to provide such other services to the
Trust or one or more of its 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 Holders, Trustees, or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee, investment
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, 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 Holder 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,
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, 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
Holder, Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its Holders,
provided approval of each such contract is made pursuant to the requirements
of the 1940 Act and applicable law.
ARTICLE V.
Holders' Voting Powers and Meetings
5.01 VOTING POWERS. Subject to the provisions of Article III hereof,
the Holders shall have power to vote only (i) for the election, including the
filling of vacancies, or removal of Trustees, and (ii) with respect to such
additional matters relating to the Trust as may be required by this
Declaration of Trust, by the By-Laws, by any registration, notice or
qualification of the Trust with the Commission (or any successor agency) or
with any state or by the 1940 Act and other applicable law, and such other
matters 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 for the election of
Trustees. Shares may be voted in person or by proxy. Subject to the
provisions of Article III, Section 3.06(d), when a quorum is present at any
meeting, a majority of the outstanding Shares entitled to vote thereon and
voted thereon 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. Any Trustee may be
removed at any meeting of Holders by a vote of two-thirds of the outstanding
Shares of the Trust entitled to vote thereon.
5.02 ACTION BY WRITTEN CONSENT. Any action taken by Holders may be
taken without a meeting if Holders holding a majority of the outstanding
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 outstanding 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 Holders. Such consent
shall be treated for all purposes as a vote taken at a meeting of Holders.
5.03. ADDITIONAL PROVISIONS. The By-Laws may include further
provisions for Holders' votes and meetings and related matters.
ARTICLE VI.
Net Asset Value, Distributions, and Repurchase of Shares
6.01 DETERMINATION OF NET ASSET VALUE, NET INCOME, AND DISTRIBUTIONS.
Except as may be provided by the Trustees in the resolutions establishing a
Series pursuant to Article III, Section 3.06(m) hereof, the Trustees, in
their sole discretion, may prescribe and shall set forth in the By-laws or in
a duly adopted resolution of the Trustees such bases and time for determining
the per Share or net asset value of the Shares of the Trust or any Series or
net income attributable to the Shares of the Trust or any Series, or the
declaration and payment of dividends and distributions on the Shares of the
Trust or any Series, as they may deem necessary or desirable.
6.02 REPURCHASE OF SHARES. The Trust may repurchase such Shares as are
tendered by any Holder for repurchase pursuant to a repurchase offer or
tender offer made by the Trust periodically or from time to time, upon the
presentation by the Holder of a proper instrument of transfer together with a
request directed to the Trust or a Person designated by the Trust that the
Trust repurchase such Shares or in accordance with such other procedures for
repurchase as the Trustees may from time to time authorize; and the Trust
will pay therefor the net asset value thereof, in accordance with such
repurchase offer, tender offer, this Declaration of Trust, the By-Laws and
applicable law. Payment for such Shares shall be made by the Trust to the
Holder within seven days after the date as provided for in the repurchase
offer, tender offer or other such other authorized procedures; provided that
the request for repurchase is made in proper form. The obligation set forth
in this Section 6.02 is subject to the provision that in the event that any
time the New York Stock Exchange (the "Exchange") is closed for other than
weekends or holidays, or if permitted by the rules of the Commission during
periods when trading on the Exchange is restricted or during any emergency
which makes it impracticable for the Trust to dispose of the investments of
the applicable Series or to determine fairly the value of the net assets held
with respect to such Series or during any other period permitted by order of
the Commission for the protection of investors, such obligations may be
suspended or postponed by the Trustees.
The repurchase price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the
interest of the remaining Holders of the Series for which the Shares are
being repurchased. Subject to the foregoing, the fair value, selection and
quantity of securities or other property so paid or delivered as all or part
of the repurchase price may be determined by or under authority of the
Trustees. In no case shall the Trust be liable for any delay of any
corporation or other Person in transferring securities selected for delivery
as all or part of any payment in kind.
6.03 REPURCHASE AT THE OPTION OF THE TRUST. The Trust shall have the
right at its option and at any time, subject to the 1940 Act and applicable
law, to repurchase Shares of any Holder at the net asset value thereof as
described in Section 6.01 of this Article VI: (i) if at such time such
Holder owns Shares of any Series having an aggregate net asset value of less
than an amount determined from time to time by the Trustees prior to the
acquisition of said Shares; or (ii) to the extent that such Holder owns
Shares of a particular Series equal to or in excess of a percentage of the
outstanding Shares of that Series determined from time to time by the
Trustees; or (iii) to the extent that such Holder owns Shares equal to or in
excess of a percentage, determined from time to time by the Trustees, of the
outstanding Shares of the Trust or of any Series.
6.04 TRANSFER OF SHARES. Except as may be provided by the Trustees in
the resolutions establishing a Series pursuant to Article III, Section
3.06(k), the Trust shall transfer shares held of record by any Person to any
other Person upon receipt by the Trust or a Person designated by the Trust of
a written request therefore in such form and pursuant to such procedures as
may be approved by the Trustees.
ARTICLE VII.
Compensation and Limitation of Liability of Trustees
7.01 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 to provide advisory, management, legal, accounting, investment
banking or other services to the Trust and to be specially compensated for
such services by the Trust.
7.02 INDEMNIFICATION AND LIMITATION OF LIABILITY. To the fullest
extent that limitations on the liability of Trustees is permitted by the Act,
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 may indemnify
and hold harmless each and every Trustee and officer of the Trust from and
against any and all claims, demands costs, losses, expenses and damages
whatsoever arising out of or related to the performance of his or her duties
as a Trustee or officer of the Trust; provided that nothing herein contained
shall indemnify, hold harmless or protect any Trustee or officer from or
against any liability to the Trust or any Holder 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, subject to the
last sentence of the first paragraph of this Section 7.02.
7.03 TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY.
The exercise by the Trustees of their powers and discretions hereunder shall
be binding upon everyone interested in or dealing with the Trust. A Trustee
shall be liable to the Trust and to any Holder 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.
7.04 INSURANCE. The Trustees shall be entitled and empowered to the
fullest extent permitted by law to purchase with Trust assets insurance for
any liability and for all expenses reasonably incurred or paid or expected to
be paid by a Trustee or officer 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; provided that nothing herein contained shall
permit the purchase of any insurance with Trust assets to protect any Trustee
from or against any liability to the Trust or any Holder to which he or she
is 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.
ARTICLE VIII.
Miscellaneous
8.01 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.
8.02 DISSOLUTION OF TRUST OR SERIES. Unless dissolved as provided
herein, the Trust shall have perpetual existence. The Trust may be dissolved
at any time by vote of a majority of the outstanding Shares of the Trust
entitled to vote or by the Board of Trustees by written notice to the
Holders. Any Series may be dissolved at any time by vote of a majority of
the outstanding Shares of the Series or by the Board of Trustees by written
notice to the Holders of the Series.
Upon dissolution of the Trust, the Trustees shall (in accordance with ss.
3808 of the Act) pay or make reasonable provision to pay all claims and
obligations of the Trust and/or each Series, including all contingent,
conditional or unmatured claims and obligations known to the Trust, and all
claims and obligations which are known to the Trust but for which the
identity of the claimant is unknown. If there are sufficient assets held
with respect to the Trust and/or each Series of the Trust, such claims and
obligations shall be paid in full and any such provisions for payment shall
be made in full. If there are insufficient assets held with respect to the
Trust and/or each Series of the Trust, such claims and obligations shall be
paid or provided for in accordance with Article III, Section 3.06, according
to their priority and, among claims and obligations of equal priority,
ratably to the extent of assets available therefor. Any remaining assets
(including without limitation, cash, securities or any combination thereof)
held with respect to the Trust and/or each Series of the Trust shall be
distributed to the Holders of the Trust and/or such Series in accordance with
Article III, Section 3.06, and ratably according to the number of outstanding
Shares of the Trust and/or such Series held by the several Holders on the
record date for such dissolution distribution.
Upon dissolution of a particular Series, the Trustees shall (in
accordance with ss. 3808 of the Act) pay or make reasonable provision to pay
all claims and obligations of the particular Series, including all
contingent, conditional or unmatured claims and obligations known to the
Trust, and all claims and obligations which are known to the Trust but for
which the identity of the claimant is unknown. If there are sufficient
assets held with respect to the particular Series, such claims and
obligations shall be paid in full and any such provisions for payment shall
be made in full. If there are insufficient assets held with respect to the
particular Series, such claims and obligations shall be paid or provided for
in accordance with Article III, Section 3.06, according to their priority
and, among claims and obligations of equal priority, ratably to the extent of
assets available therefor. Any remaining assets (including without
limitation, cash, securities or any combination thereof) held with respect to
the particular Series shall be distributed to the Holders of the particular
Series in accordance with Article III, Section 3.06, and ratably according to
the number of outstanding Shares of the particular Series held by the several
Holders on the record date for such dissolution distribution.
8.03 MERGER, CONSOLIDATION, SHARE EXCHANGE AND SALE OF ASSETS. 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 8.03 of Article
VIII, (iii) the Shares to be exchanged under or pursuant to any state or
federal statute to the extent permitted by law, or (iv) the Trust to sell,
lease or exchange all or any substantial part of the Trust's assets,
including its good will. Such merger or consolidation, Share conversion,
Share exchange or sale, lease or exchange of all or any substantial part of
the Trust's assets may be authorized only by vote of a majority of the
outstanding Shares of the Trust entitled to vote, as a whole, or with respect
to 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, lease
or exchange of all or any substantial part of the Trust's 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).
8.04 AMENDMENTS.
(a) Except as provided in Subsections (b) and (c) of this Article
VIII, Section 8.04, the Declaration of Trust may be restated and/or amended
at any time by the affirmative vote or written consent of a majority of the
Trustees then in office. Notwithstanding any other provision of the
Declaration of Trust to the contrary, the Trustees may also amend the
Declaration of Trust without the vote or consent of the Holders to change the
name of the Trust, to supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or if they deem it
necessary with advice of counsel to the Trust to conform the Declaration of
Trust to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Code, but
the Trustees shall not be liable for failing to do so. 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.
(b) No amendment to the Declaration of Trust may be made which
would adversely affect to a material degree any rights or preferences of any
series or class of Shares outstanding by reducing the amount payable thereon
upon liquidation of the Trust, by diminishing or eliminating any voting
rights pertaining thereto, or otherwise, except with the vote or written
consent of the holders of two-thirds (66 2/3%) of the series or class of
Shares so effected entitled to vote. Nothing contained in the Declaration of
Trust shall permit the amendment of the Declaration of Trust to impair the
exemption from personal liability of the Holders, Trustees, officers,
employees and agents of the Trust or to permit assessment upon the Holders.
(c) No amendment may be made under this Article VIII, Section
8.04 that shall amend, alter, change or repeal (i) any of the provisions of
Article III, Section 3.05; Article V, Sections 5.01 or 5.02; Article VIII,
Sections 8.02, 8.03 or 8.04; or Article IX unless the amendment effecting
such amendment, alteration, change or repeal shall receive the affirmative
vote or written consent of two-thirds (66 2/3%) of the outstanding Shares
entitled to vote; or (ii) any of the provisions of Article VIII, Section
8.09, without the express written consent of Franklin Resources, Inc.
("Franklin"). Such affirmative vote or consent shall be in addition to the
vote or consent of the Holders otherwise required by law or any agreement
between the Trust and any national securities exchange.
(d) A certificate signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by the Holders or by
the Trustees as aforesaid or a copy of the Declaration of Trust, as amended,
and executed by all of the Trustees then in office, shall be conclusive
evidence of such amendment when lodged among the records of the Trust.
8.05 FILING OF COPIES, REFERENCES, HEADINGS. The original or a copy of
this Declaration of Trust and of each restatement and/or amendment hereto
shall be kept at the office of the Trust where it may be inspected by any
Holder. 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 Declaration
of Trust or of any such restatements and/or amendments. In this Declaration
of Trust and in any such restatements and/or amendment, references to this
Declaration of Trust, and all expressions like "herein," "hereof" and
"hereunder," shall be deemed to refer to this Declaration of Trust as amended
or affected by any such restatements and/or amendments. Headings are placed
herein for convenience of reference only, shall not be taken as a part hereof
and shall not control or affect the meaning, construction or effect of this
Declaration of Trust. 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 Declaration of Trust may be
executed in any number of counterparts, each of which shall be deemed an
original.
8.06 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. The Trust shall be a Delaware business trust pursuant
to the Act, and without limiting the provisions hereof, the Trust may
exercise all powers that are ordinarily exercised by such a business trust.
8.07 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 Code, 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.
8.08 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 Holder. Except to the extent provided by
resolution of the Trustees establishing a Series intended to be classified as
a partnership for federal income tax purposes, it is not the intention of the
Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment, joint venture, or any form of legal
relationship other than a business trust pursuant to the Act, and except as
so provided in such resolution, nothing in this Declaration of Trust shall be
construed to make the Holders, either by themselves or with the Trustees,
partners or members of a joint stock association.
8.09 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
nonexclusive 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
9.01 REQUIRED HOLDER VOTE.
(a) Notwithstanding any other provision of the Declaration of
Trust to the contrary and subject to the exceptions provided in this Article
IX, each of the transactions described in this Article IX shall require the
affirmative vote or consent of the holders of two-thirds (66 2/3%) of the
outstanding Shares entitled to vote when a Principal Holder (as defined in
paragraph (b) of this Article IX, Section 9.01) is a party to the
transaction. Notwithstanding any other provision in the Declaration of
Trust, such affirmative vote or consent shall be in addition to, and not in
lieu of, the vote or consent of the Holders 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 any agreement between the Trust and any national securities
exchange.
(b) For purposes of this Article IX, the term "Principal Holder"
shall mean any Person or group (within the meaning of Rule 13d-5 under the
Securities Exchange Act of 1934, as amended (the "1934 Act")), that is the
beneficial owner, directly or indirectly, of more than ten percent (10%) 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
Holder, but shall not include Franklin or any affiliated person of Franklin.
For the purposes of this Article IX, in addition to the Shares which a
Principal Holder beneficially owns directly, a Principal Holder shall be
deemed to be the beneficial owner of any Shares (1) which the Principal
Holder 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 the
Principal Holder or its "affiliate" or "associate," as those terms are
defined in Rule 12b-2 under the 1934 Act, 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.
9.02 APPLICABLE TRANSACTIONS.
(a) This Article IX shall apply to the following transactions:
(1) Merger, consolidation or statutory Share exchange of
the Trust with or into any Principal Holder;
(2) Issuance of any securities of the Trust to any
Principal Holder for cash;
(3) Sale, lease, or exchange of all or any substantial
part of the assets market value of less than $1,000,000,
aggregating for the purpose of such aggregate amount, all assets
sold, leased or exchanged in any series of similar transactions
within a twelve-month period); or
(4) Sale, lease, or exchange to the Trust, in exchange
for securities of the Trust, of any assets of any Principal
Holder (except assets having an aggregate fair market value of
less than $1,000,000, aggregating for the purpose of such
aggregate amount, all assets sold, leased or exchanged in any
series of similar transactions within a twelve-month period).
(b) 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 then in
office, including a majority of the Trustees who are not "interested persons"
of the Trust, as that term is defined in the 1940 Act.
(c) The Board of Trustees shall have the power and duty to
determine for the purposes of this Article IX, on the basis of information
known to the Trust whether (i) a Person or group beneficially owns more than
ten percent (10%) of the outstanding Shares, (ii) a corporation, person or
entity is an "affiliate" or "associate" (as defined above) of another, and
(iii) the assets being acquired or leased to or by the Trust constitute a
substantial part of the assets of the Trust or have an aggregate fair market
value of less than $1,000,000 (as defined above). Any such determination
shall be conclusive and binding for all purposes of this Article IX in the
absence of manifest error.
IN WITNESS WHEREOF, the Trustees named below, being all of the Trustees of
the Trust, do hereby make and enter into this Declaration of Trust on this
16th day of November 1999.
/s/ Frank H. Abbott, III /s/ Harris J. Ashton
- - -------------------------------- ----------------------------
Frank H. Abbott, III, as Trustee Harris J. Ashton, as Trustee
/s/ S. Joseph Fortunato /s/ Edith E. Holiday
- - -------------------------------- ----------------------------
S. Joseph Fortunato, as Trustee Edith E. Holiday, as Trustee
/s/ Charles B. Johnson /s/ Rupert H. Johnson, Jr.
- - -------------------------------- ----------------------------
Charles B. Johnson, as Trustee Rupert H. Johnson, Jr., as
Trustee
/s/ Frank W.T. LaHaye /s/ Gordon S. Macklin
- - -------------------------------- ----------------------------
Frank W.T. LaHaye, as Trustee Gordon S. Macklin, as Trustee
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST
IS
777 Mariners Island Boulevard, San Mateo, California 94403-7777.
AMENDMENT NO.1 TO THE AGREEMENT AND DECLARATION OF TRUST OF
FLOATING RATE MASTER TRUST
Article I, Section 1.01 of the Declaration of Trust is hereby amended
in its entirety as follows:
1.01 Name. The Delaware statutory business trust established
hereby shall be known as the "Franklin Floating Rate Master
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.
In witness whereof, the Trustees named below, being all of the
Trustees of the Trust, do hereby execute this Amendment No. 1 on this 21st day
of March 2000.
/s/ Frank H. Abbott, III
-----------------------------
Frank H. Abbott, III, Trustee
/s/ S. Joseph Fortunato
-----------------------------
S. Joseph Fortunato, Trustee
/s/ Charles B. Johnson
-----------------------------
Charles B. Johnson, Trustee
/s/ Frank W.T. LaHaye
-----------------------------
Frank W.T. LaHaye, Trustee
/s/ Harris J. Ashton
-----------------------------
Harris J. Ashton, Trustee
/s/ Edith E. Holiday
-----------------------------
Edith E. Holiday, Trustee
/s/ Rupert H. Johnson, Jr.
-----------------------------
Rupert H. Johnson, Jr., Trustee
/s/ Gordon S. Macklin
-----------------------------
Gordon S. Macklin, Trustee
REVISED AS OF MARCH 21, 2000
BY-LAWS
of
FRANKLIN FLOATING RATE MASTER TRUST
A Delaware Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal executive office of Franklin
Floating Rate Master Trust (the "Trust") shall be 777 Mariners Island
Boulevard, San Mateo, California. The board of trustees (the "Board") may,
from time to time, change the location of the principal executive office of
the Trust to any place within or outside the State of Delaware.
Section 2. OTHER OFFICES. The Board 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 HOLDERS
Section 1. PLACE OF MEETINGS. Meetings of Holders shall be held at any
place within or outside the State of Delaware designated by the Board. In
the absence of any such designation by the Board, Holders' meetings shall be
held at the principal executive office of the Trust. For purposes of these
By-Laws, the term "Holder" or "Shareholder" shall mean a record owner of
outstanding shares of beneficial interest in the Trust.
Section 2. CALL OF MEETING. A meeting of the Holders may be called at
any time by the Board, by the chairperson of the Board or by the president
for the purpose of electing trustees as provided in these Bylaws or for the
purpose of taking action upon any other matter deemed by the Board to be
necessary or desirable. If the Trust is required under the Investment
Company Act of 1940, as amended (the "1940 Act"), to hold a Holders' meeting
to elect trustees, the meeting shall be deemed an "annual meeting" for that
year for purposes of the 1940 Act.
Section 3. NOTICE OF HOLDERS' MEETING. All notices of meetings of
Holders shall be sent or otherwise given in accordance with Section 4 of this
Article II not less than seven (7) nor more than ninety-three (93) 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 who at the time of the
notice are intended to be presented for election. Except with respect to
adjournments as provided herein, no business shall be transacted at such
meeting other than that specified in the notice.
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of Holders shall be given either personally or by first-class mail,
courier, telegraphic, facsimile or electronic mail, or other written
communication, charges prepaid, addressed to the Holder at the address of
that Holder appearing on the books of the Trust or its transfer agent or
given by the Holder 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 Holder by first-class mail, courier,
telegraphic, facsimile or electronic mail, or other written communication to
the Trust's principal executive office. Notice shall be deemed to have been
given at the time when delivered personally, deposited in the mail or with a
courier, or sent by telegram, facsimile, electronic mail or other means of
written communication.
If any notice addressed to a Holder at the address of that Holder
appearing on the books of the Trust is returned to the Trust marked to
indicate that the notice to the Holder cannot be delivered at that address,
all future notices or reports shall be deemed to have been duly given without
further mailing, or substantial equivalent thereof, if such notices shall be
available to the Holder on written demand of the Holder 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
Holders' 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 records of the Trust. Such affidavit shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
Section 5. ADJOURNED MEETING; NOTICE. Any Holders' meeting, whether or
not a quorum is present, may be adjourned from time to time (and at any time
during the course of the meeting) by a majority of the votes cast by those
Holders present in person or by proxy, or by the chairperson of the meeting.
Any adjournment may be with respect to one or more proposals, but not
necessarily all proposals, to be voted or acted upon at such meeting and any
adjournment will not delay or otherwise affect the effectiveness and validity
of a vote or other action taken at a Holders' meeting prior to adjournment.
When any Holders' meeting 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 one hundred eighty (180) days from the record
date set for the original meeting, in which case the Board shall set a new
record date. If notice of any such adjourned meeting is required pursuant to
the preceding sentence, it shall be given to each Holder of record entitled
to vote at the adjourned meeting in accordance with the provisions of
Sections 3 and 4 of this Article II. At any adjourned meeting, the Trust may
transact any business that might have been transacted at the original meeting.
Section 6. VOTING. The Holders entitled to vote at any meeting of
Holders shall be determined in accordance with the provisions of these
Bylaws, as in effect at such time. The Holders' vote may be by voice vote or
by ballot; PROVIDED, HOWEVER, that any election of trustees must be by ballot
if demanded by any Holder before the voting has begun. On any matter other
than elections of trustees, any Holder 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 Holder fails to specify the number of shares
which the Holder is voting affirmatively, it will be conclusively presumed
that the Holder's approving vote is with respect to the total shares that the
Holder is entitled to vote on such proposal.
Abstentions and broker non-votes will be included for purposes of
determining whether a quorum is present at a Holders' meeting. Abstentions
and broker non-votes will be treated as votes present at a Holders' meeting,
but will not be treated as votes cast. Abstentions and broker non-votes,
therefore, will have no effect on proposals which require a plurality or
majority of votes cast for approval, but will have the same effect as a vote
"against" on proposals requiring a majority of outstanding voting securities
for approval.
Section 7. QUORUM. Except when a larger quorum is required by
applicable law, the Agreement and Declaration of Trust of the Trust, as
amended or restated (the "Declaration of Trust"), or these By-Laws,
thirty-three and one-third percent (33-1/3%) of the outstanding shares of the
Trust present in person or represented by proxy and entitled to vote at a
Holders' meeting shall constitute a quorum at such meeting. When a separate
vote by one or more series or classes of shares of the Trust is required,
thirty-three and one-third percent (33-1/3%) of the outstanding shares of
each such series or class present in person or represented by proxy and
entitled to vote shall constitute a quorum at a Holders' meeting of such
series or class.
Section 8. WAIVER OF NOTICE BY CONSENT OF ABSENT HOLDERS. The
transactions of a meeting of Holders, however called and noticed and wherever
held, shall be valid as though transacted at a meeting duly held after
regular call and notice if a quorum is present either in person or by proxy.
Attendance by a person at a meeting shall also constitute a waiver of notice
of that meeting with respect to that person, 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 such
attendance 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. Whenever notice of a meeting
is required to be given to a Holder under the Declaration of Trust or these
By-Laws, a written waiver thereof, executed before or after the meeting by
such Holder or his or her attorney thereunto authorized and filed with the
records of the meeting, shall be deemed equivalent to such notice.
Section 9. PROXIES. Every Holder 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 Holder and filed with
the secretary of the Trust; PROVIDED, that an alternative to the execution of
a written proxy may be permitted as provided in the second paragraph of this
Section 9. A proxy shall be deemed signed if the Holder's name is placed on
the proxy (whether by manual signature, typewriting, telegraphic transmission
or otherwise) by the Holder or the Holder'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 Holder executing it by a
written notice delivered to the Trust prior to the exercise of the proxy or
by the Holder's execution of a subsequent proxy or attendance and vote in
person at the meeting; or (ii) written notice of the death or incapacity of
the Holder is received by the Trust before the proxy's vote 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.
With respect to any Holders' meeting, the Board may act to permit the
Trust to accept proxies by any electronic, telephonic, computerized,
telecommunications or other reasonable alternative to the execution of a
written instrument authorizing the proxy to act, provided the Holder's
authorization is received within eleven (11) months before the meeting. 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 Holder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest with the challenger.
Section 10. HOLDER ACTION BY WRITTEN CONSENT. Any action that may be
taken at any meeting of Holders may be taken without a meeting as provided in
the Declaration of Trust. Any Holder giving a written consent without a
meeting, the Holder's proxy holders, a transferee of the shares of the Trust
(prior to the record date), a personal representative of the Holder or its
respective proxy holder 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 Holders entitled to vote have not been solicited
in writing and if the unanimous written consent of all such Holders shall not
have been received, the secretary shall give prompt notice of the action
taken without a meeting to such Holders. This notice shall be given in the
manner specified in these By-Laws.
Section 11. RECORD DATES. For purposes of determining the Holders
entitled to notice of any meeting, to vote at any meeting, or to give consent
to action without a meeting, the Board may fix in advance a record date that
shall not be more than one hundred eighty (180) days nor less than seven (7)
days before the date of any such meeting.
If the Board does not so fix a record date:
(a) The record date for determining Holders entitled to notice of or
to vote at a meeting of Holders 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 which is five (5)
business days next preceding to the day on which the meeting is held.
(b) The record date for determining Holders entitled to give consent
to action in writing without a meeting, (i) when no related prior action by
the Board has been taken, shall be the day on which the first written consent
is given, or (ii) when related prior action of the Board has been taken,
shall be at the close of business on the day on which the Board adopts the
resolution taking such related prior action or the seventy-fifth (75th) day
before the date of the action that is the subject of the written consent in
lieu of a meeting, whichever is later.
For the purpose of determining the Holders of any series or class who
are entitled to receive payment of any dividend or of any other distribution,
the Board may from time to time fix a date, that shall be before the date for
the payment of such dividend or such other distribution, as the record date
for determining the Holders of such series or class having the right to
receive such dividend or distribution. Nothing in this Section shall be
construed as precluding the Board from setting different record dates for
different series or classes.
Section 12. INSPECTORS OF ELECTION. Before any meeting of Holders, the
Board may appoint any person other than nominees for office to act as
inspector of election at the meeting or its adjournment. If no inspector of
election is so appointed, the chairperson of the meeting may, and on the
request of any Holder or a Holder's proxy shall, appoint an inspector of
election at the meeting. If any person appointed as inspector fails to
appear or fails or refuses to act, the chairperson of the meeting may, and on
the request of any Holder or a Holder's proxy shall, appoint a person to fill
the vacancy.
The inspector shall:
(a) determine the number of shares of the Trust and of each series
and class of the Trust that are outstanding and the voting power of each, the
shares of the Trust and of each series and class of the Trust 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 of voting or consents; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all Holders.
ARTICLE III
TRUSTEES
Section 1. NUMBER, ELECTION AND TENURE. The number of trustees
constituting the Board may 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, provided, however, that the number of trustees shall
in no event be less than one (1) nor more than fifteen (15). The Board, by
action of a majority of the then trustees at a duly constituted meeting, may
remove any trustee with or without cause. A meeting of Holders for the
purpose of electing one or more trustees may be called by the Board or, to
the extent provided by the 1940 Act and the rules and regulations thereunder,
by the Holders. Holders shall have the power to remove a trustee only to the
extent provided by the Declaration of Trust and the 1940 Act and the rules
and regulations thereunder. A meeting of Holders 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 Holders owning 10% or more of the shares
of the Trust in the aggregate.
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 competent jurisdiction, or is removed, or, if sooner than any of such
events, until the next meeting of Holders 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 or her
and delivered to any officer of the Trust or to a meeting of the Board. Such
resignation shall be effective upon receipt unless specified to be effective
at some later time. Except to the extent expressly provided in a written
agreement with the Trust, no trustee that resigns or is removed shall have
any right to any compensation for any period following any such event or any
right to damages on account of such events or any actions taken in connection
therewith following his or her resignation or removal.
Section 2. POWERS. Subject to the applicable provisions of the
Declaration of Trust and these By-Laws relating to action required to be
approved by the Holders, the business and affairs of the Trust shall be
managed and all powers shall be exercised by or under the direction of the
Board.
Section 3. VACANCIES. Vacancies in the Board may be filled by a
majority of the remaining trustees, though less than a quorum, or by a sole
remaining trustee, unless the Board calls a meeting of Holders for the
purpose of filling such vacancies. Notwithstanding the above, whenever and
for so long as the Trust is a participant in or otherwise has in effect a
plan under which the Trust may be deemed to bear expenses of distributing its
shares as that practice is described in Rule 12b-1 under the 1940 Act ("Rule
12b-1"), then the selection and nomination of the trustees who are not
"interested persons" of the Trust, as that term is defined in the 1940 Act
(such trustees are referred to herein as "disinterested trustees"), shall be,
and is, committed to the discretion of the disinterested trustees remaining
in office. In the event of the death, resignation, removal, declaration as
bankrupt or incapacity of all of the then trustees, the Trust's investment
adviser or advisers is or are, as the case may be, empowered to appoint new
trustees subject to the provisions of the 1940 Act and particularly Section
16(a) thereof. 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.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of
the Board may be held at any place within or outside the State of Delaware
that has been designated from time to time by 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 such meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board shall be
held without call at such time as shall from time to time be fixed by the
Board. Such regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board for any
purpose or purposes may be called at any time by the chairperson of the
Board, the president, any vice president, the secretary or any trustee.
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,
courier or telegram, charges prepaid, or by facsimile or electronic mail,
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 time of the holding
of the meeting. In case the notice is delivered personally, by telephone, by
courier, to the telegraph company, or by express mail, facsimile, electronic
mail or similar service, it shall be delivered 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 7. QUORUM. A majority of the authorized number of trustees
shall constitute a quorum for the transaction of business, except to adjourn
as provided in Sections 9 and 10 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, subject
to the provisions of the Declaration of Trust, the 1940 Act and the rules and
regulations thereunder. 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 at least a majority of the required quorum
for that meeting and, when required by the 1940 Act, the rules or regulations
thereunder or the Declaration of Trust, a majority of the disinterested
trustees.
Section 8. 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 about the lack of notice to that
trustee.
Section 9. ADJOURNMENT. A majority of the trustees present, whether or
not constituting a quorum, may adjourn any matter at any meeting to another
time and place.
Section 10. 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 seven (7) days, in which case notice of the time and
place shall be given before the time of the recommencement of an adjourned
meeting to the trustees who were present at the time of the adjournment.
Section 11. 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. This Section 11 shall not be construed to preclude any trustee from
serving the Trust in any other capacity as an officer, agent, employee, or
otherwise and receiving compensation for those services.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board 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 the Declaration of Trust or
applicable law also requires Holders' approval or requires approval by a
majority of the entire Board or certain members of the Board;
(b) the filling of vacancies on the Board or in any committee;
(c) the fixing of compensation of the trustees for serving on the Board
or on any committee;
(d) the amendment or repeal of the Declaration of Trust or of these
By-Laws or the adoption of a new Declaration of Trust or new By-Laws;
(e) the amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable; or
(f) the appointment of any other committees of the Board or the members
of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
any committee 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 and its members, except that the time of regular meetings of any
committee may be determined either by the Board or by the committee. Special
meetings of any committee may also be called by resolution of the Board, and
notice of special meetings of any committee shall also be given to all
alternate members who shall have the right to attend all meetings of the
committee. The Board 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 chairperson
of the Board, a president and chief executive officer, a secretary, and a
treasurer. The Trust may also have, at the discretion of the Board, one or
more vice presidents, one or more assistant 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,
except the offices of president and vice president.
Section 2. ELECTION OF OFFICERS. The officers of the Trust shall be
chosen by the Board, and each shall serve at the pleasure of the Board,
subject to the rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board 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 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 at any regular or special
meeting of the Board, or by an officer upon whom such power of removal may be
conferred by the Board.
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 such notice. Unless otherwise
specified in such 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. CHAIRPERSON OF THE BOARD. The chairperson of the Board
shall, if present, preside at meetings of the Board and exercise and perform
such other powers and duties as may be from time to time assigned to the
chairperson by the Board or prescribed by these By-Laws. The chairperson of
the Board shall be a member EX OFFICIO of all standing committees. In the
absence, resignation, disability or death of the president, the chairperson
shall exercise all the powers and perform all the duties of the president
until his or her return, such disability shall be removed or a new president
shall have been elected.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board to the chairperson of the Board, the president
shall be the chief executive officer of the Trust and shall, subject to the
control of the Board, have general supervision, direction and control of the
business and the officers of the Trust. In the absence of the chairperson of
the Board, he shall preside at all meetings of the Holders and at all
meetings of the Board. 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 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 or if not ranked, a vice president designated by the Board, 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, these
By-Laws, the president or the chairperson 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
may direct a book of minutes of all meetings and actions of trustees,
committees of trustees and Holders 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 of the Trust, and, if any, of each series and class of
shares of the Trust, that are present or represented at Holders' meetings,
and the proceedings.
The secretary shall 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, a share register or a duplicate share
register showing the names of all Holders and their addresses, the number,
series 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 Holders and of the Board 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 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 and its series of shares,
if any, 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. He shall disburse the funds of the Trust as may be ordered by the
Board, 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 or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, 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 a trustee, officer, employee
or other agent of this Trust or is or was serving at the request of the Trust
as a trustee, director, officer, employee or other agent of another foreign
or domestic corporation, partnership, joint venture, trust or other
enterprise; "proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative; and
"expenses" include without limitation attorneys' fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. The 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 the Trust) by reason
of the fact that such person is or was an agent of the Trust, against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if such person acted
in good faith and in a manner that such person reasonably believed to be in
the best interests of the Trust and in the case of a criminal proceeding, had
no reasonable cause to believe the conduct of such person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or
plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith or in a manner which
the person reasonably believed to be in the best interests of the Trust or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
Section 3. ACTIONS BY TRUST. The 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 the Trust to procure a
judgment in its favor by reason of the fact that the person is or was an
agent of the 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 the 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 the 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 the 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
the 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, including a majority who are disinterested trustees
and not parties to such proceeding, 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 the 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 disinterested trustees; or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCEMENT OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the 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 trustees who are not parties to such proceeding, 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
trustees and officers of the Trust or any subsidiary thereof 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 Declaration
of Trust, a resolution of the Holders, or an agreement which prohibits or
otherwise limits indemnification that was 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; 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 to purchase such insurance, the Trust shall purchase and maintain
insurance on behalf of any agent of the 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 the 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 the 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. The Trust
shall keep at its principal executive office or at the office of its transfer
agent or registrar a record of its Holders, providing the names and addresses
of all Holders and the number, series and classes of shares held by each
Holder.
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 from time to time, which shall be open to inspection by the Holders
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 Holders and the Board and
any committee or committees of the Board shall be kept at such place or
places designated by the Board 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, accounting books and records shall be open to inspection upon the
written demand of any Holder 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 Holder 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.
ARTICLE VIII
DIVIDENDS
Section 1. DECLARATION OF DIVIDENDS. Dividends upon the shares of
beneficial interest of the Trust may, subject to the provisions of the
Declaration of Trust, if any, be declared by the Board at any regular or
special meeting, pursuant to applicable law. Dividends may be paid in cash,
in property, or in shares of the Trust, subject to the provisions of the
Declaration of Trust, if any.
Section 2. RESERVES. Before payment of any dividend there may be set
aside out of any funds of the Trust available for dividends such sum or sums
as the Board may, from time to time, in its absolute discretion, think proper
as a reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Trust, or for such other purpose
as the Board shall deem to be in the best interests of the Trust, and the
Board may abolish any such reserve in the manner in which it was created.
ARTICLE IX
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.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board, except
as otherwise provided in these By-Laws, may authorize any officer or officers
or 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 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
Holder upon his request when such shares are fully paid. All certificates
shall be signed in the name of the Trust by the chairperson 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 and class of shares owned by the Holders. 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 such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by
the Trust with the same effect as if such 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 cancelled at the same time.
The Board 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 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 chairperson of the Board, the president or any vice president or any
other person authorized by resolution of the Board 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, trust, or other
entity, 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. TRANSFER OF SHARES. Shares of the Trust shall be
transferable only on the record books of the Trust by the Person in whose
name such shares are registered, or by his or her duly authorized attorney or
representative, subject to the provisions of the Declaration of Trust, if
any. In all cases of transfer by an attorney-in-fact, the original power of
attorney, or an official copy thereof duly certified, shall be deposited and
remain with the Trust, its transfer agent or other duly authorized agent. In
case of transfers by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
presented to the Trust, transfer agent or other duly authorized agent, and
may be required to be deposited and remain with the Trust, its transfer agent
or other duly authorized agent. No transfer shall be made unless and until
the certificate issued to the transferor, if any, shall be delivered to the
Trust, its transfer agent or other duly authorized agent, properly endorsed.
Section 7. HOLDERS OF RECORD. The Trust shall be entitled to treat the
holder of record of any share or shares of the Trust as the owner thereof
and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not the Trust shall have express or other notice thereof.
Section 8. FISCAL YEAR. The fiscal year of the Trust and each series
thereof shall end on the last day of July each year. The fiscal year of the
Trust or any series thereof may be refixed or changed from time to time by
resolution of the Board. The fiscal year of the Trust shall be the taxable
year of each series of the Trust.
ARTICLE X
AMENDMENTS
Section 1. AMENDMENT. These By-laws may be restated and/or amended at
any time, without the approval of the Holders, by an instrument in writing
signed by, or a resolution of, a majority of the then Board, subject to the
provisions of the Declaration of Trust.
FRANKLIN FLOATING RATE MASTER TRUST
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT made between FRANKLIN FLOATING RATE
MASTER TRUST, a Delaware business trust (the "Trust"), on behalf of FRANKLIN
FLOATING RATE MASTER SERIES (the "Fund"), a series of the Trust, and FRANKLIN
ADVISERS, INC., a California corporation, (the "Adviser").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its
By-Laws and its Registration Statement under the 1940 Act and the Securities
Act of 1933, all as heretofore and hereafter amended and supplemented; and
the Trust desires to avail itself of the services, information, advice,
assistance and facilities of an investment adviser and to have an investment
adviser perform various management, statistical, research, investment
advisory and other services for the Trust; and,
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
investment advisory, counseling and supervisory services to investment
companies and other investment counseling clients, and desires to provide
these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
l. EMPLOYMENT OF THE ADVISER. The Trust hereby employs the Adviser to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and the
officers of the Trust, for the period and on the terms hereinafter set
forth. The Adviser hereby accepts such employment and agrees during such
period to render the services and to assume the obligations herein set forth
for the compensation herein provided. The Adviser shall for all purposes
herein be deemed to be an independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Fund or the Trust in any way or
otherwise be deemed an agent of the Fund or the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE ADVISER. The
Adviser undertakes to provide the services hereinafter set forth and to
assume the following obligations:
A. INVESTMENT ADVISORY SERVICES.
(a) The Adviser shall manage the Fund's assets subject
to and in accordance with the investment objectives and policies of the Fund
and any directions which the Trust's Board of Trustees may issue from time to
time. In pursuance of the foregoing, the Adviser shall make all
determinations with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, and shall take such steps as
may be necessary to implement the same. Such determinations and services
shall include determining the manner in which any voting rights, rights to
consent to corporate action and any other rights pertaining to the Fund's
investment securities shall be exercised. The Adviser shall render or cause
to be rendered regular reports to the Trust, at regular meetings of its Board
of Trustees and at such other times as may be reasonably requested by the
Trust's Board of Trustees, of (i) the decisions made with respect to the
investment of the Fund's assets and the purchase and sale of its investment
securities, (ii) the reasons for such decisions and (iii) the extent to which
those decisions have been implemented.
(b) The Adviser, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from time to time,
shall place, in the name of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders, the Adviser shall seek to
obtain the best net price and execution for the Fund, but this requirement
shall not be deemed to obligate the Adviser to place any order solely on the
basis of obtaining the lowest commission rate if the other standards set
forth in this section have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers are equally able to
provide such best price and execution and that, in selecting among such
brokers with respect to particular trades, it is desirable to choose those
brokers who furnish research, statistical, quotations and other information
to the Fund and the Adviser in accordance with the standards set forth
below. Moreover, to the extent that it continues to be lawful to do so and
so long as the Board of Trustees determines that the Fund will benefit,
directly or indirectly, by doing so, the Adviser may place orders with a
broker who charges a commission for that transaction which is in excess of
the amount of commission that another broker would have charged for effecting
that transaction, provided that the excess commission is reasonable in
relation to the value of "brokerage and research services" (as defined in
Section 28(e) (3) of the Securities Exchange Act of 1934) provided by that
broker.
Accordingly, the Trust and the Adviser agree that the
Adviser shall select brokers for the execution of the Fund's transactions
from among:
(i) Those brokers and dealers who provide quotations
and other services to the Fund, specifically including
the quotations necessary to determine the Fund's net
assets, in such amount of total brokerage as may
reasonably be required in light of such services; and
(ii) Those brokers and dealers who supply research,
statistical and other data to the Adviser or its
affiliates which the Adviser or its affiliates may
lawfully and appropriately use in their investment
advisory capacities, which relate directly to securities,
actual or potential, of the Fund, or which place the
Adviser in a better position to make decisions in
connection with the management of the Fund's assets and
securities, whether or not such data may also be useful
to the Adviser and its affiliates in managing other
portfolios or advising other clients, in such amount of
total brokerage as may reasonably be required. Provided
that the Trust's officers are satisfied that the best
execution is obtained, the sale of shares of the Fund may
also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio
transactions.
(c) When the Adviser has determined that the Fund
should tender securities pursuant to a "tender offer solicitation,"
Franklin/Templeton Distributors, Inc. ("Distributors") shall be designated as
the "tendering dealer" so long as it is legally permitted to act in such
capacity under the federal securities laws and rules thereunder and the rules
of any securities exchange or association of which Distributors may be a
member. Neither the Adviser nor Distributors shall be obligated to make any
additional commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to maintain
its corporate existence and membership in the National Association of
Securities Dealers, Inc.) as of the date of this Agreement. This Agreement
shall not obligate the Adviser or Distributors (i) to act pursuant to the
foregoing requirement under any circumstances in which they might reasonably
believe that liability might be imposed upon them as a result of so acting,
or (ii) to institute legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of such a tender, unless
the Trust on behalf of the Fund shall enter into an agreement with the
Adviser and/or Distributors to reimburse them for all such expenses connected
with attempting to collect such fees, including legal fees and expenses and
that portion of the compensation due to their employees which is attributable
to the time involved in attempting to collect such fees.
(d) The Adviser shall render regular reports to the
Trust, not more frequently than quarterly, of how much total brokerage
business has been placed by the Adviser, on behalf of the Fund, with brokers
falling into each of the categories referred to above and the manner in which
the allocation has been accomplished.
(e) The Adviser agrees that no investment decision
will be made or influenced by a desire to provide brokerage for allocation in
accordance with the foregoing, and that the right to make such allocation of
brokerage shall not interfere with the Adviser's paramount duty to obtain the
best net price and execution for the Fund.
B. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES
REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Adviser, its
officers and employees will make available and provide accounting and
statistical information required by the Fund in the preparation of
registration statements, reports and other documents required by federal
and state securities laws and with such information as the Fund may
reasonably request for use in the preparation of such documents or of other
materials necessary or helpful for the underwriting and distribution of the
Fund's shares.
C. OTHER OBLIGATIONS AND SERVICES. The Adviser shall make its officers
and employees available to the Board of Trustees and officers of the Trust
for consultation and discussions regarding the administration and
management of the Fund and its investment activities.
3. EXPENSES OF THE FUND. It is understood that the Fund will pay all
of its own expenses other than those expressly assumed by the Adviser
herein, which expenses payable by the Fund shall include:
A. Fees and expenses paid to the Adviser as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services,
including the expenses of issue, repurchase or redemption of
its shares;
D. Expenses of obtaining quotations for calculating the value
of the Fund's net assets;
E. Salaries and other compensations of executive officers of
the Trust who are not officers, directors, stockholders or employees of the
Adviser or its affiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the filing of
reports with regulatory bodies and the maintenance of the Fund's and Trust's
legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for sale;
K. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Adviser or any of its
affiliates;
L. Costs and expense of registering and maintaining the
registration of the Fund and its shares under federal and any applicable
state laws; including the printing and mailing of prospectuses to its
shareholders;
M. Trade association dues; and
N. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
4. COMPENSATION OF THE ADVISER. The Fund shall pay an advisory fee
in cash to the Adviser based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, as compensation for the services
rendered and obligations assumed by the Adviser, during the preceding month,
on the first business day of the month in each year.
A. For purposes of calculating such fee, the value of the
net assets of the Fund shall be determined in the same manner as that Fund
uses to compute the value of its net assets in connection with the
determination of the net asset value of its shares, all as set forth more
fully in the Fund's current prospectus and statement of additional
information. The rate of the advisory fee payable by the Fund shall be
calculated daily at the following annual rates:
0.80% of the average daily net assets of the Fund
B. The advisory fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith and to the extent necessary to comply with
the limitations on expenses which may be borne by the Fund as set forth in
the laws, regulations and administrative interpretations of those states in
which the Fund's shares are registered. The Adviser may waive all or a
portion of its fees provided for hereunder and such waiver shall be treated
as a reduction in purchase price of its services. The Adviser shall be
contractually bound hereunder by the terms of any publicly announced waiver
of its fee, or any limitation of the Fund's expenses, as if such waiver or
limitation were fully set forth herein.
C. If this Agreement is terminated prior to the end of any
month, the accrued advisory fee shall be paid to the date of termination.
5. ACTIVITIES OF THE ADVISER. The services of the Adviser to the
Trust hereunder are not to be deemed exclusive, and the Adviser and any of
its affiliates shall be free to render similar services to others. Subject
to and in accordance with the Agreement and Declaration of Trust and By-Laws
of the Trust and Section 10(a) of the 1940 Act, it is understood that
trustees, officers, agents and shareholders of the Trust are or may be
interested in the Adviser or its affiliates as directors, officers, agents or
stockholders; that directors, officers, agents or stockholders of the Adviser
or its affiliates are or may be interested in the Trust as trustees,
officers, agents, shareholders or otherwise; that the Adviser or its
affiliates may be interested in the Fund as shareholders or otherwise; and
that the effect of any such interests shall be governed by said Agreement and
Declaration of Trust, By-Laws and the 1940 Act.
6. LIABILITIES OF THE ADVISER.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject to liability to the
Trust or the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any security
by the Fund.
B. Notwithstanding the foregoing, the Adviser agrees to
reimburse the Trust for any and all costs, expenses, and counsel and
trustees' fees reasonably incurred by the Trust in the preparation, printing
and distribution of proxy statements, amendments to its Registration
Statement, holdings of meetings of its shareholders or trustees, the conduct
of factual investigations, any legal or administrative proceedings (including
any applications for exemptions or determinations by the Securities and
Exchange Commission) which the Trust incurs as the result of action or
inaction of the Adviser or any of its affiliates or any of their officers,
directors, employees or stockholders where the action or inaction
necessitating such expenditures (i) is directly or indirectly related to any
transactions or proposed transaction in the stock or control of the Adviser
or its affiliates (or litigation related to any pending or proposed or future
transaction in such shares or control) which shall have been undertaken
without the prior, express approval of the Trust's Board of Trustees; or,
(ii) is within the control of the Adviser or any of its affiliates or any of
their officers, directors, employees or stockholders. The Adviser shall not
be obligated pursuant to the provisions of this Subparagraph 6.B., to
reimburse the Trust for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust or a shareholder
seeking to recover all or a portion of the proceeds derived by any
stockholder of the Adviser or any of its affiliates from the sale of his
shares of the Adviser, or similar matters. So long as this Agreement is in
effect, the Adviser shall pay to the Trust the amount due for expenses
subject to this Subparagraph 6.B. within thirty (30) days after a bill or
statement has been received by the Adviser therefor. This provision shall
not be deemed to be a waiver of any claim the Trust may have or may assert
against the Adviser or others for costs, expenses or damages heretofore
incurred by the Trust or for costs, expenses or damages the Trust may
hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to
protect any trustee or officer of the Trust, or director or officer of the
Adviser, from liability in violation of Sections 17(h) and (i) of the 1940
Act.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years thereafter, unless
sooner terminated as hereinafter provided and shall continue in effect
thereafter for periods not exceeding one (1) year so long as such
continuation is approved at least annually (i) by a vote of a majority of the
outstanding voting securities of the Fund or by a vote of the Board of
Trustees of the Trust, and (ii) by a vote of a majority of the Trustees of
the Trust who are not parties to the Agreement (other than as Trustees of the
Trust), cast in person at a meeting called for the purpose of voting on the
Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Fund on sixty
(60) days' written notice to the Adviser;
(ii) shall immediately terminate with respect to the
Fund in the event of its assignment; and
(iii) may be terminated by the Adviser on sixty (60)
days' written notice to the Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth for any such terms in the 1940
Act.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid, to the other party at
any office of such party.
E. Unless otherwise agreed by the Adviser, upon
termination of this Agreement, the Trust shall cease to use the "Franklin"
name and logo.
8. SEVERABILITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and effective on the _______ day of ________________.
FRANKLIN FLOATING RATE MASTER TRUST on behalf of
FRANKLIN FLOATING RATE MASTER SERIES
By: ________________________
Title: _______________________
FRANKLIN ADVISERS, INC.
By: _________________________
Title: _______________________
MASTER CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into as of
February 16, 1996, by and between each Investment Company listed on Exhibit A,
for itself and for each of its Series listed on Exhibit A, and BANK OF NEW YORK,
a New York corporation authorized to do a banking business (the "Custodian").
RECITALS
A. Each Investment Company is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act")
that invests and reinvests, for itself or on behalf of its Series, in Domestic
Securities and Foreign Securities.
B. The Custodian is, and has represented to each Investment Company
that the Custodian is, a "bank" as that term is defined in Section 2(a)(5) of
the Investment Company Act of 1940, as amended, and is eligible to receive and
maintain custody of investment company assets pursuant to Section 17(f) and Rule
17f-2 thereunder.
C. The Custodian and each Investment Company, for itself and for each
of its Series, desire to provide for the retention of the Custodian as a
custodian of the assets of each Investment Company and each Series, on the terms
and subject to the provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
Section 1.0 FORM OF AGREEMENT
Although the parties have executed this Agreement in the form of a
Master Custody Agreement for administrative convenience, this Agreement shall
create a separate custody agreement for each Investment Company and for each
Series designated on Exhibit A, as though each Investment Company had separately
executed an identical custody agreement for itself and for each of its Series.
No rights, responsibilities or liabilities of any Investment Company or Series
shall be attributed to any other Investment Company or Series.
Section 1.1 DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board" shall mean the Board of Trustees, Directors or Managing
General Partners, as applicable, of an Investment Company.
"Business Day" with respect to any Domestic Security means any day,
other than a Saturday or Sunday, that is not a day on which banking institutions
are authorized or required by law to be closed in The City of New York and, with
respect to Foreign Securities, a London Business Day. "London Business Day"
shall mean any day on which dealings and deposits in U.S. dollars are transacted
in the London interbank market.
"Custodian" shall mean Bank of New York.
"Domestic Securities" shall have the meaning provided in Subsection
2.1 hereof.
"Executive Committee" shall mean the executive committee of a Board.
"Foreign Custodian" shall have the meaning provided in Section 4.1
hereof.
"Foreign Securities" shall have the meaning provided in Section 2.1
hereof.
"Foreign Securities Depository" shall have the meaning provided in
Section 4.1 hereof.
"Fund" shall mean an entity identified on Exhibit A as an Investment
Company, if the Investment Company has no series, or a Series.
"Investment Company" shall mean an entity identified on Exhibit A
under the heading "Investment Company."
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Securities" shall have the meaning provided in Section 2.1 hereof.
"Securities System" shall have the meaning provided in Section 3.1
hereof.
"Securities System Account" shall have the meaning provided in
Subsection 3.8(a) hereof.
"Series" shall mean a series of an Investment Company which is
identified as such on Exhibit A.
"Shares" shall mean shares of beneficial interest of the Investment
Company.
"Subcustodian" shall have the meaning provided in Subsection 3.7
hereof, but shall not include any Foreign Custodian.
"Transfer Agent" shall mean the duly appointed and acting transfer
agent for each Investment Company.
"Writing" shall mean a communication in writing, a communication by
telex, facsimile transmission, bankwire or other teleprocess or electronic
instruction system acceptable to the Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. Each Investment Company hereby appoints
and designates the Custodian as a custodian of the assets of each Fund,
including cash denominated in U.S. dollars or foreign currency ("cash"),
securities the Fund desires to be held within the United States ("Domestic
Securities") and securities it desires to be held outside the United States
("Foreign Securities"). Domestic Securities and Foreign Securities are sometimes
referred to herein, collectively, as "Securities." The Custodian hereby accepts
such appointment and designation and agrees that it shall maintain custody of
the assets of each Fund delivered to it hereunder in the manner provided for
herein.
2.2 Delivery of Assets. Each Investment Company may deliver to the
Custodian Securities and cash owned by the Funds, payments of income, principal
or capital distributions received by the Funds with respect to Securities owned
by the Funds from time to time, and the consideration received by the Funds for
such Shares or other securities of the Funds as may be issued and sold from time
to time. The Custodian shall have no responsibility whatsoever for any property
or assets of the Funds held or received by the Funds and not delivered to the
Custodian pursuant to and in accordance with the terms hereof. All Securities
accepted by the Custodian on behalf of the Funds under the terms of this
Agreement shall be in "street name" or other good delivery form as determined by
the Custodian.
2.3 Subcustodians. The Custodian may appoint BNY Western Trust Company
as a Subcustodian to hold assets of the Funds in accordance with the provisions
of this Agreement. In addition, upon receipt of Proper Instructions and a
certified copy of a resolution of the Board or of the Executive Committee, and
certified by the Secretary or an Assistant Secretary, of an Investment Company,
the Custodian may from time to time appoint one or more other Subcustodians or
Foreign Custodians to hold assets of the affected Funds in accordance with the
provisions of this Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian or a Foreign
Custodian shall not have any duty or responsibility to manage or recommend
investments of the assets of any Fund held by them or to initiate any purchase,
sale or other investment transaction in the absence of Proper Instructions or
except as otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE FUNDS
HELD BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and physically
segregate from any property owned by the Custodian, for the account of each
Fund, all non-cash property delivered by each Fund to the Custodian hereunder
other than Securities which, pursuant to Subsection 3.8 hereof, are held through
a registered clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein, individually, as a
"Securities System"), or held by a Subcustodian, Foreign Custodian or in a
Foreign Securities Depository.
3.2 Delivery of Securities. Except as otherwise provided in Subsection
3.5 hereof, the Custodian, upon receipt of Proper Instructions, shall release
and deliver Securities owned by a Fund and held by the Custodian in the
following cases or as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein, upon sale of such
Securities for the account of the Fund and receipt by the Custodian, a
Subcustodian or a Foreign Custodian of payment therefor;
(b) upon the receipt of payment by the Custodian, a Subcustodian
or a Foreign Custodian in connection with any repurchase agreement related to
such Securities entered into by the Fund;
(c) in the case of a sale effected through a Securities System,
in accordance with the provisions of Subsection 3.8 hereof;
(d) to a tender agent or other authorized agent in connection
with (i) a tender or other similar offer for Securities owned by the Fund, or
(ii) a tender offer or repurchase by the Fund of its own Shares;
(e) to the issuer thereof or its agent when such Securities are
called, redeemed, retired or otherwise become payable; provided, that in any
such case, the cash or other consideration is to be delivered to the Custodian,
a Subcustodian or a Foreign Custodian;
(f) to the issuer thereof, or its agent, for transfer into the
name or nominee name of the Fund, the name or nominee name of the Custodian, the
name or nominee name of any Subcustodian or Foreign Custodian; or for exchange
for a different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided that, in any such case,
the new Securities are to be delivered to the Custodian, a Subcustodian or
Foreign Custodian;
(g) to the broker selling the same for examination in accordance
with the "street delivery" custom;
(h) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, or reorganization of the issuer of such
Securities, or pursuant to a conversion of such Securities; provided that, in
any such case, the new Securities and cash, if any, are to be delivered to the
Custodian or a Subcustodian;
(i) in the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such warrants, rights or
similar Securities or the surrender of interim receipts or temporary Securities
for definitive Securities; provided that, in any such case, the new Securities
and cash, if any, are to be delivered to the Custodian, a subcustodian or a
Foreign Custodian;
(j) for delivery in connection with any loans of Securities made
by the Fund, but only against receipt by the Custodian, a Subcustodian or a
Foreign Custodian of adequate collateral as determined by the Fund (and
identified in Proper Instructions communicated to the Custodian), which may be
in the form of cash or obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the account of the Custodian, a
Subcustodian or a Foreign Custodian in the Federal Reserve's book-entry
securities system, the Custodian will not be held liable or responsible for the
delivery of Securities owned by the Fund prior to the receipt of such
collateral;
(k) for delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only against receipt by
the Custodian, a Subcustodian or a Foreign Custodian of amounts borrowed;
(l) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a broker-dealer relating to compliance with the rules of registered clearing
corporations and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
(m) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a futures commission merchant, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund;
(n) upon the receipt of instructions from the Transfer Agent for
delivery to the Transfer Agent or to the holders of Shares in connection with
distributions in kind in satisfaction of requests by holders of Shares for
repurchase or redemption; and
(o) for any other proper purpose, but only upon receipt of Proper
Instructions, and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
Fund, specifying the securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
3.3 Registration of Securities. Securities held by the Custodian, a
Subcustodian or a Foreign Custodian (other than bearer Securities) shall be
registered in the name or nominee name of the appropriate Fund, in the name or
nominee name of the Custodian or in the name or nominee name of any Subcustodian
or Foreign Custodian. Each Fund agrees to hold the Custodian, any such nominee,
Subcustodian or Foreign Custodian harmless from any liability as a holder of
record of such Securities.
3.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts for each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
hereunder from or for the account of each Fund, other than cash maintained by a
Fund in a bank account established and used in accordance with Rule 17f-3 under
the Fund Act. Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the banking departments of the Custodian, a
Subcustodian or a Foreign Custodian. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity. In the event a Fund's account for any reason
becomes overdrawn, or in the event an action requested in Proper Instructions
would cause such an account to become overdrawn, the Custodian shall immediately
notify the affected Fund.
3.5 Collection of Income; Trade Settlement; Crediting of Accounts. The
Custodian shall collect income payable with respect to Securities owned by each
Fund, settle Securities trades for the account of each Fund and credit and debit
each Fund's account with the Custodian in connection therewith as stated in this
Subsection 3.5. This Subsection shall not apply to repurchase agreements, which
are treated in Subsection 3.2(b), above.
(a) Upon receipt of Proper Instructions, the Custodian shall
effect the purchase of a Security by charging the account of the Fund on the
contractual settlement date, and by making payment against delivery. If the
seller or selling broker fails to deliver the Security within a reasonable
period of time, the Custodian shall notify the Fund and credit the transaction
amount to the account of the Fund, but the Custodian shall have no further
liability or responsibility for the transaction.
(b) Upon receipt of Proper Instructions, the Custodian shall
effect the sale of a Security by withdrawing a certificate or other indicia of
ownership from the account of the Fund and by making delivery against payment,
and shall credit the account of the Fund with the amount of such proceeds on the
contractual settlement date. If the purchaser or the purchasing broker fails to
make payment within a reasonable period of time, the Custodian shall notify the
Fund, debit the Fund's account for any amounts previously credited to it by the
Custodian as proceeds of the transaction and, if delivery has not been made,
redeposit the Security into the account of the Fund.
(c) The Fund is responsible for ensuring that the Custodian
receives timely and accurate Proper Instructions to enable the Custodian to
effect settlement of any purchase or sale. If the Custodian does not receive
such instructions within the required time period, the Custodian shall have no
liability of any kind to any person, including the Fund, for failing to effect
settlement on the contractual settlement date. However, the Custodian shall use
its best reasonable efforts to effect settlement as soon as possible after
receipt of Proper Instructions.
(d) The Custodian shall credit the account of the Fund with
interest income payable on interest bearing Securities on payable date.
Dividends and other amounts payable with respect to Domestic Securities and
Foreign Securities shall be credited to the account of the Fund when received by
the Custodian. The Custodian shall not be required to commence suit or
collection proceedings or resort to any extraordinary means to collect such
income and other amounts payable with respect to Securities owned by the Fund.
The collection of income due the Fund on Domestic Securities loaned pursuant to
the provisions of Subsection 3.2(j) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is entitled. The Custodian shall have no liability to
any person, including the Fund, if the Custodian credits the account of the Fund
with such income or other amounts payable with respect to Securities owned by
the Fund (other than Securities loaned by the Fund pursuant to Subsection 3.2(j)
hereof) and the Custodian subsequently is unable to collect such income or other
amounts from the payors thereof within a reasonable time period, as determined
by the Custodian in its sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to the account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper Instructions the
Custodian shall pay out monies of a Fund in the following cases or as otherwise
directed in Proper Instructions:
(a) upon the purchase of Securities, futures contracts or options
on futures contracts for the account of the Fund but only, except as otherwise
provided herein, (i) against the delivery of such securities, or evidence of
title to futures contracts or options on futures contracts, to the Custodian or
a Subcustodian registered pursuant to Subsection 3.3 hereof or in proper form
for transfer; (ii) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Subsection 3.8 hereof; or
(iii) in the case of repurchase agreements entered into between the Fund and the
Custodian, another bank or a broker-dealer (A) against delivery of the
Securities either in certificated form to the Custodian or a Subcustodian or
through an entry crediting the Custodian's account at the appropriate Federal
Reserve Bank with such Securities or (B) against delivery of the confirmation
evidencing purchase by the Fund of Securities owned by the Custodian or such
broker-dealer or other bank along with written evidence of the agreement by the
Custodian or such broker-dealer or other bank to repurchase such Securities from
the Fund;
(b) in connection with conversion, exchange or surrender of
Securities owned by the Fund as set forth in Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares issued by the
Fund;
(d) for the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for the account of the
Fund: custodian fees, interest, taxes, management, accounting, transfer agent
and legal fees and operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred expenses; and
(e) for the payment of any dividends or distributions declared by
the Board with respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may appoint BNY
Western Trust Company or, upon receipt of Proper Instructions, another bank or
trust company, which is itself qualified under the Investment Company Act to act
as a custodian (a "Subcustodian"), as the agent of the Custodian to carry out
such of the duties of the Custodian hereunder as a Custodian may from time to
time direct; provided, however, that the appointment of any Subcustodian shall
not relieve the Custodian of its responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The Custodian may
deposit and/or maintain Domestic Securities owned by a Fund in a Securities
System in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic Securities of the Fund in the
Depository Trust Company or the Federal Reserve's book entry system or, upon
receipt of Proper Instructions, in another Securities System provided that such
securities are held in an account of the Custodian in the Securities System
("Securities System Account") which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
(b) the records of the Custodian with respect to Domestic
Securities of the Fund which are maintained in a Securities System shall
identify by book-entry those Domestic Securities belonging to the Fund;
(c) the Custodian shall pay for Domestic Securities purchased for
the account of the Fund upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Securities System Account, and
(ii) the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Fund. The Custodian shall transfer
Domestic Securities sold for the account of the Fund upon (A) receipt of advice
from the Securities System that payment for such securities has been transferred
to the Securities System Account, and (B) the making of an entry on the records
of the Custodian to reflect such transfer and payment for the account of the
Fund. Copies of all advices from the Securities System of transfers of Domestic
Securities for the account of the Fund shall be maintained for the Fund by the
Custodian and be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of the transfer to or from the
account of the Fund in the form of a written advice or notice; and
(d) upon request, the Custodian shall provide the Fund with any
report obtained by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding domestic securities
deposited in the Securities System.
3.9 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the Custodian
pursuant to Section 3.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer or futures
commission merchant, relating to compliance with the rules of registered
clearing corporations and of any national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or securities in connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or sold by the Fund,
and (iii) for other proper corporate purposes, but only, in the case of this
clause (iii), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes.
3.10 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Fund held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to the Securities held
hereunder, promptly deliver to each Fund all proxies, all proxy soliciting
materials and all notices relating to such Securities. If the Securities are
registered otherwise than in the name of a Fund or a nominee of a Fund, the
Custodian shall use its best reasonable efforts, consistent with applicable law,
to cause all proxies to be promptly executed by the registered holder of such
Securities in accordance with Proper Instructions.
3.12 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to each Fund all written information
(including, without limitation, pendency of calls and maturities of Securities
and expirations of rights in connection therewith and notices of exercise of put
and call options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
Securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to each Fund all written information
received by the Custodian from issuers of the Securities whose tender or
exchange is sought and from the party (or its agents) making the tender or
exchange offer. If a Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three Business Days prior to the date of which the
Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall each business day
furnish each Fund with a statement summarizing all transactions and entries for
the account of the Fund for the preceding day. At the end of every month, the
Custodian shall furnish each Fund with a list of the cash and portfolio
securities showing the quantity of the issue owned, the cost of each issue and
the market value of each issue at the end of each month. Such monthly report
shall also contain separate listings of (a) unsettled trades and (b) when-issued
securities. The Custodian shall furnish such other reports as may be mutually
agreed upon from time-to-time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE
FUNDS HELD OUTSIDE THE UNITED STATES
4.1 Custody Outside the United States. Each Fund authorizes the
Custodian to hold Foreign Securities and cash in custody accounts which have
been established by the Custodian with (i) its foreign branches, (ii) foreign
banking institutions, foreign branches of United States banks and subsidiaries
of United States banks or bank holding companies (each a "Foreign Custodian")
and (iii) Foreign Securities depositories or clearing agencies (each a "Foreign
Securities Depository"); provided, however, that the appropriate Board or
Executive Committee has approved in advance the use of each such Foreign
Custodian and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is set forth in
Proper Instructions and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
appropriate Investment Company. Unless expressly provided to the contrary in
this Section 4, custody of Foreign Securities and assets held outside the United
States by the Custodian, a Foreign Custodian or through a Foreign Securities
Depository shall be governed by this Agreement, including Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of its foreign branches, Foreign
Custodians and Foreign Securities Depositories to: (i) "foreign securities", as
defined in paragraph (c) (1) of Rule 17f-5 under the Fund Act, and (ii) cash and
cash equivalents in such amounts as the Custodian or an affected Fund may
determine to be reasonably necessary to effect the Fund's Foreign Securities
transactions.
4.3 Omitted.
4.4 Segregation of Securities. The Custodian shall identify on its
books and records as belonging to the appropriate Fund, the Foreign Securities
of each Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each agreement between the
Custodian and a Foreign Custodian shall be substantially in the form as
delivered to the Investment Companies for their Boards' review, and shall not be
amended in a way that materially adversely affects any Fund without the prior
written consent of the Fund. Upon request, the Custodian shall certify to the
Funds that an agreement between the Custodian and a Foreign Custodian meets the
requirements of Rule 17f-5 under the 1940 Act.
4.6 Access of Independent Accountants of the Funds. Upon request of a
Fund, the Custodian will use its best reasonable efforts to arrange for the
independent accountants or auditors of the Fund to be afforded access to the
books and records of any Foreign Custodian insofar as such books and records
relate to the custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon receipt of Proper
Instructions, the Custodian shall instruct the appropriate Foreign Custodian to
transfer, exchange or deliver Foreign Securities owned by a Fund, but, except to
the extent explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the Custodian shall pay out
or instruct the appropriate Foreign Custodian to pay out monies of a Fund in any
of the cases specified in Subsection 3.6. Notwithstanding anything herein to the
contrary, settlement and payment for Foreign Securities received for the account
of a Fund and delivery of Foreign Securities maintained for the account of a
Fund may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer.
Foreign Securities maintained in the custody of a Foreign Custodian may be
maintained in the name of such entity or its nominee name to the same extent as
set forth in Section 3.3 of this Agreement and each Fund agrees to hold any
Foreign Custodian and its nominee harmless from any liability as a holder of
record of such securities.
4.8 Liability of Foreign Custodian. Each agreement between the
Custodian and a Foreign Custodian shall, unless otherwise mutually agreed to by
the Custodian and a Fund, require the Foreign Custodian to exercise reasonable
care or, alternatively, impose a contractual liability for breach of contract
without an exception based upon a standard of care in the performance of its
duties and to indemnify and hold harmless the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Custodian's performance of such obligations, excepting,
however, Citibank, N.A., and its subsidiaries and branches, where the
indemnification is limited to direct money damages and requires that the claim
be promptly asserted. At the election of a Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim, unless such
subrogation is prohibited by local law.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform each Fund in the event
that the Custodian learns of a material adverse change in the financial
condition of a Foreign Custodian or learns that a Foreign Custodian's financial
condition has declined or is likely to decline below the minimum levels required
by Rule 17f-5 of the 1940 Act.
(b) The custodian will furnish such information as may be
reasonably necessary to assist each Investment Company's Board in its annual
review and approval of the continuance of all contracts or arrangements with
Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper Instructions" means
instructions of a Fund received by the Custodian via telephone or in Writing
which the Custodian believes in good faith to have been given by Authorized
Persons (as defined below) or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Custodian may specify.
Any Proper Instructions delivered to the Custodian by telephone shall promptly
thereafter be confirmed in accordance with procedures, and limited in subject
matter, as mutually agreed upon by the parties. Unless otherwise expressly
provided, all Proper Instructions shall continue in full force and effect until
canceled or superseded. If the Custodian requires test arrangements,
authentication methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Funds thereafter shall
be given and processed in accordance with such terms and conditions for the use
of such arrangements, methods or devices as the Custodian may put into effect
and modify from time to time. The Funds shall safeguard any testkeys,
identification codes or other security devices which the Custodian shall make
available to them. The Custodian may electronically record any Proper
Instructions given by telephone, and any other telephone discussions, with
respect to its activities hereunder. As used in this Agreement, the term
"Authorized Persons" means such officers or such agents of a Fund as have been
properly appointed pursuant to a resolution of the appropriate Board or
Executive Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Fund under this Agreement. Each of such
persons shall continue to be an Authorized Person until such time as the
Custodian receives Proper Instructions that any such officer or agent is no
longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from a
Fund:
(a) make payments to itself or others for minor expenses of
handling Securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the Fund;
(b) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
(c) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the Securities and property of the Fund except as otherwise
provided in Proper Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions
(conveyed by telephone or in Writing), notice, request, consent, certificate or
other instrument or paper believed by it to be genuine and to have been properly
given or executed by or on behalf of a Fund. The Custodian may receive and
accept a certified copy of a resolution of a Board or Executive Committee as
conclusive evidence (a) of the authority of any person to act in accordance with
such resolution or (b) of any determination or of any action by the Board or
Executive Committee as described in such resolution, and such resolution may be
considered as in full force and effect until receipt by the Custodian of written
notice by an Authorized Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary information in
its possession (to the extent permissible under applicable law) to the entity or
entities appointed by the appropriate Board to keep the books of account of a
Fund and/or compute the net asset value per Share of the outstanding Shares of a
Fund.
Section 9. RECORDS
The Custodian shall create and maintain all records relating to its
activities under this Agreement which are required with respect to such
activities under Section 31 of the Investment Company Act and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the appropriate
Investment Company and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Investment Company and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at a Fund's request, supply the Fund
with a tabulation of Securities and Cash owned by the Fund and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
each Investment Company, on behalf of each Fund, and the Custodian. In addition,
should the Custodian in its discretion advance funds (to include overdrafts) to
or on behalf of a Fund pursuant to Proper Instructions, the Custodian shall be
entitled to prompt reimbursement of any amounts advanced. In the event of such
an advance, and to the extent permitted by the 1940 Act and the Fund's policies,
the Custodian shall have a continuing lien and security interest in and to the
property of the Fund in the possession or control of the Custodian or of a third
party acting in the Custodian's behalf, until the advance is reimbursed. Nothing
in this Agreement shall obligate the Custodian to advance funds to or on behalf
of a Fund, or to permit any borrowing by a Fund except for borrowings for
temporary purposes, to the extent permitted by the Fund's policies.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance of only such
duties as are set forth herein or contained in Proper Instructions and shall use
reasonable care in carrying out such duties. The Custodian shall be liable to a
Fund for any loss which shall occur as the result of the failure of a Foreign
Custodian engaged directly or indirectly by the Custodian to exercise reasonable
care with respect to the safekeeping of securities and other assets of the Fund
to the same extent that the Custodian would be liable to the Fund if the
Custodian itself were holding such securities and other assets. Nothing in this
Agreement shall be read to limit the responsibility or liability of the
Custodian or a Foreign Custodian for their failure to exercise reasonable care
with regard to any decision or recommendation made by the Custodian or
Subcustodian regarding the use or continued use of a Foreign Securities
Depository. In the event of any loss to a Fund by reason of the failure of the
Custodian or a Foreign Custodian engaged by such Foreign Custodian or the
Custodian to utilize reasonable care, the Custodian shall be liable to the Fund
to the extent of the Fund's damages, to be determined based on the market value
of the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or circumstances. The
Custodian shall be held to the exercise of reasonable care in carrying out this
Agreement, and shall not be liable for acts or omissions unless the same
constitute negligence or willful misconduct on the part of the Custodian or any
Foreign Custodian engaged directly or indirectly by the Custodian. Each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities (including legal
fees and expenses) incurred by the Custodian or its nominess in connection with
the performance of this Agreement with respect to such Fund, except such as may
arise from any negligent action, negligent failure to act or willful misconduct
on the part of the indemnified entity or any Foreign Custodian. The Custodian
shall be entitled to rely, and may act, on advice of counsel (who may be counsel
for a Fund) on all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian need not
maintain any insurance for the benefit of any Fund.
All collections of funds or other property paid or distributed in
respect of Securities held by the Custodian, agent, Subcustodian or Foreign
Custodian hereunder shall be made at the risk of the Funds. The Custodian shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Custodian, agent, Subcustodian or by a Foreign Custodian of any
payment, redemption or other transaction regarding securities in respect of
which the Custodian has agreed to take action as provided in Section 3 hereof.
The Custodian shall not be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the Board and may
rely on the genuineness of any such documents which it may in good faith believe
to be validly executed. Notwithstanding the foregoing, the Custodian shall not
be liable for any loss resulting from, or caused by, the direction of a Fund to
maintain custody of any Securities or cash in a foreign country including, but
not limited to, losses resulting from nationalization, expropriation, currency
restrictions, civil disturbance, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation or other similar occurrences,
or events beyond the control of the Custodian. Finally, the Custodian shall not
be liable for any taxes, including interest and penalties with respect thereto,
that may be levied or assessed upon or in respect of any assets of any Fund held
by the Custodian.
Section 12. LIMITED LIABILITY OF EACH INVESTMENT COMPANY
The Custodian acknowledges that it has received notice of and accepts
the limitations of liability as set forth in each Investment Company's Agreement
and Declaration of Trust, Articles of Incorporation, or Agreement of Limited
Partnership. The Custodian agrees that each Fund's obligation hereunder shall be
limited to the assets of the Fund, and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the Fund nor from
any Board Member, officer, employee, or agent of the Fund or the Investment
Company on behalf of the Fund.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of its execution
and shall continue in full force and effect until terminated as hereinafter
provided. This Agreement may be terminated by each Investment Company, on behalf
of a Fund, or by the Custodian by 90 days notice in Writing to the other
provided that any termination by an Investment Company shall be authorized by a
resolution of the Board, a certified copy of which shall accompany such notice
of termination, and provided further, that such resolution shall specify the
names of the persons to whom the Custodian shall deliver the assets of the
affected Funds held by the Custodian. If notice of termination is given by the
Custodian, the affected Investment Companies shall, within 90 days following the
giving of such notice, deliver to the Custodian a certified copy of a resolution
of the Boards specifying the names of the persons to whom the Custodian shall
deliver assets of the affected Funds held by the Custodian. In either case the
Custodian will deliver such assets to the persons so specified, after deducting
therefrom any amounts which the Custodian determines to be owed to it hereunder
(including all costs and expenses of delivery or transfer of Fund assets to the
persons so specified). If within 90 days following the giving of a notice of
termination by the Custodian, the Custodian does not receive from the affected
Investment Companies certified copies of resolutions of the Boards specifying
the names of the persons to whom the Custodian shall deliver the assets of the
Funds held by the Custodian, the Custodian, at its election, may deliver such
assets to a bank or trust company doing business in the State of California to
be held and disposed of pursuant to the provisions of this Agreement or may
continue to hold such assets until a certified copy of one or more resolutions
as aforesaid is delivered to the Custodian. The obligations of the parties
hereto regarding the use of reasonable care, indemnities and payment of fees and
expenses shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this Agreement shall (i)
create any fiduciary, joint venture or partnership relationship between the
Custodian and any Fund or (ii) be construed as or constitute a prohibition
against the provision by the Custodian or any of its affiliates to any Fund of
investment banking, securities dealing or brokerages services or any other
banking or financial services.
14.2 Further Assurances. Each party hereto shall furnish to the other
party hereto such instruments and other documents as such other party may
reasonably request for the purpose of carrying out or evidencing the
transactions contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action or proceeding
relating to this Agreement is brought by a party hereto against the other party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (including allocated costs and disbursements of
in-house counsel), in addition to any other relief to which the prevailing party
may be entitled.
14.4 Notices. Except as otherwise specified herein, each notice or
other communication hereunder shall be in Writing and shall be delivered to the
intended recipient at the following address (or at such other address as the
intended recipient shall have specified in a written notice given to the other
parties hereto):
if to a Fund or Investment Company: if to the Custodian:
[Fund or Investment Company] The Bank of New York
c/o Franklin Resources, Inc. Mutual Fund Custody Manager
777 Mariners Island Blvd. BNY Western Trust Co.
San Mateo, CA 94404 550 Kearney St., Suite 60
Attention: Chief Legal Officer San Francisco, CA 94108
14.5 Headings. The underlined headings contained herein are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the interpretation
hereof.
14.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and both of which, when taken
together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of New York
(without giving effect to principles of conflict of laws).
14.8 Force Majeure. Notwithstanding the provisions of Section 11
hereof regarding the Custodian's general standard of care, no failure, delay or
default in performance of any obligation hereunder shall constitute an event of
default or a breach of this agreement, or give rise to any liability whatsoever
on the part of one party hereto to the other, to the extent that such failure to
perform, delay or default arises out of a cause beyond the control and without
negligence of the party otherwise chargeable with failure, delay or default;
including, but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute; flood; war;
riot; theft; earthquake; natural disaster; breakdown of public or common carrier
communications facilities; computer malfunction; or act, negligence or default
of the other party. This paragraph shall in no way limit the right of either
party to this Agreement to make any claim against third parties for any damages
suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to exercise any
power, right, privilege or remedy hereunder, and no delay on the part of any
person in the exercise of any power, right, privilege or remedy hereunder, shall
operate as a waiver thereof; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy.
14.11 Amendments. This Agreement may not be amended, modified, altered
or supplemented other than by means of an agreement or instrument executed on
behalf of each of the parties hereto.
14.12 Severability. In the event that any provision of this Agreement,
or the application of any such provision to any person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
14.13 Parties in Interest. None of the provisions of this Agreement is
intended to provide any rights or remedies to any person other than the
Investment Companies, for themselves and for the Funds, and the Custodian and
their respective successors and assigns, if any.
14.14 Pre-Emption of Other Agreements. In the event of any conflict
between this Agreement, including without limitation any amendments hereto, and
any other agreement which may now or in the future exist between the parties,
the provisions of this Agreement shall prevail.
14.15 Variations of Pronouns. Whenever required by the context hereof,
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
THE BANK OF NEW YORK
By: /s/ Fred Ricciardi
Its: Senior Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: /s/ Harmon E. Burns
Harmon E. Burns
Their: Vice President
By: /s/ Deborah R. Gatzek
Deborah R. Gatzek
Their: Vice President & Secretary
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax-Free Income Fund California Corporation
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't Securities
Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income New York Corporation
Fund, Inc.
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Tax-Advantaged International California Limited
Bond Fund Partnership
Franklin Tax-Advantaged U.S. Government California Limited
Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income Securities Fund
Investment Grade Intermediate Bond Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Adjustable U.S. Government Fund
Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate
Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMENDMENT, dated May 7, 1997, to the Master Custody Agreement ("Agreement")
between each Investment Company listed on Exhibit A to the Agreement and The
Bank of New York dated February 16, 1996.
It is hereby agreed as follows:
A. Unless otherwise provided herein, all terms and conditions of the
Agreement are expressly incorporated herein by reference and, except as modified
hereby, the Agreement is confirmed in all respects. Capitalized terms used
herein without definition shall have the meanings ascribed to them in the
Agreement.
B. The Agreement shall be amended to add a new Section 4. 1 0 as follows:
4.10 ADDITIONAL DUTIES WITH RESPECT TO RUSSIAN SECURITIES.
(a) Upon [2] business days prior notice from a Fund that it will
invest in any security issued by a Russian issuer ("Russian Security"), the
Custodian shall to the extent required and in accordance with the terms of the
Subcustodian Agreement between the Custodian and Credit Suisse ("Foreign
Custodian") dated as of August 8, 1996 (the "Subcustodian Agreement") direct the
Foreign Custodian to enter into a contract ("Registrar Contract") with the
entity providing share registration services to the Russian issuer ("Registrar")
containing substantially the following protective provisions:
(1) REGULAR SHARE CONFIRMATIONS. Each Registrar Contract must
establish the Foreign Custodian's right to conduct regular share confirmations
on behalf of the Foreign Custodian's customers.
(2) PROMPT RE-REGISTRATIONS. Registrars must be obligated to
effect re-registrations within 72 hours (or such other specified time as the
United States Securities and Exchange Commission (the "SEC") may deem
appropriate by rule, regulation, order or "no-action" letter) of receiving the
necessary documentation.
(3) USE OF NOMINEE NAME. The Registrar Contract must establish
the Foreign Custodian's right to hold shares not held directly in the beneficial
owner's name in the name of the Foreign Custodian's nominee.
(4) AUDITOR VERIFICATION. The Registrar Contract must allow the
independent auditors of the Custodian and the Custodian's clients to obtain
direct access to the share register for the independent auditors of each of the
Foreign Custodian's clients.
(5) SPECIFICATION OF REGISTRAR'S RESPONSIBILITIES AND
LIABILITIES. The contract must set forth: (1) the Registrar's responsibilities
with regard to corporate actions and other distributions; (ii) the Registrar's
liabilities as established under the regulations applicable to the Russian share
registration -system and (iii) the procedures for making a claim against and
receiving compensation from the registrar in the event a loss is incurred.
(b) The Custodian shall, in accordance with the Subcustodian
Agreement, direct the Foreign Custodian to conduct regular share confirmations,
which shall require the Foreign Custodian to (1) request either a duplicate
share extract or some other sufficient evidence of verification and (2)
determine if the Foreign Custodian's records correlate with those of the
Registrar. For at least the first two years following the Foreign Custodian's
first use of a Registrar in connection with a Fund investment, and subject to
the cooperation of the Registrar, the Foreign Custodian will conduct these share
confirmations on at least a quarterly basis, although thereafter they may be
conducted on a less frequent basis, but no less frequently than annually, if the
Fund's Board of Directors, in consultation with the Custodian, determine it
appropriate.
(c) The Custodian shall, pursuant to the Subcustodian Agreement,
direct the Subcustodian to maintain custody of the Fund's share register
extracts or other evidence of verification obtained pursuant to paragraph (b)
above.
(d) The Custodian shall, pursuant to the Subcustodian Agreement,
direct the Foreign Custodian to comply with the rules, regulations, orders and
"no-action" letters of the SEC with respect to
(1) the receipt, holding, maintenance, release and delivery of
Securities; and
(2) providing notice to the Fund and its Board of Directors of
events specified in such rules, regulations, orders and letters.
(e) The Custodian shall have no liability for the action or inaction
of any Registrar or securities depository utilized in connection with Russian
Securities except to the extent that any such action or inaction was the result
of the Custodian's negligence. With respect to any costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees (collectively,
"Losses") incurred by a Fund as a result of the acts or the failure to act by
any Foreign Custodian or its subsidiary in Russia ("Subsidiary"), the Custodian
shall take appropriate action to recover such Losses from the Foreign Custodian
or Subsidiary. The Custodian's sole responsibility and liability to a Fund with
respect to any Losses shall be limited to amounts so received from the Foreign
Custodian or Subsidiary (exclusive of costs and expenses incurred by the
Custodian) except to the extent that such losses were the result of the
Custodian's negligence.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
THE BANK OF NEW YORK
By: /S/ STEPHEN E. GRUNSTON
Name: Stephen E. Grunston
Title: Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A TO THE AGREEMENT
By: /S/ DEBORAH R. GATZEK
Name: Deborah R. Gatzek
Title: Vice President
By: /S/ KAREN L. SKIDMORE
Name: Karen L. Skidmore
Title: Assistant Vice President
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
Franklin Asset Allocation Fund Delaware Business Trust
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Trust Franklin California Insured Tax-Free Income Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income California Corporation
Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business Trust
Franklin High Income Trust Delaware Business Trust AGE High Income Fund
Franklin Investors Securities Trust Massachusetts Business Trust Franklin Global Government Income Fund
Franklin Short-Intermediate U.S. Gov't
Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities
Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Trust Franklin Corporate Qualified Dividend Fund
Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income Delaware Business Trust
Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
Franklin New York Tax-Free Trust Massachusetts Business Trust Franklin New York Tax-Exempt Money Fund
Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin Tax-Exempt Money Fund California Corporation
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Trust Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Michigan Tax-Free Income Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Fund Allocator Series Delaware Business Trust Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Global Trust Delaware Business Trust Franklin Templeton German Government Bond Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Trust Franklin Balance Sheet Investment Fund
Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Trust Money Market Fund
Growth and Income Fund
Natural Resources Securities Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income Securities Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Rising Dividends Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Trust Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
Capital Growth Fund
Templeton International Smaller Companies Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Trust Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities
Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- - ------------------------------------------------------------------------------------------------------------------------------------
INTERVAL FUND:
Franklin Floating Rate Trust Delaware Business Trust
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amendment to Master Custody Agreement
Effective February 27, 1998, The Bank of New York and each of the Investment
Companies listed in the Attachment appended to this Amendment, for themselves
and each series listed in the Attachment, hereby amend the Master Custody
Agreement dated as of February 16, 1996 by:
1. Replacing Exhibit A with the attached; and
2. Only with respect to the Investment Companies and series thereof listed in
the Attachment, deleting paragraphs (a) and (b) of Subsection 3.5 and
replacing them with the following:
(a) Promptly after each purchase of Securities by the Fund, the Fund shall
deliver to the Custodian Proper Instructions specifying with respect to
each such purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount purchased and
accrued interest, if any; (d) the date of purchase and settlement; (e) the
purchase price per unit; (f) the total amount payable upon such purchase;
(g) the name of the person from whom or the broker through whom the
purchase was made, and the name of the clearing broker, if any; and (h) the
name of the broker to whom payment is to be made. The Custodian shall, upon
receipt of Securities purchased by or for the Fund, pay to the broker
specified in the Proper Instructions out of the money held for the account
of such Series the total amount payable upon such purchase, provided that
the same conforms to the total amount payable as set forth in such Proper
Instructions.
(b) Promptly after each sale of Securities by the Fund, the Fund shall
deliver to the Custodian Proper Instructions specifying with respect to
each such sale: (a) the Series to which such Securities were specifically
allocated; (b) the name of the issuer and the title of the Security; (c)
the number of shares or the principal amount sold, and accrued interest, if
any; (d) the date of sale; (e) the sale price per unit; (f) the total
amount payable to the Fund upon such sale; (g) the name of the broker
through whom or the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the Proper
Instructions against payment of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as
set forth in such Proper Instructions.
Investment Companies The Bank of New York
By: /s/ Elizabeth N. Cohernour By: /s/ Stephen E. Grunston
-------------------------- -----------------------
Name: Elizabeth N. Cohernour Name: Stephen E. Grunston
Title: Authorized Officer Title: Vice President
Attachment
INVESTMENT COMPANY SERIES
Franklin Mutual Series Fund Inc. Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual European Fund
Mutual Discovery Fund
Franklin Valuemark Funds Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Templeton Variable Products Series Fund Mutual Shares Investments Fund
Mutual Discovery Investments Fund
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
Franklin Asset Allocation Fund Delaware Business Trust
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Trust Franklin California Insured Tax-Free Income Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business Trust
Franklin High Income Trust Delaware Business Trust AGE High Income Fund
Franklin Investors Securities Trust Massachusetts Business Trust Franklin Global Government Income Fund
Franklin Short-Intermediate U.S. Govt Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Trust Franklin Corporate Qualified Dividend Fund
Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Mutual Series Fund Inc. Maryland Corporation Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual European Fund
Mutual Discovery Fund
Franklin New York Tax-Free Income Fund Delaware Business Trust
Franklin New York Tax-Free Trust Massachusetts Business Trust Franklin New York Tax-Exempt Money Fund
Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin Tax-Exempt Money Fund California Corporation
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Trust Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income
Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Michigan Tax-Free Income Fund
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Templeton Fund Allocator Series Delaware Business Trust Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Global Trust Delaware Business Trust Franklin Templeton German Government Bond Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Trust Franklin Balance Sheet Investment Fund
Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Trust Money Market Fund
Growth and Income Fund
Natural Resources Securities Fund
Real Estate Securities Fund
Global Utilities Securities Fund
High Income Fund
Templeton Global Income Securities Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Rising Dividends Fund
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Valuemark Funds (cont.) Massachusetts Business Trust Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
Capital Growth Fund
Templeton International Smaller Companies Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Global Health Care Securities Fund
Value Securities Fund
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Trust Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
Templeton Variable Products Series Fund Mutual Shares Investments Fund
Mutual Discovery Investments Fund
Franklin Growth Investments Fund
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business Trust
Franklin Principal Maturity Trust Massachusetts Business Trust
Franklin Universal Trust Massachusetts Business Trust
INTERVAL FUND
Franklin Floating Rate Trust Delaware Business Trust
- - ------------------------------------------- -------------------------------- -------------------------------------------------------
</TABLE>
MASTER CUSTODY AGREEMENT
EXHIBIT A
<TABLE>
<CAPTION>
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the
Master Custody Agreement dated as of February 16, 1996.
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Franklin Asset Allocation Fund Delaware Business Trust
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin Gold & Precious Metals Fund Delaware Business Trust
Franklin High Income Trust Delaware Business Trust AGE High Income Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Govt Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Bond Fund
Franklin Managed Trust Delaware Business Trust Franklin Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin California High Yield Municipal Fund
Franklin Tennessee Municipal Bond Fund
Franklin Mutual Series Fund Inc. Maryland Corporation Mutual Shares Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Discovery Fund
Mutual European Fund
Mutual Financial Services Fund
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin New York Tax-Free Income Fund Delaware Business Trust
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin U.S. Long-Short Fund
Franklin Large Cap Growth Fund
Franklin Aggressive Growth Fund
Franklin Small Cap Growth Fund II
Franklin Technology Fund
Franklin Tax-Exempt Money Fund California Corporation
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Trust Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income
Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin Templeton Fund Allocator Series Delaware Business Trust Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Global Trust Delaware Business Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Templeton Variable Insurance Massachusetts Business Franklin Money Market Fund
Products Trust Trust Franklin Growth and Income Fund
Franklin Natural Resources Securities Fund
Franklin Real Estate Fund
Franklin Global Communications Securities Fund
Franklin High Income Fund
Templeton Global Income Securities Fund
Franklin Income Securities Fund
Franklin U.S. Government Fund
Franklin Zero Coupon Fund - 2000
Franklin Zero Coupon Fund - 2005
Franklin Zero Coupon Fund - 2010
Franklin Rising Dividends Securities Fund
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin Templeton Variable Insurance Massachusetts Business Templeton Pacific Growth Fund
Products Trust (cont.) Trust Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Franklin Small Cap Fund
Franklin Large Cap Growth Securities Fund
Templeton International Smaller Companies Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Franklin Global Health Care Securities Fund
Franklin Value Securities Fund
Franklin Aggressive Growth Securities Fund
Franklin S&P 500 Index Fund
Franklin Strategic Income Securities Fund
Franklin Technology Securities Fund
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin U.S. Government Securities Money Market
Portfolio
Franklin Cash Reserves Fund
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
Templeton Variable Products Series Fund Franklin Growth Investments Fund
Mutual Shares Investments Fund
Mutual Discovery Investments Fund
Franklin Small Cap Investments Fund
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin Floating Rate Master Trust Delaware Business Trust Franklin Floating Rate Master Series
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
Franklin Floating Rate Trust Delaware Business Trust
- - -------------------------------------------- ---------------------------- ---------------------------------------------------------
REVISED: 3/21/00
</TABLE>
TERMINAL LINK AGREEMENT
AGREEMENT made as of February 16, 1996 between The Bank of New York as custodian
(the "Custodian") and each Investment Company listed on Exhibit A, for itself
and for each of Series listed on Exhibit A (each, a "Fund").
WHEREAS, the parties have entered into a Master Custody Agreement dated as
of February 16, 1996;
WHEREAS, the parties desire to provide for the electronic transmission of
instructions from each Fund to the Custodian, as and to the extent permitted by
the Master Custody Agreement; and
WHEREAS, the Board of Directors, Trustees or Managing General Partners, as
applicable, of each Investment Company have previously authorized each
Investment Company to enter into the Master Custody Agreement;
NOW, THEREFORE, in consideration for the mutual promises set forth, the parties
agree as follows:
A. Except as otherwise provided herein, all terms shall have the same meaning as
in the Master Custody Agreement.
B. The term "Certificate" shall mean any Proper Instruction by a Fund to the
Custodian communicated by the Terminal Link.
C . The term "Officer" shall mean an Authorized Person as defined in section 5
of the Master Custody Agreement.
D. The term "Terminal Link" shall mean an electronic data transmission link
between a Fund, Franklin Templeton Investor Services, Inc. acting as agent for
the Fund ("FTISI"), and the Custodian requiring in connection with each use of
the Terminal Link by or on behalf of the Fund use of an authorization code
provided by the Custodian and at least two access codes established by the Fund.
Each Fund represents that FTISI will maintain a transmission line to the
Custodian and has been selected by the Fund to receive electronic data
transmissions from the Custodian or the Fund and forward the same to the Fund or
the Custodian, respectively.
E. Terminal Link
1. The Terminal Link shall be utilized by a Fund only for the purpose of the
Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after a Fund shall have established access codes and
safekeeping procedures to safeguard and protect the confidentiality and
availability of such access codes, and shall have reviewed the safekeeping
procedures established by FTISI to assure that transmissions inputted by the
Fund, and only such transmissions, are forwarded by FTISI to the Custodian
without any alteration or omission. Each use of the Terminal Link by a Fund
shall constitute a representation and warranty that the Terminal Link is being
used only for the purposes permitted hereby, that at least two Officers have
each utilized an access code, that such safekeeping procedures have been
established by the Fund, that FTISI has safekeeping procedures reviewed by the
Fund to assure that all transmissions inputted by the Fund, and only such
transmissions, are forwarded by FTISI to the Custodian without any alteration or
omission by FTISI, and that such use does not, to the Fund's knowledge,
contravene the Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.
2. Each Fund shall obtain and maintain at its own cost and expense all equipment
and services, including, but not limited to communications services, necessary
for it to utilize the Terminal Link, and the Custodian shall not be responsible
for the reliability or availability of any such equipment or services.
3. Each Fund acknowledges that any data bases made available as part of, or
through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. Each Fund shall, and shall cause others to which it discloses
the Information, including without limitation FTISI, to keep the Information
confidential, by using the same care and discretion it uses with respect to its
own confidential property and trade secrets, and shall neither make nor permit
any disclosure without the express prior written consent of the Custodian.
4. Upon termination of this Agreement for any reason, the Fund shall return to
the Custodian any and all copies of the Information which are in the Fund's
possession or under its control, or which the Fund distributed to third parties,
including without limitation FTISI. The provisions of this Article shall not
affect the copyright status of any of the Information which may be copyrighted
and shall apply to all information whether or not copyrighted.
5. The Custodian reserves the right to modify the Terminal Link from time to
time without notice to the Funds or FTISI, except that the Custodian shall give
the Funds notice not less than 75 days in advance of any modification which
would materially adversely affect the Funds' operation. The Funds agree that
neither the Funds nor FTISI shall modify or attempt to modify the Terminal Link
without the Custodian's prior written consent. Each Fund acknowledges that any
software or procedures provided the Fund or FTISI as part of the Terminal Link
are the property of the Custodian and, accordingly, agrees that any
modifications to the Terminal Link, whether by the Fund, FTISI or the Custodian
and whether with or without the Custodian's consent, shall become the property
of the Custodian.
6. The Custodian, the Funds, FTISI and any manufacturers and suppliers utilized
by the Custodian, the Funds or FTISI in connection with the Terminal Link, make
no warranties or representations to any other party, express or implied, in fact
or in law, including but not limited to warranties of merchantability and
fitness for a particular purpose.
7. Each Fund will cause its officers and employees to treat the authorization
codes and the access codes applicable to Terminal Link with extreme care, and
irrevocably authorizes the Custodian to act in accordance with and rely on
Certificates received by it through the Terminal Link. Each Fund acknowledges
that it is its responsibility to assure that only its officers and authorized
persons of FTISI use the Terminal Link on its behalf, and that the Custodian
shall not be responsible nor liable for any action taken in good faith in
reliance upon a Certificate, nor for any alteration, omission, or failure to
promptly forward by FTISI.
8. (a) Except as otherwise specifically provided in Section 8(b) of this
Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the result of the negligence of the Custodian,
provided however, that the Custodian shall have no liability under this Section
8 if the Fund fails to comply with the provisions of section 10.
(b) The Custodian's liability for its negligence in executing or failing to
act in accordance with a Certificate received through Terminal Link shall be
only with respect to a transfer of funds or assets which is not made in
accordance with such Certificate, and shall be subject to Section 11 of this
Article and contingent upon the Fund complying with the provisions of Section 10
of this Article, and shall be limited to the extent of the Fund's damages,
without reference to any special conditions or circumstances.
9. Without limiting the generality of the foregoing, in no event shall the
Custodian or any manufacturer or supplier of its computer equipment, software or
services relating to the Terminal Link be responsible for any special, indirect,
incidental or consequential damages which a Fund or FTISI may incur or
experience by reason of any malfunction of such equipment or software, even if
the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
10. Each Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, or (ii) the business day on which discovery should have
occurred through the exercise of reasonable care. The Custodian shall promptly
advise the Fund or FTISI whenever the Custodian learns of any errors, omissions
or interruption in, or delay or unavailability of, the Terminal Link.
11. The Custodian shall acknowledge to each affected Fund or to FTISI, by use of
the Terminal Link, receipt of each Certificate the Custodian receives through
the Terminal Link, and in the absence of such acknowledgment the Custodian shall
not be liable for any failure to act in accordance with such Certificate and the
Funds may not claim that such Certificate was received by the Custodian. Such
acknowledgment, which may occur after the Custodian has acted upon such
Certificate, shall be given on the same day on which such Certificate is
received.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers, thereunto duly authorized and their respective
seals to be hereto affixed as of the day and year first above written.
THE BANK OF NEW YORK
By: /s/ Fred Ricciardi
Title: Senior Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: /s/ Harmon E. Burns
Harmon E. Burns
Title: Vice President
By: /s/ Deborah R. Gatzek
Deborah R. Garzek
Title: Vice President & Secretary
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax-Free Income Fund California Corporation
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income Fund, New York Corporation
Inc.
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Tax-Advantaged International California Limited
Bond Fund Partnership
Franklin Tax-Advantaged U.S. Government California Limited
Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Trust Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income Securities Fund
Investment Grade Intermediate Bond Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund -2000
Zero Coupon Fund -2005
Zero Coupon Fund -2010
Adjustable U.S. Government Fund
Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FOREIGN CUSTODY MANAGER AGREEMENT
AGREEMENT made as of July 30, 1998, effective as of February 27, 1998
(the "Effective Date"), between Each of the Investment Companies Listed on
Schedule I attached hereto (each a "Fund") and The Bank of New York ("BNY").
WITNESSETH:
WHEREAS, the Fund desires to appoint BNY as a Foreign Custody Manager
on the terms and conditions contained herein;
WHEREAS, BNY desires to serve as a Foreign Custody Manager and perform
the duties set forth herein on the terms and condition contained herein;
NOW THEREFORE, in consideration of the mutual promises hereinafter
contained in this Agreement, the Fund and BNY hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "BOARD" shall mean the board of directors or board of trustees,
as the case may be, of the Fund.
2. "ELIGIBLE FOREIGN CUSTODIAN" shall have the meaning provided in
the Rule.
3. "MONITORING SYSTEM" shall mean a system established by BNY to
fulfill the Responsibilities specified in clauses l(b)(i) and l(b)(ii) and
l(d) of Article III of this Agreement.
4. "QUALIFIED FOREIGN BANK" shall have the meaning provided in the
Rule.
5. "RESPONSIBILITIES" shall mean the responsibilities delegated to
BNY as a Foreign Custody Manager with respect to each Specified Country and
each Eligible Foreign Custodian selected by BNY, as such responsibilities are
more fully described in Article III of this Agreement.
6. "RULE" shall mean Rule 17f-5 under the Investment Company Act of
1940, as amended, as such Rule became effective on June 16, 1997.
7. "SECURITIES DEPOSITORY" shall mean any securities depository or
clearing agency within the meaning of Section (a)(1)(ii) or (a)(1)(iii) of
the Rule.
8. "COMPULSORY DEPOSITORY" shall mean a Securities Depository the
use of which is mandatory by law or regulation or because securities cannot
be withdrawn from such Securities Depository, or because maintaining
securities outside the Securities Depository would not permit purchases and
sales of these securities to occur in accordance with routine settlement
timing and procedures in the relevant market.
9. "SPECIFIED COUNTRY" shall mean each country listed on Schedule 2
attached hereto and each country, other than the United States, constituting
the primary market for a security with respect to which the Fund has given
settlement instructions to The Bank of New York as custodian (the
"Custodian") under its Custody Agreement with the Fund.
ARTICLE II
BNY AS A FOREIGN CUSTODY MANAGER
1. The Fund on behalf of its Board hereby delegates to BNY with
respect to each Specified Country the Responsibilities.
2. BNY accepts the Board's delegation of Responsibilities with
respect to each Specified Country and agrees in performing the
Responsibilities as a Foreign Custody Manager to exercise reasonable care,
prudence and diligence such as a person having responsibility for the
safekeeping of the Fund's assets would exercise.
3. BNY shall provide to the Board at such times as the Board deems
reasonable and appropriate based on the circumstances of the Fund's foreign
custody arrangements written reports notifying the Board of the placement of
assets of the Fund with a particular Eligible Foreign Custodian within a
Specified Country and of any material change in the arrangements (including,
in the case of Qualified Foreign Banks, any material change in any contract
governing such arrangements and in the case of Securities Depositories, any
material change in the established practices or procedures of such Securities
Depositories) with respect to assets of the Fund with any such Eligible
Foreign Custodian.
ARTICLE III
RESPONSIBILITIES
1 . (a) Subject to the provisions of this Agreement, BNY shall with
respect to each Specified Country select an Eligible Foreign Custodian (other
than a Compulsory Depository) which is not functioning as the Fund's Eligible
Foreign Custodian as of the Effective Date. In connection therewith, BNY
shall: (i) determine that assets of the Fund held by such Eligible Foreign
Custodian will be subject to reasonable care, based on the standards
applicable to custodians in the relevant market in which such Eligible
Foreign Custodian operates, after considering all factors relevant to the
safekeeping of such assets, including, without limitation, those contained in
Section (c)(1) of the Rule; (ii) determine that the Fund's foreign custody
arrangements with each Qualified Foreign Bank are governed by a written
contract with the Custodian (or, in the case of a Securities Depository other
than a Compulsory Depository, by such a contract, by the rules or established
practices or procedures of the Securities Depository, or by any combination
of the foregoing) which will provide reasonable care for the Fund's assets
based on the standards specified in paragraph (c)(1) of the Rule; and (ii)
determine that each contract with a Qualified Foreign Bank shall include the
provisions specified in paragraph (c)(2)(i)(A) through (F) of the Rule or,
alternatively, in lieu of any or all of such (c)(2)(i)(A) through (F)
provisions, such other provisions as BNY determines will provide, in their
entirety, the same or a greater level of care and protection for the assets
of the Fund as such specified provisions.
(b) In addition, subject to the provisions of this Agreement, BNY
shall with respect to each Eligible Foreign Custodian (other than a
Compulsory Depository), regardless of when and by whom selected, (i)
monitor pursuant to the Monitoring System the appropriateness of
maintaining the assets of the Fund with a particular Eligible Foreign
Custodian pursuant to paragraph (c)(1) of the Rule and in the case of a
Qualified Foreign Bank, any material change in the contract governing such
arrangement and in the case of a Securities Depository, any material change
in the established practices or procedures of such Securities Depository;
and (ii) advise the Fund whenever an arrangement (including, in the case of
a Qualified Foreign Bank, any material change in the contract governing
such arrangement and in the case of a Securities Depository, any material
change in the established practices or procedures of such Securities
Depository) described in preceding clause (b)(i) no longer meets the
requirements of the Rule, it being understood that BNY shall provide such
advice promptly upon learning of such noncompliance.
(c) Subject to the provisions of this Agreement, after execution of
this Agreement with respect to each Compulsory Depository which has been
established, as of the Effective Date, in countries in which BNY has
appointed a Subcustodian and thereafter in connection with each new or
additional Compulsory Depository established in countries in which BNY
appoints, or has appointed, as the case may be, a Subcustodian, BNY shall
determine, with respect to each such Compulsory Depository, that:
(i) the Eligible Foreign Custodian which is utilizing the services of
the Compulsory Depository has undertaken to adhere to the rules,
practices and procedures of such Compulsory Depository;
(ii)no regulatory authority with oversight responsibility for the
Compulsory Depository has issued a public notice that the Compulsory
Depository is not in compliance with any material capital, solvency,
insurance or other similar financial strength requirements imposed by
such authority or, in the case of such notice having been issued,
that such notice has been withdrawn or the remedy of such
noncompliance has been publicly announced by the Compulsory
Depository;
(iii) no regulatory authority with oversight responsibility over
the Compulsory Depository has issued a public notice that the
Compulsory Depository is not in compliance with any material internal
controls requirement imposed by such authority or, in the case such
notice having been issued, that such notice has been withdrawn or the
remedy of such noncompliance has been publicly announced by the
Compulsory Depository;
(iv)the Compulsory Depository maintains the assets of the Fund's
Eligible Foreign Custodian which is utilizing the services of the
Compulsory Depository under no less favorable safekeeping conditions
than those that apply generally to other participants in the
Compulsory Depository;
(v) the Compulsory Depository maintains records that segregate the
Compulsory Depository's own assets from the assets of participants in
the Compulsory Depository;
(vi)the Compulsory Depository maintains records that identify the
assets of each of its participants;
(vii) the Compulsory Depository provides periodic reports to its
participants with respect to the safekeeping of assets maintained by
the Compulsory Depository, including, by way of example, notification
of any transfer to or from a participant's account; and
(viii) the Compulsory Depository is subject to periodic review,
such as audits by independent accountants or inspections by
regulatory authorities.
BNY shall make the foregoing determinations (i) with respect to each
Compulsory Depository which has been established as of the Effective Date in
countries in which BNY has appointed a Subcustodian by September 30, 1998 and
(ii) with respect to each new or additional Compulsory Depository established
in countries in which BNY appoints, or has appointed, as the case may be, a
Subcustodian, to the extent feasible in light of the circumstances then
prevailing within ninety (90) days of the date such Compulsory Depository
commences operations; and, in each case, shall advise the Fund and its
investment advisor promptly after each such determination is made.
In the event that the US Securities and Exchange Commission ("SEC")
adopts standards or criteria different from those set forth above, the
above provisions shall be deemed to be amended to conform to the standards
or criteria adopted by the SEC.
(d) Subject to the provisions of this Agreement, with respect to each
Compulsory Depository in which Fund's assets are maintained at any time
during the term of this Agreement, BNY shall monitor, pursuant to the
Monitoring System, each such Compulsory Depository's compliance with the
criteria set forth in clause l(c) of this Article III and, upon determining
that any Compulsory Depository is not in compliance with any of such
criteria, shall promptly advise the Fund and its investment advisor of such
non-compliance.
2. (a) For purposes of clauses (a)(i), (a)(ii) and (c) of preceding
Section I of this Article, BNY's determination with respect to each
Securities Depository will be based upon publicly available information,
which may be limited, plus any other information which is made available by
each such Securities Depository to BNY or its Qualified Foreign Bank.
(b) For purposes of clause (b)(i) of preceding Section I of
this Article, BNY's determination of appropriateness shall not include, nor
be deemed to include, any evaluation of Country Risks associated with
investment in a particular country. For purposes hereof, "Country Risks"
shall mean systemic risks of holding assets in a particular country
including, but not limited to, (i) the use of Compulsory Depositories, (ii)
such country's financial infrastructure, (iii) such country's prevailing
custody and settlement practices, (iv) nationalization, expropriation or
other governmental actions, (v) regulation of the banking or securities
industry, (vi) currency controls, restrictions, devaluations or
fluctuations, and (vii) market conditions which affect the orderly
execution of securities transactions or affect the value of securities.
ARTICLE IV
REPRESENTATIONS
1. The Fund hereby represents that: (a) this Agreement has been duly
authorized, executed and delivered by the Fund, constitutes a valid and
legally binding obligation of the Fund enforceable in accordance with its
terms, and no statute, regulation, rule, order, judgment or contract binding
on the Fund prohibits the Fund's execution or performance of this Agreement;
(b) this Agreement has been approved and ratified by the Board at a meeting
duly called and at which a quorum was at all times present; and (c) the Board
or its investment advisor has considered the Country Risks associated with
investment in each Specified Country and will have considered such risks
prior to any settlement instructions being given to the Custodian with
respect to any other Specified Country.
2. BNY hereby represents that: (a) BNY is duly organized and
existing under the laws of the State of New York, with full power to carry on
its businesses as now conducted, and to enter into this Agreement and to
perform its obligations hereunder; (b) this Agreement has been duly
authorized, executed and delivered by BNY, constitutes a valid and legally
binding obligation of BNY enforceable in accordance with its terms, and no
statute, regulation, rule, order, judgment or contract binding on BNY
prohibits BNY's execution or performance of this Agreement; and (c) BNY has
established the Monitoring System.
ARTICLE V
CONCERNING BNY
1 . BNY shall not be liable for any costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees, sustained
or incurred by, or asserted against, the Fund except to the extent the same
arises out of the failure of BNY to exercise the care, prudence and diligence
required by Section 2 of Article II hereof. In no event shall BNY be liable
to the Fund, the Board, or any third party for special, indirect or
consequential damages, or for lost profits or loss of business, arising in
connection with this Agreement.
2. The Fund shall indemnify BNY and hold it harmless from and
against any and all costs, expenses, damages, liabilities or claims,
including attorneys' and accountants' fees, sustained or incurred by, or
asserted against, BNY by reason or as a result of any action or inaction, or
arising out of BNY's performance hereunder, provided that the Fund shall not
indemnify BNY to the extent any such costs, expenses, damages, liabilities or
claims arises out of BNY's failure to exercise the reasonable care, prudence
and diligence required by Section 2 of Article II hereof.
3. For its services hereunder, the Fund agrees to pay to BNY such
compensation and out-of-pocket expenses as shall be mutually agreed.
4. BNY shall have only such duties as are expressly set forth
herein. In no event shall BNY be liable for any Country Risks associated
with investments in a particular country.
ARTICLE VI
MISCELLANEOUS
1 This Agreement constitutes the entire agreement between the Fund
and BNY, and no provision in the Custody Agreement between the Fund and the
Custodian shall affect the duties and obligations of BNY hereunder, nor shall
any provision in this Agreement affect the duties or obligations of the
Custodian under the Custody Agreement.
2. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to BNY, shall be sufficiently given if received
by it at its offices at 90 Washington Street, New York, New York 10286, or at
such other place as BNY may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund shall be sufficiently given if
received by it at its offices at Franklin Resources, 777 Mariners Island
Boulevard, San Mateo, California, 94404, Attn: Deborah R. Gatzek, General
Counsel and Senior Vice President, or at such other place as the Fund may
from time to time designate in writing.
4. In case any provision in or obligation under this Agreement shall
be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected thereby. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties. This
Agreement shall extend to and shall be binding upon the parties hereto, and
their respective successors and assigns; provided however, that this
Agreement shall not be assignable by either party without the written consent
of the other.
5. This Agreement shall be construed in accordance with the
substantive laws of the State of New York, without regard to conflicts of
laws principles thereof
6. The parties hereto agree that in performing hereunder, BNY is
acting solely on behalf of the Fund and no contractual or service
relationship shall be deemed to be established hereby between BNY and any
other person.
7. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
8. This Agreement shall terminate simultaneously with the
termination of the Custody Agreement between the Fund and the Custodian, and
may otherwise be terminated by either party giving to the other party a
notice in writing specifying the date of such termination, which shall be not
less than thirty (30) days after the date of such notice.
IN WITNESS WHEREOF, the Fund and BNY have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the
date first above written.
EACH INVESTMENT COMPANY
LISTED ON SCHEDULE 1 ATTACHED
HERETO.
By: /s/ Deborah R. Gatzek
---------------------
Deborah R. Gatzek
Title: Vice President
Of Each Such Investment Company
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
-----------------------
Stephen E. Grunston
Title: Vice President
SCHEDULE 1
<TABLE>
<CAPTION>
INVESTMENT COMPANY SERIES
<S> <C>
Franklin Gold Fund
Franklin Asset Allocation Fund
Franklin Equity Fund
Franklin High Income Trust AGE High Income Fund
Franklin Custodian Funds, Inc. Growth Series
Utilities Series
DynaTech Series
Income Series
Franklin Investors Securities Trust Franklin Global Government Income Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Bond Fund
Franklin Value Investors Trust Franklin Balance Sheet Investment
Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Strategic Mortgage Portfolio
Franklin Managed Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Strategic Series Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin Templeton International Trust Templeton Pacific Growth Fund
Franklin Real Estate Securities Trust Franklin Real Estate Securities Fund
INVESTMENT COMPANY SERIES
Franklin Valuemark Funds Money Market Fund
Growth and Income Fund
Natural Resources Securities Fund
Real Estate Securities Fund
Global Utilities Securities Fund
High Income Fund
Templeton Global Income Securities Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 20 1 0
Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity Fund
Small Cap Fund
Capital Growth Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Global Health Care Securities Fund
Value Securities Fund
Franklin Universal Trust
Franklin Multi-Income Trust
Franklin Floating Rate Trust
Franklin Templeton Fund Allocator Series Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
SCHEDULE 2
- - ----------------------------------------------------------- ---------------------------------------------------------
Country/ Country/
Market Subcustodian(s) Market Subcustodian(s)
- - ----------------------------------------------------------- ---------------------------------------------------------
- - ----------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C> <C>
Argentina BankBoston, N.A. Hungary Citibank Budapest Rt.
Australia Conunonwealth Bank of Australia/ Iceland Landsbanki Islands
National Australia Bank Limited
Austria Creditanstalt AG India The Hongkong and Shanghai Banking
Corporation Limited/Deutsche Bank AG
Bahrain The British Bank of the Middle East Indonesia The Hongkong and Shanghai
Banking
Bangladesh Standard Chartered Bank Corporation Limited
Belgium Banque Bruxelles Lambert Ireland Allied Irish Banks, plc
Bermuda Bank of Bermuda Limited Israel Bank Leumi LE - Israel B.M.
Italy Banca Commerciale Italiana/
Botswana Stanbic Bank Botswana Limited Banque Paribas S.A.
Brazil BankBoston, N.A. Ivory Coast Societe Geneale de Banque en Cete d'Ivoire
Bulgaria ING Bank-Sofia
Jamaica CIBC Trust & Merchant Bank Jamaica Litd
Canada Royal Bank of Canada
Chile BankBoston, N.A. Japan The Bank of Tokyo-Mitsubishi Limited/
China Standard Chartered Bank The Fuji Bank, Limited
Colombia Cititrust Colombia S.A. Jordan The British Bank of the Middle East
Costa Rica Banco BCT Kenya Stanbic Bank Kenya Limited
Croatia Pfivredna Banka Zagreb d.d. Latvia Societe Generale Riga
Cyprus Bank of Cyprus Lebanon The British Bank of the Middle East
Czech Republic Ceskoslovenska Obchodni Banka A.S. Lithuania Vilniaus Bankas
Denmark Den Danske Bank Luxembourg Banque Internationale a Luxembourg
Malaysia Hongkong Bank Malaysia Berhad
EASDAQ Banque Bruxelles Lambert Malta Mid-Med Bank Pic
Ecuador Citibank, N.A. Mauritius The Hongkong and Shanghai
Egypt Citibank, N.A. Banking
Estonia Hansabank Limited. Corporation Limited
Euromarket Cedel Bank Mexico Banco Nacional de Mexico
Euromarket Euroclear Morocco Banque Commerciale du Maroc
Finland MeTita Bank Ltd. Namibia Stanbic Bank Namibia Limited
France Banque Paribas S.A./ Netherlands Mees Pierson
Credit Commercial de France New Zealand Australia and New Zealand Banking Group
Germany Dresdner Bank AG
Ghana Merchant Bank (Ghana) Limited Nigeria Stanbic Merchant Bank Nigeria Limited
Greece National Bank of Greece SA Norway Den norske Bank ASA
Oman The British Bank of the Middle East
Hong Kong The Hongkong and Shanghai Banking
Corporation Limited Pakistan Standard Chartered Bank
Portugal Banco Comercial Portugues/ Peru Citibank, N.A.
Banco Espirito Santo Philippines The Hongkong and Shanghai Banking
Romania ING Bank Bucharest Branch Corporation Limited
Poland Bank Handlowy W Warszawie S.A
Russia Vneshtorgbank (Min Fin Bonds only)/
Credit Suisse First Boston Limited/ Switzerland Union Bank of Switzerland/
Unexim Bank Bank Leu Ltd.
Singapore United Overseas Bank Limited/ Taiwan The Hongkong and Shanghai Banking
The Development Bank of Singapore Ltd Corporation Limited
Slovakia Ceskoslovenska Obchodna Banka, a.s Thailand Standard Chartered Bank
Slovenia Banka Creditsanstalt D.D., Ljubljana Bangkok Bank Public Company Limited
South Africa The Standard Bank of South Africa Tunisia Banque Internationale Arabe de Tunisie
Limited
Turkey Osmanli Bankasi A.S. (Ottoman Bank)
South Korea Standard Chartered Bank Ukraine Bank Ukraina
Spain Banco Bilbao Vizcaya United Kingdom The Bank of New York, N.A./
SriLanka Standard Chartered Bank First Chicago Clearing Center
Swaziland Stanbic Bank Swaziland Limited United States The Bank of New York, N.A.
Sweden Skandinaviska Enskilda Banken Uruguay BankBoston, N.A.
Venezuela Citibank, N.A.
Zambia Stanbic Bank Zambia Limited
Zimbabwe Stanbic Bank Zimbabwe Limited
</TABLE>
SCHEDULE 1
<TABLE>
<CAPTION>
INVESTMENT COMPANY SERIES
- - ----------------- ------
<S> <C>
Franklin Gold & Precious Metals Fund
Franklin Asset Allocation Fund
Franklin Equity Fund
Franklin High Income Trust AGE High Income Fund
Franklin Custodian Funds, Inc. Growth Series
Utilities Series
DynaTech Series
Income Series
Franklin Investors Securities Trust Franklin Global Government Income Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Bond Fund
Franklin Value Investors Trust Franklin Balance Sheet Investment
Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Strategic Mortgage Portfolio
Franklin Managed Trust Franklin Rising Dividends Fund
Franklin Strategic Series Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Communications Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin U.S. Long-Short Fund
Franklin Aggressive Growth Securities Fund
Franklin Large Cap Growth Fund
Franklin Small Cap Growth Fund II
Franklin Technology Fund
Franklin Templeton International Trust Templeton Pacific Growth Fund
Franklin Real Estate Securities Trust Franklin Real Estate Securities Fund
Franklin Templeton Variable Insurance
Products Trust
Franklin Money Market Fund
Franklin Growth and Income Fund
Franklin Natural Resources Securities Fund
Franklin Real Estate Fund
Franklin Global Communications Securities Fund
Franklin High Income Fund
Templeton Global Income Securities Fund
Franklin Income Securities Fund
Franklin U.S. Government Securities Fund
Franklin Zero Coupon Fund - 2000
Franklin Zero Coupon Fund - 2005
Franklin Zero Coupon Fund - 2010
Franklin Rising Dividends Securities Fund
Templeton Pacific Growth Fund
Templeton International Equity Fund
Franklin Small Cap Fund
Franklin Large Cap Growth Securities Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Franklin Global Health Care Securities Fund
Franklin Value Securities Fund
Franklin Aggressive Growth Securities Fund
Franklin S&P 500 Index Fund
Franklin Strategic Income Securities Fund
Franklin Technology Securities Fund
Templeton Variable Products Series Fund Franklin Growth Investments Fund
Franklin Small Cap Investments Fund
Mutual Shares Investments Fund
Mutual Discovery Investments Fund
Franklin Universal Trust
Franklin Multi-Income Trust
Franklin Floating Rate Trust
Franklin Templeton Fund Allocator Series Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Floating Rate Master Trust Franklin Floating Rate Master Series
REVISED: 3/21/00
</TABLE>
FORM
FUND ADMINISTRATION AGREEMENT
AGREEMENT dated as of _____________ between FRANKLIN
FLOATING RATE MASTER TRUST (the "Investment Company"), an investment
company registered under the Investment Company Act of 1940 ("1940
Act"), on behalf of FRANKLIN FLOATING RATE MASTER SERIES (the "Fund"),
and Franklin Templeton Services, Inc. ("Administrator").
In consideration of the mutual agreements herein made, the
parties hereby agree as follows:
(1) The Administrator agrees, during the life of this
Agreement, to provide the following services to the Fund:
(a) providing office space, telephone, office equipment
and supplies for the Fund;
(b) providing trading desk facilities for the Fund, unless
these facilities are provided by the Fund's investment adviser;
(c) authorizing expenditures and approving bills for
payment on behalf of the Fund;
(d) supervising preparation of periodic reports to Fund
shareholders, notices of dividends, capital gains distributions and
tax credits; and attending to routine correspondence and other
communications with individual Fund shareholders when asked to do so
by the Fund's shareholder servicing agent or other agents of the Fund;
(e) coordinating the daily pricing of the Fund's
investment portfolio, including collecting quotations from pricing
services engaged by the Fund; providing fund accounting services,
including preparing and supervising publication of daily net asset
value quotations, periodic earnings reports and other financial data;
(f) monitoring relationships with organizations serving
the Fund, including custodians, transfer agents, public accounting
firms, law firms, printers and other third party service providers;
(g) supervising compliance by the Fund with recordkeeping
requirements under the federal securities laws, including the 1940
Act, and the rules and regulations thereunder, supervising compliance
with recordkeeping requirements imposed by state laws or regulations,
and maintaining books and records for the Fund (other than those
maintained by the custodian and transfer agent);
(h) preparing and filing of tax reports including the
Fund's income tax returns, and monitoring the Fund's compliance with
subchapter M of the Internal Revenue Code, and other applicable tax
laws and regulations;
(i) monitoring the Fund's compliance with: 1940 Act and
other federal securities laws, and rules and regulations thereunder;
state and foreign laws and regulations applicable to the operation of
investment companies; the Fund's investment objectives, policies and
restrictions; and the Code of Ethics and other policies adopted by
the Investment Company's Board of Trustees ("Board") or by the
Adviser and applicable to the Fund;
(j) providing executive, clerical and secretarial
personnel needed to carry out the above responsibilities; and
(k) preparing regulatory reports, including without
limitation, NSARs, proxy statements, and U.S. and foreign ownership
reports.
Nothing in this Agreement shall obligate the Investment Company or
the Fund to pay any compensation to the officers of the Investment
Company. Nothing in this Agreement shall obligate the Administrator
to pay for the services of third parties, including attorneys,
auditors, printers, pricing services or others, engaged directly by
the Fund to perform services on behalf of the Fund.
(2) The Fund agrees to pay to the Administrator as compensation
for such services a monthly fee equal on an annual basis to 0.15% of the fund's
average daily net assets up to $200 million, 0.135% of average daily net assets
over $200 million up to $700 million, 0.10% of average daily net assets over
$700 million up to $1.2 billion, and 0.075% of average daily net assets over
$1.2 billion.
From time to time, the Administrator may waive all or a portion of
its fees provided for hereunder and such waiver shall be treated as a
reduction in the purchase price of its services. The Administrator
shall be contractually bound hereunder by the terms of any publicly
announced waiver of its fee, or any limitation of the affected Fund's
expenses, as if such waiver or limitation were fully set forth herein.
(3) This Agreement shall remain in full force and effect
through for one year after its execution and thereafter from year to
year to the extent continuance is approved annually by the Board of
the Investment Company.
(4) This Agreement may be terminated by the Investment Company
at any time on sixty (60) days' written notice without payment of
penalty, provided that such termination by the Investment Company
shall be directed or approved by the vote of a majority of the Board
of the Investment Company in office at the time or by the vote of a
majority of the outstanding voting securities of the Investment
Company (as defined by the 1940 Act); and shall automatically and
immediately terminate in the event of its assignment (as defined by
the 1940 Act).
(5) In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Administrator, or of reckless disregard
of its duties and obligations hereunder, the Administrator shall not
be subject to liability for any act or omission in the course of, or
connected with, rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers.
FRANKLIN FLOATING RATE MASTER TRUST on behalf of
FRANKLIN FLOATING RATE MASTER SERIES
By:
Title: ________________________
FRANKLIN TEMPLETON SERVICES, INC.
By: ___________________________
Title: ________________________
March 24, 2000
FRANKLIN FLOATING RATE MASTER TRUST
777 Mariners Island Blvd.
San Mateo, CA 94404
Gentlemen:
We propose to acquire 500,000 shares of beneficial interest (the
"Shares") of the Franklin Floating Rate Master Series (the "Fund"), a series
of Franklin Floating Rate Master Trust (the "Trust"), at a purchase price of
$10.00 per share for a total of $5,000,000. We will purchase the Shares in a
private offering prior to the effectiveness of the Form N-2 registration
statement filed by the Trust on behalf of the Fund under the Securities Act
of 1933. The Shares are being purchased as the initial advance in connection
with the operation of the Fund.
In connection with such purchase, we understand that: (i) we, the
purchaser, intend to acquire the Shares for our own account as the initial
beneficial owner thereof and have no present intention of redeeming or
reselling the Shares so acquired; and (ii) in the event any of the initial
10,000 Shares are redeemed or repurchased during the first five years, the
Trust may charge against our redemption or repurchased proceeds a pro rata
portion of any unamortized organizational expenses which would be borne by
such Shares during the balance of the initial five-year period were they not
to be redeemed or repurchased.
We consent to the filing of this Investment Letter as an exhibit to the
form N-2 registration statement of the Trust.
Sincerely,
TEMPLETON INVESTMENT COUNSEL, INC.
By:
Martin L. Flanagan
Executive Vice President
March 24, 2000
FRANKLIN FLOATING RATE MASTER TRUST
777 Mariners Island Blvd.
San Mateo, CA 94404
Gentlemen:
We propose to acquire 1,500,000 shares of beneficial interest (the
"Shares") of the Franklin Floating Rate Master Series (the "Fund"), a series
of Franklin Floating Rate Master Trust (the "Trust"), at a purchase price of
$10.00 per share for a total of $15,000,000. We will purchase the Shares in
a private offering prior to the effectiveness of the Form N-2 registration
statement filed by the Trust on behalf of the Fund under the Securities Act
of 1933. The Shares are being purchased as the initial advance in connection
with the operation of the Fund.
In connection with such purchase, we understand that: (i) we, the
purchaser, intend to acquire the Shares for our own account as the initial
beneficial owner thereof and have no present intention of redeeming or
reselling the Shares so acquired; and (ii) in the event any of the initial
10,000 Shares are redeemed or repurchased during the first five years, the
Trust may charge against our redemption or repurchased proceeds a pro rata
portion of any unamortized organizational expenses which would be borne by
such Shares during the balance of the initial five-year period were they not
to be redeemed or repurchased.
We consent to the filing of this Investment Letter as an exhibit to the
form N-2 registration statement of the Trust.
Sincerely,
FRANKLIN RESOURCES, INC.
By:
Harmon E. Burns
Executive Vice President
THE FRANKLIN TEMPLETON GROUP
CODE OF ETHICS
AND
POLICY STATEMENT ON INSIDER TRADING
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS.......................................1
PART 1 - STATEMENT OF PRINCIPLES..................................................1
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE.............................2
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS...........................3
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS......10
PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS...........................13
PART 6 - PRE-CLEARANCE REQUIREMENTS..............................................17
PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE....................................22
PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY....23
APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS..................24
I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER.....................25
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS..............................31
III. SECURITIES EXEMPT FROM THE PROHIBITED, REPORTING,
AND PRE-CLEARANCE PROVISIONS .............................................32
IV. LEGAL REQUIREMENT..........................................................33
APPENDIX B: FORMS AND SCHEDULES..................................................34
ACKNOWLEDGMENT FORM..............................................................35
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK
TELEPHONE & FAX NUMBERS.............................................36
SCHEDULE B: SECURITIES TRANSACTION REPORT........................................37
SCHEDULE C: INITIAL, ANNUAL & UPDATED DISCLOSURE OF ACCESS PERSONS
SECURITIES HOLDINGS ................................................39
SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT OPENING..........................40
SCHEDULE E: NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST..............41
SCHEDULE F: INITIAL, ANNUAL & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS.........42
SCHEDULE G: INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY.........43
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES
ISSUED IN PRIVATE
PLACEMENTS.......................................................................45
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER SUBSIDIARIES OF FRANKLIN
RESOURCES, INC. - FEBRUARY 2000.................................................47
THE FRANKLIN TEMPLETON GROUP POLICY STATEMENT ON INSIDER TRADING..................1
A. LEGAL REQUIREMENT...........................................................1
B. WHO IS AN INSIDER?..........................................................2
C. WHAT IS MATERIAL INFORMATION?...............................................2
D. WHAT IS NON-PUBLIC INFORMATION?.............................................2
E. BASIS FOR LIABILITY.........................................................3
F. PENALTIES FOR INSIDER TRADING...............................................3
G. INSIDER TRADING PROCEDURES..................................................4
</TABLE>
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS
Franklin Resources, Inc. and all of its subsidiaries, and the funds in the
Franklin Templeton Group of Funds (the "Funds") (collectively, the "Franklin
Templeton Group") will follow this Code of Ethics (the "Code") and Policy
Statement on Insider Trading (the "Insider Trading Policy"). Additionally, the
subsidiaries listed in Appendix C of this Code, together with Franklin
Resources, Inc., the Funds, the Fund's investment advisers and principal
underwriter, have adopted the Code and Insider Trading Policy.
PART 1 - STATEMENT OF PRINCIPLES
The Franklin Templeton Group's policy is that the interests of shareholders
and clients are paramount and come before the interests of any director, officer
or employee of the Franklin Templeton Group.1
Personal investing activities of ALL directors, officers and employees of
the Franklin Templeton Group should be conducted in a manner to avoid actual OR
potential conflicts of interest with the Franklin Templeton Group, Fund
shareholders, and other clients of any Franklin Templeton adviser.
Directors, officers and employees of the Franklin Templeton Group shall use
their positions with the Franklin Templeton Group, and any investment
opportunities they learn of because of their positions with the Franklin
Templeton Group, in a manner consistent with their fiduciary duties for the
benefit of Fund shareholders, and clients.
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE
It is important that you read and understand this document, because its
overall purpose is to help all of us comply with the law and to preserve and
protect the outstanding reputation of the Franklin Templeton Group. This
document was adopted to comply with Securities and Exchange Commission rules
under the Investment Company Act of 1940 ("1940 Act"), the Investment Advisers
Act of 1940 ("Advisers Act"), the Insider Trading and Securities Fraud
Enforcement Act of 1988 ("ITSFEA"), industry practice and the recommendations
contained in the ICI's REPORT OF THE ADVISORY GROUP ON PERSONAL INVESTING. Any
violation of the Code or Insider Trading Policy, including engaging in a
prohibited transaction or failing to file required reports, may result in
disciplinary action, and, when appropriate, termination of employment and/or
referral to appropriate governmental agencies.
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS
3.1 WHO IS COVERED BY THE CODE AND HOW DOES IT WORK?
The principles contained in the Code must be observed by ALL directors,
officers and employees2 of the Franklin Templeton Group. However, there are
different categories of restrictions on personal investing activities. The
category in which you have been placed generally depends on your job function,
although unique circumstances may result in you being placed in a different
category.
The Code covers the following categories of employees who are described below:
(1) ACCESS PERSONS: Access Persons are those employees who have "ACCESS TO
INFORMATION" concerning recommendations made to a Fund or client with
regard to the purchase or sale of a security. Examples of "ACCESS TO
INFORMATION" would include having access to trading systems, portfolio
accounting systems, research data bases or settlement information. Access
Persons would typically include employees, including Management Trainees,
in the following departments:
o fund accounting;
o investment operations;
o information services & technology;
o product management;
o legal and legal compliance
o and anyone else designated by the Director of Compliance
In addition, you are an Access Person if you are any of the following:
o an officer or and directors of funds;
o an officer or director of an investment advisor or broker-dealer
subsidiary in the Franklin Templeton Group;
o a person that controls those entities; and
o any Franklin Resources' Proprietary Account ("Proprietary Account")3
(2) PORTFOLIO PERSONS: Portfolio Persons are a subset of Access Persons and are
those employees of the Franklin Templeton Group, who, in connection with
his or her regular functions or duties, makes or participates in the
decision to purchase or sell a security by a Fund in the Franklin Templeton
Group, or any other client or if his or her functions relate to the making
of any recommendations about those purchases or sales. Portfolio Persons
include:
o portfolio managers;
o research analysts;
o traders;
o employees serving in equivalent capacities (such as Management Trainees);
o employees supervising the activities of Portfolio Persons; and
o anyone else designated by the Director of Compliance
(3) NON-ACCESS PERSONS: If you are an employee in the Franklin Templeton Group
AND you do not fit into any of the above categories, you are a Non-Access
Person. Because you do not normally receive confidential information about
Fund portfolios, you are subject only to the prohibited transaction
provisions described in 3.4 of this Code and the Franklin Resources, Inc.'s
Standards of Business Conduct contained in the Employee Handbook.
Please contact the Legal Compliance Department if you are unsure as to what
category you fall in or whether you should be considered to be an Access Person
or Portfolio Person.
The Code works by prohibiting some transactions and requiring pre-clearance
and reporting of most others. NON-ACCESS PERSONS do not have to pre-clear their
security transactions, and, in most cases, do not have to report their
transactions. "INDEPENDENT DIRECTORS" need not report any securities transaction
unless you knew, or should have known that, during the 15-day period before or
after the transaction, the security was purchased or sold or considered for
purchase or sale by a Fund or Franklin Resources for a Fund. (See Section 5.2.B
below.) HOWEVER, PERSONAL INVESTING ACTIVITIES OF ALL EMPLOYEES AND INDEPENDENT
DIRECTORS ARE TO BE CONDUCTED IN COMPLIANCE WITH THE PROHIBITED TRANSACTIONS
PROVISIONS CONTAINED IN 3.4 BELOW. If you have any questions regarding your
personal securities activity, contact the Legal Compliance Department.
3.2 WHAT ACCOUNTS AND TRANSACTIONS ARE COVERED?
The Code covers all of your personal securities accounts and transactions,
as well as transactions by any of Franklin Resource's Proprietary Accounts. It
also covers all securities and accounts in which you have "beneficial
ownership." 4 A transaction by or for the account of your spouse, or any other
family member living in your home is considered to be the same as a transaction
by you. Also, a transaction for any account in which you have any economic
interest (other than the account of an unrelated client for which advisory fees
are received) and have or share investment control is generally considered the
same as a transaction by you. For example, if you invest in a corporation that
invests in securities and you have or share control over its investments, that
corporation's securities transactions are considered yours.
However, you are not deemed to have a pecuniary interest in any securities
held by a partnership, corporation, trust or similar entity unless you control,
or share control of such entity, or have, or share control over its investments.
For example, securities transactions of a trust or foundation in which you do
not have an economic interest (i.e., you are not the trustor or beneficiary) but
of which you are a trustee are not considered yours unless you have voting or
investment control of its assets. Accordingly, each time the words "you" or
"your" are used in this document, they apply not only to your personal
transactions and accounts, but also to all transactions and accounts in which
you have any direct or indirect beneficial interest. If it is not clear whether
a particular account or transaction is covered, ask a Preclearance Officer for
guidance.
3.3 WHAT SECURITIES ARE EXEMPT FROM THE CODE OF ETHICS?
You do not need to pre-clear OR report transactions of the following
securities:
(1) securities that are direct obligations of the U. S. Government (i.e.,
issued or guaranteed by the U.S. Government, such as Treasury bills, notes
and bonds, including U.S. Savings Bonds and derivatives thereof);
(2) high quality short-term instruments, including but not limited to bankers'
acceptances, bank certificates of deposit, commercial paper and repurchase
agreements;
(3) shares of registered open-end investment companies ("mutual funds"); and
(4) commodity futures, currencies, currency forwards and derivatives thereof.
Such transactions are also exempt from: (i) the prohibited transaction
provisions contained in Part 3.4 such as front-running; (ii) the additional
compliance requirements applicable to portfolio persons contained in Part 4; and
(iii) the applicable reporting requirements contained in Part 5.
3.4 PROHIBITED TRANSACTIONS FOR ALL ACCESS PERSONS
A. "INTENT" IS IMPORTANT
Certain transactions described below have been determined by the courts and
the SEC to be prohibited by law. The Code reiterates that these types of
transactions are a violation of the Statement of Principals and are prohibited.
Preclearance, which is a cornerstone of our compliance efforts, cannot detect
transactions which are dependent upon INTENT, or which by their nature, occur
before any order has been placed for a fund or client. A Preclearance Officer,
who is there to assist you with compliance with the Code, CANNOT guarantee any
transaction or transactions comply with the Code or the law. The fact that your
transaction receives preclearance, shows evidence of good faith, but depending
upon all the facts, may not provide a full and complete defense to any
accusation of violation of the Code or of the law. For example, if you executed
a transaction for which you received approval, or if the transaction was exempt
from preclearance (e.g., a transaction for 100 shares or less), would not
preclude a subsequent finding that front-running or scalping occurred because
such activity are dependent upon your intent. Intent cannot be detected during
preclearance, but only after a review of all the facts.
In the final analysis, compliance remains the responsibility of EACH
individual effecting personal securities transactions.
B. FRONT-RUNNING: TRADING AHEAD OF A FUND OR CLIENT
You cannot front-run any trade of a Fund or client. The term "front-run"
means knowingly trading before a contemplated transaction by a Fund or client of
any Franklin Templeton adviser, whether or not your trade and the Fund's or
client's trade take place in the same market. Thus, you may not:
(1) purchase a security if you intend, or know of Franklin Templeton Group's
intention, to purchase that security or a related security on behalf of a
Fund or client, or
(2) sell a security if you intend, or know of Franklin Templeton Group's
intention, to sell that security or a related security on behalf of a Fund
or client.
C. SCALPING.
You cannot purchase a security (or its economic equivalent) with the
intention of recommending that the security be purchased for a Fund, or client,
or sell short a security (or its economic equivalent) with the intention of
recommending that the security be sold for a Fund or client. Scalping is
prohibited whether or not you realize a profit from such transaction.
D. TRADING PARALLEL TO A FUND OR CLIENT
You cannot buy a security if you know that the same or a related security
is being bought contemporaneously by a Fund or client, or sell a security if you
know that the same or a related security is being sold contemporaneously by a
Fund or client.
E. TRADING AGAINST A FUND OR CLIENT
You cannot:
(1) buy a security if you know that a Fund or client is selling the same or a
related security, or has sold the security, until seven (7) calendar days
after the Fund's or client's order has either been executed or withdrawn,
or
(2) sell a security if you know that a Fund or client is buying the same or a
related security, or has bought the security until seven (7) calendar days
after the Fund's or client's order has either been executed or withdrawn.
Refer to Section I.A., "Pre-Clearance Standards," of Appendix A of the Code
for more details regarding the preclearance of personal securities transactions.
F. USING PROPRIETARY INFORMATION FOR PERSONAL TRANSACTIONS
You cannot buy or sell a security based on Proprietary Information 5
without disclosing the information and receiving written authorization. If you
wish to purchase or sell a security about which you obtained such information,
you must report all of the information you obtained regarding the security to
the Appropriate Analyst(s)6, or to the Director of Compliance for dissemination
to the Appropriate Analyst(s).
You will be permitted to purchase or sell such security if the Appropriate
Analyst(s) confirms to the Preclearance Desk that there is no intention to
engage in a transaction regarding the security within seven (7) calendar days on
behalf of an Associated Client7 and you subsequently preclear such security in
accordance with Part 6 below.
G. CERTAIN TRANSACTIONS IN SECURITIES OF FRANKLIN RESOURCES, INC., AND
AFFILIATED CLOSED-END FUNDS, AND REAL ESTATE INVESTMENT TRUSTS
If you are an employee of Franklin Resources, Inc. or any of its
affiliates, including the Franklin Templeton Group, you cannot effect a short
sale of the securities, including "short sales against the box" of Franklin
Resources, Inc., or any of the Franklin or Templeton closed-end funds, Franklin
real estate investment trusts or any other security issued by Franklin
Resources, Inc. or its affiliates. This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to
sales of any option to buy (i.e., a call option) or purchases of any option to
sell (i.e., a put option) and "swap" transactions or other derivatives. Officers
and directors of the Franklin Templeton Group who may be covered by Section 16
of the Securities Exchange Act of 1934, are reminded that their obligations
under that section are in addition to their obligations under this Code.
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS8
4.1 REQUIREMENT TO DISCLOSE INTEREST AND METHOD OF DISCLOSURE
As a Portfolio Person, you must promptly disclose your direct or indirect
beneficial interest in a security whenever you learn that the security is under
consideration for purchase or sale by an Associated Client in the Franklin
Templeton Group and you;
(1) Have or share investment control of the Associated Client;
(2) Make any recommendation or participate in the determination of which
recommendation shall be made on behalf of the Associated Client; or
(3) Have functions or duties that relate to the determination of which
recommendation shall be made to the Associated Client.
In such instances, you must initially disclose that beneficial interest
orally to the primary portfolio manager (or other Appropriate Analyst) of the
Associated Client(s) considering the security, the Director of Research and
Trading or the Director of Compliance. Following that oral disclosure, you must
send a written acknowledgment of that interest on Schedule E (or on a form
containing substantially similar information) to the primary portfolio manager
(or other Appropriate Analyst), with a copy to the Legal Compliance Department.
4.2 SHORT SALES OF SECURITIES
You cannot sell short ANY security held by your Associated Clients,
including "short sales against the box". Additionally, Portfolio Persons
associated with the Templeton Group of Funds and clients cannot sell short any
security on the Templeton "Bargain List". This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to,
sales of uncovered call options, purchases of put options while not owning the
underlying security and short sales of bonds that are convertible into equity
positions.
4.3 SHORT SWING TRADING
Portfolio Persons cannot profit from the purchase and sale or sale and
purchase within sixty calendar days of any security, including derivatives.
Portfolio Persons are responsible for transactions that may occur in margin and
option accounts and all such transactions must comply with this restriction.9
This restriction does NOT apply to:
(1) trading within a shorter period if you do not realize a profit and if
you do not violate any other provisions of this Code; AND
(2) profiting on the purchase and sale or sale and purchase within sixty
calendar days of the following securities:
o securities that are direct obligations of the U.S. Government,
such as Treasury bills, notes and bonds, and U.S. Savings Bonds
and derivatives thereof;
o high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S.
bank certificates of deposit; (iii) commercial paper; and (iv)
repurchase agreements;
o shares of registered open-end investment companies; and
o commodity futures, currencies, currency forwards and derivatives
thereof.
Calculation of profits during the 60 calendar day holding period generally
will be based on "last-in, first-out" ("LIFO"). Portfolio Persons may elect to
calculate their 60 calendar day profits on either a LIFO or FIFO ("first-in,
first-out") basis when there has not been any activity in such security by their
Associated Clients during the previous 60 calendar days.
4.4 SERVICE AS A DIRECTOR
As a Portfolio Person, you cannot serve as a director, trustee, or in a
similar capacity for any company (excluding not-for-profit companies, charitable
groups, and eleemosynary organizations) unless you receive approval from the
Chief Executive Officer of the principal investment adviser to the Fund(s) of
which you are a Portfolio Person and he/she determines that your service is
consistent with the interests of the Fund(s) and its shareholders.
4.5 SECURITIES SOLD IN A PUBLIC OFFERING
Portfolio Persons cannot buy securities in any initial public offering, or
a secondary offering by an issuer, INCLUDING initial public offerings of
securities made by closed-end funds and real estate investment trusts advised by
the Franklin Templeton Group. Purchases of open-end mutual funds are excluded
from this prohibition.
4.6 INTERESTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS
Portfolio Persons cannot acquire limited partnership interests or other
securities in private placements unless they:
(1) complete the Private Placement Checklist (Schedule H);
(2) provide supporting documentation (e.g., a copy of the offering
memorandum); and
(3) obtain approval of the appropriate Chief Investment Officer; and
(4) submit all documents to the Legal Compliance Department Approval will
only be granted after the Director of Compliance consults with an
executive officer of Franklin Resources, Inc.
PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS
5.1 REPORTING OF BENEFICIAL OWNERSHIP AND SECURITIES TRANSACTIONS
Compliance with the following personal securities transaction reporting
procedures is essential to enable us to meet our responsibilities to Funds and
other clients and to comply with regulatory requirements. You are expected to
comply with both the letter and spirit of these requirements, including
completing and filing all reports required under the Code in a timely manner.
5.2 INITIAL HOLDINGS AND BROKERAGE ACCOUNT REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS) Every employee (new or
transfer) of the Franklin Templeton Group who becomes an Access Person, must
file:
(1) An Acknowledgement Form;
(2) Schedule C: Initial, Annual & Updated Disclosure of Securities Holdings;
and
(3) Schedule F: Initial, Annual & Updated Disclosure of Securities Accounts
The Acknowledgement Form, Schedule C and Schedule F MUST be completed and
returned to the Legal Compliance Department within 10 CALENDAR DAYS of the date
the employee becomes an access person.
5.3 QUARTERLY TRANSACTION REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS)
You MUST report ALL securities transactions by; (i) providing the Legal
Compliance Department with copies of ALL broker's confirmations and statements
within 10 calendar days after the end of the calendar quarter (which may be sent
under separate cover by the broker) showing ALL transactions and holdings in
securities AND (ii) certifying by January 30th of each year that you have
disclosed all such brokerage accounts on Schedule F to the Legal Compliance
Department. The brokerage statements and confirmations must include all
transactions in securities in which you have, or by reason of the transaction
acquire any direct or indirect beneficial ownership, including transactions in a
discretionary account and transactions for any account in which you have any
economic interest AND have or share investment control. Also, if you acquire
securities by any other method which is not being reported to the Legal
Compliance Department by a duplicate confirmation statement at or near the time
of the acquisition, you must report that acquisition to the Legal Compliance
Department on Schedule B within 10 calendar days after you are notified of the
acquisition. Such acquisitions include, among other things, securities acquired
by gift, inheritance, vesting,10 stock splits, merger or reorganization of the
issuer of the security.
You must file these documents with the Legal Compliance Department not
later than 10 calendar days after the end of each quarter, but you need not show
or report transactions for any account over which you had no direct or indirect
influence or control.11 Failure to timely report transactions is a violation of
Rule 17j-1 as well as the Code, and may be reported to the Fund's Board of
Directors and may also result, among other things, in denial of future personal
security transaction requests.
B. INDEPENDENT DIRECTORS
If you are a director of the Franklin Templeton Group but you are not an
"interested person" of the Fund, you are not required to file transaction
reports unless you knew or should have known that, during the 15-day period
before or after a transaction, the security was purchased or sold, or considered
for purchase or sale, by a Fund or by Franklin Resources on behalf of a Fund.
5.4 ANNUAL REPORTS - ALL ACCESS PERSONS
A. SECURITIES ACCOUNTS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
As an access person, you must file a report of all personal securities
accounts on Schedule F, with the Legal Compliance Department, annually by
January 30th. You must report the name and description of each securities
account in which you have a direct or indirect beneficial interest, including
securities accounts of a spouse and minor children. You must also report any
account in which you have any economic interest AND have or share investment
control (e.g., trusts, foundations, etc.) other than an account for a Fund in,
or a client of, the Franklin Templeton Group.
B. SECURITIES HOLDINGS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
You must file a report of personal securities holdings on Schedule C, with
the Legal Compliance Department, by January 30th of each year. This report
should include ALL of your securities holdings, including any security acquired
by a transaction, gift, inheritance, vesting, merger or reorganization of the
issuer of the security, in which you have any direct or indirect beneficial
ownership, including securities holdings in a discretionary account and for any
account in which you have any economic interest AND have or share investment
control. Your securities holding information must be current as of a date no
more than 30 days before the report is submitted. You may attach copies of
year-end brokerage statements to the Schedule C in lieu of listing each security
position on the schedule.
C. CERTIFICATION OF COMPLIANCE WITH THE CODE OF ETHICS (INCLUDING INDEPENDENT
DIRECTORS)
All access persons, including independent directors, will be asked to
certify that they will comply with the FRANKLIN TEMPLETON GROUP'S CODE OF ETHICS
AND POLICY STATEMENT ON INSIDER TRADING by filing the Acknowledgment Form with
the Legal Compliance Department within 10 business days of receipt of the Code.
Thereafter, you will be asked to certify that you have complied with the Code
during the preceding year by filing a similar Acknowledgment Form by January 30
of each year.
5.5 BROKERAGE ACCOUNTS AND CONFIRMATIONS OF SECURITIES TRANSACTIONS (EXCEPT
INDEPENDENT DIRECTORS)
If you are an access person , in the Franklin Templeton Group, before or at
a time contemporaneous with opening a brokerage account with a registered
broker-dealer, or a bank, or placing an initial order for the purchase or sale
of securities with that broker-dealer or bank, you must:
(1) notify the Legal Compliance Department, in writing, by completing Schedule
D or by providing substantially similar information; and
(2) notify the institution with which the account is opened, in writing, of
your association with the Franklin Templeton Group.
The Compliance Department will request the institution in writing to send
to it duplicate copies of confirmations and statements for all transactions
effected in the account simultaneously with their mailing to you.
If you have an existing account on the effective date of this Code or upon
becoming an access person, you must comply within 10 days with conditions (1)
and (2) above.
PART 6 - PRE-CLEARANCE REQUIREMENTS
6.1 PRIOR APPROVAL OF SECURITIES TRANSACTIONS
A. LENGTH OF APPROVAL
Unless you are covered by Paragraph D below, you cannot buy or sell any
security, without first contacting a Preclearance Officer by fax, phone, or
e-mail and obtaining his or her approval. A clearance is good until the close of
the business day following the day clearance is granted but may be extended in
special circumstances, shortened or rescinded, as explained in Appendix A.
B. SECURITIES NOT REQUIRING PRECLEARANCE
The securities enumerated below do not require preclearance under the Code.
However, all other provisions of the Code apply, including, but not limited to:
(i) the prohibited transaction provisions contained in Part 3.4 such as
front-running; (ii) the additional compliance requirements applicable to
portfolio persons contained in Part 4, (iii) the applicable reporting
requirements contained in Part 5; and (iv) insider trading prohibitions.
You need NOT pre-clear transactions in the following securities:
(1) MUTUAL FUNDS. Transactions in shares of any registered open-end mutual
fund;
(2) FRANKLIN RESOURCES, INC., AND ITS AFFILIATES. Purchases and sales of
securities of Franklin Resources, Inc., closed-end funds of the Franklin
Templeton Group, or real estate investment trusts advised by Franklin
Properties Inc., as these securities cannot be purchased on behalf of our
advisory clients.12
(3) SMALL QUANTITIES. Transactions that do not result in purchases or sales of
more than 100 shares of any one security, regardless of where it is traded,
in any 30 day period. HOWEVER, YOU MAY NOT EXECUTE ANY TRANSACTION,
REGARDLESS OF QUANTITY, IF YOU LEARN THAT THE FUNDS ARE ACTIVE IN THE
SECURITY. IT WILL BE PRESUMED THAT YOU HAVE KNOWLEDGE OF FUND ACTIVITY IN
THE SECURITY IF, AMONG OTHER THINGS, YOU ARE DENIED APPROVAL TO GO FORWARD
WITH A TRANSACTION REQUEST. Transactions made pursuant to dividend
reinvestment plans ("DRIPs") do not require preclearance regardless of
quantity or Fund activity.
(4) GOVERNMENT OBLIGATIONS. Transactions in securities issued or guaranteed by
the governments of the United States, Canada, the United Kingdom, France,
Germany, Switzerland, Italy and Japan, or their agencies or
instrumentalities, or derivatives thereof;
(5) PAYROLL DEDUCTION PLANS. Securities purchased by an employee's spouse
pursuant to a payroll deduction program, provided the Compliance Department
has been previously notified in writing by the access person that the
spouse will be participating in the payroll deduction program.
(6) EMPLOYER STOCK OPTION PROGRAMS. Transactions involving the exercise and/or
purchase by an access person or an access person's spouse of securities
pursuant to a program sponsored by a corporation employing the access
person or spouse.
(7) PRO RATA DISTRIBUTIONS. Purchases effected by the exercise of rights issued
pro rata to all holders of a class of securities or the sale of rights so
received.
(8) TENDER OFFERS. Transactions in securities pursuant to a bona fide tender
offer made for any and all such securities to all similarly situated
shareholders in conjunction with mergers, acquisitions, reorganizations
and/or similar corporate actions. However, tenders pursuant to offers for
less than all outstanding securities of a class of securities of an issuer
must be precleared.
(9) NOT ELIGIBLE FOR FUNDS AND CLIENTS. Transactions in any securities that are
prohibited investments for all Funds and clients advised by the entity
employing the access person.
(10) NO INVESTMENT CONTROL. Transactions effected for an account or entity over
which you do not have or share investment control (i.e., an account where
someone else exercises complete investment control).
(11) NO BENEFICIAL OWNERSHIP. Transactions in which you do not acquire or
dispose of direct or indirect beneficial ownership (i.e., an account where
in you have no financial interest).
Although an access person's securities transaction may be exempt from
pre-clearing, such transactions must comply with the prohibited transaction
provisions of Section 3.4 above. Additionally, you may not trade any securities
as to which you have "inside information" (see attached THE FRANKLIN TEMPLETON
GROUP POLICY STATEMENT ON INSIDER Trading). If you have any questions, contact a
Preclearance Officer before engaging in the transaction. If you have any doubt
whether you have or might acquire direct or indirect beneficial ownership or
have or share investment control over an account or entity in a particular
transaction, or whether a transaction involves a security covered by the Code,
you should consult with a Preclearance Officer before engaging in the
transaction.
C. DISCRETIONARY ACCOUNTS
You need not pre-clear transactions in any discretionary account for which
a registered broker-dealer, a registered investment adviser, or other investment
manager acting in a similar fiduciary capacity, which is not affiliated with the
Franklin Templeton Group, exercises sole investment discretion, if the following
conditions are met:13
(1) The terms of each account relationship ("Agreement") must be in writing and
filed with a Preclearance Officer prior to any transactions.
(2) Any amendment to each Agreement must be filed with aPreclearance Officer
prior to its effective date.
(3) The Portfolio Person certifies to the Compliance Department at the time
such account relationship commences, and annually thereafter, as contained
in Schedule G of the Code that such Portfolio Person does not have direct
or indirect influence or control over the account, other than the right to
terminate the account.
(4) Additionally, any discretionary account that you open or maintain with a
registered broker-dealer, a registered investment adviser, or other
investment manager acting in a similar fiduciary capacity must provide
duplicate copies of confirmations and statements for all transactions
effected in the account simultaneously with their delivery to you., If your
discretionary account acquires securities which are not reported to a
Preclearance Officer by a duplicate confirmation, such transaction must be
reported to a Preclearance Officer on Schedule B within 10 days after you
are notified of the acquisition.14
However, if you make ANY request that the discretionary account manager
enter into or refrain from a specific transaction or class of transactions, you
must first consult with aPreclearance Officer and obtain approval prior to
making such request.
D. DIRECTORS WHO ARE NOT ADVISORY PERSONS OR ADVISORY REPRESENTATIVES
You need not pre-clear any securities if:
(1) You are a director of a Fund in the Franklin Templeton Group and a
director of the fund's advisor;
(2) You are not an "advisory person"15 of a Fund in the Franklin Templeton
Group; and
(3) You are not an employee of any Fund,
or
(1) You are a director of a Fund in the Franklin Templeton Group;
(2) You are not an "advisory representative"16 of Franklin Resources or
any subsidiary; and
(3) You are not an employee of any Fund,
unless you know or should know that, during the 15-day period before the
transaction, the security was purchased or sold, or considered for purchase or
sale, by a Fund or by Franklin Resources on behalf of a Fund or other client.
Directors qualifying under this paragraph are required to comply with all
applicable provisions of the Code including reporting their initial holdings and
brokerage accounts in accordance with 5.2, personal securities transactions and
accounts in accordance with 5.3 and 5.5, and annual reports in accordance with
5.4 of the Code.
PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE
The Code is designed to assure compliance with applicable law and to
maintain shareholder confidence in the Franklin Templeton Group.
In adopting this Code, it is the intention of the Boards of
Directors/Trustees, to attempt to achieve 100% compliance with all requirements
of the Code - but it is recognized that this may not be possible. Incidental
failures to comply with the Code are not necessarily a violation of the law or
the Franklin Templeton Group's Statement of Principles. Such isolated or
inadvertent violations of the Code not resulting in a violation of law or the
Statement of Principles will be referred to the Director of Compliance and/or
management personnel, and disciplinary action commensurate with the violation,
if warranted, will be imposed.
However, if you violate any of the enumerated prohibited transactions
contained in Parts 3 and 4 of the Code, you will be expected to give up ANY
profits realized from these transactions to Franklin Resources for the benefit
of the affected Funds or other clients. If Franklin Resources cannot determine
which Fund(s) or client(s) were affected, the proceeds will be donated to a
charity chosen by Franklin Resources. Failure to disgorge profits when requested
may result in additional disciplinary action, including termination of
employment.
Further, a pattern of violations that individually do not violate the law
or Statement of Principles, but which taken together demonstrate a lack of
respect for the Code of Ethics, may result in disciplinary action including
termination of employment. A violation of the Code resulting in a violation of
the law will be severely sanctioned, with disciplinary action including, but not
limited to, referral of the matter to the board of directors of the affected
Fund, termination of employment or referral of the matter to the appropriate
regulatory agency for civil and/or criminal investigation.
PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY
The Code of Ethics is primarily concerned with transactions in securities
held or to be acquired by any of the Funds or Franklin Resources' clients,
regardless of whether those transactions are based on inside information or
actually harm a Fund or a client.
The Insider Trading Policy (attached to this document) deals with the
problem of insider trading in securities that could result in harm to a Fund, a
client, or members of the public, and applies to all directors, officers and
employees of any entity in the Franklin Templeton Group. Although the
requirements of the Code and the Insider Trading Policy are similar, you must
comply with both.
APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS
This appendix sets forth the additional responsibilities and obligations of
Compliance Officers, and the Legal/Administration and Legal/Compliance
Departments, under the Franklin Templeton Group Code of Ethics and Policy
Statement on Insider Trading.
I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER
A. PRE-CLEARANCE STANDARDS
1. GENERAL PRINCIPLES
The Director of Compliance, or a Preclearance Officer, shall only permit an
access person to go forward with a proposed security17 transaction if he or she
determines that, considering all of the facts and circumstances, the transaction
does not violate the provisions of Rule 17j-1, or of this Code and there is no
likelihood of harm to a client.
2. ASSOCIATED CLIENTS
Unless there are special circumstances that make it appropriate to
disapprove a personal securities transaction request, a Preclearance Officer
shall consider only those securities transactions of the "Associated Clients" of
the access person, including open and executed orders and recommendations, in
determining whether to approve such a request. "Associated Clients" are those
Funds or clients whose trading information would be available to the access
person during the course of his or her regular functions or duties. Currently,
there are three groups of Associated Clients: (i) the Franklin Mutual Series
Funds and clients advised by Franklin Mutual Advisers, LLC ("Mutual Clients");
(ii) the Franklin Group of Funds and the clients advised by the various Franklin
investment advisers ("Franklin Clients"); and (iii) the Templeton Group of Funds
and the clients advised by the various Templeton investment advisers ("Templeton
Clients"). Thus, persons who have access to the trading information of Mutual
Clients generally will be precleared solely against the securities transactions
of the Mutual Clients, including open and executed orders and recommendations.
Similarly, persons who have access to the trading information of Franklin
Clients or Templeton Clients generally will be precleared solely against the
securities transactions of Franklin Clients or Templeton Clients, as
appropriate.
Certain officers of Franklin Resources, as well as legal, compliance, fund
accounting, investment operations and other personnel who generally have access
to trading information of the funds and clients of the Franklin Templeton Group
during the course of their regular functions and duties, will have their
personal securities transactions precleared against executed transactions, open
orders and recommendations of the entire Franklin Templeton Group.
3. SPECIFIC STANDARDS
(a) SECURITIES TRANSACTIONS BY FUNDS OR CLIENTS
No clearance shall be given for any transaction in any security on any day
during which an Associated Client of the access person has executed a buy or
sell order in that security, until seven (7) calendar days after the order has
been executed. Notwithstanding a transaction in the previous seven days,
clearance may be granted to sell if the security has been disposed of by all
Associated Clients.
(b) SECURITIES UNDER CONSIDERATION
OPEN ORDERS
No clearance shall be given for any transaction in any security on any day
which an Associated Client of the access person has a pending buy or sell order
for such security, until seven (7) calendar days after the order has been
executed.
RECOMMENDATIONS
No clearance shall be given for any transaction in any security on any day
on which a recommendation for such security was made by a Portfolio Person,
until seven (7) calendar days after the recommendation was made and no orders
have subsequently been executed or are pending.
(c) PRIVATE PLACEMENTS
In considering requests by Portfolio Personnel for approval of limited
partnerships and other private placement securities transactions, the Director
of Compliance shall consult with an executive officer of Franklin Resources,
Inc. In deciding whether to approve the transaction, the Director of Compliance
and the executive officer shall take into account, among other factors, whether
the investment opportunity should be reserved for a Fund or other client, and
whether the investment opportunity is being offered to the Portfolio Person by
virtue of his or her position with the Franklin Templeton Group. If the
Portfolio Person receives clearance for the transaction, an investment in the
same issuer may only be made for a Fund or client if an executive officer of
Franklin Resources, Inc., who has been informed of the Portfolio Person's
pre-existing investment and who has no interest in the issuer, approves the
transaction.
(d) DURATION OF CLEARANCE
If a Preclearance Officer approves a proposed securities transaction, the
order for the transaction must be placed and effected by the close of the next
business day following the day approval was granted. The Director of Compliance
may, in his or her discretion, extend the clearance period up to seven calendar
days, beginning on the date of the approval, for a securities transaction of any
access person who demonstrates that special circumstances make the extended
clearance period necessary and appropriate.18 The Director of Compliance may, in
his or her discretion, after consultation with a member of senior management for
Franklin Resources, Inc., renew the approval for a particular transaction for up
to an additional seven calendar days upon a similar showing of special
circumstances by the access person. The Director of Compliance may shorten or
rescind any approval or renewal of approval under this paragraph if he or she
determines it is appropriate to do so.
B. WAIVERS BY THE DIRECTOR OF COMPLIANCE
The Director of Compliance may, in his or her discretion, after
consultation with an executive officer of Franklin Resources, Inc., waive
compliance by any access person with the provisions of the Code, if he or she
finds that such a waiver:
(1) is necessary to alleviate undue hardship or in view of unforeseen
circumstances or is otherwise appropriate under all the relevant facts
and circumstances;
(2) will not be inconsistent with the purposes and objectives of the Code;
(3) will not adversely affect the interests of advisory clients of the
Franklin Templeton Group, the interests of the Franklin Templeton
Group or its affiliates; and
(4) will not result in a transaction or conduct that would violate
provisions of applicable laws or regulations.
Any waiver shall be in writing, shall contain a statement of the basis for
it, and a copy shall be promptly sent by the Director of Compliance to the
General Counsel of Franklin Resources, Inc.
C. CONTINUING RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
A Preclearance Officer shall make a record of all requests for
pre-clearance regarding the purchase or sale of a security, including the date
of the request, the name of the access person, the details of the proposed
transaction, and whether the request was approved or denied. APreclearance
Officer shall keep a record of any waivers given, including the reasons for each
exception and a description of any potentially conflicting Fund or client
transactions.
A Preclearance Officer shall also collect the signed initial
acknowledgments of receipt and the annual acknowledgments from each access
person of receipt of a copy of the Code and Insider Trading Policy, as well as
reports, as applicable, on Schedules B, C, D, E and F of the Code. In addition,
a Preclearance Officer shall request copies of all confirmations, and other
information with respect to an account opened and maintained with the
broker-dealer by any access person of the Franklin Templeton Group. A
Preclearance Officer shall preserve those acknowledgments and reports, the
records of consultations and waivers, and the confirmations, and other
information for the period required by applicable regulation.
A Preclearance Officer shall review brokerage transaction confirmations,
account statements, Schedules B, C, D, E, F and Private Placement Checklists of
Access Persons for compliance with the Code. The reviews shall include, but are
not limited to;
(1) Comparison of brokerage confirmations, Schedule Bs, and/or brokerage
statements to preclearance request worksheets or, if a private
placement, the Private Placement Checklist;
(2) Comparison of brokerage statements and/or Schedule Fs to current
securities holding information;
(3) Comparison of Schedule C to current securities account information;
(4) Conducting periodic "back-testing" of access person transactions,
Schedule Es and/or Schedule Gs in comparison to fund and client
transactions;
A Preclearance Officer shall evidence review by initialing and dating the
appropriate document. Any apparent violations of the Code detected by a
Preclearance Officer during his or her review shall be promptly brought to the
attention of the Director of Compliance.
D. PERIODIC RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
The Legal Compliance Department shall consult with the General Counsel and
the Human Resources Department, as the case may be, to assure that:
(1) Adequate reviews and audits are conducted to monitor compliance with
the reporting, pre-clearance, prohibited transaction and other
requirements of the Code.
(2) Adequate reviews and audits are conducted to monitor compliance with
the reporting, pre-clearance, prohibited transaction and other
requirements of the Code.
(3) All access persons and new employees of the Franklin Templeton Group
are adequately informed and receive appropriate education and training
as to their duties and obligations under the Code.
(4) There are adequate educational, informational and monitoring efforts
to ensure that reasonable steps are taken to prevent and detect
unlawful insider trading by access persons and to control access to
inside information.
(5) Written compliance reports are submitted to the Board of Directors of
Franklin Resources, Inc., and the Board of each relevant Fund at least
annually. Such reports will describe any issues arising under the Code
or procedures since the last report, including, but not limited to,
information about material violations of the Code or procedures and
sanctions imposed in response to the material violations.
(6) The Legal Compliance Department will certify at least annually to the
Fund's board of directors that the Franklin Templeton Group has
adopted procedures reasonably necessary to prevent Access Persons from
violating the Code, and
(7) Appropriate records are kept for the periods required by law.
E. APPROVAL BY FUND'S BOARD OF DIRECTORS
(1) Basis for Approval
The Board of Directors/Trustees must base its approval of the Code on
a determination that the Code contains provisions reasonably necessary to
prevent access persons from engaging in any conduct prohibited by rule
17j-1.
(2) New Funds
At the time a new fund is organized, the Legal Compliance Department will
provide the Fund's board of directors, a certification that the investment
adviser and principal underwriter have adopted procedures reasonably necessary
to prevent Access Persons from violating the Code. Such certification will state
that the Code contains provisions reasonably necessary to prevent Access Persons
from violating the Code.
(3) Material Changes to the Code of Ethics
The Legal Compliance Department will provide the Fund's board of directors
a written description of all material changes to the Code no later than six
months after adoption of the material change by the Franklin Templeton Group.
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS
For purposes of the Code of Ethics and Insider Trading Policy, the terms
below have the following meanings:
1934 ACT - The Securities Exchange Act of 1934, as amended.
1940 ACT - The Investment Company Act of 1940, as amended.
ACCESS PERSON - Each director, trustee, general partner or officer, and any
other person that directly or indirectly controls (within the meaning of
Section 2(a)(9) of the 1940 Act) the Franklin Templeton Group or a person,
including an Advisory Representative, who has access to information
concerning recommendations made to a Fund or client with regard to the
purchase or sale of a security.
ADVISORY REPRESENTATIVE - Any officer or director of Franklin Resources; any
employee who makes any recommendation, who participates in the
determination of which recommendation shall be made, or whose functions or
duties relate to the determination of which recommendation shall be made;
any employee who, in connection with his or her duties, obtains any
information concerning which securities are being recommended prior to the
effective dissemination of such recommendations or of the information
concerning such recommendations; and any of the following persons who
obtain information concerning securities recommendations being made by
Franklin Resources prior to the effective dissemination of such
recommendations or of the information concerning such recommendations: (i)
any person in a control relationship to Franklin Resources, (ii) any
affiliated person of such controlling person, and (iii) any affiliated
person of such affiliated person.
AFFILIATED PERSON - same meaning as Section 2(a)(3) of the Investment Company
Act of 1940. An "affiliated person" of an investment company includes
directors, officers, employees, and the investment adviser. In addition, it
includes any person owning 5% of the company's voting securities, any
person in which the investment company owns 5% or more of the voting
securities, and any person directly or indirectly controlling, controlled
by, or under common control with the company.
APPROPRIATE ANALYST - With respect to any access person, any securities analyst
or portfolio manager making investment recommendations or investing funds
on behalf of an Associated Client and who may be reasonably expected to
recommend or consider the purchase or sale of a security.
ASSOCIATED CLIENT - A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
BENEFICIAL OWNERSHIP - Has the same meaning as in Rule 16a-1(a)(2) under the
1934 Act. Generally, a person has a beneficial ownership in a security if
he or she, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in the security. There is a presumption of a
pecuniary interest in a security held or acquired by a member of a person's
immediate family sharing the same household.
FUNDS - Investment companies in the Franklin Templeton Group of Funds.
HELD OR TO BE ACQUIRED - A security is "held or to be acquired" if within the
most recent 15 days it (i) is or has been held by a Fund, or (ii) is being
or has been considered by a Fund or its investment adviser for purchase by
the Fund.
PORTFOLIO PERSON - Any employee of the Franklin Templeton Group, who, in
connection with his or her regular functions or duties, makes or
participates in the decision to purchase or sell a security by a Fund in
the Franklin Templeton Group, or any other client or if his or her
functions relate to the making of any recommendations about those purchases
or sales. Portfolio Persons include portfolio managers, research analysts,
traders, persons serving in equivalent capacities (such as Management
Trainees), persons supervising the activities of Portfolio Persons, and
anyone else designated by the Director of Compliance
PROPRIETARY ACCOUNTS - Any corporate account or other account including, but not
limited to, a limited partnership, a corporate hedge fund, a limited
liability company or any other pooled investment vehicle in which Franklin
Resources or its affiliates, owns 5 percent or more of the outstanding
capital or is entitled to 25% or more of the profits or losses in the
account (excluding any asset based investment management fees based on
average periodic net assets in accounts). SECURITY - Any stock, note, bond,
evidence of indebtedness, participation or interest in any profit-sharing
plan or limited or general partnership, investment contract, certificate of
deposit for a security, fractional undivided interest in oil or gas or
other mineral rights, any put, call, straddle, option, or privilege on any
security (including a certificate of deposit), guarantee of, or warrant or
right to subscribe for or purchase any of the foregoing, and in general any
interest or instrument commonly known as a security, except commodity
futures, currency and currency forwards. For the purpose of this Code,
"security" does not include: (1) Direct obligations of the Government of
the United States; (2) Bankers' acceptances, bank certificates of deposit,
commercial paper and high quality short-term debt instruments, including
repurchase agreements; and (3) Shares issued by open-end funds.
SEE Section III of Appendix A for a summary of different requirements for
different types of securities.
III. SECURITIES EXEMPT FROM THE PROHIBITED , REPORTING, AND PRE-CLEARANCE
PROVISIONS
A. PROHIBITED TRANSACTIONS
Securities that are EXEMPT from the prohibited transaction provisions of
Section 3.4 include:
(1) securities that are direct obligations of the U.S. Government, such as
Treasury bills, notes and bonds, and U.S. Savings Bonds and
derivatives thereof;
(2) high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S. bank
certificates of deposit; (iii) commercial paper; and (iv) repurchase
agreements;
(3) shares of registered open-end investment companies;
(4) commodity futures, currencies, currency forwards and derivatives
thereof;
(5) securities that are prohibited investments for all Funds and clients
advised by the entity employing the access person; and
(6) transactions in securities issued or guaranteed by the governments or
their agencies or instrumentalities of Canada, the United Kingdom,
France, Germany, Switzerland, Italy and Japan and derivatives thereof.
B. REPORTING AND PRECLEARANCE
Securities that are EXEMPT from both the reporting requirements of Section
5 and preclearance requirements of Section 6 of the Code include:
(1) securities that are direct obligations of the U.S. Government, such as
Treasury bills, notes and bonds, and U.S. Savings Bonds and
derivatives thereof;
(2) high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S. bank
certificates of deposit; (iii) commercial paper; and (iv) repurchase
agreements;
(3) shares of registered open-end investment companies; and
(4) commodity futures, currencies, currency forwards and derivatives
thereof.
IV. LEGAL REQUIREMENT
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act") makes it
unlawful for any affiliated person of the Franklin Templeton Group in connection
with the purchase or sale of a security, including any option to purchase or
sell, and any security convertible into or exchangeable for, any security that
is "held or to be acquired" by a Fund in the Franklin Templeton Group:
A. To employ any device, scheme or artifice to defraud a Fund;
B. To make to a Fund any untrue statement of a material fact or omit to state
to a Fund a material fact necessary in order to make the statements made,
in light of the circumstances under which they are made, not misleading;
C. To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon a Fund; or
D. To engage in any manipulative practice with respect to a Fund.
A security is "held or to be acquired" if within the most recent 15 days it
(i) is or has been held by a Fund, or (ii) is being or has been considered by a
Fund or its investment adviser for purchase by the Fund. .
APPENDIX B: FORMS AND SCHEDULES
ACKNOWLEDGMENT FORM
CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING
To: DIRECTOR OF COMPLIANCE, LEGAL COMPLIANCE DEPARTMENT
I hereby acknowledge receipt of a copy of the Franklin Templeton Group's CODE OF
ETHICS AND POLICY STATEMENT ON INSIDER TRADING, AMENDED AND RESTATED, FEBRUARY
2000, which I have read and understand. I will comply fully with all provisions
of the Code and the Insider Trading Policy to the extent they apply to me during
the period of my employment. Additionally, I authorize any broker-dealer, bank
or investment adviser with whom I have securities accounts and accounts in which
I have beneficial ownership, to provide brokerage confirmations and statements
as required for compliance with the Code. I further understand and acknowledge
that any violation of the Code or Insider Trading Policy, including engaging in
a prohibited transaction or failure to file reports as required (see Schedules
B, C, D, E, F and G), may subject me to disciplinary action, including
termination of employment.
___________________________________________________________________________
SIGNATURE:
___________________________________________________________________________
PRINT NAME:
___________________________________________________________________________
TITLE:
___________________________________________________________________________
DEPARTMENT:
___________________________________________________________________________
LOCATION:
___________________________________________________________________________
DATE ACKNOWLEDGMENT WAS SIGNED:
___________________________________________________________________________
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS - FLOOR 2.
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE & FAX
NUMBERS 19
LEGAL OFFICER
MURRAY SIMPSON
EXECUTIVE VICE PRESIDENT & GENERAL COUNSEL
FRANKLIN RESOURCES, INC.
901 MARINERS ISLAND BLVD.
7TH FLOOR
SAN MATEO, CA 94404
(650) 525 -7331
COMPLIANCE OFFICERS
___________________________________________________________________________
Director of Compliance PRECLEARANCE OFFICERS
James M. Davis Stephanie Harwood
Franklin Resources, Inc. Wally Enrico
2000 Alameda de las Pulgas, Suite Legal Compliance Department
200F 2000 Alameda de las Pulgas,
San Mateo, CA 94403 Suite 200E
(650) 312-2832 San Mateo, CA 94403
(650) 312-3693 (telephone)
(650) 312-5646 (facsimile)
Preclear, Legal (internal
e-mail address)
[email protected] (external e-mail
address)
___________________________________________________________________________
SCHEDULE B: SECURITIES TRANSACTION REPORT
This report of personal securities transactions NOT reported by duplicate
confirmations and brokerage statements pursuant to Section 5.3 of the Code is
required pursuant to Rule 204-2(a) of the Investment Advisers Act of 1940 or
Rule 17j-1(c) of the Investment Company Act of 1940. The report must be
completed and submitted to the Compliance Department no later than 10 calendar
days after the end of the calendar quarter.. Refer to Section 5.3 of the Code of
Ethics for further instructions.
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________________
Trade Buy, sell Security Description, including Type of Quantity or Price Broker-Dealer Date Preclearance
Date or Other interest rate and maturity Security Principal or Bank obtained from
(if appropriate) (Stock, Amount Compliance Dept.
Bond, Option,
etc.)
________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
THE REPORT OR RECORDING OF ANY TRANSACTION ABOVE SHALL NOT BE CONSTRUED AS AN
ADMISSION THAT I HAVE ANY DIRECT OR INDIRECT OWNERSHIP IN THE SECURITIES.
______________________________ _________________________ ___________________ ___________________
(PRINT NAME) (SIGNATURE) (DATE) (QUARTER ENDING)
</TABLE>
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE C: INITIAL, ANNUAL & UPDATED DISCLOSURE OF ACCESS PERSONS SECURITIES
HOLDINGS This report shall set forth the security name or description and
security class of each security holding in which you have a direct or indirect
beneficial interest, including holdings by a spouse, minor children, trusts,
foundations, and any account for which trading authority has been delegated to
you, other than authority to trade for a Fund in or a client of the Franklin
Templeton Group.. In lieu of listing each security position below, you may
instead attach copies of brokerage statements, sign below and return Schedule C
and brokerage statements to the Legal Compliance Department within 10 days if an
initial report or by January 30th of each year if an annual report. Refer to
Sections 5.2.A and 5.4.A of the Code for additional filing instructions.
<TABLE>
<CAPTION>
_______________________________________________________________________________________
Security Description Type of Security Quantity or
including interest rate (Stocks, Bond Principal Name of Broker- Account
and maturity (if appropriate) Option, etc.) Amount Dealer or Bank Number
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
[ ] I DID NOT HAVE ANY PERSONAL SECURITIES HOLDINGS FOR YEAR ENDED _____________
[ ] I HAVE ATTACHED STATEMENTS CONTAINING ALL MY PERSONAL SECURITIES HOLDINGS FOR THE
YEAR ENDED ______
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST,
INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS,
AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED AN UNAFFILIATED
PARTY.
_______________________ ___________________ __________________ _______________ ____________
PRINT NAME SIGNATURE DATE YEAR ENDED
</TABLE>
* Securities that are EXEMPT from being reported on Schedule C include: (i)
securities that are direct obligations of the U.S. Government, such as Treasury
bills, notes and bonds, and U.S. Savings Bonds and derivatives thereof; (ii)
high quality short-term instruments ("money market instruments") including but
not limited to bankers' acceptances, U.S. bank certificates of deposit;
commercial paper; and repurchase agreements; (iii) shares of registered open-end
investment companies; and (iv) commodity futures, currencies, currency forwards
and derivatives thereof.
SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT OPENING
DATE: __________________________________
TO: Preclearance Desk
Legal Compliance Department
2000 Alameda de las Pulgas, Suite 200E
San Mateo, CA 94403
(650) 312-3693
FAX: (650) 312-5646
FROM: NAME: ____________________________
DEPARTMENT:_______________________
LOCATION:_________________________
EXTENSION:________________________
ARE YOU A REG. REPRESENTATIVE? YES[ ] NO[ ]
ARE YOU AN ACCESS PERSON? YES[ ] NO[ ]
This is to advise you that I will be opening or have opened a securities account
with the following firm:
PLEASE FILL OUT COMPLETELY TO EXPEDITE PROCESSING
NAME ON ACCOUNT: ____________________________________________________________
(If other than employee, please state relationship i.e.,
spouse, son, daughter, trust, etc.)
ACCT # OR SSN #:_____________________________________________________________
NAME OF FIRM:________________________________________________________________
ATTN:________________________________________________________________________
ADDRESS OF FIRM:_____________________________________________________________
CITY/STATE/ZIP:______________________________________________________________
* All Franklin registered representatives and Access Persons, PRIOR TO OPENING A
BROKERAGE ACCOUNT OR PLACING AN INITIAL ORDER, are required to notify the Legal
Compliance Department and the executing broker-dealer in writing. This includes
accounts in which the registered representative or access person has or will
have a financial interest (e.g., a spouse's account) or discretionary authority
(e.g., a trust account for a minor child).
Upon receipt of the NOTIFICATION OF SECURITIES ACCOUNT OPENING form, the Legal
Compliance Department will contact the broker-dealer identified above and
request that it receive duplicate confirmations and statements of your brokerage
account.
SCHEDULE E: NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST If you have
any beneficial ownership in a security and you recommend to the Appropriate
Analyst that the security be considered for purchase or sale by an Associated
Client, or if you carry out a purchase or sale of that security for an
Associated Client, you must disclose your beneficial ownership to the Legal
Compliance Department and the Appropriate Analyst in writing on Schedule E (or
an equivalent form containing similar information) before the purchase or sale,
or before or simultaneously with the recommendation.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
Method of Primary
Ownership Acquisition Date and Method Learned Portfolio Manager
Type (Direct Year (Purch/Gift/ that Security Under or Appropriate Name of Person Date of Verbal
Security Description or Indirect) Acquired Other) Consideration by Funds Analyst Notified Notification
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
________________________ ___________________________ __________________
(PRINT NAME) (SIGNATURE) (DATE)
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE F: INITIAL, ANNUAL & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS
This report shall set forth the name and description of each securities
account in which you have a direct or indirect beneficial interest, including
securities accounts of a spouse, minor children, trusts, foundations, and any
account for which trading authority has been delegated to you, other than
authority to trade for a Fund in, or a client of, the Franklin Templeton Group.
In lieu of listing each securities account below, you may instead attach copies
of the brokerage statements, sign below and return Schedule F and brokerage
statements to the Compliance Department.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________
NAME(S) ON ACCOUNT NAME OF BROKERAGE FIRM, ADDRESS OF BROKERAGE FIRM, BANK OR ACCOUNT NAME OF ACCOUNT
(REGISTRATION SHOWN ON BANK OR INVESTMENT INVEST. ADVISER NUMBER EXECUTIVE/REPRESENTATIVE
STATEMENT) ADVISER (STREET, CITY , STATE AND ZIP CODE)
____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
</TABLE>
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS IN
WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST, INCLUDING SECURITY
ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS, AND ANY ACCOUNT FOR
WHICH TRADING AUTHORITY HAS BEEN DELEGATED TO ME.
______________________ ____________________ ___________________ ___________
PRINT NAME SIGNATURE DATE YEAR ENDED
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE G: INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY
This report shall set forth the account name or description in which you have a
direct or indirect beneficial interest, including holdings by a spouse, minor
children, trusts, foundations, and as to which trading authority has been
delegated by you to an unaffiliated registered broker-dealer, registered
investment adviser, or other investment manager acting in a similar fiduciary
capacity, who exercises sole investment discretion.
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________
TYPE OF OWNERSHIP
NAME/DESCRIPTION OF BROKERAGE FIRM, DIRECT OWNERSHIP ACCOUNT NUMBER
NAME(S) AS SHOWN ON ACCOUNT OR BANK, INVESTMENT ADVISER OR INVESTMENT (DO) (IF APPLICABLE)
INVESTMENT INDIRECT
OWNERSHIP (IO)
___________________________________________________________________________________________________________________
<S> <C> <C> <C>
___________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________
</TABLE>
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST,
INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS,
AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED AN UNAFFILIATED
PARTY. FURTHER, I CERTIFY THAT I DO NOT HAVE ANY DIRECT OR INDIRECT INFLUENCE OR
CONTROL OVER THE ACCOUNTS LISTED ABOVE.
____________________ ___________________ _________________ __________________
PRINT NAME SIGNATURE DATE YEAR ENDED
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES ISSUED IN
PRIVATE PLACEMENTS
GENERAL INSTRUCTIONS: In considering requests by Access Persons for approval of
limited partnerships and other private placement securities transactions, the
Director of Compliance shall consult with an executive officer of Franklin
Resources, Inc. In deciding whether to approve the transaction, the Director of
Compliance and the executive officer shall take into account, among other
factors, whether the investment opportunity should be reserved for a Fund or
other client, and whether the investment opportunity is being offered to the
access person by virtue of his or her position with the Franklin Templeton
Group. IF THE ACCESS PERSON RECEIVES CLEARANCE FOR THE TRANSACTION, AN
INVESTMENT IN THE SAME ISSUER MAY ONLY BE MADE FOR A FUND OR CLIENT IF AN
EXECUTIVE OFFICER OF FRANKLIN RESOURCES, INC., WHO HAS BEEN INFORMED OF THE
ACCESS PERSON'S PRE-EXISTING INVESTMENT AND WHO HAS NO INTEREST IN THE ISSUER,
APPROVES THE TRANSACTION.
IN ORDER TO PROCESS YOUR REQUEST, PLEASE PROVIDE THE FOLLOWING INFORMATION:
______________________________
1) Name/Description of proposed investment: [______________________________]
__________________________________
2) Proposed Investment Amount: [__________________________________]
3) Please attach pages of the offering memorandum (or other documents)
summarizing the investment opportunity, including:
a) Name of the partnership/hedge fund/issuer;
b) Name of the general partner, location & telephone number;
c) Summary of the offering; including the total amount the offering/issuer;
d) Percentage your investment will represent of the total offering;
e) Plan of distribution; and
f) Investment objective and strategy,
PLEASE RESPOND TO THE FOLLOWING QUESTIONS:
4) Was this investment opportunity presented to you in your capacity as a
portfolio manager, trader or research analyst? If no, please explain the
relationship, if any, you have to the issuer or principals of the issuer.
5) Is this investment opportunity suitable for any fund/client that you
advise? If yes, why isn't the investment being made on behalf of the
fund/client? If no, why isn't the investment opportunity suitable for the
fund/clients?
6) Do any of the fund/clients that you advise presently hold securities of the
issuer of this proposed investment (e.g., common stock, preferred stock,
corporate debt, loan participations, partnership interests, etc)? If yes,
please provide the names of the funds/clients and security description.
7) Do you presently have or will you have any managerial role with the
company/issuer as a result of your investment? If yes, please explain in
detail your responsibilities, including any compensation you will receive.
8) Will you have any investment control or input to the investment decision
making process?
9) If applicable, will you receive reports of portfolio holdings? If yes, when
and how frequently will these be provided?
Reminder: Personal securities transactions that do not generate brokerage
confirmations must be reported to the Legal Compliance Department on Schedule B
within 10 calendar days after you are notified.
______________________________
Name of Access Person
_______________________________ ________________
Access Person Signature Date
Approved by: _______________________________________ ________________
Chief Investment Officer Signature Date
________________________________________________________________________________
Legal Compliance Use Only
________________________________________________________________________________
Date Received: ________________________________________
Date Entered in Lotus Notes: ______________________________________
Date Forwarded FRI Executive Officer: _________________________________
Precleared: [ ] [ ] (attach E-Mail) Date: __________________________
Date Entered in APII: __________________________
________________________________________________________________________________
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER SUBSIDIARIES OF
FRANKLIN RESOURCES, INC. - FEBRUARY 2000
<TABLE>
<CAPTION>
__________________________________________________________________________________________
<S> <C> <C> <C>
Franklin Advisers, Inc. IA Templeton Management Limited IA
(Canada)
__________________________________________________________________________________________
Franklin Advisory Services, LLC. IA Templeton Franklin Investment IA/BD
Services, Inc.
__________________________________________________________________________________________
Franklin Investment Advisory IA Templeton Investment Counsel, Inc. IA
Services, Inc.
__________________________________________________________________________________________
Franklin Management, Inc. IA Templeton Asset Management, Ltd. IA/FIA
__________________________________________________________________________________________
Franklin Mutual Advisers, LLC IA Templeton Investment Management Co. FIA
Ltd. (Japan)
__________________________________________________________________________________________
Franklin Properties, Inc. REA Closed Joint-Stock Company FIA
Templeton (Russia)
__________________________________________________________________________________________
Franklin Templeton Distributors, IA/BD Templeton Unit Trust Management FBD
Inc. Ltd. (UK)
__________________________________________________________________________________________
Franklin Asset Management IA Orion Fund Management Ltd. FIA
(Proprietary) Ltd.
__________________________________________________________________________________________
Templeton (Switzerland), Inc. FBD Templeton Global Advisors Ltd. IA
(Bahamas)
__________________________________________________________________________________________
Templeton Franklin Investment FBD Templeton Asset Management (India) FIA/FBD
Services (Asia) Ltd. Pvt. Ltd.
__________________________________________________________________________________________
`Templeton Investment Management IA/FIA Templeton Italia SIM S.p.A. (Italy) FBD
Limited (UK)
__________________________________________________________________________________________
Templeton Global Strategic Services FBD Templeton Global Strategic Services FBD
S.A. (Luxembourg) (Deutschland) GmbH (Germany)
__________________________________________________________________________________________
Templeton Investment Management FIA Templeton Funds Annuity Company INS
(Australia) Ltd.
__________________________________________________________________________________________
Franklin Templeton Investment TA
Services, Inc.
__________________________________________________________________________________________
Franklin Templeton Services, Inc. BM
__________________________________________________________________________________________
</TABLE>
Codes:
IA: US registered investment adviser
BD: US registered broker-dealer
FIA: Foreign equivalent investment adviser
FBD: Foreign equivalent broker-dealer
TA: US registered transfer agent
BM: Business manager to the funds
REA: Real estate adviser
INS: Insurance company
THE FRANKLIN TEMPLETON GROUP POLICY STATEMENT ON INSIDER TRADING
A. LEGAL REQUIREMENT
Pursuant to the Insider Trading and Securities Fraud Enforcement Act of
1988, it is the policy of the Franklin Templeton Group to forbid any officer,
director, employee, consultant acting in a similar capacity, or other person
associated with the Franklin Templeton Group from trading, either personally or
on behalf of clients, including all client assets managed by the entities in the
Franklin Templeton Group, on material non-public information or communicating
material non-public information to others in violation of the law. This conduct
is frequently referred to as "insider trading." The Franklin Templeton Group's
Policy Statement on Insider Trading applies to every officer, director, employee
or other person associated with the Franklin Templeton Group and extends to
activities within and outside their duties with the Franklin Templeton Group.
Every officer, director and employee must read and retain this policy statement.
Any questions regarding the Franklin Templeton Group's Policy Statement on
Insider Trading or the Compliance Procedures should be referred to the Legal
Department.
The term "insider trading" is not defined in the federal securities laws,
but generally is used to refer to the use of material non-public information to
trade in securities (whether or not one is an "insider") or to communications of
material non-public information to others.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(1) trading by an insider, while in possession of material non-public
information; or
(2) trading by a non-insider, while in possession of material non-public
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential
or was misappropriated; or
(3) communicating material non-public information to others.
The elements of insider trading and the penalties for such unlawful conduct
are discussed below. If, after reviewing this policy statement, you have any
questions, you should consult the Legal Department.
POLICY STATEMENT ON INSIDER TRADING
B. WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider" if he
or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for the
company's purposes. A temporary insider can include, among others, a company's
outside attorneys, accountants, consultants, bank lending officers, and the
employees of such organizations. In addition, an investment adviser may become a
temporary insider of a company it advises or for which it performs other
services. According to the U.S. Supreme Court, the company must expect the
outsider to keep the disclosed non-public information confidential and the
relationship must at least imply such a duty before the outsider will be
considered an insider.
C. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of the company's securities. Information that officers, directors and
employees should consider material includes, but is not limited to: dividend
changes, earnings estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major litigation,
liquidation problems, and extraordinary management developments.
Material information does not have to relate to a company's business. For
example, in CARPENTER V. U.S., 108 U.S. 316 (1987), the Supreme Court considered
as material certain information about the contents of a forthcoming newspaper
column that was expected to affect the market price of a security. In that case,
a WALL STREET JOURNAL reporter was found criminally liable for disclosing to
others the dates that reports on various companies would appear in the WALL
STREET JOURNAL and whether those reports would be favorable or not.
D. WHAT IS NON-PUBLIC INFORMATION?
Information is non-public until it has been effectively communicated to the
marketplace. One must be able to point to some fact to show that the information
is generally public. For example, information found in a report filed with the
Securities and Exchange Commission ("SEC"), or appearing in Dow Jones, Reuters
Economic Services, THE WALL STREET JOURNAL or other publications of general
circulation would be considered public.
E. BASIS FOR LIABILITY
1. FIDUCIARY DUTY THEORY
In 1980, the Supreme Court found that there is no general duty to disclose
before trading on material non-public information, but that such a duty arises
only where there is a fiduciary relationship. That is, there must be a
relationship between the parties to the transaction such that one party has a
right to expect that the other party will not disclose any material non-public
information or refrain from trading. CHIARELLA V. U.S., 445 U.S. 22 (1980).
In DIRKS V. SEC, 463 U.S. 646 (1983), the Supreme Court stated alternate
theories under which non-insiders can acquire the fiduciary duties of insiders.
They can enter into a confidential relationship with the company through which
they gain information (E.G., attorneys, accountants), or they can acquire a
fiduciary duty to the company's shareholders as "tippees" if they are aware or
should have been aware that they have been given confidential information by an
insider who has violated his fiduciary duty to the company's shareholders.
However, in the "tippee" situation, a breach of duty occurs only if the
insider personally benefits, directly or indirectly, from the disclosure. The
benefit does not have to be pecuniary but can be a gift, a reputational benefit
that will translate into future earnings, or even evidence of a relationship
that suggests a quid pro quo.
2. MISAPPROPRIATION THEORY
Another basis for insider trading liability is the "misappropriation"
theory, under which liability is established when trading occurs on material
non-public information that was stolen or misappropriated from any other person.
In U.S. V. CARPENTER, SUPRA, the Court found, in 1987, a columnist defrauded THE
WALL STREET JOURNAL when he stole information from the WALL STREET JOURNAL and
used it for trading in the securities markets. It should be noted that the
misappropriation theory can be used to reach a variety of individuals not
previously thought to be encompassed under the fiduciary duty theory.
F. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material non-public information
are severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
o civil injunctions;
o treble damages;
o disgorgement of profits;
o jail sentences;
o fines for the person who committed the violation of up to three times
the profit gained or loss avoided, whether or not the person actually
benefited; and
o fines for the employer or other controlling person of up to the greater
of $1,000,000 or three times the amount of the profit gained or loss
avoided.
In addition, any violation of this policy statement can result in serious
sanctions by the Franklin Templeton Group, including dismissal of any person
involved.
G. INSIDER TRADING PROCEDURES
Each access person, Compliance Officer, the Risk Management Department, and
the Legal Department, as the case may be, shall comply with the following
procedures.
1. IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including investment companies or
private accounts managed by the Franklin Templeton Group, in the securities of a
company about which you may have potential inside information, ask yourself the
following questions:
o Is the information material?
o Is this information that an investor would consider important in
making his or her investment decisions?
o Is this information that would substantially affect the market price
of the securities if generally disclosed?
o Is the information non-public?
o To whom has this information been provided?
o Has the information been effectively communicated to the marketplace
(e.g., published in REUTERS, THE WALL STREET JOURNAL or other
publications of general circulation)?
If, after consideration of these questions, you believe that the information may
be material and non-public, or if you have questions as to whether the
information is material and non-public, you should take the following steps:
(i) Report the matter immediately to the designated Compliance Officer, or if
he or she is not available, to the Legal Department.
(ii) Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by the Franklin
Templeton Group.
(iii) Do not communicate the information inside or outside the Franklin
Templeton Group, other than to the Compliance Officer or the Legal
Department.
(iv) The Compliance Officer shall immediately contact the Legal Department for
advice concerning any possible material, non-public information.
(v) After the Legal Department has reviewed the issue and consulted with the
Compliance Officer, you will be instructed either to continue the
prohibitions against trading and communication noted in (ii) and (iii), or
you will be allowed to trade and communicate the information.
(vi) In the event the information in your possession is determined by the Legal
Department or the Compliance Officer to be material and non-public, it may
not be communicated to anyone, including persons within the Franklin
Templeton Group, except as provided in (i) above. In addition, care should
be taken so that the information is secure. For example, files containing
the information should be sealed and access to computer files containing
material non-public information should be restricted to the extent
practicable.
2. RESTRICTING ACCESS TO OTHER SENSITIVE INFORMATION
All Franklin Templeton Group personnel also are reminded of the need to be
careful to protect from disclosure other types of sensitive information that
they may obtain or have access to as a result of their employment or association
with the Franklin Templeton Group.
(I) GENERAL ACCESS CONTROL PROCEDURES
The Franklin Templeton Group has established a process by which access to
company files that may contain sensitive or non-public information such as the
Bargain List and the Source of Funds List is carefully limited. Since most of
the Franklin Templeton Group files which contain sensitive information are
stored in computers, personal identification numbers, passwords and/or code
access numbers are distributed to Franklin Templeton Group computer access
persons only. This activity is monitored on an ongoing basis. In addition,
access to certain areas likely to contain sensitive information is normally
restricted by access codes.
________
1 "Director" includes trustee.
2 The term "employee or employees" includes management trainees, as well as
regular employees of the Franklin Templeton Group.
3 SEE Appendix A. II., for definition of "Proprietary Accounts."
4 Generally, a person has "beneficial ownership" in a security if he or she,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares a direct or indirect pecuniary
interest in the security. There is a presumption of a pecuniary interest in
a security held or acquired by a member of a person's immediate family
sharing the same household.
5 Proprietary Information: Information that is obtained or developed during
the ordinary course of employment with the Franklin Templeton Group,
whether by you or someone else, and is not available to persons outside the
Franklin Templeton Group. Examples of such Proprietary Information include,
among other things, internal research reports, research materials supplied
to the Franklin Templeton Group by vendors and broker-dealers not generally
available to the public, minutes of departmental/research meetings and
conference calls, and communications with company officers (including
confidentiality agreements). Examples of non-Proprietary Information
include mass media publications (e.g., The Wall Street Journal, Forbes, and
Fortune), certain specialized publications available to the public (e.g.,
Morningstar, Value Line, Standard and Poors), and research reports
available to the general public.
6 The Director of Compliance is designated on Schedule A. The "Appropriate
Analyst" means any securities analyst or portfolio manager, other than you,
making recommendations or investing funds on behalf of any associated
client, who may be reasonably expected to recommend or consider the
purchase or sale of the security in question.
7 Associated Client: A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
8 You are a "Portfolio Person" if you are an employee of the Franklin
Templeton Group, and, in connection with your regular functions or duties,
make or participate in the decision to purchase or sell a security by a
Fund in the Franklin Templeton Group, or any other client or if your
functions relate to the making of any recommendations about those purchases
or sales. Portfolio Persons include portfolio managers, research analysts,
traders, persons serving in equivalent capacities (such as Management
Trainees), persons supervising the activities of Portfolio Persons, and
anyone else so designated by the Compliance Officer.
9 This restriction applies equally to transactions occurring in margin and
option accounts which may not be due to direct actions by the Portfolio
Person. For example, a stock held less than 60 days that is sold to meet a
margin call or the underlying stock of a covered call option held less than
60 days that is called away, would be a violation of this restriction if
these transactions resulted in a profit for the Portfolio Person.
10 You are not required to separately report the vesting of shares or options
of Franklin Resources, Inc., received pursuant to a deferred compensation
plan as such information is already maintained.
11 See Sections 3.2 and 4.6 of the Code. Also, confirmations and statements of
transactions in open-end mutual funds, including mutual funds sponsored by
the Franklin Templeton Group are not required. See Section 3.3 above for a
list of other securities that need not be reported. If you have any
beneficial ownership in a discretionary account, transactions in that
account are treated as yours and must be reported by the manager of that
account (see Section 6.1.C below).
12 Officers, directors and certain other key management personnel who perform
significant policy-making functions of Franklin Resources, Inc., the
closed-end funds, and/or real estate investment trusts may have ownership
reporting requirements in addition to these reporting requirements. Contact
the Legal Compliance Department for additional information. SEE also the
"Insider Trading Policy" attached.
13 Please note that these conditions apply to any discretionary account in
existence prior to the effective date of this Code or prior to your
becoming an access person. Also, the conditions apply to transactions in
any discretionary account, including pre-existing accounts, in which you
have any direct or indirect beneficial ownership, even if it is not in your
name.
14 Any pre-existing agreement must be promptly amended to comply with this
condition. The required reports may be made in the form of an account
statement if they are filed by the applicable deadline.
15 An "advisory person" of a registered investment company or an investment
adviser is any employee, who in connection with his or her regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by an advisory client , or
whose functions relate to the making of any recommendations with respect to
such purchases or sales. Advisory person also includes any natural person
in a control relationship to such company or investment adviser who obtains
information concerning recommendations made to such company with regard to
the purchase or sale of a security.
16 Generally, an "advisory representative" is any person who makes any
recommendation, who participates in the determination of which
recommendation shall be made, or whose functions or duties relate to the
determination of which recommendation shall be made, or who, in connection
with his duties, obtains any information concerning which securities are
being recommended prior to the effective dissemination of such
recommendations or of the information concerning such recommendations. See
Section II of Appendix A for the legal definition of "Advisory
Representative."
17 Security includes any option to purchase or sell, and any security that is
exchangeable for or convertible into, any security that is held or to be
acquired by a fund.
18 Special circumstances include but are not limited to, for example,
differences in time zones, delays due to travel, and the unusual size of
proposed trades or limit orders. Limit orders must expire within the
applicable clearance period.
19 As of February 2000
POWER OF ATTORNEY
The undersigned officers and trustees of FLOATING RATE MASTER TRUST
(the "Registrant") hereby appoint MARK H. PLAFKER, HARMON E. BURNS, DEBORAH
R. GATZEK, KAREN L. SKIDMORE AND LEIANN NUZUM (with full power to each of
them to act alone) his/her attorney-in-fact and agent, in all capacities, to
execute, deliver and file in the names of the undersigned, any and all
instruments that said attorneys and agents may deem necessary or advisable to
enable the Registrant to comply with or register any security issued by the
Registrant under the Securities Act of 1933, as amended, and/or the
Investment Company Act of 1940, as amended, and the rules, regulations and
interpretations thereunder, including but not limited to, any registration
statement, including any and all pre- and post-effective amendments thereto,
any other document to be filed with the U.S. Securities and Exchange
Commission and any and all documents required to be filed with respect
thereto with any other regulatory authority. 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/she 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.
This Power of Attorney may be executed in one or more counterparts,
each of which shall be deemed to be an original, and all of which shall be
deemed to be a single document.
The undersigned officers and trustees hereby execute this Power of
Attorney as of the 21st day of March, 2000.
/s/ Rupert H. Johnson, Jr., /s/ Frank H. Abbott, III,
Principal Executive Officer and Trustee Trustee
/s/ Harris J. Ashton, /s/ S. Joseph Fortunato,
Trustee Trustee
/s/ Edith E. Holiday, /s/ Charles B. Johnson,
Trustee Trustee
/s/ Frank W.T. LaHaye, /s/ Gordon S. Macklin,
Trustee Trustee
/s/ Martin L. Flanagan, /s/ Diomedes Loo-Tam,
Principal Financial Officer Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, David P. Goss, certify that I am Assistant Secretary of Franklin
Floating Rate Master Trust (the "Trust").
As Assistant 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 March 21, 2000.
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, Mark H. Plafker, Karen L. Skidmore,
Leiann Nuzum, Murray L. Simpson, Barbara J. Green and David P.
Goss 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: March 21, 2000 /S/ DAVID P. GOSS
-----------------
David P. Goss
Assistant Secretary
