As filed with the Securities and Exchange Commission on March 1, 1996.
File Nos.
2-12647
811-730
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____
Post Effective Amendment No. 55
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16
FRANKLIN PREMIER RETURN FUND
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
{ } immediately upon filing pursuant to paragraph (b)
{ } on (Date), pursuant to paragraph (b)
{ } 60 days after filing pursuant to paragraph (a)(i)
{X} on May 1, 1996 pursuant to paragraph (a)(i)
{ } 75 days after filing pursuant to paragraph (a)(ii)
{ } on(date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box
{ } This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The Registrant has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to Rule
24(f)(2) under the Investment Company Act of 1940. The Rule 24f-2 Notice for the
issuer's most recent fiscal year was filed on February 27, 1996.
FRANKLIN PREMIER RETURN FUND
CROSS REFERENCE SHEET
FORM N-1A
N-1A Location in
Item No. Item Registration Statement
Part A: Information Required in Prospectus
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial "Financial Highlights-
Information How Has the Fund Performed?"
4. General Description of "What Is the Franklin Asset
Registrant Allocation Fund?"; "How Does the
Fund Invest Its Assets?"; "What
Are the Fund's Potential Risks";
"Useful Terms and Definitions"
5. Management of the Fund "Who Manages the Fund"
5A. Management's Discussion of The response to this item is
Fund Performance contained in the Registrant's
Annual Report to Shareholders
6. Capital Stock and Other "What Distributions Might I
Securities Receive from the Fund?"; "How
Taxation Affects You and the
Fund"; "How You Participate in
the Results of the Fund's
Activities";"What Distributions
Might I Receive from the Fund?"
7. Purchase of Securities Being "How Taxation Affects You and
Offered the Fund"; "How Do I Buy
Shares?"; "What Programs and
Privileges Are Available to Me
as a Shareholder?"; "What If My
Investment Outlook
Changes?-Exchange Privilege";
"Telephone Transactions"; "How
Are Fund Shares Valued?";
"Registering Your Account"
8. Redemption or Repurchase "How Do I Get More Information
About My Investment?"; "How does
the Fund Measure Performance?";
"General Information";
"Registering Your Account";
Important Notice Regarding
Taxpayer IRS Certifications";
"What If My Investment Outlook
Changes?" Exchange Privilege";
"How Do I Sell Shares?";
"General Information"
9. Pending Legal Proceedings Not Applicable
FRANKLIN PREMIER RETURN FUND
Part B: Information Required in
Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and "How Does the Fund Invest Its
History Assets?"; "What Are the Funds
Potential Risks?"
13. Investment Objectives "Investment Restrictions"
14. Management of the Fund "Officers and Directors"
15. Control Persons and "Officers and Directors"
Principal Holders of
Securities
16. Investment Advisory and "Investment Advisory and Other
Other Services Services"
17. Brokerage Allocation "How Does the Fund Purchase
Securities For Its Portfolio?"
18. Capital Stock and Other "See Prospectus "General
Securities Information"
19. Purchase, Redemption and "How Do I Buy and Sell Shares?";
Pricing of Securities "How Are Fund Shares Valued?"
Being Offered
20. Tax Status "Additional Information Regarding
Taxation"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "General Information"
Data
23. Financial Statements Financial Statements
FRANKLIN PREMIER RETURN FUND
PROSPECTUS MAY 1, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Franklin Premier Return Fund (the "Fund") is a diversified, open-end management
investment company with the primary investment objective of high current return
and, secondarily, relative stability of principal. The Fund will seek to achieve
its primary objective of high current return by investing in common stocks,
investment grade corporate and U.S. government bonds and short-term money market
instruments. For hedging purposes, in an effort to stabilize principal
fluctuations, the Fund may engage in transactions in stock options, stock index
options, financial futures, and options thereon.
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that you should know before investing. After reading
the Prospectus, you should retain it for future reference; it contains
information about the purchase and sale of shares and other items which you will
find useful.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
An SAI concerning the Fund, dated May 1, 1996, as may be amended from time to
time, provides a further discussion of certain areas in this Prospectus and
other matters which may be of interest to you. It has been filed with the SEC
and is incorporated herein by reference. A copy is available without charge from
the Fund or from Distributors, at the address or telephone number shown above.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CONTENTS PAGE
Expense Table
Financial Highlights - How Has the Fund Performed?
What Is the Franklin Asset Allocation Fund?
How Does the Fund Invest Its Assets?
How You Participate in the Results of the Fund's Activities
Who Manages the Fund?
What Distributions Might I Receive from the Fund?
How Taxation Affects You and the Fund
How Do I Buy Shares?
What Programs and Privileges Are Available to Me as a Shareholder?
What If My Investment Outlook Changes? - Exchange Privilege
How Do I Sell Shares?
Telephone Transactions
How Are Fund Shares Valued?
How Do I Get More Information About My Investment?
How Does the Fund Measure Performance?
General Information
Registering Your Account
Important Notice Regarding Taxpayer IRS Certifications
Useful Terms and Definitions
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the aggregate operating
expenses of the Fund for the fiscal year ended December 31, 1995.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................. 4.50%
Deferred Sales Charge............................................... NONE*
Exchange Fee (per transaction)...................................... $5.00**
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees..................................................... 0.63%
Rule 12b-1 Fees..................................................... 0.19%+
Other Expenses:
Shareholder Servicing Costs................................ 0.09%
Professional Fees.......................................... 0.08%
Other...................................................... 0.18%
-----
Total Other Expenses................................................ 0.35%
Total Fund Operating Expenses....................................... 1.17%
*Investments of $1 million or more are not subject to a front-end sales
charge; however, a contingent deferred sales charge of 1% is generally
imposed on certain redemptions within a "contingency period" of 12 months of
the calendar month of such investments. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge."
**$5.00 fee imposed only on Market Timers. All other exchanges are processed
without a fee.
+Consistent with National Association of Securities Dealers, Inc.'s rules, it is
possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.
You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Fund. Rather
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$56 $80 $106 $181
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES SHOWN ABOVE AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY
BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are borne by the Fund
and only indirectly by you as a result of your investment in the Fund. In
addition, federal securities regulations require the example to assume an annual
return of 5%, but the Fund's actual return may be more or less than 5%.
FINANCIAL HIGHLIGHTS - HOW HAS THE FUND PERFORMED?
Set forth below is a table containing financial highlights for a share of the
Fund outstanding throughout the ten fiscal years ended December 31, 1995. The
information for each of the five fiscal years in the period ended December 31,
1995 has been audited by Coopers & Lybrand L.L.P., independent auditors, whose
audit report appears in the financial statements in the Fund's Annual Report to
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Per Share Operating Performance*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year....... $6.11 $6.22 $5.40 $4.88 $4.21 $5.19 $5.12 $4.95 $5.93 $6.59
Net investment income...................... 0.18 0.14 0.13 0.15 0.14 0.16 0.15 0.15 0.15 0.11
Net realized and unrealized gains (losses)
on securities............................. 1.14 (0.110) 0.860 0.530 0.780 (0.595) 0.599 0.705 0.031 0.360
Total from investment operations........... 1.32 0.030 0.990 0.680 0.920 (0.435) 0.749 0.855 0.181 0.470
Less Distributions:
Dividends from net investment income...... (0.180) (0.140) (0.170) (0.160) (0.135) (0.155) (0.157) (0.162) (0.166) (0.125)
Distributions from realized capital gains -- -- -- -- (0.115) (0.390) (0.522) (0.523) (0.995)
(1.005)....................................
Total distributions........................ (0.180) (0.140) (0.170) (0.160) (0.250) (0.545) (0.679) (0.685) (1.161) (1.130)
Net asset value at end of year............. $7.25 $6.11 $6.22 $5.40 $4.88 $4.21 $5.19 $5.12 $4.95 $5.93
Total Return**............................. 21.79% 0.46% 18.38% 14.02% 22.06% (8.81)% 14.72% 17.68% 1.44% 7.53%
Ratios/Supplemental Data
Net assets at end of year (in 000's)....... $39,319 $25,631 $22,877 $22,077 $28,189 $32,878 $44,516 $45,010 $39,790 $34,203
Ratio of expenses to average net assets.... 1.17% 1.27% 1.00% 0.92% 0.93% 0.85% 0.81% 0.83% 0.84% 0.95%
Ratio of net investment income to average
net assets................................ 2.86% 2.29% 2.15% 2.81% 2.95% 3.27% 2.81% 3.00% 2.65% 2.32%
Portfolio turnover rate.................... 62.01% 45.18% 20.49% 23.17% 62.25% 73.12% 163.55% 79.73% 176.36% 105.00%
Average commission rate***................. $0.0640 -- -- -- -- -- -- -- -- --
Shareholders dated December 31, 1995. The remaining figures, which are also
audited, are not covered by the auditors' current report. See the discussion
"Reports to Shareholders" under "General Information" in this Prospectus.
</TABLE>
*Selected data for a share of capital stock outstanding throughout the year.
**Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum front-end sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value.
***Represents the average broker commission rate per share paid by the Fund in
connection with the execution of the Fund's portfolio transactions in equity
securities.
WHAT IS THE FRANKLIN PREMIER RETURN FUND?
The Fund is a California corporation, originally incorporated in Hawaii in 1951.
It was reincorporated under the laws of the state of California in 1983 and
registered with the SEC under the 1940 Act. The Fund has only one class of
capital stock, with no par value. The Fund is a diversified, open-end management
investment company, commonly called a "mutual fund." On April 12, 1991
shareholders approved a change in the Fund's investment objectives and policies
and the adoption of the Fund's current name. Formerly, the Fund was known as the
Franklin Option Fund.
Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "How Are Fund Shares Valued?") plus a sales charge
not exceeding 4.5% of the offering price. See "How Do I Buy Shares?"
HOW DOES THE FUND
INVEST ITS ASSETS?
The investment objectives of the Fund are high current return and, secondarily,
relative stability of principal. The objectives are fundamental policies of the
Fund and may not be changed without shareholder approval.
Current return, also known as "total return," is made up of capital appreciation
and income distributions. The Fund's primary emphasis is growth of capital, with
income a secondary consideration. Distributions to shareholders are expected to
be derived primarily from common stock dividends, interest income, and any net
capital gains from the sale of securities.
The Fund will seek to achieve its primary objective of high current return by
investing in common stocks (a majority of which fall within the Standard &
Poor's ["S&P"] 500 or the S&P Mid-Cap 400), investment grade corporate and U.S.
government bonds, short-term money market instruments and securities of foreign
issuers. For hedging purposes, in an effort to stabilize principal fluctuations,
the Fund may engage in transactions in stock options, stock index options,
financial futures and options thereon. As with any investment, however, there is
no assurance that the Fund's objectives will be attained.
THE FUND'S INVESTMENTS AND STRATEGIES
It is anticipated that the Fund will primarily invest in common stock,
investment grade fixed-income securities, and money market instruments. The
percentage of assets invested in these types of securities will vary from time
to time, with equity securities representing a majority of the Fund's net
assets.
The Fund's investment manager uses a top-down approach based on the current and
future outlook for the economy and the business cycle to determine the Fund's
asset allocation mix and sector weightings. Quantitative, technical, and
fundamental analysis are all used to identify sectors, the industries within
those sectors, and the companies within those industries. Depending on the stage
of the business cycle, certain sectors perform better than others. The
investment manager attempts to position the Fund in the sectors exhibiting
strong price momentum. The same analytical tools are used to screen for
industries and companies.
Investments in debt securities will be in one of the four highest ratings of
either S&P or Moody's Investors Service ("Moody's"). The four highest rating
categories are AAA, AA, A or BBB by S&P or Aaa, Aa, A, or Baa by Moody's. Debt
securities rated BBB by S&P or Baa by Moody's are regarded as having an adequate
capacity to pay principal and interest but with greater vulnerability to adverse
economic conditions and some speculative characteristics. As with other debt
instruments, the price of the debt securities in which the Fund invests are
likely to decrease in times of rising interest rates. Conversely, when rates
fall, the value of the Fund's debt investments may rise. Price changes of debt
securities held by the Fund have a direct impact on the net asset value per
share of the Fund. Transactions in options, futures, and options on futures are
generally considered "derivative securities." The Fund's investments in these
derivative securities will be for portfolio hedging purposes in an effort to
stabilize principal fluctuations to achieve the Fund's secondary investment
objective and not for speculation.
SHORT-TERM INVESTMENTS. The Fund may invest its cash, including cash resulting
from purchases and sales of Fund shares, temporarily in short-term debt
instruments, including high grade commercial paper, repurchase agreements and
other money market equivalents. Such temporary investments will only be made
with cash held to maintain liquidity or pending investment. In addition, for
temporary defensive purposes in the event of or when the investment manager
anticipates a general decline in the market prices of stocks in which the Fund
invests, the Fund may invest an unlimited amount of its assets in short-term
debt instruments.
CONVERTIBLE SECURITIES. A portion of the Fund's assets may be invested in
convertible securities. A convertible security is a fixed-income security (a
bond or preferred stock) which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible securities are senior to common stocks in a
corporation's capital structure, but are usually subordinated to similar
nonconvertible debt securities. A convertible security provides a fixed-income
stream and the opportunity, through its conversion feature, to participate in
the capital appreciation resulting from a market price advance in the
convertible security's underlying common stock. As a fixed- income security, a
convertible security tends to increase in market value when interest rates
decline and tends to decrease in value when interest rates rise. However, the
price of a convertible security is also influenced by the market value of the
security's underlying common stock and tends to increase as the market value of
the underlying stock rises, whereas it tends to decrease as the market value of
the underlying stock declines.
SYNTHETIC CONVERTIBLES. The Fund may invest a portion of its assets in
"synthetic convertible" securities. A synthetic convertible is created by
combining distinct securities which possess the two principal characteristics of
a true convertible, i.e., fixed income and the right to acquire the underlying
equity security. This combination is achieved by investing in nonconvertible
fixed-income securities and in warrants, stock or stock index call options which
grant the holder the right to purchase a specified quantity of securities within
a specified period of time at a specified price or to receive cash in the case
of stock index options.
Synthetic convertible securities differ from the true convertible security in
several respects. The value of a synthetic convertible is the sum of the values
of its fixed-income component and its convertibility component. Thus, the values
of a synthetic convertible and a true convertible security will respond
differently to market fluctuations. Further, although Advisers expects normally
to select synthetic convertibles whose two components represent one issuer, the
character of a synthetic convertible allows the investment adviser to combine
components representing distinct issuers, or to combine a fixed-income security
with a call option on a stock index, when Advisers determines that such a
combination would better promote the Fund's investment objectives. In addition,
the component parts of a synthetic convertible security may be purchased
simultaneously or separately; and the holder of a synthetic convertible faces
the risk that the price of the stock, or the level of the market index
underlying the convertibility component, will decline.
The Fund may also invest in convertible preferred stocks that offer enhanced
yield features, such as Preferred Equity Redemption Cumulative Stock ("PERCS"),
which provide an investor, such as the Fund, with the opportunity to earn higher
dividend income than is available on a company's common stock. A PERCS is a
preferred stock which generally features a mandatory conversion date, as well as
a capital appreciation limit which is usually expressed in terms of a stated
price. Most PERCS expire three years from the date of issue, at which time they
are exchangeable for the issuer's common stock or cash, at the option of the
issuer. Under a typical arrangement, if after three years the issuer's common
stock is trading at a price below that set by the capital appreciation limit,
each PERCS would convert to one share of common stock. If, however, the issuer's
common stock is trading at a price above that set by the capital appreciation
limit, the holder of the PERCS would receive less than one full share of common
stock. The amount of that fractional share of common stock received by the
PERCS' holder is determined by dividing the price set by the capital
appreciation limit of the PERCS by the market price of the issuer's common
stock. Some PERCS provide that they can be called immediately if the issuer's
common stock is trading at or above a specified level.
An investment in PERCS or other similar convertible securities may involve
additional risks. The Fund may have difficulty disposing of such securities
because there may be a thin trading market for a particular security at any
given time. Reduced liquidity may have an adverse impact on market price and the
Fund's ability to dispose of particular securities, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. The Fund, however, intends to acquire securities believed
by the investment manager to be liquid although, as with any investment, there
are no assurances that this will be achieved.
There are other convertible securities, including, but not limited to, Dividend
Enhancement Convertible Stock, Perpetual Equity Participation Shares and
Automatically Convertible Equity Securities in which the Fund may invest, and
which are similar to the foregoing described convertible securities. There may
be additional types of convertible securities which are also similar to the
foregoing described convertible securities, in which the Fund may invest in the
future to the extent such investments are consistent with the Fund's investment
objective and policies.
OPTIONS AND FINANCIAL FUTURES. The Fund may write covered put and call options
and purchase put and call options which trade on securities exchanges and in the
over-the-counter market. The Fund may purchase and sell futures and options on
futures with respect to securities and currencies. Additionally, the Fund may
sell futures and options to "close out" futures and options it may have
purchased. The Fund will not engage in futures transactions for speculation but
only as a hedge against changes resulting from market conditions in the value of
its securities or securities which it intends to purchase. In addition, the Fund
will not enter into any futures contract or related options (except for closing
transactions) if, immediately thereafter, the sum of the amount of its initial
deposits and premiums on open contracts and options would exceed 5% of the
Fund's total assets (taken at current value). The Fund will not engage in any
stock options or stock index options if the option premiums paid regarding its
open option positions exceed 5% of the value of the Fund's total assets.
RISK FACTORS AND CONSIDERATIONS REGARDING
OPTIONS, FUTURES AND OPTIONS ON FUTURES
The Fund's options and futures investments involve certain risks. Such risks
include the risk that the effectiveness of an options and futures strategy
depends on the degree to which price movements in the underlying index or
securities correlate with price movements in the relevant portion of the Fund's
portfolio. The Fund bears the risk that the prices of its portfolio securities
will not move in the same amount as the option or future it has purchased, or
that there may be a negative correlation which would result in a loss on both
such securities and the option or futures contracts or investment.
The Fund's ability to hedge effectively all or a portion of its securities
through transactions in options on stock indexes, stock index futures, financial
futures and related options depends on the degree to which price movements in
the underlying index or underlying debt securities correlate with price
movements in the relevant portion of the Fund's securities. Inasmuch as such
securities will not duplicate the components of any index or such underlying
debt securities, the correlation will not be perfect. Consequently, the Fund
bears the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. It is also possible that there may be
a negative correlation between the index or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both such securities and the hedging instrument. Accordingly, successful use by
the Fund of options on stock indexes, stock index futures, financial futures and
related options will be subject to the Manager's ability to predict correctly
movements in the direction of the securities markets generally or of a
particular segment. This requires different skills and techniques than
predicting changes in the price of individual stocks.
The Fund's option and futures investments may be limited by the requirements of
the Code for qualification as a regulated investment company and may reduce the
portion of the Fund's dividends which is eligible for the corporate
dividends-received deduction. These transactions are also subject to special tax
rules that may affect the amount, timing and character of certain distributions
to shareholders, more information about which is included in the tax section of
this Prospectus and the section entitled "Additional information Regarding
Taxation" in the SAI.
During the option period the Fund, as the writer of covered calls, gives up the
potential for capital appreciation above the exercise price should the
underlying security rise in value, and retains the risk of loss, as the writer
of puts, should the underlying security decline in value. Substantial
appreciation in the value of the security underlying covered calls written by
the Fund would result in the security being "called away." Substantial
depreciation in the value of the security underlying puts written by the Fund
would result in the security being "put to" the writer. If a covered call option
written by the Fund expires unexercised, the Fund will realize a gain in the
amount of the premium received. If the Fund has to sell the security underlying
the covered call because of the exercise of a call option, it realizes a gain or
loss from the sale of the underlying security, with the proceeds being increased
by the amount of the premium. From time to time, under certain market
conditions, the Fund may receive little or no short-term capital gains from its
options transactions, which will reduce the Fund's return.
If a put option written by the Fund expires unexercised, it will realize a gain
from the amount of the premium. If the Fund has to buy the underlying security
because of the exercise of the put option, it will incur an unrealized loss to
the extent that the current market value of the underlying security is less than
the exercise price of the put option. However, this may be offset in whole or in
part by gain from the premium received.
Positions in exchange traded options and futures may be closed out only on an
exchange which provides a secondary market. There may not always be a liquid
secondary market for a futures or option contract at a time when the Fund seeks
to close out its position. If the Fund were unable to close out a futures or
option position, and if prices moved adversely, the Fund would have to continue
to make daily cash payments to maintain its required margin; if the Fund had
insufficient cash, it might have to sell portfolio securities at a
disadvantageous time. In addition, the Fund might be required to deliver the
stocks underlying futures or options contracts it holds. The Fund will enter
into an option or futures position only if there appears to be a liquid
secondary market for such option or futures.
Over-the-counter Options ("OTC" options) differ from exchange traded options in
certain material respects. OTC options are arranged directly with dealers and
not, as is the case with exchanged traded options, with a clearing corporation.
Thus, there is a risk of non-performance by the dealer. Because there is no
exchange, pricing is typically done by reference to information from market
makers. However, OTC options are available for a greater variety of securities
and in a wider range of expiration dates and exercise prices than exchange
traded options; and the writer of an OTC option is paid the premium in advance
by the dealer.
There can be no assurance that a continuous liquid secondary market will exist
for any particular OTC option at any specific time. Consequently, the Fund may
be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when the Fund writes an OTC option, it generally can close
out that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
The Fund understands the current position of the staff of the SEC to be that
purchased OTC options are illiquid securities and that the assets used to cover
the sale of an OTC option are considered illiquid. The Fund and Advisers
disagree with this position. Nevertheless, pending a change in the staff's
position, the Fund will treat OTC options and "cover" assets as subject to the
Fund's limitation on illiquid securities. (See "Investment Objective and
Policies Followed by the Fund - Illiquid Investments" in this Prospectus.)
Futures contracts entail risks. Although the Fund believes that use of such
contracts will benefit the Fund, if the investment adviser's investment judgment
about the general direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any such contract.
For example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the price of bonds held in its
portfolio and interest rates decrease instead, the Fund will lose part or all of
the benefit of the increased value of its bonds which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities
from its portfolio to meet daily variation margin requirements. Such sales may
be, but will not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
The Fund's sale of futures contracts and purchase of put options on futures
contracts will be solely to protect its investments against declines in value.
The Fund expects that in the normal course of business it will purchase
securities upon termination of long futures contracts and long call options on
future contracts, but under unusual market conditions it may terminate any of
such positions without a corresponding purchase of securities.
In addition, adverse market movements could cause the Fund to lose up to its
full investment in a call option contract and/or to experience substantial
losses on an investment in a futures contract. There is also the risk of loss by
the Fund of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a futures contract or option. (See "Investment
Restrictions and Policies" in the SAI for a more complete discussion of the
Fund's investments in options and futures, including the risks associated with
such activity.)
REPURCHASE AGREEMENTS. The Fund may engage in repurchase transactions, in which
the Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked to market daily to maintain coverage of at least
100%. A default by the seller might cause the Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with financial
institutions such as broker-dealers and banks which are deemed creditworthy by
the Fund's investment manager. A repurchase agreement is deemed to be a loan by
the Fund under the 1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Fund by a custodian approved by the
Fund's Board and will be held pursuant to a written agreement.
FOREIGN SECURITIES. The Fund will ordinarily purchase foreign securities which
are traded in the United States or purchase American Depository Receipts
("ADRs"), which are certificates issued by U.S. banks representing the right to
receive securities of a foreign issuer deposited with that bank or a
correspondent bank. However, the Fund may purchase the securities of foreign
issuers directly in foreign markets.
Investments in foreign securities where delivery takes place outside the United
States will involve risks that are different from investments in U.S.
securities. These risks may include future unfavorable political and economic
developments, possible withholding taxes, seizure of foreign deposits, currency
controls, higher transactional costs due to a lack of negotiated commissions, or
other governmental restrictions which might affect the amount and types of
foreign investments made or the payment of principal or interest on securities
the Fund holds. In addition, there may be less information available about these
securities and it may be more difficult to obtain or enforce a court judgment in
the event of a lawsuit. Fluctuations in currency convertibility or exchange
rates could result in investment losses for the Fund. Investment in foreign
securities may also subject the Fund to losses due to nationalization,
expropriation or differing accounting practices and treatments.
Investments may be in securities of foreign issuers, whether located in
developed or undeveloped countries, but investments will not be made in any
securities issued without stock certificates or comparable stock documents.
Securities which are acquired by the Fund outside the United States and which
are publicly traded in the United States or on a foreign securities exchange or
in a foreign securities market are not considered by the Fund to be an illiquid
asset so long as the Fund acquires and holds the security with the intention of
re-selling the security in the foreign trading market, the Fund reasonably
believes it can readily dispose of the security for cash in the U.S. or foreign
market and current market quotations are readily available. The Fund presently
has no intention of investing more than 25% of its net assets in foreign
securities.
The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limit its
activities to some extent. For a list of these restrictions and more information
concerning the policies discussed herein, please see the SAI.
The Fund anticipates that its annual portfolio turnover rate generally will not
exceed 150%, but this rate should not be construed as a limiting factor in the
operation of the Fund's portfolio. The Fund's portfolio turnover rate for the
prior two years is included in the Financial Highlights table. Upon the exercise
of an option written by the Fund, the underlying securities are sold; the Fund
receives cash which it then invests, thus increasing the portfolio turnover
rate. High portfolio turnover increases transaction costs which must be paid by
the Fund.
BORROWING. The Fund does not borrow money or mortgage or pledge any of the
assets of the Fund, except that borrowings for temporary or emergency purposes
may be made from banks in an amount up to 10% of total asset value. No new
investments will be made while any such borrowings are in excess of 5% of total
assets.
ILLIQUID INVESTMENTS. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) may not constitute, at the time of purchase, more than 10% of the
value of the total net assets of the Fund.
HOW YOU PARTICIPATE
IN THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
you own will increase. If the securities owned by the Fund decrease in value,
the value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, you may anticipate that the value of Fund
shares will fluctuate with movements in the broader equity and bond markets.
To the extent the Fund's investments consist of debt securities, changes in
interest rates will affect the value of the Fund's portfolio and thus its share
price. Increased rates of interest which frequently accompany higher inflation
and/or a growing economy are likely to have a negative effect on the value of
Fund shares. To the extent the Fund's investments consist of common stocks, a
decline in the market, expressed for example by a drop in the Dow Jones
Industrials or the Standard & Poor's 500 average or any other equity based
index, may also be reflected in declines in the Fund's share price. History
reflects both increases and decreases in the prevailing rate of interest and in
the valuation of the market, and these may reoccur unpredictably in the future.
WHO MANAGES THE FUND?
The Board has the primary responsibility for the overall management of the Fund
and for electing the officers of the Fund who are responsible for administering
its day-to-day operations.
Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Resources, a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its subsidiaries. Advisers acts as investment manager or administrator
to 36 U.S. registered investment companies (118 separate series) with aggregate
assets of over $80 billion.
The team responsible for the day-to-day management of the Fund's portfolio since
its inception is:
Lisa Costa, CMT, Portfolio Manager of Advisers, holds a Master of Business
Administration degree from Golden Gate University and a Bachelor of Science
degree in finance from California State University at Hayward. She has been with
Advisers or an affiliate since 1980. Ms. Costa is a Chartered Market Technician,
President of the Technical Securities Analysts association of San Francisco
("TSAA"), and a member of several securities industry-related committees and
associations.
R. Martin Wiskemann, Senior Vice President of Advisers, holds a degree in
business administration from the Handelsschule of the State of Zurich,
Switzerland. He has been with Advisers since 1972 and, prior thereto, he was a
securities analyst at Laird, Bissell & Meed and an investment manager with
Winfield & Company. Mr. Wiskemann is a member of several securities
industry-related committees and associations.
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment policies and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those taken
by the Manager on behalf of other funds. Neither the Manager (including its
affiliates) nor its officers, directors or employees nor the officers and
directors of the Fund are prohibited from investing in securities held by the
Fund or other funds which are managed or administered by the Manager to the
extent such transactions comply with the Fund's Code of Ethics. Please see
"Investment Advisory and Other Services" and "General Information" in the SAI
for further information on securities transactions and a summary of the Fund's
Code of Ethics.
During the fiscal year ended December 31, 1995, management fees totaling 0.63%
of the average monthly net assets of the Fund were paid to Advisers.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "How
Does the Fund Purchase Securities For Its Portfolio?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
During the fiscal year ended December 31, 1995, expenses borne by the Fund,
including fees paid to Advisers and to Investor Services, totaled 1.17% of the
average monthly net assets of the Fund.
PLAN OF DISTRIBUTION
A plan of distribution has been approved and adopted for the Fund (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may
reimburse Distributors or others for all expenses incurred by Distributors or
others in the promotion and distribution of the Fund's shares. Such expenses may
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its affiliates.
The maximum amount which the Fund may reimburse to Distributors or others for
such distribution expenses is 0.25% per annum of its average daily net assets,
payable on a quarterly basis. All expenses of distribution in excess of 0.25%
per annum will be borne by Distributors, or others who have incurred them,
without reimbursement from the Fund. The Plan also covers any payments to or by
the Fund, Advisers, Distributors, or other parties on behalf of the Fund,
Advisers, or Distributors, to the extent such payments are deemed to be for the
financing of any activity primarily intended to result in the sale of shares
issued by the Fund within the context of Rule 12b-1. The payments under the Plan
are included in the maximum operating expenses which may be borne by the Fund.
For more information please see "The Fund's Underwriter" in the SAI.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally in the form of
dividends, interest and other income derived from its investments. This income,
less the expenses incurred in the Fund's operations, is its net investment
income from which income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made twice each year. One distribution may be made in December to reflect any
net short-term and net long-term capital gains realized by the Fund as of
October 31 of such year. Any net short-term and net long-term capital gains
realized by the Fund during the remainder of the fiscal year may be distributed
following the end of the fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund may make more
than one distribution derived from net short-term and net long-term capital
gains in any year or adjust the timing of its distributions for operational or
other reasons.
DISTRIBUTION DATE
Although subject to change by the Board of Directors, without prior notice to or
approval by shareholders, the Fund's current policy is to declare income
dividends quarterly for shareholders of record on the last business day of the
months of March, June and September, payable on or about the 15th day of the
following month. The Fund's December dividend will generally be declared and
paid during that month.
The amount of income dividend payments by the Fund is dependent upon the amount
of net income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. Fund shares are quoted
ex-dividend on the first business day following the record date. THE FUND DOES
NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS
SHARES.
In order to be entitled to a dividend, you must have acquired Fund shares prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you should be
aware that because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply and demand, any
distribution of income or capital gain will result in a decrease in the value of
the Fund's shares equal to the amount of the distribution. While a dividend or
capital gain distribution received shortly after purchasing shares represents,
in effect, a return of a portion of your investment, it may be taxable as
dividend income or capital gain.
DISTRIBUTION OPTIONS
You may choose to receive your distributions from the Fund in any of these ways:
1.....PURCHASE ADDITIONAL SHARES OF THE FUND - You may purchase additional
shares of the Fund (without a sales charge or imposition of a contingent
deferred sales charge) by reinvesting capital gain distributions, or both
dividend and capital gain distributions. This is a convenient way to accumulate
additional shares and maintain or increase your earnings base.
2.....PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). Many shareholders find this a convenient way to diversify their
investments.
3.....RECEIVE DISTRIBUTIONS IN CASH - You may choose to receive dividends, or
both dividend and capital gain distributions in cash. You may have the money
sent directly to you, to another person, or to a checking account. If you choose
to send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF NO OPTION IS SELECTED, DIVIDEND AND
CAPITAL GAIN DISTRIBUTIONS WILL BE AUTOMATICALLY REINVESTED IN THE FUND. You may
change the distribution option selected at any time by notifying the Fund by
mail or by telephone. Please allow at least seven days prior to the record date
for the Fund to process the new option.
HOW TAXATION AFFECTS YOU AND THE FUND.
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax matters
relating to the Fund and its shareholders see, "Additional Information Regarding
Taxation" in the SAI.
The Fund is a regulated investment company under Subchapter M of the Code. By
distributing all of its income and meeting certain other requirements relating
to the sources of its income and diversification of its assets, the Fund will
not be liable for federal income or excise taxes
For federal income tax purposes, any income dividends which you receives from
the Fund, as well as any distributions derived from the excess of net short-term
capital gain over net long-term capital loss, are treated as ordinary income
whether you have elected to receive them in cash or in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss (net capital gain) are treated as long-term capital gain
regardless of the length of time you have owned Fund shares and regardless of
whether such distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January, will be treated for tax purposes as if received by
you on December 31 of the calendar year in which they are declared.
For the fiscal year ended December 31, 1995, 36.78% of the net income dividends
paid by the Fund qualified for the corporate dividends-received deduction,
subject to certain holding period, hedging and debt financing restrictions
imposed under the Code on the corporation claiming the deduction.
The Fund's transactions in options and futures contracts will give rise to
taxable income, gain or loss and will be subject to special tax treatment under
certain mark-to-market and straddle rules, the effect of which may be to
accelerate income to the Fund, defer Fund losses, cause adjustments in the
holding periods of Fund securities, convert capital gains and losses into
ordinary income and losses, convert long-term capital gains into short-term
capital gains, and convert short-term capital losses into long-term capital
losses. Certain elections may be available to the Fund to mitigate some of the
unfavorable consequences of the provisions described in this paragraph.
If you are not a U.S. person for purposes of federal income taxation, you should
consult with their financial or tax advisors regarding the applicability of U.S.
withholding or other taxes on distributions received by them from the Fund and
the application of foreign tax laws to these distributions.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions.
HOW DO I BUY SHARES?
You may buy shares to open a Fund account with as little as $100 and make
additional investments at any time with as little as $25. These minimums may be
waived when shares are purchased by retirement plans. To open your account,
contact your investment representative or complete and sign the enclosed
Shareholder Application and return it to the Fund with your check.
PURCHASE PRICE OF FUND SHARES
You may buy shares at the public offering price, unless you qualify to purchase
shares at a discount or without a sales charge as discussed below. The offering
price will be calculated to two decimal places using standard rounding criteria.
QUANTITY DISCOUNTS IN SALES CHARGES
The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the table below.
TOTAL SALES CHARGE AS A PERCENTAGE OF
AMOUNT ALLOWED TO
DEALER AS A
SIZE OF TRANSACTION NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE OFFERING PRICE INVESTED OFFERING PRICE*
Under $100,000 4.50% 4.71% 4.00%
$100,000 but less than 3.75% 3.90% 3.25%
$250,000
$250,000 but less than 2.75% 2.83% 2.50%
$500,000
$500,000 but less than 2.25% 2.30% 2.00%
$1,000,000
$1,000,000 or more None** None None***
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times reallow
the entire sales charge to the securities dealer. A securities dealer who
receives 90% or more of the sales commission may be deemed an underwriter under
the Securities Act of 1933, as amended.
**A contingent deferred sales charge of 1% may be imposed on certain redemptions
of all or a part of an investment of $1 million or more. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of payments Distributors may make to securities dealers out of its
own resources.
RIGHTS OF ACCUMULATION. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Funds, as well as those of your
spouse, children under the age of 21 and grandchildren under the age of 21, to
the amount of your current purchase. To receive the reduction, you or your
investment representative must notify Distributors that your investment
qualifies for a discount.
LETTER OF INTENT. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. You or your investment representative must inform us that the Letter is in
effect each time you purchase shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your name.
You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem
any or all of these reserved shares to pay any unpaid sales charge if you do
not fulfill the terms of the Letter.
We will include the reserved shares in the total shares you own as reflected
on your periodic statements.
You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.
Although you may exchange your shares, you may not liquidate reserved shares
until you complete the Letter or pay the higher sales charge.
Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.
GROUP PURCHASES. If you are a member of a qualified group, you may purchase Fund
shares at the reduced sales charge applicable to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase. For example, if group
members previously invested and still hold $80,000 of Fund shares and invest
$25,000, the sales charge will be 3.75%.
We define a qualified group as one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount
and (iii) satisfies uniform criteria which enable Distributors to realize
economies of scale in its costs of distributing shares.
In addition, a qualified group must have more than 10 members, and be available
to arrange for meetings between our representatives and group members. It must
also agree to include sales and other materials related to the Franklin
Templeton Funds in publications and mailings to its members at reduced or no
cost to Distributors, and arrange for payroll deduction or other bulk
transmission of investments to the Fund.
If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue further
investments. Due to the varying procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time the money reaches the Fund. We invest your purchase at the applicable
offering price per share determined on the day that the Fund receives both the
check and the payroll deduction data in required form.
PURCHASES AT NET ASSET VALUE
You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:
(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its payment
date. You may reinvest Class II distributions in either Class I or Class II
shares, but Class I distributions may only be invested in Class I shares under
this privilege. For more information, see "Distribution Options" under "What
Distributions Might I Receive from the Fund?" or call Shareholder Services at
1-800/632-2301;
(ii) a redemption from a mutual fund with investment objectives similar to those
of the Fund, if (a) your investment in that fund was subject to either a
front-end or contingent deferred sales charge at the time of purchase, (b) the
fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days;
(iii) a distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including the Franklin Templeton Profit Sharing 401(k)
plan), up to the total amount of the distribution. The distribution must be
returned to the Fund within 365 days of the distribution date; or
(iv) a redemption from Templeton Institutional Funds, Inc., if you then reinvest
the redemption proceeds under an employee benefit plan qualified under Section
401 of the Code, in shares of the Fund.
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the reinvestment
of the money within 365 days of the redemption date. You may reinvest up to the
total amount of the redemption proceeds under this privilege. IF A DIFFERENT
CLASS OF SHARES IS PURCHASED, THE FULL FRONT-END SALES CHARGE MUST BE PAID AT
THE TIME OF PURCHASE OF THE NEW SHARES. While you will receive credit for any
contingent deferred sales charge paid on the shares redeemed, a new contingency
period will begin. Shares that were no longer subject to a contingent deferred
sales charge will be reinvested at net asset value and will not be subject to a
new contingent deferred sales charge. Shares exchanged into other Franklin
Templeton Funds are not considered "redeemed" for this privilege (see "What If
My Investment Outlook Changes? - Exchange Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.
Certain categories of investors also qualify to purchase shares of the Fund at
net asset value regardless of the source of the investment proceeds. If you or
your account is included in one of the categories below, none of the shares of
the Fund you purchase will be subject to front-end or contingent deferred sales
charges:
(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(ii) accounts managed by the Franklin Templeton Group;
(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;
(iv) registered securities dealers and their affiliates, for their
investment accounts only;
(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;
(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or registered investment advisors affiliated with such
broker-dealers, on behalf of their clients who are participating in a
comprehensive fee program (sometimes known as a wrap fee program);
(vii) any state, county, or city, or any instrumentality, department, authority
or agency thereof which has determined that the Fund is a legally permissible
investment and which is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered management investment company ("an eligible governmental authority").
IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or the Manager on arbitrage rebate
calculations. If you are a securities dealer who has executed a dealer agreement
with Distributors and, through your services, an eligible governmental authority
invests in the Fund at net asset value, Distributors or one of its affiliates
may make a payment, out of its own resources, to you in an amount not to exceed
0.25% of the amount invested. Please contact the Franklin Templeton
Institutional Services Department for additional information;
(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members.
Although you may pay sales charges on investments in accounts opened after your
association with us has ended, you may continue to invest in accounts opened
while you were with us without paying sales charges;
(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1 million
in Franklin Templeton Funds over a 13 month period. We will accept orders for
such accounts by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order;
(x) group annuity separate accounts offered to retirement plans;
(xi) trustees or other fiduciaries purchasing securities for certain retirement
plans of organizations with collective retirement plan assets of $1 million or
more, without regard to where such assets are currently invested; or
(xii) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of the Fund under this privilege if they meet the
requirements for Designated Retirement Plans and those described under "Group
Purchases," above.
IF YOU QUALIFY TO BUY SHARES AT NET ASSET VALUE AS DISCUSSED IN THIS SECTION,
PLEASE SPECIFY IN WRITING THE PRIVILEGE THAT APPLIES TO YOUR PURCHASE AND
INCLUDE THAT WRITTEN STATEMENT WITH YOUR PURCHASE ORDER. WE WILL NOT BE
RESPONSIBLE FOR PURCHASES THAT ARE NOT MADE AT NET ASSET VALUE IF THIS WRITTEN
STATEMENT IS NOT INCLUDED WITH YOUR ORDER.
If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.
HOW DO I BUY SHARES IN CONNECTION WITH TAX-DEFERRED RETIREMENT PLANS?
Your individual or employer-sponsored tax-deferred retirement plans may invest
in the Fund. You may use the Fund for an existing retirement plan, or, because
Trust Company can serve as custodian or trustee for retirement plans, you may
ask Trust Company to provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.
Brochures for Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution requirements.
Please note that you must use an application other than the one contained in
this Prospectus to establish a retirement plan account with Trust Company. To
obtain a retirement plan brochure or application, please call 1-800/DIAL BEN
(1-800/342-5236).
Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to receive
distributions from Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition, if you
are a retirement plan investor, you should consider consulting your investment
representatives or advisors about investment decisions within your plans.
GENERAL
The Fund continuously offers its shares through securities dealers who have an
agreement with Distributors. The Fund and Distributors may refuse any order for
the purchase of shares.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
OTHER PAYMENTS TO SECURITIES DEALERS. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 1% on sales of $1 million
but less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25%
on sales of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. These breakpoints are reset every 12 months for purposes of
additional purchases.
Distributors or one of its affiliates may also pay up to 1% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by any of the entities described in paragraphs (ix), (xi) or
(xii) under "Purchases at Net Asset Value" above. These payments may not be made
to securities dealers or others in connection with the sale of Fund shares if
the payments might be used to offset administration or recordkeeping costs for
retirement plans or circumstances suggest that plan sponsors or administrators
might use or otherwise allow the use of Rule 12b-1 fees to offset such costs.
Please see "How Do I Buy and Sell Shares?" in the SAI for the breakpoints
applicable to these purchases.
Either Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with the
sale of shares of the Franklin Templeton Funds. In some cases, this compensation
may be available only to securities dealers whose representatives have sold or
are expected to sell significant amounts of shares of the Franklin Templeton
Funds. Compensation may include financial assistance and payments made in
connection with conferences, sales or training programs for employees of the
securities dealer, seminars for the public, advertising, sales campaigns and/or
shareholder services, programs regarding one or more of the Franklin Templeton
Funds and other programs or events sponsored by securities dealers, and payment
for travel expenses of invited registered representatives and their families,
including lodging, in connection with business meetings or seminars located
within or outside the U.S. Securities dealers may not use sales of the Fund's
shares to qualify for this compensation if prohibited by the laws of any state
or self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of this compensation is paid for by the Fund or its
shareholders.
For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and directors of the Fund who are affiliated with Distributors. See "Officers
and Directors."
WHAT PROGRAMS AND PRIVILEGES
ARE AVAILABLE TO ME AS A SHAREHOLDER?
Certain of the programs and privileges described in this section may not be
available directly from the Fund if your shares are held, of record, by a
financial institution or in a "street name" account or networked account through
the National Securities Clearing Corporation ("NSCC") (see the section captioned
"Registering Your Account" in this Prospectus).
SHARE CERTIFICATES
Shares from an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by you, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be issued if requested by
you or your securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to you quarterly to reflect the dividends
reinvested during the period and after each other transaction which affects your
account. This statement will also show the total number of shares you own,
including the number of shares in "plan balance" for your account.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to have money transferred automatically from
your checking account to the Fund each month to buy additional shares. If you
are interested in this program, please refer to the Automatic Investment Plan
Application at the back of this Prospectus for the requirements of the program
or contact your investment representative. Of course, the market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may terminate the program at
any time by notifying Investor Services by mail or by phone.
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply.
If you would like to establish a Systematic Withdrawal Plan, please complete the
Systematic Withdrawal Plan section of the Shareholder Application included with
this Prospectus and indicate how you would like to receive your payments. You
may choose to receive your payments in any of the following ways:
1. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. RECEIVE PAYMENTS IN CASH - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the plan
will be made from the redemption of an equivalent amount of shares in your
account, generally on the first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Redemptions under a
Systematic Withdrawal Plan are considered a sale for federal income tax
purposes. Because the amount withdrawn under the plan may be more than your
actual yield or income, part of the payment may be a return of your investment.
While a Systematic Withdrawal Plan is in effect, shares must be held either in
plan balance or, where share certificates are outstanding, deposited with the
Fund. You should ordinarily not make additional investments in the Fund of less
than $5,000 or three times the amount of annual withdrawals under the plan
because of the sales charge on additional purchases. Shares redeemed under the
plan may also be subject to a contingent deferred sales charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn or if the Fund
receives notification of the shareholder's death or incapacity.
ELECTRONIC FUND TRANSFERS
You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.
INSTITUTIONAL ACCOUNTS
There may be additional methods of buying, selling or exchanging shares of
the Fund available to institutional accounts. For further information,
contact the Franklin Templeton Institutional Services Department at
1-800/321-8563.
WHAT IF MY INVESTMENT OUTLOOK CHANGES? - EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for the
same class of shares of another Franklin Templeton Fund eligible for sale in
your state of residence and in conformity with such fund's stated eligibility
requirements and investment minimums.
No exchanges between different classes of shares will be allowed. You may choose
to sell your shares of the Fund and buy Class II shares of another Franklin
Templeton Fund but such purchase will be subject to that fund's Class II
front-end and contingent deferred sales charges. Although there are no exchanges
between different classes of shares, Class II shareholders of a Franklin
Templeton Fund may elect to direct their dividends and capital gain
distributions to the Fund at net asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will be imposed.
Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
BY TELEPHONE
You or your investment representative of record, if any, may exchange shares of
the Fund by calling Investor Services at 1-800/632-2301 or the automated
TeleFACTS(R) system (day or night) at 1-800/247-1753. IF YOU DO NOT WISH THIS
PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, YOU SHOULD NOTIFY THE FUND OR
INVESTOR SERVICES.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in your account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please see "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.
THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your account or for which certificates have previously been
deposited. A securities dealer may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges are made on the basis of the net asset value of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I Buy
Shares?" Exchanges of shares of the Fund which were purchased with a lower sales
charge into a fund which has a higher sales charge will be charged the
difference, unless the shares were held in the Fund for at least six months
prior to executing the exchange.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.
If you request the exchange of the total value of the Fund account, declared but
unpaid income dividends and capital gain distributions will be transferred to
the fund being exchanged into and will be invested at net asset value. Because
the exchange is considered a redemption and purchase of shares, you may realize
a gain or loss for federal income tax purposes. Backup withholding and
information reporting may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax section in this
Prospectus and under "Additional Information Regarding Taxation" in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
RETIREMENT PLAN ACCOUNTS
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange
shares directly. Certain restrictions may apply, however, to other types of
retirement plans. See "Restricted Accounts" under "Telephone Transactions."
MARKET TIMERS
Market Timers will be charged a $5.00 administrative service fee for each
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Market Timers.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Market Timer, group or
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered by Market Timers, will be
aggregated for purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Market Timer, person, or group if, in the Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected.
The purchase side of an exchange may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincides with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors, as indicated in "How Do I Buy Shares?", reserve the
right to refuse any order for the purchase of shares.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time and receive from the Fund the
value of the shares. You may sell shares in any of the following ways:
BY MAIL
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. You will then receive from the Fund the
value of the shares redeemed based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated will receive
the price calculated on the following business day. The net asset value per
share is determined as of the scheduled close of the Exchange, (generally 1:00
p.m. Pacific time) each day that the Exchange is open for trading. You are
requested to provide a telephone number where you may be reached during business
hours, or in the evening if preferred. Investor Services' ability to contact you
promptly when necessary will speed the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE MUST BE GUARANTEED IF THE REDEMPTION
REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of
$50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated
or may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
that are members of a national securities exchange or a clearing agency or that
have minimum net capital of $100,000; or (4) institutions that participate in
the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
When shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your own protection, to send the share certificate and assignment form in
separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officers of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner, and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustees, and
(2) a copy of the pertinent pages of the trust document listing the trustees or
a Certification for Trust if the trustees are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and applicable state
law since these accounts have varying requirements, depending upon the state of
residence.
Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.
BY TELEPHONE
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts." You may obtain
additional information about telephone redemptions by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions - Verification Procedures."
If your account has a completed Agreement on file, redemptions of uncertificated
shares or shares which have previously been deposited with the Fund or Investor
Services may be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) on any business day will be processed that
same day. The redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only to the address
of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, government entities, and
qualified retirement plans that qualify to purchase shares at net asset value
pursuant to the terms of this Prospectus) that wish to execute redemptions in
excess of $50,000 must complete an Institutional Telephone Privileges Agreement
which is available from the Franklin Templeton Institutional Services Department
by calling 1-800/321-8563.
THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under "By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
letter should reference the Fund, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of your redemption will be sent will begin when
the Fund receives all documents required to complete ("settle") the repurchase
in proper form. The redemption proceeds will not earn dividends or interest
during the time between receipt of the dealer's repurchase order and the date
the redemption is processed upon receipt of all documents necessary to settle
the repurchase. Thus, it is in your best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. Your
dealer may charge a fee for handling the order. See "How Do I Buy and Sell
Shares?" in the SAI for more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of such investment will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net asset value at
the time of purchase of such shares, and is retained by Distributors. The
contingent deferred sales charge is waived in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than the contingency period.
Shares subject to a contingent deferred sales charge will then be redeemed on a
"first-in, first-out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived, as applicable, for: specified
net asset value purchases discussed under "How Do I Buy Shares? - Purchases at
Net Asset Value"; exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions initiated by
the Fund due to an account falling below the minimum specified account size;
redemptions following the death of the shareholder or beneficial owner; and
redemptions through a Systematic Withdrawal Plan set up for shares prior to
February 1, 1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value (3% quarterly,
6% semiannually or 12% annually). For example, if an account maintained an
annual balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge. Any amount over that
$120,000 would be assessed a 1% contingent deferred sales charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Unless otherwise specified, requests for redemptions of a SPECIFIED DOLLAR
amount will result in additional shares being redeemed to cover any applicable
contingent deferred sales charge, while requests for redemption of a SPECIFIC
NUMBER of shares will result in the applicable contingent deferred sales charge
being deducted from the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption.
The right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it, by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount you invested, depending on
fluctuations in the market value of securities owned by the Fund.
RETIREMENT PLAN ACCOUNTS
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 59 1/2, unless the distribution meets one of the
exceptions set forth in the Code.
OTHER INFORMATION
Distribution or redemption checks sent to you do not earn interest or any other
income during the time such checks remain uncashed and neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, (iv) request
the issuance of certificates (to be sent to the address of record only) and (v)
exchange Fund shares as described in this Prospectus by telephone. In addition,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you will be able to redeem shares of the Fund
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to you caused by an unauthorized transaction. The Fund and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any distribution, redemption, or
dividend payment changes. While the telephone exchange privilege is extended to
Franklin Templeton IRA and 403(b) retirement accounts, certain restrictions may
apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In these situations, you may wish to contact your investment
representative for assistance, or to send written instructions to the Fund as
detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from your inability to execute a telephone transaction.
HOW ARE FUND SHARES VALUED?
The net asset value per share of the Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price).
The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in the Fund's portfolio are valued as described under "How Are Fund
Shares Valued?" in the SAI.
HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this Prospectus.
From a touch-tone phone, you may access TeleFACTS(R). By calling the TeleFACTS
system (day or night) at 1-800/247-1753, you may obtain account information,
current price and, if available, yield or other performance information specific
to the Fund or any Franklin Templeton Fund. In addition, you may process an
exchange, within the same class, into an identically registered Franklin account
and request duplicate confirmation or year-end statements and deposit slips.
The Fund code, which will be needed to access system information, is 02. The
system's automated operator will prompt you with easy to follow step-by-step
instructions from the main menu. Other features may be added in the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided.
HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
HOW DOES THE FUND MEASURE PERFORMANCE?
Advertisements, sales literature and communications to you may contain several
measures of the Fund's performance, including current yield, various expressions
of total return and current distribution rate. They may also occasionally cite
statistics to reflect the Fund's volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price for one-, five- and ten-year periods, or portion thereof,
to the extent applicable, through the end of the most recent calendar quarter,
assuming reinvestment of all distributions. The Fund may also furnish total
return quotations for other periods, or based on investments at various sales
charge levels or at net asset value. For such purposes total return equals the
total of all income and capital gain paid to shareholders, assuming reinvestment
of all distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments. It is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result.
Current Yield which is calculated according to a formula prescribed by the SEC
(see "General Information" in the SAI), is not indicative of the dividends or
distributions which were or will be paid to the Fund's shareholders. Dividends
or distributions paid to shareholders of the Fund are reflected in the current
distribution rate, which may be quoted to you. The current distribution rate is
computed by dividing the total amount of dividends per share paid by the Fund
during the past 12 months by a current maximum offering price. Under certain
circumstances, such as when there has been a change in the amount of dividend
payout, or a fundamental change in investment policies, it might be appropriate
to annualize the dividends paid during the period such policies were in effect,
rather than using the dividends during the past 12 months. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
the Fund's performance may be in any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends December 31. Annual Reports containing audited
financial statements of the Fund, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. To reduce the volume of mail sent to each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund at
the telephone number or address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and under "General Information" in the SAI.
ORGANIZATION AND VOTING RIGHTS
The Fund's authorized capital stock consists of 5,000,000,000 shares of common
stock. All shares are of one class, have one vote and, when issued, are fully
paid and nonassessable. All shares have equal voting, participation and
liquidation rights, but have no subscription, preemptive or conversion rights.
The Fund reserves the right to issue additional classes of shares.
Voting rights are cumulative which means that in all elections of directors,
each shareholder has the right to cast a number of votes equal to the number of
shares owned, multiplied by the number of directors to be elected at such
election, and each shareholder may cast the whole number of votes for one
candidate or distribute such votes among two or more candidates.
The California Corporations Code does not require corporations registered as
management investment companies under the 1940 Act to hold routine annual
meetings of shareholders and the Fund does not intend to hold annual shareholder
meetings. The Fund may, however, hold a special meeting for such purposes as
changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by shareholders
under the 1940 Act. A meeting may also be called by a majority of the Board of
Directors or by shareholders holding at least ten percent of the shares entitled
to vote at the meeting. Shareholders may receive assistance in communicating
with other shareholders in connection with the election or removal of directors
such as that provided in Section 16(c) of the 1940 Act.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $50, but only where the value of your account
has been reduced by the prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at least
six months, provided you are given advance notice. More information, see "How Do
I Buy and Sell Shares?" is included in the SAI.
REGISTERING YOUR ACCOUNT
An account registration should reflect your intentions as to ownership. Where
there are two co-owners on the account, the account will be registered as "Owner
1" and "Owner 2"; the "or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or convert on the
signature of only one owner, a limited power of attorney may be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean as "joint tenants with rights of survivorship" and not as
"tenants in common."
Except as indicated, you may transfer an account in the Fund carried in "street"
or "nominee" name by your securities dealer to a comparably registered Fund
account maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements on file with
Distributors. Unless a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and will so inform your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealer(s) to evidence consent to
the transfer. Under current procedures the account transfer may be processed by
your delivering securities dealer and the Fund after the Fund receives
authorization in proper form from your delivering securities dealer. Account
transfers may be effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of, or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you will
be deemed to have authorized the use of electronic instructions on the account,
including, without limitation, those initiated through the services of the NSCC,
to have adopted as instruction and signature any such electronic instructions
received by the Fund and the Investor Services, and to have authorized them to
execute the instructions without further inquiry. At the present time, such
services which are available include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. You may also
be subject to backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by you is incorrect or that you are subject to
backup withholding for previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by you is in
fact incorrect or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide the Fund with a certified TIN within 60
days after opening the account.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended.
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager.
BOARD - The Board of Directors of the Fund.
CLASS I AND CLASS II - "Classes" of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes, as determined by the directors. Certain funds in the
Franklin Templeton Funds currently offer their shares in two classes, designated
"Class I" and "Class II." Because the Fund's sales charge structure and plan of
distribution are similar to those of Class I shares, shares of the Fund may be
considered Class I shares for redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended.
DESIGNATED RETIREMENT PLANS - certain retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans, that: (i)
are sponsored by an employer with at least 200 employees; (ii) have aggregate
plan assets of at least $1 million; or (iii) agree to invest at least $1 million
in any of the Franklin Templeton Funds over a 13 month period. Distributors
determines the qualifications for Designated Retirement Plans.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter.
EXCHANGE - New York Stock Exchange.
FRANKLIN FUNDS - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
FRANKLIN TEMPLETON FUNDS - the Franklin Funds and the Templeton Funds.
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc.
LETTER - Letter of Intent.
MANAGER - Franklin Advisers, Inc., the Fund's investment manager.
MARKET TIMER(S) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
NET ASSET VALUE (NAV) - the value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding. When you buy, sell or exchange shares, we will use
the NAV per share next calculated after we receive your request in proper form.
NON-DESIGNATED RETIREMENT PLANS - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code.
OFFERING PRICE - The public offering price is equal to the net asset value per
share plus the 4.5% sales charge.
PROPER FORM (PURCHASES) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information.
SEC - Securities and Exchange Commission.
SECURITIES DEALER - financial institutions which, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system.
TEMPLETON FUNDS - the U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund.
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an
affiliate of Distributors and both are wholly-owned subsidiaries of Resources.
U.S. - United States.
FRANKLIN PREMIER RETURN FUND
STATEMENT OF
ADDITIONAL INFORMATION
MAY 1, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
About the Fund
How Does the Fund Invest Its Assets?
Investment Restrictions
Officers and Directors
Investment Advisory and Other Services
How Does the Fund Purchase Securities
For Its Portfolio?
How Do I Buy and Sell Shares?
How Are Fund Shares Valued?
Additional Information Regarding Taxation
The Fund's Underwriter
General Information
Financial Statements
A Prospectus for the Fund, dated May 1, 1996, as may be amended from time to
time, provides the basic information an investor should know before investing in
the Fund, and may be obtained without charge from the Fund or from its principal
underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address shown above.
This Statement of Additional Information (the "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 investors with additional
information regarding the activities and operations of the Fund, and should be
read in conjunction with the Fund's Prospectus.
ABOUT THE FUND
The Fund is a diversified, open-end management investment company, commonly
called a "mutual fund." It was incorporated in Hawaii on December 5, 1951, and
reincorporated in California on April 27, 1983, pursuant to a statutory merger
with a corporation formed on April 18, 1983. On April 12, 1991 shareholders
approved a change in the Fund's investment objective and policies and the
adoption of the Fund's current name. The Fund has only one class of capital
stock with no par value.
HOW DOES THE FUND INVEST
ITS ASSETS?
TRANSACTIONS IN OPTIONS, FUTURES
AND OPTIONS ON FINANCIAL FUTURES
CALL AND PUT OPTIONS ON SECURITIES. The Fund intends to write covered put and
call options and purchase put and call options which trade on securities
exchanges and in the over-the-counter market.
WRITING CALL AND PUT OPTIONS. A call option gives the option holder the right to
buy the underlying securities from the option writer at a stated exercise price.
A put option gives the option holder the right to sell the underlying security
at the option exercise price at any time during the option period.
Call options written by the Fund give the holder the right to buy the underlying
securities from the Fund at a stated exercise price; put options written by the
Fund give the holder the right to sell the underlying security to the Fund at a
stated exercise price. A call option written by the Fund is "covered" if the
Fund owns the underlying security which is subject to the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds a call on the same
security and in the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the call written if
the difference is maintained by the Fund in cash and high grade debt securities
in a segregated account with its custodian. A put option written by the Fund is
"covered" if the Fund maintains cash and high grade debt securities with a value
equal to the exercise price in a segregated account with its custodian, or else
holds a put on the same security and in the same principal amount as the put
written where the exercise price of the put held is equal to or greater than the
exercise price of the put written. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the exercise price
to the market price and volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.
The writer of an option may have no control over when the underlying securities
must be sold, in the case of a call option, or purchased, in the case of a put
option, since, with regard to certain options, the writer may be assigned an
exercise notice at any time prior to the termination of the obligation. Whether
or not an option expires unexercised, the writer retains the amount of the
premium. This amount, of course, may, in the case of a covered call option, be
offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill the obligation to purchase the underlying security at the
exercise price, which will usually exceed the then market value of the
underlying security. The writer of an option who wishes to terminate its
obligation may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction will be available to be effected at the
time desired by the Fund.
Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both, or in the case of a written
put option will permit the Fund to write another put option to the extent that
the exercise price thereof is secured by deposited cash or short-term
securities. Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject to the option to be
used for other Fund investments. If the Fund desires to sell a particular
security from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
The writing of covered put options involves certain risks. For example, if the
market price of the underlying security rises or otherwise is above the exercise
price, the put option will expire worthless and the Fund's gain will be limited
to the premium received. If the market price of the underlying security declines
or otherwise is below the exercise price, the Fund may elect to close the
position or take delivery of the security at the exercise price and the Fund's
return will be the premium received from the put options minus the amount by
which the market price of the security is below the exercise price.
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase call options on
securities which it intends to purchase in order to limit the risk of a
substantial increase in the market price of such security before the purchase is
effected. The Fund may also purchase call options on securities held in its
portfolio and on which it has written call options. Prior to its expiration, a
call option may be sold in a closing sale transaction. Profit or loss from such
a sale will depend on whether the amount received is more or less than the
premium paid for the call option plus the related transaction costs.
The Fund may purchase put options on particular securities in order to protect
against a decline in the market value of the underlying security below the
exercise price less the premium paid for the option. The ability to purchase put
options will allow the Fund to protect the unrealized gain in an appreciated
security in its portfolio without actually selling the security. In addition,
the Fund will continue to receive interest or dividend income on the security.
The Fund may sell a put option which it has previously purchased prior to the
sale of the securities underlying such option. Such sales will result in a net
gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid for the put option that
is sold. Such gain or loss may be wholly or partially offset by a change in the
value of the underlying security which the Fund owns or has the right to
acquire.
OVER-THE-COUNTER OPTIONS ("OTC" OPTIONS). The Fund intends to write covered put
and call options and purchase put and call options which trade in the
over-the-counter market to the same extent that it will engage in exchange
traded options. Just as with exchange traded options, OTC call options give the
option holder the right to buy an underlying security from an option writer at a
stated exercise price; OTC put options give the holder the right to sell an
underlying security to an option writer at a stated exercise price. However, OTC
options differ from exchange traded options in certain material respects.
OTC options are arranged directly with dealers and not, as is the case with
exchange traded options, with a clearing corporation. Thus, there is a risk of
non-performance by the dealer. Because there is no exchange, pricing is
typically done by reference to information from market makers. However, OTC
options are available for a greater variety of securities, and in a wider range
of expiration dates and exercise prices, than exchange traded options; and the
writer of an OTC option is paid the premium in advance by the dealer.
There can be no assurance that a continuous liquid secondary market will exist
for any particular option at any specific time. Consequently, the Fund may be
able to realize the value of an OTC option it has purchased only by exercising
it or by entering into a closing sale transaction with the dealer that issued
it. Similarly, when the Fund writes an OTC option, it generally can close out
that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it.
OPTIONS ON STOCK INDICES. The Fund may also purchase call options on stock
indices in order to hedge against the risk of market or industry-wide stock
price fluctuations. Call and put options on stock indices are similar to options
on securities except that, rather than the right to purchase or sell stock at a
specified price, options on a stock index give the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
underlying stock index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option
expressed in dollars multiplied by a specified number. Thus, unlike stock
options, all settlements are in cash, and gain or loss depends on price
movements in the stock market generally (or in a particular industry or segment
of the market) rather than price movements in individual stocks.
When the Fund writes an option on a stock index, the Fund will establish a
segregated account containing cash or high quality fixed-income securities with
its custodian in an amount at least equal to the market value of the underlying
stock index and will maintain the account while the option is open or it will
otherwise cover the transaction.
FUTURES CONTRACTS. The Fund may enter into contracts for the purchase or sale
for future delivery of securities and in such contracts based upon financial
indices ("financial futures"). Financial futures contracts are commodity
contracts that obligate the long or short holder to take or make delivery of a
specified quantity of a financial instrument, such as a security, or the cash
value of a securities index during a specified future period at a specified
price. A "sale" of a futures contract means the acquisition of a contractual
obligation to deliver the securities called for by the contract at a specified
price on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price on a specified date. Futures contracts have
been designed by exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market.
At the same time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment ("initial deposit"). Daily thereafter,
the futures contract is valued and the payment of "variation margin" may be
required, since each day the Fund would provide or receive cash that reflects
any decline or increase in the contract's value.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
The Commodities Futures Trading Commission and the various exchanges have
established limits referred to as "speculative position limits" on the maximum
net long or net short position which any person may hold or control in a
particular futures contract. Trading limits are imposed on the maximum number of
contracts which any person may trade on a particular trading day. An exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. The Fund does not believe
that these trading and positions limits will have an adverse impact on the
Fund's strategies for hedging its securities.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the investment adviser may
still not result in a successful transaction.
The Fund will not engage in transactions in futures contracts or related options
for speculation but only as a hedge against changes resulting from market
conditions in the values of its securities or securities which it intends to
purchase. The Fund will not enter into any stock index or financial futures
contract or related option if, immediately thereafter, more than one-third of
the Fund's net assets would be represented by futures contracts or related
options. In addition, the Fund may not purchase or sell futures contracts or
purchase or sell related options if, immediately thereafter, the sum of the
amount of margin deposits on its existing futures and related options positions,
and premiums paid for related options, would exceed 5% of the market value of
the Fund's total assets. In instances involving the purchase of futures
contracts or related call options, cash, cash equivalents, or high quality debt
securities at least equal to the market value of the futures contract or related
options on futures will be deposited in a segregated account with the custodian
to collateralize such long positions.
The purpose of the acquisition or sale of a futures contract is to attempt to
protect the Fund from fluctuations in price of portfolio securities without
actually buying or selling the underlying security. To the extent the Fund
enters into futures contracts, (to the extent required by the rules of the
Securities and Exchange Commission), it will maintain with its custodian assets
in a segregated account to cover its obligations with respect to such contract
which will consist of cash, cash equivalents or high quality debt securities
from its portfolio in an amount equal to the difference between the fluctuating
market value of such futures contract and the aggregate value of the initial and
variation margin payments made by the Fund with respect to such futures
contracts.
STOCK INDEX FUTURES AND
OPTIONS ON STOCK INDEX FUTURES
The Fund may purchase and sell stock index futures contracts and options on
stock index futures contracts.
STOCK INDEX FUTURES. A stock index futures contract obligates the seller to
deliver (and the purchaser to take) an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made.
The Fund may sell stock index futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of its equity
securities that might otherwise result. When the Fund is not fully invested in
stocks and it anticipates a significant market advance, it may purchase stock
index futures in order to gain rapid market exposure that may in part or
entirely offset increases in the cost of stocks that it intends to purchase.
OPTIONS ON STOCK INDEX FUTURES. The Fund may purchase and sell call and put
options on stock index futures to hedge against risks of market-side price
movements. The need to hedge against such risks will depend on the extent of
diversification of the Fund's common stock portfolio and the sensitivity of such
investments to factors influencing the stock market as a whole.
Call and put options on stock index futures are similar to options on securities
except that, rather than the right to purchase stock at a specified price,
options on stock index futures give the holder the right to receive cash. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the futures contract, at exercise, exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. If an option is exercised on the last
trading day prior to the expiration date of the option, the settlement will be
made entirely in cash equal to the difference between the exercise price of the
option and the closing price of the futures contract on the expiration date.
BOND INDEX FUTURES AND OPTIONS ON SUCH CONTRACTS. The Fund may purchase and sell
futures contracts based on an index of debt securities and options on such
futures contracts to the extent they currently exist and, in the future, may be
developed. The Fund reserves the right to conduct futures and options
transactions based on an index which may be developed in the future to correlate
with price movements in certain categories of debt securities. The Fund's
investment strategy in employing futures contracts based on an index of debt
securities will be similar to that used by it in other financial futures
transactions.
The Fund also may purchase and write put and call options on such index futures
and enter into closing transactions with respect to such options.
FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities in the area of
options and futures contracts and options on futures contracts and any other
derivative investments which are not presently contemplated for use by the Fund
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund. Prior to investing in any such investment
vehicle, the Fund will supplement its prospectus, if appropriate.
RISK FACTORS AND CONSIDERATIONS REGARDING
OPTIONS, FUTURES AND OPTIONS ON FUTURES
The Fund's ability to hedge effectively all or a portion of its securities
through transactions in options on stock indices, stock index futures, financial
futures and related options depends on the degree to which price movements in
the underlying debt index or underlying debt securities correlate with price
movements in the relevant portion of the Fund's portfolio. Inasmuch as such
securities will not duplicate the components of the index or such underlying
securities, the correlation will not be perfect. Consequently, the Fund bears
the risk that the prices of the securities being hedged will not move in the
same amount as the hedging instrument. It is also possible that there may be a
negative correlation between the index or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both such securities and the hedging instrument. Accordingly, successful use by
the Fund of options on stock indices, stock index futures, financial futures and
related options will be subject to the investment manager's ability to predict
correctly movements in the direction of the securities markets generally or a
particular segment. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Positions in stock index options, stock index futures and financial futures and
related options may be closed out only on an exchange which provides a secondary
market. There can be no assurance that a liquid secondary market will exist for
any particular stock index option or futures contract or related option at any
specific time. Thus, it may not be possible to close such an option or futures
position. The inability to close options or futures positions also could have an
adverse impact on the Fund's ability to effectively hedge its securities. The
Fund will enter into an option or futures position only if there appears to be a
liquid secondary market for such options or futures.
There can be no assurance that a continuous liquid secondary market will exist
for any particular OTC option at any specific time. Consequently, the Fund may
be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when the Fund writes an OTC option, it generally can close
out that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
The Commodities Futures Trading Commission and the various exchanges have
established limits, referred to as "speculative position limits," on the maximum
net long or net short position which any person may hold or control in a
particular futures contract. Trading limits are imposed on the maximum number of
contracts which any person may trade on a particular trading day. An exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. The Fund does not believe
that these trading and positions limits will have an adverse impact on the
Fund's strategies for hedging its securities.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the investment adviser may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Fund believes that use
of such contracts will benefit the Fund, if the investment adviser's investment
judgment about the general direction of interest rates is incorrect, the Fund's
overall performance would be poorer than if it had not entered into any such
contract. For example, if the Fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price of bonds held
in its portfolio and interest rates decrease instead, the Fund will lose part or
all of the benefit of the increased value of its bonds which it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if the Fund has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin requirements. Such
sales may be, but will not necessarily be, at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
The Fund's sale of futures contracts and purchase of put options on futures
contracts will be solely to protect its investments against declines in value.
The Fund expects that in the normal course it will purchase securities upon
termination of long futures contracts and long call options on future contracts,
but under unusual market conditions it may terminate any of such positions
without a corresponding purchase of securities.
INVESTMENT RESTRICTIONS
In addition to the objectives and policies discussed in the Prospectus, the
Fund has adopted the following restrictions as fundamental policies. The Fund
MAY not:
1. Purchase the securities of any one issuer (except securities issued by the
United States of America or any instrumentality thereof) if, immediately after
and as a result of such purchase, the market value of the holdings of the Fund
in the securities of such issuer would exceed 5% of the market value of the
Fund's total net assets.
2. Purchase the securities of any issuer if such purchase would cause more than
10% of the outstanding voting securities of such issuer, or more than 10% of the
outstanding voting securities of any one class of such issuer, to be held in the
Fund's portfolio.
3. Concentrate investments in any particular industry; therefore, the Fund will
not purchase a security if, as a result of such purchase, more than 25% of its
assets will be invested in a particular industry.
4. Purchase any securities on margin or sell securities short.
5. Purchase or retain the securities of any regulated investment company;
except to the extent the Fund invests its uninvested daily cash balances in
shares of Franklin Money Fund and other money market funds in the Franklin Group
of Funds provided (i) its purchases and redemptions of such money market fund
shares may not be subject to any purchase or redemption fees, (ii) its
investments may not be subject to duplication of management fees, nor to any
charge related to the expense of distributing the Fund's shares (as determined
under Rule 12b-1, as amended under the federal securities laws) and (iii)
provided aggregate investments by the Fund in any such money market fund do not
exceed (A) the greater of (i) 5% of the Fund's total net assets or (ii) $2.5
million, or (B) more than 3% of the outstanding shares of any such money market
fund.
6. Invest more than 15% of the Fund's total assets in the securities of all
issuers in the aggregate, the respective businesses of which have been in
continuous operation for less than three years. As a non-fundamental policy, the
Fund has determined to limit such investments to 5% of its total assets.
7. Purchase or retain investments in securities of any issuer in which
directors or officers of the Fund have a substantial financial interest. The
Fund, as a non-fundamental policy, will not purchase the securities of any
issuer if any officer, director or employee of the Fund is an officer, director
or security holder of such issuer and owns beneficially more than 1/2 of 1% of
the securities of such issuer, and if all of such persons owning more than 1/2
of 1% own more than 5% of the outstanding securities of such issuer.
8. Borrow money, except as a temporary measure for extraordinary purposes, and
then not in excess of 10% of the total assets of the Fund taken at cost or
value, whichever is less, and provided that immediately after any such borrowing
there is an asset coverage (meaning the ratio which the value of the total
assets of the Fund, less all liabilities and indebtedness of the Fund not
represented by such borrowing, bears to the aggregate amount of such borrowing)
of at least 300% for all borrowings of the Fund.
9. Lend any money or assets of the Fund, except through the purchase of a
portion of an issue of debt securities distributed privately by federal, state
or municipal government agencies, and then not in excess of 10% of the total
assets of the Fund taken at cost or value, whichever is less, or to the extent
the entry into a repurchase agreement may be deemed a loan. For the purpose of
this policy, the purchase by the Fund of a portion of an issue of publicly
distributed corporate or governmental bonds, debentures or other debt securities
shall not be deemed to be the lending of money by the Fund.
10. Mortgage or pledge any of the Fund's assets. The escrow arrangements
involved in the Fund's option writing activities are not deemed to be a
mortgage or pledge of its assets.
11. Act as a securities underwriter or investor in real estate or commodities,
other than the Fund's investments in derivative securities, including financial
futures and options on financial futures.
12. Purchase or sell any securities other than shares of the Fund from or to the
manager or any officer or director of the manager of the Fund.
13. Invest in the securities of companies for the purpose of exercising
control.
14. Issue securities senior to the Fund's presently authorized common stock.
So long as the percentage restrictions above are observed by the Fund at the
time it purchases any security, changes in values of particular Fund assets or
the assets of the Fund as a whole will not cause a violation of any of the
foregoing restrictions.
In order to change any of these restrictions which are fundamental policies,
approval is needed by the lesser of (i) 67% or more of the Fund's voting
securities present at a meeting, if the holders of more than 50% of the Fund's
voting securities are represented at that meeting or (ii) more than 50% of the
Fund's outstanding voting securities.
In addition to these fundamental policies, it is the Fund's present policy
(which may be changed without the approval of the Fund's shareholders) not to:
invest in oil, gas or other mineral exploration or development programs; engage
in joint or joint and several trading accounts in securities, except that a Fund
order to purchase or sell securities may be combined with other orders to obtain
lower brokerage commissions; invest in any security which would be restricted
from sale to the public without registration under the Securities Act of 1933
if, as a result of such purchase, more than 5% of the Fund's total assets would
be invested in such securities; or invest more than 10% of its assets in
securities, including restricted securities, which are not readily marketable.
The Fund's investments in warrants, if any, other than those acquired by the
Fund as a part of a unit, valued at the lower of cost or market, will not exceed
5% of the value of the Fund's net assets, including not more than 2% which are
not listed on the New York or American Stock Exchange.
The exchanges on which options are traded have established limitations governing
the maximum number of options in each class which may be written by a single
investor or group of investors acting in concert (regardless of whether the
options are written on the same or different exchanges or are held or written in
one or more accounts or through one or more brokers). It is possible that the
Fund and other clients of the Manager may be considered to be such a group. An
exchange may order the liquidation of positions found to be in violation of
these limits, and it may impose certain other sanctions. These position limits
may restrict the number of options which the Fund will be able to write on a
particular security.
OFFICERS AND DIRECTORS
The Board of Directors (the "Board") has the responsibility for the overall
management of the Fund, including general supervision and review of its
investment activities. The directors, in turn, elect the officers of the Fund
who are responsible for administering day-to-day operations of the Fund. The
affiliations of the officers and directors and their principal occupations for
the past five years are listed below. Directors who are deemed to be "interested
persons" of the Fund, as defined in the 1940 Act, are indicated by an asterisk
(*).
Positions and Offices Name, Age and Address Principal Occupations
During Past Five Years
Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111
Director
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
S. Joseph Fortunato (63)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 58 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
Director
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
*Edward B. Jamieson (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Director
Senior Vice President and Portfolio Manager, Franklin Advisers, Inc.; and
officer and/or director or trustee of five of the investment companies in the
Franklin Group of Funds.
*Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Director
President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or managing general
partner, as the case may be, of most other subsidiaries of Franklin
Resources, Inc. and of 57 of the investment companies in the Franklin
Templeton Group of Funds.
Hayato Tanaka (78)
277 Haihai Street
Hilo, HI 96720
Director
Retired, former owner of The Jewel Box Orchids; and director or trustee, as the
case may be, of two of the Franklin Group of Funds.
*R. Martin Wiskemann(69)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Director
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 20 of the
investment companies in the Franklin Group of Funds.
Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 43 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (35)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; Vice President, Franklin Advisers, Inc. and
officer of 37 of the investment companies in the Franklin Group of Funds.
Rupert H. Johnson, Jr. (55)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies
in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
The preceding table indicates those officers and directors who are also
affiliated persons of Distributors and the investment manager. Directors not
affiliated with the investment manager ("nonaffiliated directors") are currently
paid fees of $100 per meeting attended. As indicated above, certain of the
Fund's nonaffiliated directors also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Group of Funds(R)
and the Templeton Group of Funds (the "Franklin Templeton Group of Funds") from
which they may receive fees for their services. The following table indicates
the total fees paid to nonaffiliated directors by the Fund and by other funds in
the Franklin Templeton Group of Funds.
NUMBER OF BOARDS IN
THE FRANKLIN
TOTAL FEES RECEIVED TEMPLETON GROUP OF
FROM THE FRANKLIN FUNDS ON WHICH EACH
TOTAL FEES TEMPLETON GROUP OF SERVES***
RECEIVED FROM THE FUNDS**
NAME FUND*
Frank Abbott, III $500 $162,420 31
S. Joseph Fortunato 500 344,745 58
David Garbellano 500 146,100 30
Hayato Tanaka 500 500 2
*For the fiscal year ended December 31, 1995 **For the calendar year ended
December 31, 1995
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
directors are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 162
U.S. based funds or series.
Nonaffiliated directors 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, trustee or managing general
partner. No officer or director received any other compensation directly from
the Fund. Certain officers or directors who are shareholders of Franklin
Resources, Inc. ("Resources") may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.
As of February 12, 1996, the directors and officers, as a group, owned of
record and beneficially approximately 56,994 outstanding shares of the Fund.
Many of the Fund's directors own shares in various of the other funds in the
Franklin Templeton Group of Funds. Charles B. Johnson and Rupert H. Johnson,
Jr. are brothers.
From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Resources, a publicly owned
holding company whose shares are listed on the New York Stock Exchange
("Exchange"). Resources owns several other subsidiaries that are involved in
investment management and shareholder services.
Pursuant to the management agreement, the Manager provides investment research
and portfolio management services, including the selection of securities for the
Fund to purchase, 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. Under the terms of the management
agreement, the Manager provides office space and office furnishings, facilities
and equipment required for managing the business affairs of the Fund; maintains
all internal bookkeeping, clerical, secretarial and administrative personnel and
services; and provides certain telephone and other mechanical services. The
Manager is covered by fidelity insurance on its officers, directors, and
employees for the protection of the Fund. Please see the Statement of Operations
in the financial statements included in the Fund's Annual Report to Shareholders
dated December 31, 1995.
The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The Manager
may give advice and take action with respect to any of the other funds it
manages, or for its own account, which 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, purchase or sell, or to refrain from
recommending, purchasing or selling any security that the Manager and access
persons, as defined by the 1940 Act, may purchase or sell for its or their own
account or for the accounts of any other fund. Furthermore, the Manager is not
obligated to refrain from investing in securities held by the Fund or other
funds which it manages or administers. 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.
Pursuant to the management agreement, the Fund is obligated to pay the Manager a
fee computed at the close of business on the last business day of each month
equal to a monthly rate of 5/96 of 1% (approximately 5/8 of 1% per year) for the
first $100 million of net assets of the Fund; 1/24 of 1% (approximately 1/2 of
1% per year) on net assets of the Fund in excess of $100 million up to $250
million; and 9/240 of 1% (approximately 45/100 of 1% per year) of net assets of
the Fund in excess of $250 million. The management agreement specifies that the
management fee will be reduced to the extent necessary to comply with the most
stringent limits on the expenses which may be borne by the Fund as prescribed by
any state in which the Fund's shares are offered for sale. The most stringent
current limit requires the Manager to reduce or eliminate its fee to the extent
that aggregate operating expenses of the Fund (excluding interest, taxes,
brokerage commissions and extraordinary expenses such as litigation costs) would
otherwise exceed in any fiscal year 21/2% of the first $30 million of average
net assets of the Fund, 2% of the next $70 million of average net assets of the
Fund and 11/2% of average net assets of the Fund in excess of $100 million.
Expense reductions have not been necessary based on state requirements.
Management fees for the fiscal years ended December 31, 1993, 1994 and 1995 were
$139,233, $155,985, and $198,598 respectively.
The management agreement is in effect until April 30, 1996. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Board or by a vote of
the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Fund's directors who are not parties to
the management agreement or interested persons of any such party (other than as
directors of the Fund), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Fund
or by the Manager on 30 days' written notice and will automatically terminate in
the event of its assignment, as defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services", a
wholly-owned subsidiary of Resources, is the shareholder servicing agent for
the Fund and acts as the Fund's transfer agent and dividend-paying agent.
Investor Services is compensated on the basis of a fixed fee per account.
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.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian for cash received in connection with the
purchase of Fund shares. Citibank Delaware, One Penn's Way, New Castle, Delaware
19720, acts as custodian in connection with transfer services through bank
automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Fund's independent auditors. During the fiscal year ended December 31,
1995, their auditing services consisted of rendering an opinion on the financial
statements of the Fund included in the Fund's Annual Report to Shareholders
dated December 31, 1995.
HOW DOES THE FUND PURCHASE SECURITIES
FOR ITS PORTFOLIO?
Under the current management agreement with Advisers, the selection of brokers
and dealers to execute transactions in the Fund's portfolio is made by the
Manager in accordance with criteria set forth in the management agreement and
any directions which the Board may give.
When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions done on a
securities exchange, the amount of commission paid by the Fund is negotiated
between the Manager and the broker executing the transaction. The Manager seeks
to obtain the lowest commission rate available from brokers which are felt to be
capable of efficient execution of the transactions. The determination and
evaluation of the reasonableness of the brokerage commissions paid in connection
with portfolio transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and review of such
transactions. These opinions are formed on the basis of, among other things, the
experience of these individuals in the securities industry and information
available to them concerning the level of commissions being paid by other
institutional investors of comparable size. The Manager will ordinarily place
orders for the purchase and sale of 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 Fund seeks to obtain
prompt execution of orders at the most favorable net price.
The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in the Fund's best
interest, the Manager may place portfolio transactions with brokers who provide
the types of services described below, even if it means the Fund will pay a
higher commission than if no weight were given to the broker's furnishing of
these services. This will be done only if, in the opinion of the Manager, the
amount of any additional commission is reasonable in relation to the value of
the services. Higher commissions will be paid only when the brokerage and
research services received are bona fide and produce a direct benefit to the
Fund or assist the Manager in carrying out its responsibilities to the Fund, or
when it is otherwise in the best interest of the Fund to do so, whether or not
such services may also be useful to the Manager in advising other clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of the Fund's net
assets, in such amount of total brokerage as may reasonably be required in light
of such services, and through brokers who supply research, statistical and other
data to the Fund and Manager in such amount of total brokerage as may reasonably
be required.
It is not possible to place a dollar value on the special executions or on the
research services received by the Manager from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits the Manager to supplement its own research
and analysis activities and to receive the views and information of individuals
and research staff of other securities firms. As long as it is lawful and
appropriate to do so, the Manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. Provided that
the Fund's officers are satisfied that the best execution is obtained, the sale
of Fund shares may also be considered as a factor in the selection of broker
dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, it is sometimes entitled to obtain certain fees when the Fund tenders
portfolio securities pursuant to a tender-offer solicitation. As a means of
recapturing brokerage for the benefit of the Fund, any portfolio securities
tendered by the Fund will be tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee payable to Advisers under
the management agreement will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.
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 such 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. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of the
security so far as the Fund is concerned. In other cases it is possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to the Fund.
During the past three fiscal years ended December 31, 1995 the Fund paid
brokerage commissions totaling $26,048, $26,798, and $52,955.
As of December 31, 1995, the Fund did not own securities of its regular
broker-dealers.
HOW DO I BUY AND SELL SHARES?
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) to
honor the transaction or make adjustments to your account for the transaction as
of a date and with a foreign currency exchange factor determined by the drawee
bank.
In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of the Fund to
complete an exchange will be effected at the close of business on the day the
request for exchange is received in proper form at the net asset value then
effective.
Dividend checks returned to the Fund marked "unable to forward" by the postal
service will be deemed to be a request by the shareholder to change the dividend
option, and the proceeds will be reinvested in additional shares at net asset
value until new instructions are received.
The Fund may impose a $10 charge for each returned item, against any shareholder
account which, in connection with the purchase of Fund shares, submits a check
or a draft which is returned unpaid to the Fund.
The Fund may deduct from your account the costs of its efforts to locate you if
mail is returned as undeliverable or the Fund is otherwise unable to locate you
or verify your current mailing address. These costs may include a percentage of
the account when a search company charges a percentage fee in exchange for its
location services.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors, to help defray expenses of maintaining a service
office in Taiwan, including expenses related to local literature fulfillment and
communication facilities.
Shares of the Fund may be offered to investors in Taiwan through securities
firms known locally as Securities Investment Consulting Enterprises. In
conformity with local business practices in Taiwan, shares of the Fund will be
offered with the following schedule of sales charges:
SALES
SIZE OF PURCHASE - IN U.S. DOLLARS CHARGE
- ----------------------------------------
Up to $100,000.................. 3%
$100,000 to $1,000,000.......... 2%
Over $1,000,000................. 1%
PURCHASES AND REDEMPTIONS
THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper form prior to
the scheduled close of the Exchange (generally 1:00 p.m. Pacific time) any
business day that the Exchange is open for trading and promptly transmitted to
the Fund will be based upon the public offering price determined that day.
Purchase orders received by securities dealers or other financial institutions
after the scheduled close of the Exchange will be effected at the Fund's public
offering price on the day it is next calculated. The use of the term "securities
dealer" herein shall include other financial institutions which, either directly
or through affiliates, have an agreement with Distributors to handle customer
orders and accounts with the Fund. Such reference, however, is for convenience
only and does not indicate a legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to you resulting from failure to do so must be settled between you and
the securities dealer.
OTHER PAYMENTS TO SECURITIES DEALERS
As discussed in the Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for purchases
made at net asset value by certain trust companies and trust departments of
banks, certain designated retirement plans (excluding IRA and IRA Rollovers),
certain non-designated plans, and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, as described below.
Distributors may make these payments in the form of contingent advance payments,
which may be recovered from the securities dealer, or set off against other
payments due to the securities dealer, in the event shares are redeemed within
12 months of the calendar month of purchase. Other conditions may apply. All
terms and conditions may be imposed by an agreement between Distributors, or one
of its affiliates, and the securities dealer.
Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to securities dealers who initiate and are responsible for
purchases made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers): 1% on sales of $1 million but less than $2
million, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or more;
and for purchases made at net asset value by certain non-designated retirement
plans: 0.75% on sales of $1 million but less than $2 million, plus 0.60% on
sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million
but less than $50 million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more. These payment breakpoints
are reset every 12 months for purposes of additional purchases. With respect to
purchases made at net asset value by certain trust companies and trust
departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, either Distributors, or
one of its affiliates, out of its own resources, may pay up to 1% of the amount
invested.
LETTER OF INTENT
You may qualify for a reduced sales charge on the purchase of shares of the
Fund, as described in the Prospectus. At any time within 90 days after the first
investment which you want to qualify for the reduced sales charge, a signed
Shareholder Application, with the Letter of Intent section completed, may be
filed with the Fund. After the Letter of Intent is filed, each additional
investment will be entitled to the sales charge applicable to the level of
investment indicated on the Letter of Intent. Sales charge reductions based upon
purchases in more than one of the Franklin Templeton Funds will be effective
only after notification to Distributors that the investment qualifies for a
discount. Your holdings in the Franklin Templeton Funds acquired more than 90
days before the Letter of Intent is filed will be counted towards completion of
the Letter of Intent but will not be entitled to a retroactive downward
adjustment in the sales charge. Any redemptions you make, unless by a designated
retirement plan, during the 13-month period will be subtracted from the amount
of the purchases for purposes of determining whether the terms of the Letter of
Intent have been completed. If the Letter of Intent is not completed within the
13-month period, there will be an upward adjustment of the sales charge,
depending upon the amount actually purchased (less redemptions) during the
period. The upward adjustment does not apply to designated benefit plans. I you
execute a Letter of Intent prior to a change in the sales charge structure for
the Fund, you will be entitled to complete the Letter of Intent at the lower of
(i) the new sales charge structure; or (ii) the sales charge structure in effect
at the time the Letter of Intent was filed.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in your
name. If the total purchases, less redemptions, equal the amount specified under
the Letter of Intent, the reserved shares will be deposited to an account in
your name or delivered to you or as you direct. If the total purchases, less
redemptions, exceed the amount specified under the Letter of Intent and is an
amount which would qualify for a further quantity discount, a retroactive price
adjustment will be made by Distributors and the securities dealer through whom
purchases were made pursuant to the Letter of Intent (to reflect such further
quantity discount) on purchases made within 90 days before and on those made
after filing the Letter of Intent. The resulting difference in offering price
will be applied to the purchase of additional shares at the offering price
applicable to a single purchase or the dollar amount of the total purchases. If
the total purchases, less redemptions, are less than the amount specified under
the Letter of Intent, you will remit to Distributors an amount equal to the
difference in the dollar amount of sales charge actually paid and the amount of
sales charge that would have applied to the aggregate purchases if the total of
such purchases had been made at a single time. Upon such remittance the reserved
shares held for your account will be deposited to an account in the name of you
or delivered to you or as you direct. If within 20 days after written request
such difference in sales charge is not paid, the redemption of an appropriate
number of reserved shares to realize the difference will be made. In the event
of a total redemption of the account prior to fulfillment of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption, and the balance will be forwarded to you.
If a Letter of Intent is executed on behalf of a designated retirement plan, the
level and any reduction in sales charge for these plans will be based on actual
plan participation and the projected investments in the Franklin Templeton Funds
under the Letter of Intent. These plans are not subject to the requirement to
reserve 5% of the total intended purchase, or to any penalty as a result of the
early termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter of Intent.
REDEMPTIONS IN KIND
The Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during any
90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commission ("SEC"). In the
case of requests for redemption in excess of such amounts, the directors reserve
the right to make payments in whole or in part in securities or other assets of
the Fund, in case of an emergency, or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of the Fund. In such
circumstances, the securities distributed would be valued at the price used to
compute the Fund's net assets and you may incur brokerage fees in converting the
securities to cash. The Fund does not intend to redeem illiquid securities in
kind. Should it happen, however, you may not be able to recover your investment
in a timely manner.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments, the Fund reserves
the right to redeem, involuntarily, at net asset value, the shares of any
shareholder whose account has a value of less than one-half of the initial
minimum investment, but only where the value of your account has been reduced by
the prior voluntary redemption of shares. Until further notice, it is the
present policy of the Fund not to exercise this right if your account has a
value of $50 or more. In any event, before the Fund redeems your shares and
sends the proceeds to you, it will notify you that the value of the shares in
the account is less than the minimum amount and allow you 30 days to make an
additional investment in an amount which will increase the value of the account
to at least $100.
REINVESTMENT DATE
Shares acquired through the reinvestment of dividends will be purchased at the
net asset value determined on the business day following the dividend record
date (sometimes known as "ex-dividend date"). The processing date for the
reinvestment of dividends may vary from month to month, and does not affect the
amount or value of the shares acquired.
REPORTS TO SHAREHOLDERS
The Fund sends annual and semi-annual reports to its shareholders regarding the
Fund's performance and its portfolio holdings. Shareholders who would like to
receive an interim quarterly report may phone Fund Information at 1-800/DIAL
BEN.
SPECIAL SERVICES
The Franklin Templeton Institutional Services Department provides specialized
services, including recordkeeping, for institutional investors of the Fund.
The cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions that maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such owners. For each beneficial owner in
the omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee which the Fund normally pays Investor Services. These
financial institutions may also charge a fee for their services directly to
their clients.
HOW ARE FUND SHARES VALUED?
As noted in the Prospectus, the Fund calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. As of the date of this SAI, the Fund is
informed that the Exchange observes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Trading in securities on European and Far
Eastern securities exchanges and over-the-counter markets is normally completed
well before the close of business of the Exchange on each day on which the
Exchange is open. Trading in European or Far Eastern securities generally, or in
a particular country or countries, may not take place on every Exchange business
day. Furthermore, trading takes place in various foreign markets on days which
are not business days for the Exchange and on which the Fund's net asset value
is not calculated. The Fund calculates net asset value per share, and therefore
effects sales and redemptions of its shares, as of the close of the Exchange
each day on which the Exchange is open. Such calculation does not take place
contemporaneously with the determination of the prices of many of the portfolio
securities used in such calculation and, if events occur which materially affect
the value of these foreign securities, they will be valued at fair market value
as determined by the management and approved in good faith by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior to
the close of the Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times.
Occasionally, events affecting the values of such securities may occur between
the times at which they are determined and the scheduled close of the Exchange
which will not be reflected in the computation of the Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by the Board of Directors.
Portfolio securities which are traded both in the over-the-counter market and on
a stock exchange are valued according to the broadest and most representative
market as determined by the Manager. Portfolio securities underlying actively
traded call options are valued at their market price as determined above. The
current market value of any option held by the Fund is its last sales price on
the relevant exchange prior to the time when assets are valued. Lacking any
sales that day or if the last sale price is outside the bid and ask prices, the
options are valued within the range of the current closing bid and ask prices if
such valuation is believed to fairly reflect the contract's market value. Other
securities for which market quotations are readily available are valued at the
current market price, which may be obtained from a pricing service, based on a
variety of factors, including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of directors, the
Fund may utilize a pricing service, bank or securities dealer to perform any of
the above described functions.
ADDITIONAL INFORMATION REGARDING TAXATION
As stated in the Prospectus, the Fund intends to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986 (The
"Code"). The Directors reserve the right not to maintain the qualification of
the Fund as a regulated investment company if they determine such course of
action to be beneficial to the shareholders. In such case, the Fund will be
subject to federal and possibly state corporate taxes on its taxable income and
gains, and distributions to shareholders will be ordinary dividend income to the
extent of the Fund's available earnings and profits.
Subject to the limitations discussed below, all or a portion of the income
distributions paid by a Fund may be treated by corporate shareholders as
qualifying dividends for purposes of the dividends- received deduction under
federal income tax law. If the aggregate qualifying dividends received by the
Fund (generally, dividends from U.S. domestic corporations, the stock in which
is not debt-financed by the Fund and is held for at least a minimum holding
period) is less than 100% of its distributable income, then the amount of the
Fund's dividends paid to corporate shareholders which may be designated as
eligible for such deduction will not exceed the aggregate qualifying dividends
received by the Fund for the taxable year. The amount or percentage of income
qualifying for the corporate dividends-received deduction will be declared by
the Fund annually in a notice to shareholders mailed shortly after the end of
the Fund's fiscal year.
Corporate shareholders should note that dividends paid by a Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividends-received deduction. For example, any interest income and net
short-term capital gain (in excess of any net long-term capital loss or capital
loss carryover) included in investment company taxable income and distributed by
a Fund as a dividend will not qualify for the dividends-received deduction.
Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. For example,
the deduction is eliminated unless the Fund shares have been held (or deemed
held) for at least 46 days in a substantially unhedged manner. The
dividends-received deduction may also be reduced to the extent interest paid or
accrued by a corporate shareholder is directly attributable to its investment in
Fund shares. The entire dividend, including the portion which is treated as a
deduction, is includable in the tax base on which the alternative minimum tax is
computed and may also result in a reduction in the shareholder's tax basis in
its Fund shares, under certain circumstances, if the shares have been held for
less than two years. Corporate shareholders whose investment in the Fund is
"debt financed" for these tax purposes should consult with their tax advisors
concerning the availability of the dividends-received deduction.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. The Fund intends as a matter of policy
to declare such dividends, if any, in December and to pay these dividends in
December or January to avoid the imposition of this tax, but does not guarantee
that its distributions will be sufficient to avoid any or all federal excise
taxes. Under these rules, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as if
paid by the Fund and received by the shareholder on December 31 of the calendar
year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange of
the Fund's shares, held for six months or less, will be treated as a long-term
capital loss to the extent of capital gain dividends received with respect to
such shares. All or a portion of the sales charge incurred in purchasing shares
of the Fund will not be included in the federal tax basis of such shares sold or
exchanged within ninety (90) days of their purchase (for purposes of determining
gain or loss with respect to such shares) if the sales proceeds are reinvested
in the Fund or in another fund in the Franklin Group of Funds and a sales charge
which would otherwise apply to the reinvestment is reduced or eliminated. Any
portion of such sales charge excluded from the tax basis of the shares sold will
be added to the tax basis of the shares acquired in the reinvestment.
Shareholders should consult with their tax advisors concerning the tax rules
applicable to the redemption or exchange of Fund shares.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.
The Fund's investment in options and futures contracts are subject to many
complex and special tax rules. For example, over-the-counter options on debt
securities and equity options, including options on stock and on narrow-based
stock indexes, will be subject to tax under Section 1234 of the Code, generally
producing a long-term or short-term capital gain or loss upon exercise, lapse,
or closing out of the option or sale of the underlying stock or security. The
Fund treatment of certain other options, futures and forward contracts entered
into by the Fund is generally governed by Section 1256 of the Code. These
"Section 1256" positions generally include listed options on debt securities,
options on broad-based stock indexes, options on securities indexes, options on
futures contracts, regulated futures contracts and certain foreign currency
contracts and options thereon.
Absent a tax election to the contrary, each such Section 1256 position held by
the Fund will be marked-to-market (i.e., treated as if it were sold for fair
market value) on the last business day of the Fund's fiscal year, and all gain
or loss associated with fiscal year transactions and mark-to-market positions at
fiscal year end (except certain foreign currency gain or loss covered by Section
988 of the Code) will generally be treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-term capital losses within the Fund. The
acceleration of income on Section 1256 positions may require the Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, the Fund may be
required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may affect both the
amount, character and time of income distributed to shareholders by the Fund.
When the Fund holds an option or contract which substantially diminishes the
Fund's risk of loss with respect to another position of the Fund (as might occur
in some hedging transactions), this combination of positions could be treated as
a "straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of Fund securities and conversion of
short-term capital losses into long-term capital losses. Certain tax elections
exist for mixed straddles i.e., straddles comprised of at least one Section 1256
position and at least one non-Section 1256 position which may reduce or
eliminate the operation of these straddle rules.
As discussed in the Prospectus, the Fund may invest in "synthetic convertible
securities," i.e., two or more financial instruments that will produce an
economic effect that is similar to holding a convertible security. Generally,
each instrument included in a synthetic position is treated as a separate
property for tax purposes. Thus, the conversion of a "synthetic" convertible
position may result in one or more taxable transactions with respect to the
separate properties, in contrast to the conversion of a true convertible
instrument, which may be tax-free. Gains or losses recognized may affect the
amount, timing and character of the fund's distributions.
As a regulated investment company, the Fund is also subject to the requirement
that less than 30% of its annual gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months ("short-short income").
This requirement may limit the Fund's ability to engage in options, hedging
transactions and futures contracts because these transactions are often
consummated in less than three months, may require the sale of portfolio
securities held less than three months and may, as in the case of short sales of
portfolio securities reduce the holding periods of certain securities within the
Fund, resulting in additional short-short income for the Fund.
The Fund will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of the Fund as a regulated investment
company under Subchapter M of the Code.
Gains realized by the Fund from any transactions entered into after April 30,
1993 that are deemed to constitute "conversion transactions" under the Code and
which would otherwise produce capital gain may be recharacterized as ordinary
income to the extent that such gain does not exceed an amount defined by the
Code as the "applicable imputed income amount". A conversion transaction is any
transaction in which substantially all of the Fund's expected return is
attributable to the time value of the Fund's net investment in such transaction
and any one of the following criteria are met: 1) there is an acquisition of
property with a substantially contemporaneous agreement to sell the same or
substantially identical property in the future; 2) the transaction is an
applicable straddle; 3) the transaction was marketed or sold to the Fund on the
basis that it would have the economic characteristics of a loan but would be
taxed as capital gain; or 4) the transaction is specified in Treasury
regulations to be promulgated in the future. The applicable imputed income
amount, which represents the deemed return on the conversion transaction based
upon the time value of money, is computed using a yield equal to 120 percent the
applicable federal rate, reduced by any prior recharacterizations under this
provision or Section 263(g) of the Code concerning capitalized carrying costs.
As a regulated investment company, the Fund is also subject to the requirement
that less than 30% of its annual gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months ("short-short income"). This requirement may limit the Fund's ability to
engage in options, straddles, hedging transactions and forward or futures
contracts because these transactions are often consummated in less than three
months, may require the sale of portfolio securities held less than three months
and may, as in the case of short sales of portfolio securities reduce the
holding periods of certain securities within the Fund, resulting in additional
short-short income for the Fund. The Fund will monitor its transactions in such
options and contracts and may make certain other tax elections in order to
mitigate the effect of the above rules and to prevent disqualification of the
Fund as a regulated investment company under Subchapter M of the Code.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until April 30, 1996,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Fund. The underwriting agreement will continue in effect for
successive annual periods provided that its continuance is specifically approved
at least annually by a vote of the Board, or by a vote of the holders of a
majority of the Fund's outstanding voting securities, and in either event by a
majority vote of the Fund's directors who are not parties to the underwriting
agreement or interested persons of any such party (other than as directors of
the Fund), cast in person at a meeting called for that purpose. The underwriting
agreement terminates automatically in the event of its assignment and may be
terminated by either party on 90 days' written notice.
Distributors pays the expenses of distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Until April 30, 1994, income dividends were reinvested at the offering price
(which includes the sales charge) and Distributors allowed 50% of the entire
commission to the securities dealer of record, if any, on an account. Starting
with any income dividends paid after April 30, 1994, such reinvestment is at net
asset value.
In connection with the offering of the Fund's shares, aggregate underwriting
commissions for the fiscal years ended December 31, 1993, 1994 and 1995 were
$54,031, $93,593, and 137,840, respectively. After allowances to dealers,
Distributors retained $7,353, $6,627, and $15,494 during the fiscal years ended
December 31, 1993, 1994 and 1995, respectively. Distributors may be entitled to
reimbursement under the distribution plan of the Fund as discussed below. Except
as noted, Distributors received no other compensation from the Fund for acting
as underwriter.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act (the "Plan") whereby the Fund may pay up to a maximum of 0.25% per annum of
its average daily net assets, payable quarterly, for expenses incurred in the
promotion and distribution of its shares.
In implementing the Plan, the Board has determined that the annual fees payable
under the Plan will be equal to the sum of: (i) the amount obtained by
multiplying 0.25% by the average daily net assets represented by shares of the
Fund that were acquired by investors on or after May 1, 1994, the effective date
of the Plan) ("New Assets"), and (ii) the amount obtained by multiplying 0.15%
by the average daily net assets represented by shares of the Fund that were
acquired before the Effective Date of the Plan ("Old Assets"). Such fees will be
paid to the current securities dealer of record on the shareholder's account. In
addition, until such time as the maximum payment of 0.25% is reached on a yearly
basis, up to an additional 0.05% will be paid to Distributors under the Plan.
The payments to be made to Distributors will be used by Distributors to defray
other marketing expenses that have been incurred in accordance with the Plan,
such as advertising.
The fee is a Fund expense so that all shareholders regardless of when they
purchased their shares will bear 12b-1 expenses at the same rate. The initial
rate will be at least 0.20% (0.15% plus 0.05%) of the average daily net assets
and, as Fund shares are sold on or after the Effective Date, will increase over
time. Thus, as the proportion of Fund shares purchased on or after May 1, 1994
increases in relation to outstanding Fund shares, the expenses attributable to
payments under the proposed Plan will also increase (but will not exceed 0.25%
of average daily net assets). While this is the currently anticipated
calculation for fees payable under the Plan, the Plan permits the Fund's
directors to allow the Fund to pay a full 0.25% on all assets at any time. The
approval of the Board would be required to change the calculation of the
payments to be made under the Plan.
Pursuant to the Plan, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum as stated above) for actual expenses incurred in
the distribution and promotion of the Fund's shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates.
In addition to the payments to which Distributors or others are entitled under
the Plan, the Plan also provides that to the extent the Fund, the Manager or
Distributors or other parties on behalf of the Fund, the Manager or
Distributors, make payments that are deemed to be payments for the financing of
any activity primarily intended to result in the sale of shares of the Fund
within the context of Rule 12b-1 under the 1940 Act, then such payments shall be
deemed to have been made pursuant to the Plan. In no event shall the aggregate
asset-based sales charges which include payments made under the Plan, plus any
other payments deemed to be made pursuant to the Plan, exceed the amount
permitted to be paid pursuant to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, Section 26(d)4.
The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1. The Plan does not permit unreimbursed
expenses incurred in a particular year to be carried over to or reimbursed in
subsequent years.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plan as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plan for administrative servicing or for agency transactions. If a bank were
prohibited from providing such services, its customers who are shareholders
would be permitted to remain shareholders of the Fund, and alternate means for
continuing the servicing of such shareholders would be sought. In such an event,
changes in the services provided might occur and such shareholders might no
longer be able to avail themselves of any automatic investment or other services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these changes.
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law expressed herein, and banks and
financial institutions selling shares of the Fund may be required to register as
dealers pursuant to state law.
The Plan has been approved by shareholders and by the directors of the Fund,
including those directors who are not interested persons, as defined in the 1940
Act. The Plan is effective through April 30, 1996 and renewable annually by a
vote of the Fund's Board of Directors, including a majority vote of the
directors who are non-interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan, cast in person at a
meeting called for that purpose. It is also required that the selection and
nomination of such directors be done by the non-interested directors. The Plan
and any related agreement may be terminated at any time, without any penalty, by
vote of a majority of the non-interested directors on not more than 60 days'
written notice, by Distributors on not more than 60 days' written notice, by any
act that constitutes an assignment of the Underwriting Agreement with
Distributors, or by vote of a majority of the Fund's outstanding shares.
Distributors or any dealer or other firm may also terminate their respective
distribution or service agreement at any time upon written notice.
The Plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the Fund's outstanding shares, and all material amendments to the Plan or any
related agreements shall be approved by a vote of the non-interested directors,
cast in person at a meeting called for the purpose of voting on any such
amendment.
Distributors is required to report in writing to the Board of Directors at least
quarterly on the amounts and purpose of any payment made under the Plan and any
related agreements, as well as to furnish the Board of Directors with such other
information as may reasonably be requested in order to enable the Board of
Directors to make an informed determination of whether the Plan should be
continued.
For the fiscal year ended December 31, 1995, the total amount paid by the Fund
pursuant to the Plan was $59,813, which was used for the following purposes.
DOLLAR AMOUNT
Advertising................. $ 5,127
Printing and mailing of prospectuses
to other than current shareholders $ 4,994
Payments to underwriters.... $ 4,425
Payments to brokers or dealers $45,267
GENERAL INFORMATION
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time quote various
performance figures to illustrate the Fund's past performance and may
occasionally cite statistics to reflect its volatility or risk. Performance
quotations by investment companies are subject to rules adopted by the SEC.
These rules require the use of standardized performance quotations or,
alternatively, that every non- standardized performance quotation furnished by
the Fund be accompanied by certain standardized performance information computed
as required by the SEC. Current yield and average annual compounded total return
quotations used by the Fund are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by the Fund to compute or express performance follows.
TOTAL RETURN
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes the maximum front-end sales charge is deducted from the
initial $1,000 purchase order, and income dividends and capital gains are
reinvested at net asset value. The quotation assumes the account was completely
redeemed at the end of each one-, five- and ten-year period and the deduction of
all applicable charges and fees. If a change is made on the sales charge
structure, historical performance information will be restated to reflect the
maximum front-end sales charge currently in effect.
In considering the quotations of total return by the Fund, investors should
remember that the maximum front-end sales charge reflected in each quotation is
a one time fee (charged on all direct purchases) which will have its greatest
impact during the early stages of an investor's investment in the Fund. The
actual performance of an investment will be affected less by this charge the
longer an investor retains the investment in the Fund. The average annual
compounded rates of return for the Fund for the one-, five- and ten-year periods
ended on the date of the financial statements included in the Fund's Annual
Report to Shareholders dated December 31, 1995, were 16.28%, 14.07% and 10.07%,
respectively.
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the one-,
five- or ten-year periods.
As discussed in the Prospectus, the Fund may quote total rates of return in
addition to its average annual total return. Such quotations are computed in the
same manner as the Fund's average annual compounded rate, except that such
quotations will be based on the Fund's actual return for a specified period
rather than on its average return over one-, five- and ten-year periods. The
total rates of return for the Fund for the one-, five- and ten-year periods
ended on December 31, 1995 were 16.28%, 93.15% and 160.95%, respectively.
CURRENT YIELD
Current yield reflects the income per share earned by the Fund's portfolio
investments and is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period. The
yield for the Fund for the 30-day period ended on December 31, 1995 was 2.04%.
These figures were obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period.
CURRENT DISTRIBUTION RATE
Yield, which is calculated according to a formula prescribed by the SEC, is not
indicative of the amounts which were or will be paid to the Fund's shareholders.
Amounts paid to shareholders are reflected in the quoted "current distribution
rate." The current distribution rate is computed by dividing the total amount of
dividends per share paid by the Fund during the past 12 months by a current
maximum offering price. Under certain circumstances, such as when there has been
a change in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing
and short-term capital gains, and is calculated over a different period of time.
VOLATILITY
Occasionally statistics may be used to specify Fund volatility or risk. Measures
of volatility or risk are generally used to compare Fund net asset value or
performance relative to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market, as represented by an
index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market,
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average,
over a specified period of time. The idea is that greater volatility means
greater risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
For investors who are permitted to purchase shares of the Fund at net asset
value, sales literature pertaining to the Fund may quote a current distribution
rate, yield, total return, average annual total return and other measures of
performance as described elsewhere in this SAI with the substitution of net
asset value for the public offering price.
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax
applies.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials regarding the Fund may
discuss various measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. Such
comparisons may include, but are not limited to, the following examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment of
dividends.
b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - unmanaged
indices of all industrial, utilities, transportation, and finance stocks listed
on the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry. Rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for equity funds.
h) Financial publications: The Wall Street Journal and Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines provide performance
statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers Merrill Lynch,
Lehman Brothers and Bloomberg L.P.
m) Standard & Poor's 100 Stock Index - an unmanaged index based on the prices of
100 blue-chip stocks, including 92 industrials, one utility, two transportation
companies, and 5 financial institutions. The S&P 100 Stock Index is a smaller,
more flexible index for options trading.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines, or
other material which highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the Fund's performance to the
return on certificates of deposit or other investments. You should be aware,
however, that an investment in the Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a certificate
of deposit issued by a bank. For example, as the general level of interest rates
rise, the value of the Fund's fixed-income investments, as well as the value of
its shares which are based upon the value of such portfolio investments, can be
expected to decrease. Conversely, when interest rates decrease, the value of the
Fund's shares can be expected to increase. Certificates of deposit are
frequently insured by an agency of the U.S. government. An investment in the
Fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and that the items included in the calculations of averages may not
be identical to the formula used by the Fund to calculate its figures. In
addition there can be no assurance that the Fund will continue its performance
as compared to such other averages.
OTHER FEATURES AND BENEFITS
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college cost and/or
other long-term goals. The Franklin College Costs Planner may assist you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that such goals will be met.
MISCELLANEOUS INFORMATION
The Fund is a member of the Franklin Templeton Group, one of the largest mutual
fund organizations in the United States and may be considered in a program for
diversification of assets. Founded in 1947, Franklin, one of the oldest mutual
fund organizations, has managed mutual funds for over 48 years and now services
more than 2.5 million shareholder accounts. In 1992, Franklin, a leader in
managing fixed-income mutual funds and an innovator in creating domestic equity
funds, joined forces with Templeton Worldwide, Inc., a pioneer in international
investing. Together, the Franklin Templeton Group has over $135 billion in
assets under management for more than 3.9 million U.S. based mutual fund
shareholder and other accounts. The Franklin Group of Funds and the Templeton
Group of Funds offer to the public 114 U.S.-based mutual funds. The Fund may
identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin number one
in service quality for five of the past eight years.
Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j)
under the 1940 Act, who are employees of Resources or its subsidiaries, are
permitted to engage in personal securities transactions subject to the following
general restrictions and procedures: (1) The trade must receive advance
clearance from a Compliance Officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be sent to the
Compliance Officer and within 10 days after the end of each calendar quarter, a
report of all securities transactions must be provided to the Compliance
Officer; (3) In addition to items (1) and (2), access persons involved in
preparing and making investment decisions must file annual reports of their
securities holdings each January and also inform the Compliance Officer (or
other designated personnel) if they own a security that is being considered for
a fund or other client transaction or if they are recommending a security in
which they have an ownership interest for purchase or sale by a fund or other
client.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the Internal Revenue Service in response to a
Notice of Levy.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Fund dated December 31, 1995, including the auditors' report, are
incorporated herein by reference.
Franklin Premier Return Fund
File Nos. 2-12647
811-730
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated December 31, 1995, as
filed with the SEC electronically on Form Type N-30D on February 27,
1995.
(i) Report of Independent Auditors - January 31, 1996
(ii) Statement of Investments in Securities and Net Assets, December 31,
1995
(iii) Statement of Assets and Liabilities, December 31, 1995
(iv) Statement of Operations for the year ended December 31, 1995
(v) Statement of Changes in Net Assets for the years ended December 31,
1995 and 1994
(vi) Notes to Financial Statements
b) Exhibits
The following exhibits are attached herewith except for exhibit 14(i), which is
incorporated by reference:
(1) copies of the charter as now in effect;
(i) Articles of Incorporation dated April 13, 1983
(ii) Certificate of Amendment of Articles of Incorporation dated April 15,
1991
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) Amended By-Laws of Franklin Premier Return Fund
(ii) Amendment to By-Laws adopted January 18, 1994
(3) copies of any voting trust agreement with respect to more than five percent
of any class of equity securities of the Registrant;
N/A
(4) specimens or copies of each security issued by the Registrant, including
copies of all constituent instruments, defining the rights of the holders
of such securities, and copies of each security being registered;
N/A
(5) copies of all investment advisory contracts relating to the management of
the assets of the Registrant;
(i) Management Agreement between Registrant and Franklin Advisers, Inc.
dated May 1, 1986
(6) copies of each underwriting or distribution contract between the Registrant
and a principal underwriter, and specimens or copies of all agreements
between principal underwriters and dealers;
(i) Amended and Restated Distribution Agreement between Franklin Premier
Return Fund and Franklin/Templeton Distributors, Inc. dated April 23,
1995
(ii) Forms of Dealer Agreements effective December 1, 1994, between
Franklin/Templeton Distributors, Inc. and securities dealers
(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangement wholly or partly for the benefit of
directors or officers of the Registrant in their capacity as
such; any such plan that is not set forth in a formal document,
furnish a reasonably detailed description thereof;
N/A
(8) copies of all custodian agreements and depository contracts under Section
17(f) of the 1940 Act, with respect to securities and similar investments
of the Registrant, including the schedule of renumeration;
(i) Custodian Agreement between Registrant and Citibank Delaware:
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master Agreement
3. Short Form Bank Agreement - Deposits and Disbursements of Funds
(ii) Custodian Agreement between Registrant and Bank of America NT & SA
dated April 1, 1995
(iii) Amendment to Custodian Agreement dated April 12, 1995 between
Registrant and Bank of America NT & SA
(iv) Master Custodian Agreement between Registrant and Bank of New York
dated February 16, 1996
(v) Terminal Link Agreement between Registrant and Bank of New York
dated February 16, 1996
(9) copies of all other material contracts not made in the ordinary course of
business which are to be performed in whole or in part at or after the date
of filing the Registration Statement;
(i) Agreement of Merger between FOF and Franklin Option Fund, Inc. dated
April 22, 1983
(10) an opinion and consent of counsel as to the legality of the securities
being registered, indicating whether they will when sold be legally issued,
fully paid and nonassessable;
N/A
(11) copies of any other opinions, appraisals or rulings and consents to the use
thereof relied on in the preparation of this registration statement and
required by Section 7 of the 1933 Act;
(i) Consent of Independent Auditors
(12) all financial statements omitted from Item 23;
N/A
(13) copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their purchases were
made for investment purposes without any present intention of redeeming or
reselling;
N/A
(14) copies of the model plan used in the establishment of any retirement plan
in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model plan.
Such form(s) should disclose the costs and fees charged in connection
therewith;
(i) Copy of model retirement plan
Registrant: AGE High Income Fund, Inc.
Filing: Post-Effective Amendment No. 2 to Registration Statement
on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(15) copies of any plan entered into by Registrant pursuant to Rule 12b-1 under
the 1940 Act, which describes all material aspects of the financing of
distribution of Registrant's shares, and any agreements with any person
relating to implementation of such plan.
(i) Distribution Plan pursuant to Rule 12b-1 between Franklin Premier
Return Fund and Franklin Distributors, Inc. dated May 1, 1994
(16) schedule for computation of each performance quotation provided in the
registration statement in response to Item 22 (which need not be audited).
(i) Schedule for computation of performance quotation
(17) Power of Attorney
(i) Power of Attorney dated February 16, 1995
(ii) Certificate of Secretary dated February 16, 1995
(27) Financial Data Schedule
(i) Financial Data Schedule
Item 25 Persons Controlled by or under Common Control with Registrant
None
Item 26 Number of Holders of Securities
As of December 31, 1995, the number of record holders of the only class of
securities of the Registrant was as follows:
Number of
Title of Class Record Holders
Capital Stock 3,462
Item 27 Indemnification
Please see Section 6 of the Management Agreement (Exhibit (5)), and Section 16
of Distribution Agreement (Exhibit (6)), previously filed as an exhibit and
incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court or appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28 Business and Other Connections of Investment Adviser
The officers and directors of the Registrant's manager also serve as officers
and/or directors for (1) the manager's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin Group of Funds(R).
In addition, Mr. Charles B. Johnson is a director of General Host Corporation.
For additional information please see Part B and Schedules A and D of Form ADV
of the Funds' Investment Manager (SEC File 801-26292), incorporated herein by
reference, which sets forth the officers and directors of the Investment Manager
and information as to any business, profession, vocation or employment of a
substantial nature engaged in by those officers and directors during the past
two years.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of Franklin Gold Fund, Franklin Equity
Fund, AGE High Income Fund, Inc., Franklin Custodian Funds, Inc., Franklin
Money Fund, Franklin California Tax-Free Income Fund, Inc., Franklin
Federal Money Fund, Franklin Tax-Exempt Money Fund, Franklin New York
Tax-Free Income Fund, Inc., Franklin Federal Tax-Free Income Fund, Franklin
Tax-Free Trust, Franklin California Tax-Free Trust, Franklin New York
Tax-Free Trust, Franklin Investors Securities Trust, Institutional
Fiduciary Trust, Franklin Value Investors Trust, Franklin Tax-Advantaged
International Bond Fund, Franklin Tax-Advantaged U.S. Government Securities
Fund, Franklin Tax-Advantaged High Yield Securities Fund, Franklin
Municipal Securities Trust, Franklin Managed Trust, Franklin Strategic
Series, Franklin International Trust, Franklin Real Estate Securities
Trust, Franklin Templeton Global Trust, Franklin Templeton Money Fund
Trust, Franklin Templeton Japan Fund, Templeton American Trust, Inc.,
Templeton Capital Accumulator Fund, Inc., Templeton Developing Markets
Trust, Templeton Funds, Inc., Templeton Global Investment Trust, Templeton
Global Opportunities Trust, Templeton Growth Fund, Inc., Templeton Income
Trust, Templeton Institutional Funds, Inc., Templeton Real Estate
Securities Fund, Templeton Smaller Companies Growth Fund, Inc., and
Templeton Variable Products Series Fund.
(b) The information required by this Item 29 with respect to each director and
officer of Distributors is incorporated by reference to Part B of this N-1A
and Schedule A of Form BD filed by Distributors with the Securities and
Exchange Commission pursuant to the Securities Act of 1934 (SEC File No.
8-5889).
(c) Not applicable. Registrant's principal underwriter is an affiliated person
of an affiliated person of the Registrant.
Item 30 Location of Accounts and Records
The accounts, books or other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 are kept by the Fund or its
shareholder services agent, Franklin/Templeton Investor Services, Inc., both of
whose address is 777 Mariners Island Blvd., San Mateo, CA. 94404.
Item 31 Management Services
There are no management-related service contracts not discussed in Part A or
Part B.
Item 32 Undertakings
The Registrant hereby undertakes to comply with the information requirement in
Item 5A of the Form N-1A by including the required information in the Fund's
annual report and to furnish each person to whom a prospectus is delivered a
copy of the annual report upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Mateo and the State of California,
on the 29th day of February, 1996.
FRANKLIN PREMIER RETURN FUND
By: Edward B. Jamieson *
Edward B. Jamieson, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
its Registration Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
Edward B. Jamieson* Chief Executive Officer and
(Edward B. Jamieson) Director
Dated: February 29, 1996
Martin L. Flanagan* Principal Financial Officer
(Martin L. Flanagan) Dated: February 29, 1996
Diomedes Loo-Tam* Principal Accounting Officer
(Diomedes Loo-Tam) Dated: February 29, 1996
Frank H. Abbott, III* Director
(Frank H. Abbott, III) Dated: February 29, 1996
S. Joseph Fortunato* Director
(S. Joseph Fortunato) Dated: February 29, 1996
David W. Garbellano* Director
(David W. Garbellano) Dated: February 29, 1996
Charles B. Johnson* Director and Chairman of the
(Charles B. Johnson) Board
Dated: February 29, 1996
Hayato Tanaka* Director
(Hayato Tanaka) Dated: February 29, 1996
R. Martin Wiskemann* Director & Vice President
(R. Martin Wiskemann) Dated: February 29, 1996
*By Larry L. Greene
Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
FRANKLIN PREMIER RETURN FUND
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Articles of Incorporation dated Attached
April 13, 1983
EX-99.B1(ii) Certificate of Amendment of Attached
Articles of Incorporation dated
April 15, 1991
EX-99.B2(i) Amended By-Laws of Franklin Attached
Premier Return Fund
EX-99.B2(ii) Amendment to By-Laws adopted Attached
January 18, 1994
EX-99.B5(i) Management Agreement between Attached
Registrant and Franklin Advisers,
Inc. dated May 1, 1986
EX-99.B6(i) Amended and Restated Distribution Attached
Agreement dated April 23, 1995
EX-99.B6(ii) Forms of Dealer Agreement between Attached
Franklin/Templeton Distributors,
Inc. ("Distributors") and dealers
dated December 1, 1994
EX-99.B8(i) Custodian Agreement between Attached
Registrant and Citibank Delaware
EX-99.B8(ii) Custodian Agreement between Attached
Registrant and Bank of America NT
& SA dated April 1, 1995
EX-99.B8(iii) Amendment to Custodian Agreement Attached
between Registrant and Bank of
America NT & SA dated April 12,
1996
EX-99.B8(iv) Master Custodian Agreement Attached
between Registrant and Bank of
New York dated February 16,
1996
EX-99.B8(v) Terminal Link Agreement between Attached
Registrant and Bank of New
York, dated February 16, 1996
EX-99.B9(i) Merger Agreement between FOF and Attached
Franklin Option Fund, Inc. dated
April 12, 1983
EX-99.B11(i) Consent of Independent Auditors Attached
dated February 27, 1996
EX-99.B14(i) Model Retirement Plan *
EX-99.B16(i) Schedule for computation of Attached
performance quotation
EX-99.B17(i) Power of Attorney dated February Attached
16, 1995
EX-99.B17(ii) Certificate of Secretary Attached
EX-27.B1 Financial Data Schedule Attached
*Incorporated by reference
ARTICLES OF INCORPORATION
OF
F 0 F, INC.
I
The name of this corporation is F O F, INC.
II
The purpose of this corporation is to engage in any lawful
act or activity for which a corporation may be organized under
the General Corporation Law of California other than the banking
business, the trust company business, or the practice of a
profession permitted to be incorporated by the California
Corporations Code.
III
The name and address in the State of California of this
corporation's initial agent for service of process is:
HARMON E. BURNS, 155 Bovet Road, San Mateo, California 94402.
IV
This corporation is authorized to issue only one class of
shares of stock, to wit, common stock, and the total number of
shares of common stock which this corporation is authorized to
issue is Five Billion (5,000,000,000).
V
The shares of common stock of the corporation shall be
subject to redemption as hereinafter set forth:
(1) Redemption by Shareholders:
(a) Each shareholder of this corporation at any time
may redeem all or any portion of such shareholder's shares by
tendering the shares to be redeemed in such manner as the Board
of Directors of the corporation may determine, and to receive the
redemption price next determined after a proper tender is made to
the corporation. The redemption price shall be determined in
accordance with the provisions set forth in the current
prospectus of the corporation, and shall be paid in cash or in
kind in such manner as the Board of Directors shall determine.
(b) The right of redemption by the shareholder may be
suspended (i) for any periods during which the New York Stock
Exchange is closed (other than for customary weekend and holiday
closings), (ii) when trading in the markets the corporation
normally utilizes is restricted or when an emergency exists as
determined by the United States Securities and Exchange
Commission as a result of which disposal of the corporation's
portfolio securities or a fair determination of the value of the
corporation's net assets is not reasonably practicable; or (iii)
for such other periods as the United States Securities and
Exchange Commission by order may permit for protection of the
corporation's shareholders.
(2) Redemption by Corporation:
(a) At the option of the corporation, to be exercised
at the discretion of the Board of Directors, the corporation may
redeem the shares owned by a shareholder if at any time the
shares of such shareholder do not have a total value (per share
net asset value times the number of shares held) of at least
$500. The Board of Directors shall cause written notice to be
mailed to any such shareholder at the address of such shareholder
as then reflected on the books of the corporation of the
corporation's intention to exercise its option of redemption,
and, unless such shareholder within 30 days following the mailing
of such notice purchases such additional number of shares so that
the value of all such shares then owned by such shareholder is at
least $500, the corporation shall on the date specified in such
written notice redeem all shares owned by such shareholder at the
aggregate per share redemption price next determined as provided
in the current prospectus of the corporation. Said redemption
price shall be paid in cash or in kind in such manner as the
Board of Directors shall determine.
(b) At the option of the corporation, to be exercised
by the Board of Directors, the corporation may redeem all or a
portion of the shares owned by a shareholder if at any time in
the opinion of the Board of Directors ownership of the
corporation's shares has or may fail to qualify for tax treatment
applicable to a "regulated investment company" under Subchapter M
of the United States Internal Revenue Code of 1954, as amended,
or any successor statute. No shareholder (or group of
shareholders deemed to be a single shareholder under said
Subchapter M) holding less than 5% of the net asset value of the
corporation shall be subject to redemption under this paragraph.
Such option shall be exercised by the Board of Directors causing
written notice to be mailed to such shareholder at the
shareholder's address as then reflected on the books of the
corporation of its intention to redeem all or a portion of such
shares, and the corporation shall redeem such shares upon the
date specified in such notice at the redemption price thereof
next determined as provided in the current prospectus of the
corporation.
(3) General
Upon redemption by the shareholder or by the
corporation as provided hereunder, the shareholder shall have no
further rights relative to or interest in the shares redeemed,
including without limitation the right to vote such shares or to
receive further dividends in respect thereto, other than the
right to receive payment of the redemption price on the date and
in the manner specified by the Board of Directors.
DATED: April 13, 1983
/s/ Harmon E. Burns
Harmon E. Burns, Incorporator
I hereby declare that I am the person who executed the
foregoing Articles of Incorporation, which execution is my act
and deed.
/s/ Harmon E. Burns
Harmon E. Burns
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
FRANKLIN OPTION FUND
HARMON E. BURNS and DEBORAH R. GATZEK certify that:
1. They are the vice president and secretary, respectively,
of FRANKLIN OPTION FUND, a California corporation.
2. Article First of the Articles of Incorporation of this
corporation is amended to read as follows:
"I. The name of this corporation is FRANKLIN PREMIER RETURN
FUND."
3. The foregoing Amendment of the Articles of Incorporation
has been duly approved by the corporation's board of directors.
4. The foregoing Amendment of the Articles of Incorporation
was duly approved on April 11, 1991 by the required vote of the
shareholders in accordance with Section 902 of the California
Corporations Code. The total number of outstanding shares of the
corporation entitled to vote was 7,551,346.712 and the number of
shares voting in favor of such amendment was in excess of the
vote required. The percentage vote required was a majority of
outstanding shares.
/s/ Harmon E. Burns
Harmon E. Burns
/s/ Deborah R. Gatzek
Deborah R. Gatzek
The undersigned declare under penalty of perjury that the matters
set forth in the foregoing Certificate are true of their own
knowledge.
Executed at San Mateo, California on April 15, 1991
/s/ Harmon E. Burns
Harmon E. Burns
/s/ Deborah R. Gatzek
Deborah R. Gatzek
AMENDED BY-LAWS
OF
FRANKLIN PREMIER RETURN FUND
A California Corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The Board of Directors shall
fix the location of the principal executive office of the
corporation at any place within or outside the State of
California. If the principal executive office is located outside
this state and the corporation has one or more business offices
in this state, the Board of Directors shall fix and designate a
principal business office in the State of California.
Section 2. OTHER OFFICES. The Board of Directors may at
any time establish branch or subordinate offices at any place or
places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders
shall be held at any place within or outside the State of
California designated by the Board of Directors. In the absence
of any such designation, shareholders' meetings shall be held at
the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of
shareholders shall be held on a date and at a time as the Board
of Directors shall determine, provided that annual meetings of
shareholders need not be held in any year in which such is not
required by the Investment Company Act of 1940.
Section 3. SPECIAL MEETING. A special meeting of the
shareholders may be called at any time by the Board of Directors
or by the chairman of the board or by the president or by one or
more shareholders holding shares of the aggregate entitled to
cast not less than ten (10%) percent of the votes at that
meeting.
If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in
writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted and shall be
delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the
president, any vice president or the secretary of the
corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote,
in accordance with the provisions of Sections 4 and 5 of this
Article II, that a meeting shall be held at the time requested by
the person or persons calling the meeting not less than thirty-
five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days
after receipt of the request, the person or persons requesting
the meeting may give the notice. Nothing contained in this
paragraph of this Section 3 shall be construed as limiting,
fixing or affecting the time when a meeting of the shareholders
called by action of the Board of Directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETING. All notices of
meetings of shareholders shall be sent or otherwise given in
accordance with Section 5 of this Article II not less than ten
(10) nor more than sixty (60) days before the date of the
meeting. The notice shall specify the place, date and hour of
the meeting and (i) in the case of a special meeting, the general
nature of the business to be transacted, or (ii) in the case of
the annual meeting, those matters which the Board of Directors at
the time of giving the notice, intends to present for action by
the shareholders. The notice of any meeting at which directors
are to be elected shall include the name of any nominee or
nominees whom at the time of the notice management intends to
present for election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a director has
a direct or indirect financial interest, (ii) an amendment of the
Articles of Incorporation, (iii) a reorganization of the
corporation, (iv) a voluntary dissolution of the corporation, or
(v) a distribution in dissolution other than in accordance with
the rights of outstanding preferred shares, the notice shall also
state the general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of shareholders shall be given either
personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at
the address of that shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for
the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the corporation's
principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office
is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent
by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of
that shareholder appearing on the books of the corporation is
returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at that address,
all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the
shareholder on written demand of the shareholder at the principal
executive office of the corporation for a period of one year from
the date of the giving of the notice.
An affidavit of the mailing or other means of giving any
notice of any shareholder's meeting shall be executed by the
secretary, assistant secretary or any transfer agent of the
corporation giving the notice and shall be filed and maintained
in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of
the holders of a majority of the shares entitled to vote at any
meeting of shareholders shall constitute a quorum for the
transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue
to do business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholder's
meeting, annual or special, whether or not a quorum is present,
may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by
proxy, but in the absence of a quorum no other business may be
transacted at that meeting, except as provided in Section 6 of
this Article II.
When any meeting of shareholders, either annual or special,
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 forty-five (45) days from
the date set for the original meeting, in which case the Board of
Directors shall set a new record date. Notice of any such
adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 4 and 5 of this Article II. At any
adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting.
Section 8. VOTING. The shareholders entitled to vote at
any meeting of shareholders shall be determined in accordance
with the provisions of Section 11 of this Article II, subject to
the provisions of the Corporations Code of California relating to
voting shares held by a fiduciary in the name of a corporation or
in joint ownership. The shareholders' vote may be by voice vote
or by ballot, provided, however, that any election for directors
must be by ballot if demanded by any shareholder before the
voting has begun. On any matter other than elections of
directors any shareholder may vote part of the shares in favor of
the proposal and refrain from voting the remaining shares or vote
them against the proposal, but if the shareholder fails to
specify the number of shares which the shareholder is voting
affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to the total shares
that the shareholder is entitled to vote on such proposal. If a
quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any
matter (other than the election of directors) shall be the act of
the shareholders, unless the vote of a greater number or voting
by classes is required by the California General Corporation Law
or by the Articles of Incorporation.
At a shareholder's meeting at which directors are to be
elected, no shareholder shall be entitled to cumulate votes
(i.e., cast for any one or more candidates a number of votes
greater than the number of the shareholder's shares) unless the
candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice
prior to commencement of the voting of the shareholder's
intention to cumulate votes. If any shareholder has given such a
notice, then every shareholder entitled to vote may cumulate
votes for candidates in nomination and give one candidate a
number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's
shares are entitled, or distribute the shareholder's votes on the
same principle among any or all of the candidates as the
shareholder thinks fit. The candidates receiving the highest
number of votes up to the number of directors to be elected shall
be elected.
Section 9. WAIVER OF NOTICE OF CONSENT BY ABSENT
SHAREHOLDERS. The transactions of the meeting of shareholders,
either annual or special, however called and noticed and wherever
held, shall be as valid as though had at a meeting duly held
after regular call and notice if a quorum be present either in
person or by proxy and if either before or after the meeting,
each person entitled to vote who was not present in person or by
proxy signs a written waiver of notice or a consent to a holding
of the meeting or an approval of the minutes. The waiver of
notice or consent need not specify either the business to be
transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be
taken for approval of any of those matters specified in the
second paragraph of Section 4 of this Article II, the waiver of
notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a
waiver of notice of that meeting, except when the person objects
at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened
and except that attendance at a meeting is not a waiver of any
right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at
the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING. Any action which may be taken at any annual or special
meeting of shareholders may be taken without a meeting and
without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares
having not less than the minimum number of votes that would be
necessary to authorize or take that action at a meeting at which
all shares entitled to vote on that action were present and
voted. In the case of election of directors, such a consent
shall be effective only if signed by the holder of all
outstanding shares entitled to vote for the election of
directors; provided however, that a director may be elected at
any time to fill a vacancy on the Board of Directors that has not
been filled by the directors by the written consent of the
holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed
with the Secretary of the Corporation and shall be maintained in
the corporate records. Any shareholder giving a written consent
or the shareholder's proxy holders or a transferee of the shares
or a personal representative of the shareholder or their
respective proxy holders may revoke the consent by a writing
received by the Secretary of the Corporation before written
consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have
not been solicited in writing and if the unanimous written
consent of all such shareholders shall not have been received,
the Secretary shall give prompt notice of the corporate action
approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 5 of this
Article II. In the case of approval of (i) contracts or
transactions in which a director has a direct or indirect
financial interest, (ii) indemnification of agents of the
corporation, (iii) a reorganization of the corporation, and (iv)
a distribution in dissolution other than in accordance with the
rights of outstanding preferred shares, the notice shall be given
at least ten (10) days before the consummation of any action
authorized by that approval.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND
GIVING CONSENTS. For purposes of determining the shareholders
entitled to notice of any meeting or to vote or entitled to give
consent to corporate action without a meeting, the Board of
Directors may fix in advance a record date which shall not be
more than sixty (60) days nor less than ten (10) days before the
date of any such meeting nor more than sixty (60) days before
such action without a meeting and in this event only shareholders
of record on the date so fixed are entitled to notice and to vote
or to give consents as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the
record date, except as otherwise provided in the California
General Corporation Law.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders
shall be at the close of business on the business day
next preceding the day on which notice is given or if
notice is waived, at the close of business on the
business day next preceding the day on which the
meeting is held.
(b) The record date for determining shareholders entitled
to give consent to corporate action in writing without
a meeting, (i) when no prior action by the Board of
Directors has been taken, shall be the day on which the
first written consent is given, or (ii) when prior
action of the Board of Directors has been taken, shall
be at the close of business on the day on which the
Board of Directors adopts the resolution relating to
that action or the sixtieth day before the date of such
other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for
directors or on any other matter shall have the right to do so
either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the Secretary of the
Corporation. A proxy shall be deemed signed if the shareholder's
name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the
shareholder or the shareholder's attorney-in-fact. A validly
executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the
person executing it before the vote pursuant to that proxy by a
writing delivered to the corporation stating that the proxy is
revoked or by a subsequent proxy executed by or attendance at the
meeting and voting in person by the person executing that proxy;
or (ii) written notice of the death or incapacity of the maker of
that proxy is received by the corporation before the vote
pursuant to that proxy is counted; provided however, that no
proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy unless otherwise provided in the
proxy. The revocability of a proxy that states on its face that
it is irrevocable shall be governed by the provisions of the
California General Corporation Law.
Section 13. INSPECTORS OF ELECTION. Before any meeting of
shareholders the Board of Directors may appoint any persons other
than nominees for office to act as inspectors of election at the
meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors
shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders
or proxies, the holders of a majority of shares of their proxies
present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the
chairman of the meeting may and on the request of any shareholder
or a shareholder's proxy, shall appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the
meeting, the existence of a quorum and the
authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any
way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the
California General Corporation Law and any limitations in the
Articles of Incorporation and these By-Laws relating to action
required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under
the direction of the Board of Directors.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The
authorized number of directors shall be not less than five (5)
nor more than nine (9), until changed by a duly adopted amendment
to the Articles of Incorporation or by an amendment to this By-
Law adopted by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided
however, that an amendment reducing the number of directors to a
fixed number or a minimum number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting or
the shares not consenting in the case of action by written
consent are equal to more than sixteen and two-thirds (16 2/3%)
percent of the outstanding shares entitled to vote. The Board of
Directors shall by resolution fix the exact number of directors
within the limits set forth herein.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS.
Directors shall be elected at each annual meeting of the
shareholders to hold office until the next annual meeting. Each
director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Section 4. VACANCIES. Vacancies in the Board of Directors
may be filled by a majority of the remaining directors, though
less than a quorum, or by a sole remaining director, except that
a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be
filled only by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is
present or by the written consent of holders of a majority of the
outstanding shares entitled to vote. Each director so elected
shall hold office until the next annual meeting of the
shareholders and until a successor has been elected and
qualified.
A vacancy or vacancies in the Board of Directors shall be
deemed to exist in the event of the death, resignation or removal
of any director, or if the Board of Directors by resolution
declares vacant the office of a director who has been declared of
unsound mind by an order of court or convicted of a felony or if
the authorized number of directors is increased or if the
shareholders fail at any meeting of shareholders at which any
director or directors are elected to elect the number of
directors to be voted for at that meeting.
The shareholders may elect a director or directors at any
time to fill any vacancy or vacancies not filled by the
directors, but any such election by written consent shall require
the consent of a majority of the outstanding shares entitled to
vote; provided, however, that any vacancy created by removal of
any director may be filled by written consent only by unanimous
written consent of all shares entitled to vote for the election
of directors.
Any director may resign effective on giving written notice
to the chairman of the board, the president, the secretary or the
Board of Directors, unless the notice specifies a later time for
that resignation to become effective. If the resignation of a
director is effective at a future time, the Board of Directors
may elect a successor to take office when the resignation becomes
effective.
No reduction of the authorized number of directors shall
have the effect of removing any director before that director's
term of office expires.
In the event that at any time less than a majority of the
directors of the corporation holding office at that time were so
elected by the holders of the outstanding voting securities, the
Board of Directors of the corporation shall forthwith cause to be
held as promptly as possible, and in any event within sixty (60)
days, a meeting of such holders for the purpose of electing
directors to fill any existing vacancies in the Board of
Directors, unless such period is extended by order of the United
States Securities and Exchange Commission.
Notwithstanding the above, whenever and for so long as the
corporation is a participant in or otherwise has in effect a Plan
under which the corporation may be deemed to bear expenses of
distributing its shares as that practice is described in Rule 12b-
1 under the Investment Company Act of 1940, then the selection
and nomination of the directors who are not interested persons of
the corporation (as that term is defined in the Investment
Company Act of 1940) shall be, and is, committed to the
discretion of such disinterested directors.
Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
Regular meetings of the Board of Directors may be held at any
place within or outside the State of California that has been
designated from time to time by resolution of the board. In the
absence of such a designation, regular meetings shall be held at
the principal executive office of the corporation. Special
meetings of the board shall be held at any place within or
outside the State of California that has been designated in the
notice of the meeting or if not stated in the notice or there is
no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another and
all such directors shall be deemed to be present in person at the
meeting.
Section 6. ANNUAL MEETING. At the next regular meeting
following each annual meeting of shareholders, the Board of
Directors shall meet for the purpose of organization, any desired
election of officers, and the transaction of other business.
Special notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings
of the Board of Directors shall be held without call at such time
as shall from time to time be fixed by the Board of Directors.
Such regular meetings may be held without notice.
Section 8. SPECIAL MEETINGS. Special meetings of the Board
of Directors for any purpose or purposes may be called at any
time by the chairman of the board or the president or any vice
president or the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by
first-class mail or telegram, charges prepaid, addressed to each
director at that director's address as it is shown on the records
of the corporation. In case the notice is mailed, it shall be
deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is
delivered personally or by telephone or to the telegraph company,
it shall be given at least forty-eight (48) hours before the time
of the holding of the meeting. Any oral notice given personally
or by telephone may be communicated either to the director or to
a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the
director. 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 corporation.
Section 9. QUORUM. A majority of the authorized number of
directors shall constitute a quorum for the transaction of
business, except to adjourn as provided in Section 11 of this
Article III. Every act or decision done or made by a majority of
the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors,
subject to the provisions of the California General Corporation
Law relating to approval of contracts or transactions in which a
director has a direct or indirect material financial interest, to
appointment of committee, and to indemnification of directors. A
meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors if
any action taken is approved by at least a majority of the
required quorum for that meeting.
Section 10. WAIVER OF NOTICE. Notice of any meeting need
not be given to any director 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 approval shall be filed with the corporate
records or made a part of the minutes of the meeting. Notice of
a meeting shall also be deemed given to any director who attends
the meeting without protesting before or at its commencement the
lack of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors
present, whether or not constituting a quorum, may adjourn any
meeting to another time and place.
Section 12. 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 twenty-four (24) hours, in
which case notice of the time and place shall be given before the
time of the adjourned meeting in the manner specified in Section
8 of this Article III to the directors who were present at the
time of the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the Board of Directors may be taken
without a meeting if all members of the Board of Directors shall
individually or collectively consent in writing to that action.
Such action by written consent shall have the same force and
effect as a unanimous vote of the Board of Directors. Such
written consent or consents shall be filed with the minutes of
the proceedings of the Board of Directors.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors
and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be
fixed or determined by resolution of the Board of Directors. This
Section 14 shall not be construed to preclude any director from
serving the corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those
services.
ARTICLE IV
COMMITTEE
Section 1. COMMITTEES OF DIRECTORS. The Board of Directors
may by resolution adopted by a majority of the authorized number
of directors designate one or more committees, each consisting of
two (2) or more directors, to serve at the pleasure of the board.
The board may designate one or more directors 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 California
General Corporation Law also requires shareholders'
approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or
in any committee;
(c) the fixing of compensation of the directors for serving
on the Board of Directors or on any committee;
(d) the amendment or repeal of By-Laws or the adoption of
new By-Laws;
(e) the amendment or repeal of any resolution of the Board
of Directors which by its express terms is not so
amendable or repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a
price range determined by the Board of Directors; or
(g) the appointment of any other committees of the Board of
Directors or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and
action of committees shall be governed by and held and taken in
accordance with the provisions of Article III of these By-Laws,
Sections 5 (place of meetings), 7 (regular meetings), 8 (special
meetings and notice), 9 (quorum), 10 (waiver of notice), 11
(adjournment), 12 (notice of adjournment), and 13 (action without
meeting), with such changes in the context of those By-Laws as
are necessary to substitute the committee and its members for the
Board of Directors and its members, except that the time of
regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the
committee; special meetings of committees may also be called by
resolution of the Board of Directors; and notice of special
meetings of committees shall also be given to all alternate
members who shall have the right to attend all meetings of the
committee. The Board of Directors 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 corporation shall
be a president, a secretary, and a chief financial officer. The
corporation may also have at the discretion of the Board of
Directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant
treasurers, one or more assistant financial officers and such
other officers as may be appointed in accordance with the
provisions of Section 3 of this Article V. Any number of offices
may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the
corporation, except such officers as may be appointed in
accordance with the provisions of Section 3 or Section 5 of this
Article V, shall be chosen by the Board of Directors, and each
shall serve at the pleasure of the Board of Directors, subject to
the rights, if any, of an officer under any contract of
employment.
Section 3. SUBORDINATE OFFICERS. The Board of Directors
may appoint and may empower the president to appoint such other
officers as the business of the corporation may require, each of
whom shall hold office for such period, have such authority and
perform such duties as are provided in the By-Laws or as the
Board of Directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to
the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without
cause, by the Board of Directors at any regular or special
meeting of the Board of Directors or except in the case of an
officer chosen by the Board of Directors, by any officer upon
whom such power or removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice
to the corporation. Any resignation shall take effect at the
date of the receipt of that notice or at any later time specified
in that notice; and unless otherwise specified in that notice,
the acceptance of the resignation shall not be necessary to make
it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which
the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office
because of death, resignation, removal, disqualification or other
cause shall be filled in the manner prescribed in these By-Laws
for regular appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the
board, if such an officer is elected, shall if present preside at
meetings of the Board of Directors and exercise and perform such
other powers and duties as may be from time to time assigned to
him by the Board of Directors or prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers,
if any, as may be given by the Board of Directors to the chairman
of the board, if there be such an officer, the president shall be
the chief executive officer of the corporation and shall, subject
to the control of the Board of Directors, have general
supervision, direction and control of the business and the
officers of the corporation. He shall preside at all meetings of
the shareholders and in the absence of the chairman of the board
or if there be none, at all meetings of the Board of Directors.
He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have
such other powers and duties as may be prescribed by the Board of
Directors or the By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability
of the president, the vice presidents, if any, in order of their
rank as fixed by the Board of Directors or if not ranked, a vice
president designated by the Board of Directors, shall perform all
the duties of the president and when so acting shall have all
powers of and be subject to all the restrictions upon the
president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed
for them respectively by the Board of Directors or by the By-Laws
and the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to
be kept at the principal executive office or such other place as
the Board of Directors may direct a book of minutes of all
meetings and actions of directors, committees of directors and
shareholders with the time and place of holding, whether regular
or special, and if special, how authorized, the notice given, the
names of those present at directors' meetings or committee
meetings, the number of shares present or represented at
shareholders' meetings and the proceedings.
The secretary shall keep or cause to be kept at the
principal executive office or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the
Board of Directors, a share register or a duplicate share
register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same and the
number and date of cancellation of every certificate surrendered
for cancellation.
The secretary shall give or cause to be given notice of all
meetings of the shareholders and of the Board of Directors
required by the By-Laws or by law to be given and he shall keep
the seal of the corporation if one be adopted in safe custody and
shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the By-Laws.
Section 10. CHIEF FINANCIAL OFFICER. The chief financial
officer 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 corporation,
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 director.
The chief financial officer shall deposit all monies and
other valuables in the name and to the credit of the corporation
with such depositaries as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, shall render to the
president and directors, whenever they request it, an account of
all of his transactions as chief financial officer and of the
financial condition of the corporation and shall have other
powers and perform such other duties as may be prescribed by the
Board of Directors or the By-Laws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, 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
director, officer, employee or other agent of this corporation or
is or was serving at the request of this corporation as a
director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other
enterprise or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor
corporation of this corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative; and "expenses"
includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY CORPORATION. This
corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any proceeding (other than an
action by or in the right of this corporation) by reason of the
fact that such person is or was an agent of this corporation,
against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such
proceeding if that person acted in good faith and in a manner
that person reasonably believed to be in the best interests of
this corporation and in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was
unlawful. The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the
person did not act in good faith and in a manner which the person
reasonably believed to be in the best interests of this
corporation or that the person had reasonable cause to believe
that the person's conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. This corporation
shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action
by or in the right of this corporation to procure a judgment in
its favor by reason of the fact that that person is or was an
agent of this corporation, against expenses actually and
reasonably incurred by that person in connection with the defense
or settlement of that action if that person acted in good faith,
in a manner that person believed to be in the best interests of
this corporation 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 corporation.
No indemnification shall be made under Sections 2 or 3 of
this Article:
(a) In respect of any claim, issue or matter as to which
that person shall have been adjudged to be liable in
the performance of that person's duty to this
corporation, 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) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court
approval, or of expenses incurred in defending a
threatened or pending action which is settled or
otherwise disposed of without court approval, unless
the required approval set forth in Section 6 of this
Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that
an agent of this corporation has been successful on the merits in
defense of any proceeding referred to in Sections 2 or 3 of this
Article or in defense of any claim, issue or matter therein,
before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith,
provided that the Board of Directors, including a majority who
are disinterested, non-party directors, also determines that
based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this
Article.
Section 6. REQUIRED APPROVAL. Except as provided in
Section 5 of this Article, any indemnification under this Article
shall be made by this corporation 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 directors who
are not parties to the proceeding and are not
interested persons of the corporation as defined in the
Investment Company Act of 1940;
(b) Approval by the affirmative vote of a majority of the
shares of this corporation entitled to vote represented
at a duly held meeting at which a quorum is present or
by the written consent of holders of a majority of the
outstanding shares entitled to vote. For this purpose
the shares owned by the person to be indemnified shall
not be considered outstanding or entitled to vote
thereon;
(c) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or
the attorney or other person rendering services in
connection with the defense, whether or not such
application by the agent, attorney or other person is
opposed by this corporation; or
(d) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by this corporation
before the final disposition of the proceeding on receipt of an
undertaking by or on behalf of the agent to repay the amount of
the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this
Article, provided the agent provides a security for his
undertaking, or a majority of a quorum of the disinterested, non-
party directors, 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 directors and officers of this corporation or
any subsidiary hereof may be entitled by contract or otherwise.
Section 9. LIMITATIONS. No indemnification or advance
shall be made under this Article, except as provided in Section 5
or Section 6(c) in any circumstances where it appears:
(a) That it would be inconsistent with a provision of the
Articles of Incorporation, a resolution of the
shareholders or an agreement in effect at the time of
accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other
amounts were paid which prohibits or otherwise limits
indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a
determination by the Board of Directors of this corporation to
purchase such insurance, this corporation shall purchase and
maintain insurance on behalf of any agent of the corporation
against any liability asserted against or incurred by the agent
in such capacity or arising out of the agent's status as such,
but only to the extent that this corporation would have the power
to indemnify the agent against that liability under the
provisions of this Article.
Section 11. FIDUCIARIES OF CORPORATE 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 corporation 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 corporation shall keep at its principal executive office or
at the office of its transfer agent or registrar, if either be
appointed and as determined by resolution of the Board of
Directors, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares
held by each shareholder.
A shareholder or shareholders of the corporation holding at
least five percent (5%) in the aggregate of the outstanding
voting shares of the corporation may (i) inspect and copy the
records of shareholders' names and addresses and shareholdings
during usual business hours on five (5) days prior written demand
on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such
transfer agent's usual charges for such list, a list of the
shareholder's names and addresses who are entitled to vote for
the election of directors and their shareholdings as of the most
recent record date for which that list has been compiled or as of
a date specified by the shareholder after the date of demand.
This list shall be made available to any such shareholder by the
transfer agent on or before the later of five (5) days after the
demand is received or the date specified in the demand as the
date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate
at any time during usual business hours for a purpose reasonably
related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. Any inspection and copying
under this Section 1 may be made in person or by an agent or
attorney of the shareholder or holder of voting trust certificate
making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The
corporation shall keep at its principal executive office or if
its principal executive office is not in the State of California,
at its principal business office in this state, the original or a
copy of the By-Laws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during
office hours. If the principal executive office of the
corporation is outside the State of California and the
corporation has no principal business office in this state, the
secretary shall upon the written request of any shareholder
furnish to that shareholder a copy of the By-Laws as amended to
date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORDS. The accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors and
any committee or committees of the Board of Directors shall be
kept at such place or places designated by the Board of Directors
or in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written
form and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into
written form. The minutes and accounting books and records shall
be open to inspection upon the written demand of any shareholder
or holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to
the holder's interests as a shareholder or as the holder of a
voting trust certificate. The inspection may be made in person
or by an agent or attorney and shall include the right to copy
and make extracts. These rights of inspection shall extend to the
records of each subsidiary corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director 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 corporation and each of its subsidiary
corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection
includes the right to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual
report to shareholders referred to in the California General
Corporation Law is expressly dispensed with, but nothing herein
shall be interpreted as prohibiting the Board of Directors from
issuing annual or other periodic reports to the shareholders of
the corporation as they consider appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual
financial statements and any income statement of the corporation
for each quarterly period of each fiscal year and accompanying
balance sheet of the corporation as of the end of each such
period that has been prepared by the corporation shall be kept on
file in the principal executive office of the corporation for
twelve (12) months and each such statement shall be exhibited at
all reasonable times to any shareholder demanding an examination
of any such statement or a copy shall be mailed to any such
shareholder.
If a shareholder or shareholders holding at least five
percent (5%) of the outstanding shares of any class of stock of
the corporation makes a written request to the corporation for an
income statement of the corporation for the three (3) -month, six
(6) -month, or nine (9) -month period of the then current fiscal
year ended more than thirty (30) days before the date of the
request and a balance sheet of the corporation as of the end of
that period, the chief financial officer shall cause that
statement to be prepared, if not already prepared, and shall
deliver personally or mail that statement or statements to the
person making the request within thirty (30) days after the
receipt of the request. If the corporation has not sent to the
shareholders its annual report for the last fiscal year, this
report shall likewise be delivered or mailed to the shareholder
or shareholders within thirty (30) days after the request.
The corporation shall also on the written request of any
shareholder mail to the shareholder a copy of the last annual,
semi-annual or quarterly income statement which it has prepared
and a balance sheet as of the end of that period.
The quarterly income statements and balance sheets referred
to in this section shall be accompanied by the report, if any, of
any independent accountants engaged by the corporation or the
certificate of an authorized officer of the corporation that the
financial statements were prepared without audit from the books
and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The
corporation shall during the month in which the anniversary of
its incorporation occurs in each year, file with the California
Secretary of State on the prescribed form a statement setting
forth the authorized number of directors, the names and complete
business or residence addresses of all incumbent directors, the
names and complete business or residence addresses of the chief
executive officer, secretary and chief financial officer, the
street address of its principal executive office or principal
business office in this state and the general type of business
constituting the principal business activity of the corporation,
together with a designation of the agent of the corporation for
the purpose of service of process, all in compliance with the
California General Corporation Law.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND
VOTING. For purposes of determining the shareholders entitled to
receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in
respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the Board of
Directors may fix in advance a record date which shall not be
more than sixty (60) days before any such action and in that case
only shareholders of record on the date so fixed are entitled to
receive the dividend, distribution or allotment of rights or to
exercise the rights as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the
record date so fixed, except as provided in the California
General Corporations Law.
If the Board of Directors does not so fix a record date, the
record date for determining shareholders for any such purpose
shall be at the close of business on the day on which the Board
of Directors adopts the applicable resolution or the sixtieth day
before the date of that action, whichever is later.
Section 2. 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 corporation shall be signed or endorsed by such person or
persons and in such manner as from time to time shall be
determined by resolution of the Board of Directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW
EXECUTED. The Board of Directors, except as otherwise provided in
these By-Laws, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in
the name of and on behalf of the corporation and this authority
may be general or confined to specific instances; and unless so
authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent, or employee shall
have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it
liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or
certificates for shares of the capital stock of the corporation
shall be issued to each shareholder when any of these shares is
fully paid and the Board of Directors may authorize the issuance
of certificates or shares as partly paid provided that these
certificates shall state the amount of the consideration to be
paid for them and the amount paid. All certificates shall be
signed in the name of the corporation by the chairman of the
board or vice chairman of the board or the president or vice
president and by the chief financial officer or an assistant
treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by
the shareholders. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature
has been placed on a certificate shall have ceased to be that
officer, transfer agent, or registrar before that certificate is
issued, it may be issued by the corporation with the same effect
as if that person were an officer, transfer agent or registrar at
the date of issue. Notwithstanding the foregoing, the
corporation may adopt and use a system of issuance, recordation
and transfer of its shares by electronic or other means as
provided in the General Corporation Law.
Section 5. LOST CERTIFICATES. Except as provided in this
Section 5, no new certificates for shares shall be issued to
replace an old certificate unless the latter is surrendered to
the corporation and cancelled at the same time. The Board of
Directors may in case any share certificate or certificate for
any other security is lost, stolen, or destroyed, authorize the
issuance of a replacement certificate on such terms and
conditions as the Board of Directors may require, including a
provision for indemnification of the corporation secured by a
bond or other adequate security sufficient to protect the
corporation 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 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairman of the board, the president or any vice president or
any other person authorized by resolution of the Board of
Directors or by any of the foregoing designated officers, is
authorized to vote on behalf of the corporation any and all
shares of any other corporation or corporations, foreign or
domestic, standing in the name of the corporation. The authority
granted to these officers to vote or represent on behalf of the
corporation any and all shares held by the corporation in any
other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by
a proxy duly executed by these officers.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New By-Laws may be
adopted or these By-Laws may be amended or repealed by the vote
or written consent of holders of a majority of the outstanding
shares entitled to vote.
Section 2. AMENDMENT BY DIRECTORS. Subject to the right of
shareholders as provided in Section 1 of this Article IX, By-Laws
may be adopted, amended, or repealed by the Board of Directors.
ARTICLE X
REIMBURSEMENT OF EXPENSES
Section 1. DISALLOWED EXPENSES. Any payments made to or on
behalf of an officer of the corporation, such as salary, bonus,
interest, rent, medical, entertainment or travel expenses, which
shall be disallowed in whole or in part as a deductible expense
to the corporation by the Internal Revenue Service, shall be
reimbursed by such officer to the corporation to the full extent
of such disallowance. It shall be the duty of the Board of
Directors to enforce payment of such amount disallowed. In lieu
of payment by the officer, subject to the determination of the
Board of Directors, proportionate amounts may be withheld from
such officer's future compensation payments until the amount owed
to the corporation has been recovered.
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, Secretary of Franklin Premier Return
Fund, a corporation organized under the laws of the State of
California, do hereby certify that the following resolutions were
adopted by a majority of the directors present at a meeting held
at the offices of the Fund at 777 Mariners Island Boulevard, San
Mateo, California, on January 18, 1994:
WHEREAS, the Directors have determined that it is necessary
to amend Section 5 of Article II in order to remove the
requirement of using first class mail for notice of any
meeting of shareholders to the extent permitted under
applicable California corporate law; it is
RESOLVED, that in accordance with Article IX, Section 2, of
the Fund's By-Laws, Section 5 of Article II is hereby
amended to read as follows:
SECTION 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF
NOTICE. Notice of any meeting of shareholders shall be
given either personally or by first-class mail, or, if
the corporation has outstanding shares held of record
by five hundred (500) or more persons (determined as
provided in Section 605 of the California Corporations
Code) on the record date for such meeting, notice may
be sent by third-class mail, or by telegraphic or other
written communication, charges prepaid addressed to the
shareholder at the address of that shareholder
appearing on the books of the corporation or given by
the shareholder to the corporation for the purpose of
notice. If no such address appears on the
corporation's books or is given, notice shall be deemed
to have been given if sent to that shareholder by first-
class mail or by third-class mail by telegraphic or
other given written communication (as provided herein)
to the corporation's principal executive office, or if
published at least once in a newspaper of general
circulation in the county where that office is located.
Notice shall be deemed to have been given at the time
when delivered personally or deposited in the mail or
sent by telegram or other means of written
communication.
If any notice addressed to a shareholder at the address
of that shareholder appearing on the books of the
corporation is returned to the corporation by the
United States Postal Service marked to indicate that
the United States Postal Service is unable to deliver
the notice to the shareholder at that address, all
future notices or reports shall be deemed to have been
duly given without further mailing if these shall be
available to the shareholder on written demand of the
shareholder at the principal executive office of the
corporation for a period of one year from the date of
the giving of the notice.
An affidavit of the mailing or other means of giving
any notice of any shareholder's meeting shall be
executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice and
shall be filed and maintained in the minute book of the
corporation.
and it is
FURTHER RESOLVED, that the officers of the Fund be, and they
hereby are, authorized and directed to execute and deliver
any and all documents and take any and all other actions
that they may deem necessary or advisable in order to
effectuate the foregoing resolution.
IN WITNESS WHEREOF, I have subscribed my name this 27th day of
October, 1994.
/s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
FRANKLIN OPTION FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN OPTION FUND, a
California Corporation, hereinafter called the "Fund" and
FRANKLIN ADVISERS, Inc., a California Corporation, hereinafter
called the "Manager."
WHEREAS, the Fund has been organized and operates as an
investment company registered under the Investment Company Act of
1940 for the purpose of investing and reinvesting its assets in
securities, as set forth in its Articles of Incorporation, its By-
Laws and its Registration Statements under the Investment Company
Act of 1940 and the Securities Act of 1933, all as heretofore
amended and supplemented; and the Fund desires to avail itself of
the services, information, advice, assistance and facilities of
an investment manager and to have an investment manager perform
for its various management, statistical, research, investment
advisory and other services; and,
WHEREAS, the Manager is registered as an investment adviser under
the Investment Advisor's Act of 1940, is engaged in the business
of rendering management, investment advisory, counselling and
supervisory services to investment companies and other investment
counselling clients, and desires to provide these services to the
Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Fund hereby employs the
Manager to manage the investment and reinvestment of the
Fund's assets and to administer its affairs, subject to the
direction of the Board of Directors and the officers of the
Fund, for the period and on the terms hereinafter set forth.
The Manager 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 Manager 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 in any way or otherwise be deemed an agent of the Fund.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter
set forth and to assume the following obligations:
A. Office Space, Furnishings, Facilities, Equipment, and
Personnel. The Manager shall furnish to the Fund
adequate (i) office space, which may be space within
the offices of the Manager or in such other place as
may be agreed upon from time to time, (ii) office
furnishings, facilities and equipment as may be
reasonably required for managing the corporate affairs
and conducting the business of the Fund, including
complying with the corporate and securities reporting
requirements of the United States and the various
states in which the Fund does business, conducting
correspondence and other communications with the
shareholders of the Fund, maintaining all internal
bookkeeping, accounting and auditing services and
records in connection with the Fund's investment and
business activities, and computing net asset value.
The Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary
to provide such services. The Manager shall also
compensate all officers and employees of the Fund who
are officers or employees of the Manager.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets and
portfolio subject to and in accordance with the
investment objectives and policies of the Fund and any
directions which the Fund's Board of Directors may
issue from time to time. In pursuance of the
foregoing, the Manager shall make all determinations
with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities, and
shall take such steps as may be necessary to implement
the same. Such determinations and services shall also
include determining the manner in which voting rights,
rights to consent to corporate action and any other
rights pertaining to the Fund's portfolio securities
shall be exercised. The Manager shall render regular
reports to the Fund, at regular meetings of the Board
of Directors and at such other times as may be
reasonably requested by the Fund's Board of Directors,
of (i) the decisions which it has made with respect to
the investment of the Fund's assets and the purchase
and sale of portfolio securities, (ii) the reasons for
such decisions and (iii) the extent to which those
decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Fund's Board of Directors may
issue from time to time, shall place, in the name of
the Fund, orders for the execution of the Fund's
portfolio transactions. When placing such orders the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager 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
Manager in accord 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 determines that the
Fund will benefit, directly or indirectly, by doing so,
the Manager 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 Fund
and the Manager agree that the Manager shall select
brokers for the execution of the Fund's portfolio
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;
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its
affiliates which relate directly to portfolio
securities, actual or potential, of the Fund or
which place the Manager in a better position to
make decisions in connection with the management
of the Fund's assets and portfolio, whether or not
such data may also be useful to the Manager and
its affiliates in managing other portfolios or
advising other clients, in such amount of total
brokerage as may reasonably be required.
When the Manager has determined that the Fund should
tender securities pursuant to a "tender offer
solicitation," the Manager shall designate Franklin
Distributors, Inc. ("Distributors") as the "tendering
dealer" so long as it is legally permitted act in such
capacity under the Federal securities laws and rules
thereunder and the rules of any securities exchange or
association of which it may be a member. Distributors
shall not 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 and this Agreement shall not obligate the
Manager 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 Fund shall enter
into an agreement with the Manager or Distributors to
reimburse them for all 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.
The Manager shall render regular reports to the Fund,
not more frequently than quarterly, of how much total
brokerage business has been placed by the Manager with
brokers falling into each of the foregoing categories
and the manner in which the allocation has been
accomplished.
The Manager 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 Manager's paramount duty to
obtain the best net price and execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and
Other Materials. The Manager, its officers and
employees will make available and provide accounting
and statistical information required by the Underwriter
in the preparation of registration statements, reports
and other documents required by Federal and state
securities laws and with such information as the
Underwriter 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.
D. Other Obligations and Services. The Manager shall make
available its officers and employees to the Board of
Directors and officers of the Fund for consultation and
discussions regarding the administrative management of
the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all its expenses other than these expressly assumed by
the Manager herein, which expenses payable by the Fund shall
include:
A. Fees to the Manager 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;
D. Expenses of obtaining quotations for calculating the
value of the Fund's net assets;
E. Salaries and other compensation of any of its executive
officers who are not officers, directors, stockholders
or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to corporate meetings of the Fund,
reports to the Fund to its shareholders, the filing of
reports with regulatory bodies and the maintenance of
the Fund's corporate existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund
shares for sale;
K. Costs of printing stock certificates representing
shares of the Fund;
L. Directors' fees and expenses to directors who are not
directors, officers, employees or stockholders of the
Manager or any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance
premium.
4. Compensation of the Manager. The Fund shall pay a monthly
management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated
as set forth below, on the first business day of each month
in each year as compensation for the services rendered and
obligations assumed by the Manager during the preceding
month. The initial management fee under this Agreement
shall be payable on the first business day of the first
month following the effective date of this Agreement, and
shall be reduced by the amount of any advance payments made
by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the
net assets of the Fund shall be the net assets computed
as of the close of business on the last business day of
the month preceding the month in which the payment is
being made, determined in the same manner as the Fund
uses to compute the value of its net assets in
connection with the determination of the net asset
value of Fund shares, all as set forth more fully in
the Fund's current prospectus. The rate of the monthly
management fee shall be as follows:
5/96 of 1% of the value of net assets up to and
including $100,000,000; and
1/24 of 1% of the value of net assets over $100,000,000
and not over $250,000,000; and
9/240 of 1% of the value of net assets in excess of
$250,000,000.
B. The Management fee payable by the Fund shall be reduced
or eliminated to the extent that Franklin Distributors,
Inc. 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.
C. If this Agreement is terminated prior to the end of any
month, the monthly management fee shall be prorated for
the portion of any month in which this Agreement is in
effect which is not a complete month according to the
proportion which the number of calendar days in the
month during which the Agreement is in effect bears to
the number of calendar days in the month, and shall be
payable within 10 days after the date of termination.
5. Activities of the Manager. The services of the Manager to
the Fund hereunder are not to be deemed exclusive, and the
Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance
with the Articles of Incorporation and By-Laws of the Fund
and to Section 10(a) of the Federal Investment Company Act
of 1940, it is understood that directors, officers, agents
and stockholders of the Fund are or may be interested in the
Manager or its affiliates as directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in the Fund as directors, officers, agents,
stockholders or otherwise, that the Manager or its
affiliates may be interested in the Fund as stockholders or
otherwise; and that the effect of any such interests shall
be governed by said Articles of Incorporation, the By-Laws
and the Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or
duties hereunder on the part of the Manager, the
Manager shall not be subject to liability to 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 Manager agrees to
reimburse the Fund for any and all costs, expenses, and
counsel and directors' fees reasonably incurred by the
Fund in the preparation, printing and distribution of
proxy statements, amendments to its Registration
Statement, holdings of meetings of its shareholders or
directors, 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 Fund
incurs as the result of action or inaction of the
Manager or any of its affiliates or any of their
officers, directors, employees or shareholders where
the action or inaction necessitating such expenditures
(i) is directly or indirectly related to any
transactions or proposed transaction in the shares or
control of the Manager 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 Fund's Board of Directors; or, (ii) is within the
control of the Manager or any of its affiliates or any
of their officers, directors, employees or
shareholders. The Manager shall not be obligated
pursuant to the provisions of this Subsection 6(B), to
reimburse the Fund for any expenditures related to the
institution of an administrative proceeding or civil
litigation by the Fund or a Fund shareholder seeking to
recover all or a portion of the proceeds derived by any
shareholder of the Manager or any of its affiliates
from the sale of his shares of the Manager, or similar
matters. So long as this Agreement is in effect the
Manager shall pay to the Fund the amount due for
expenses subject to this Subsection 6(B) Agreement
within 30 days after a bill or statement has been
received by the Fund therefore. This provision shall
not be deemed to be a waiver of any claim the Fund may
have or may assert against the Manager or others for
costs, expenses or damages heretofore incurred by the
Fund or for costs, expenses or damages the Fund may
hereafter incur which are not reimbursable to it
hereunder.
C. No provision of this Agreement shall be construed to
protect any director or officer of the Fund, or the
Manager, from liability in violation of Sections 17(h)
and (i) of the Investment Company Act of 1940.
7. Renewal and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect for two
years. The Agreement is renewable annually thereafter
for successive periods not to exceed one year (i) by a
vote of a majority of the outstanding voting securities
of the Fund or by a vote of the Board of Directors of
the Fund, and (ii) by a vote of a majority of the
directors of the Fund who are not parties to the
Agreement, or interested persons of any parties to the
Agreement (other than as Directors of the Fund) 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
Directors of the Fund or by vote of a majority of
the outstanding voting securities of the Fund, on
60 days' written notice to the Manager;
(ii) shall immediately terminate in the event of its
assignment; and
(iii)may be terminated by the Manager on 60 days'
written notice to the Fund.
C. As used in this Section 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 Investment Company
Act of 1940, as amended.
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.
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed effective the 1st day of May, 1986.
FRANKLIN OPTION FUND
/s/ Charles B. Johnson
By: Charles B. Johnson
FRANKLIN ADVISERS, INC.
/s/ Rupert H. Johnson
By: Rupert H. Johnson
FRANKLIN PREMIER RETURN FUND
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
Gentlemen:
We (the "Fund") are a corporation or business trust operating as an open-end
management investment company or "mutual fund", which is registered under the
Investment Company Act of 1940 (the "1940 Act") and whose shares are registered
under the Securities Act of 1933 (the "1933 Act"). We desire to issue one or
more series or classes of our authorized but unissued shares of capital stock or
beneficial interest (the "Shares") to authorized persons in accordance with
applicable Federal and State securities laws. The Fund's Shares may be made
available in one or more separate series, each of which may have one or more
classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company is a
member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this Distribution
Agreement ("Agreement") to you by a resolution of our Board of Directors or
Trustees ("Board") passed at a meeting at which a majority of Board members,
including a majority who are not otherwise interested persons of the Fund and
who are not interested persons of our investment adviser, its related
organizations or with you or your related organizations, were present and voted
in favor of the said resolution approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this Agreement and in
consideration of the agreements on your part herein expressed and upon the terms
and conditions set forth herein, we hereby appoint you as the exclusive sales
agent for our Shares and agree that we will deliver such Shares as you may sell.
You agree to use your best efforts to promote the sale of Shares, but are not
obligated to sell any specific number of Shares.
However, the Fund and each series retain the right to make direct sales of
its Shares without sales charges consistent with the terms of the then current
prospectus and applicable law, and to engage in other legally authorized
transactions in its Shares which do not involve the sale of Shares to the
general public. Such other transactions may include, without limitation,
transactions between the Fund or any series or class and its shareholders only,
transactions involving the reorganization of the Fund or any series, and
transactions involving the merger or combination of the Fund or any series with
another corporation or trust.
2. Independent Contractor. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to promote the sale of Shares. You may appoint
sub-agents or distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase on our behalf or
otherwise act as our agent for any purpose.
3. Offering Price. Shares shall be offered for sale at a price equivalent
to the net asset value per share of that series and class plus any applicable
percentage of the public offering price as sales commission or as otherwise set
forth in our then current prospectus. On each business day on which the New York
Stock Exchange is open for business, we will furnish you with the net asset
value of the Shares of each available series and class which shall be determined
in accordance with our then effective prospectus. All Shares will be sold in the
manner set forth in our then effective prospectus and statement of additional
information, and in compliance with applicable law.
4. Compensation.
A. Sales Commission. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and class
of each Fund's Shares in the amount of any initial, deferred or contingent
deferred sales charge as set forth in our then effective prospectus. You may
allow any sub-agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable, so long as any
such commissions or discounts are set forth in our current prospectus to the
extent required by the applicable Federal and State securities laws. You may
also make payments to sub-agents or dealers from your own resources, subject to
the following conditions: (a) any such payments shall not create any obligation
for or recourse against the Fund or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our prospectus
or statement of additional information to the extent such laws may require.
B. Distribution Plans. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted as
to any series and class of any Fund's Shares pursuant to Rule 12b-1 under the
1940 Act.
5. Terms and Conditions of Sales. Shares shall be offered for sale only in
those jurisdictions where they have been properly registered or are exempt from
registration, and only to those groups of people which the Board may from time
to time determine to be eligible to purchase such shares.
6. Orders and Payment for Shares. Orders for Shares shall be directed to
the Fund's shareholder services agent, for acceptance on behalf of the Fund. At
or prior to the time of delivery of any of our Shares you will pay or cause to
be paid to the custodian of the Fund's assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of Shares shall be
deemed to be made when and where accepted by the Fund's shareholder services
agent. The Fund's custodian and shareholder services agent shall be identified
in its prospectus.
7. Purchases for Your Own Account. You shall not purchase our Shares for
your own account for purposes of resale to the public, but you may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.
8. Sale of Shares to Affiliates. You may sell our Shares at net asset
value to certain of your and our affiliated persons pursuant to the applicable
provisions of the federal securities statutes and rules or regulations
thereunder (the "Rules and Regulations"), including Rule 22d-1 under the 1940
Act, as amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and certified financial
statements of our company to be included in any
Post-Effective Amendments ("Amendments") to our Registration
Statement under the 1933 Act or 1940 Act, including the
prospectus and statement of additional information included
therein;
(b) Of the preparation, including legal fees, and printing of
all Amendments or supplements filed with the Securities and
Exchange Commission, including the copies of the
prospectuses included in the Amendments and the first 10
copies of the definitive prospectuses or supplements
thereto, other than those necessitated by your (including
your "Parent's") activities or Rules and Regulations related
to your activities where such Amendments or supplements
result in expenses which we would not otherwise have
incurred;
(c) Of the preparation, printing and distribution of any reports
or communications which we send to our existing
shareholders; and
(d) Of filing and other fees to Federal and State securities
regulatory authorities necessary to continue offering our
Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional information
which are necessary to continue to offer our Shares;
(b) Of the preparation, excluding legal fees, and printing of
all Amendments and supplements to our prospectuses and
statements of additional information if the Amendment or
supplement arises from your (including your "Parent's")
activities or Rules and Regulations related to your
activities and those expenses would not otherwise have been
incurred by us;
(c) Of printing additional copies, for use by you as sales
literature, of reports or other communications which we have
prepared for distribution to our existing shareholders; and
(d) Incurred by you in advertising, promoting and selling our
Shares.
10. Furnishing of Information. We will furnish to you such information
with respect to each series and class of Shares, in such form and signed by such
of our officers as you may reasonably request, and we warrant that the
statements therein contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our Shares for sale to the public under
the Blue Sky Laws of jurisdictions in which you may wish to offer them. We will
furnish you with annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual financial
statements prepared by us, with registration statements and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.
11. Conduct of Business. Other than our currently effective prospectus,
you will not issue any sales material or statements except literature or
advertising which conforms to the requirements of Federal and State securities
laws and regulations and which have been filed, where necessary, with the
appropriate regulatory authorities. You will furnish us with copies of all such
materials prior to their use and no such material shall be published if we shall
reasonably and promptly object.
You shall comply with the applicable Federal and State laws and
regulations where our Shares are offered for sale and conduct your affairs with
us and with dealers, brokers or investors in accordance with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares are tendered to
us for redemption or repurchase by us within seven business days after your
acceptance of the original purchase order for such Shares, you will immediately
refund to us the full sales commission (net of allowances to dealers or brokers)
allowed to you on the original sale, and will promptly, upon receipt thereof,
pay to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender for redemption
within 10 days of the day on which notice of such tender for redemption is
received by us.
13. Other Activities. Your services pursuant to this Agreement shall not be
deemed to be exclusive, and you may render similar services and act as an
underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. Term of Agreement. This Agreement shall become effective on the date
of its execution, and shall remain in effect for a period of two (2) years. The
Agreement is renewable annually thereafter, with respect to the Fund or, if the
Fund has more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of the
outstanding voting securities of the Fund or, if the Fund has more than one
series, of each series, or (b) by a vote of the Board, and (ii) by a vote of a
majority of the members of the Board who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of voting on the
Agreement.
This Agreement may at any time be terminated by the Fund or by any
series without the payment of any penalty, (i) either by vote of the Board or by
vote of a majority of the outstanding voting securities of the Fund or any
series on 90 days' written notice to you; or (ii) by you on 90 days' written
notice to the Fund; and shall immediately terminate with respect to the Fund and
each series in the event of its assignment.
15. Suspension of Sales. We reserve the right at all times to suspend or
limit the public offering of Shares upon two days' written notice to you.
16. Miscellaneous. This Agreement shall be subject to the laws of the
State of California and shall be interpreted and construed to further promote
the operation of the Fund as an open-end investment company. This Agreement
shall supersede all Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset Value," "Offering
Price," "Investment Company," "Open-End Investment Company," "Assignment,"
"Principal Underwriter," "Interested Person," "Parent," "Affiliated Person," and
"Majority of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or to
our securities holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties hereunder, or by reason of your reckless disregard of your obligations
and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
FRANKLIN PREMIER RETURN FUND
By: /s/ Deborah R. Gatzek
Accepted:
Franklin/Templeton Distributors, Inc.
By: /s/ Gregory E. Johnson
DATED: April 23, 1995
DEALER AGREEMENT
Effective: December 1, 1994
Franklin/Templeton Distributors, Inc. - Principal Underwriter
777 Mariners Island Blvd., San Mateo, CA 94404
700 Central Avenue, St. Petersburg, Florida 33701-3628
Franklin Divisions Franklin Group of Funds
777 Mariners Island Blvd., San Mateo, CA 94404
415/312-2000 800/632-2350
500 5th Avenue, 55th Floor, New York, NY 212/869-1776
Templeton Divisions Templeton Group of Funds
700 Central Avenue, St. Petersburg, Florida 33701-3628
813/823-8712 800/237-0738
Franklin/Templeton Distributors, Inc., as Principal
Underwriter for the funds in the Franklin Group of Funds and the
Templeton Group of Funds, invites the dealer indicated below
(hereafter "you" or "dealer") to participate in the distribution
of the shares of any or all funds for which we now, or in the
future, serve as principal underwriter (together, hereafter
referred to as "we," "our," "us"), subject to the terms set forth
below (this "Agreement"). The funds are collectively referred to
herein as the "Funds" and listed in the Appendix. This Agreement
is cumulative and supersedes any agreement in effect prior to the
effective date listed above. Your first trade after receipt of
this Agreement shall constitute your acceptance of its term.
1. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and are
presently licensed to the extent necessary by the appropriate
regulatory agency of each state in which you will offer and sell
shares of the Funds. You agree that termination or suspension of
such membership with the NASD, or of your license to do business
by any state or federal regulatory agency, at any time shall
require you to notify us of such action and shall terminate or
suspend this Agreement forthwith; or, if you are not a member of
the NASD but are a dealer subject to the laws of a foreign
country, you agree to conform to the rules of fair practice of
such association. This Agreement is in all respects subject to
Rule 26 of the Rules of Fair Practice of the NASD which shall
control any provision to the contrary in this Agreement.
2. You are to offer and sell shares of each Fund only at the
public offering price which shall then be currently in effect.
The procedures relating to all orders and the handling of them
shall be subject to the terms of the then current prospectus and
statement of additional information (hereafter, the "prospectus")
and new account application, including amendments, for each such
Fund, and our written instructions from time to time.
3. You agree:
(a) To act as principal, or as agent on behalf of your
customers, in all transactions in shares of the Funds except
as provided in paragraph 4 hereof. You shall not have any
authority to act as agent for the issuer (the Funds), for the
Principal Underwriter, or for any other dealer in any respect,
nor will you represent to any third party that you have such
authority or are acting in such capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds
only from us and only for the purpose of covering purchase
orders you have already received from your customers or for
your own bona fide investment.
(d) To maintain records of all sales and redemptions of
shares made through you and to furnish us with copies of such
records on request.
(e) To distribute prospectuses and reports to your customers
in compliance with the applicable requirements, except to the
extent that we expressly undertake to do so on your behalf.
(f) That you will not withhold placing customers' orders for
shares so as to profit yourself as a result of such
withholding or place orders for shares in amounts just below
the point at which sales charges are reduced so as to benefit
from a higher sales charge applicable to an amount below the
breakpoint.
(g) That if any shares confirmed to you hereunder are
repurchased or redeemed by any of the Funds within seven
business days after such confirmation of your original order,
you shall forthwith refund to us the full concession allowed
to you on such orders. We shall forthwith pay to the
appropriate Fund our share, if any, of the "charge" on the
original sale and shall also pay to such Fund the refund from
you as herein provided. We shall notify you of such repurchase
or redemption within ten days from the date of settlement.
Termination or cancellation of this Agreement shall not
relieve you or us from the requirements of this subparagraph.
(h) That if payment for the shares purchased is not received
within the time customary for such payment, the sale may be
cancelled forthwith without any responsibility or liability on
our part or on the part of the Funds, or at our option, we may
sell the shares ordered back to the Funds, in which latter
case we may hold you responsible for any loss to the Fund or
loss of profit suffered by us resulting from your failure to
make payment as aforesaid. We shall have no liability for any
check or other item returned unpaid to you after you have paid
us on behalf of a purchaser. We may refuse to liquidate the
investment unless we receive the purchaser's signed
authorization for the liquidation.
(i) That you shall assume responsibility for any loss to a
Fund(s) caused by a correction made subsequent to trade date,
provided such correction was not based on any error, omission
or negligence on our part, and that you will immediately pay
such loss to the Fund(s) upon notification.
(j) That if on a redemption which you have ordered,
instructions in proper form, including outstanding
certificates are not received within the time customary, the
redemption may be cancelled forthwith without any
responsibility or liability on our part or on the part of any
Fund, or at our option, we may buy the shares redeemed on
behalf of the Fund, in which latter case we may hold you
responsible for any loss to the Fund or loss of profit
suffered by us resulting from your failure to settle the
redemption.
4. In connection with orders for the purchase of shares on
behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone,
or wire, you shall act as agent for the custodian or trustee of
such plans (solely with respect to the time of receipt of the
application and payments) and shall not place such order until
you have received from your customer payment for such purchase
and, if such purchase represents the first contribution to such a
plan, the completed documents necessary to establish the plan.
You agree to indemnify us and Franklin Trust Company and/or
Templeton Funds Trust Company as applicable for any claim, loss,
or liability resulting from incorrect investment instructions
received from you which cause a tax liability or other tax
penalty.
5. We will not accept from you any conditional orders for
shares of any of the Funds. Delivery of certificates for shares
purchased shall be made by the Funds only against constructive
receipt of the purchase price, subject to deduction for your
concession and our portion of the sales charge, if any, on such
sale. No certificates will be issued unless specifically
requested.
6. On each purchase of shares by you from us, the total sales
charges and your dealer concessions shall be as stated in each
Fund's then current prospectus, subject to NASD rules and
applicable state and federal laws. Such sales charges and dealer
concessions are subject to reductions under a variety of
circumstances as described in the Funds' prospectuses. To obtain
these reductions, we must be notified when the sale takes place
which would qualify for the reduced charge. Sales charges on the
reinvestment of income dividends shall be allocated as stated in
each Fund's then current prospectus. If you fail to notify us of
the applicability of a reduction in the sales charge at the time
the trade is placed, neither we nor any of the Funds will be
liable for amounts necessary to reimburse any investor for the
reduction which should have been effected.
7. Redemptions or repurchases of shares will be made at the
net asset value of such shares in accordance with the current
prospectuses. Except as permitted by applicable law, you agree
not to purchase any shares from your customers at a price lower
than the redemption or repurchase prices then computed by the
Funds. You shall, however, be permitted to sell shares for the
account of the record owner to the Funds at the repurchase price
then currently in effect for such shares and may charge the owner
a fair commission for handling the transaction.
8. Telephone exchange orders will be effective only for shares
in plan balance (uncertificated shares) or for which share
certificates have been previously deposited and may be subject to
a $5 exchange fee as discussed in the prospectus. You may charge
the shareholder a fair commission for handling an exchange
transaction. Exchanges from a Fund sold with no sales charge to a
Fund which carries a sales charge, and exchanges from a Fund sold
with a sales charge to a Fund which carries a higher sales charge
may be subject to a sales charge in accordance with the terms of
each Fund's prospectus.
9. All orders are subject to acceptance by us and become
effective only upon confirmation by us. If required by law, each
transaction shall be confirmed in writing on a fully disclosed
basis and if confirmed by us, a copy of each confirmation shall
be sent simultaneously to you if you so request. All sales are
made subject to receipt of shares by us from the Funds. We
reserve the right in our discretion, without notice, to suspend
the sale of shares or withdraw the offering of shares entirely.
Telephone orders will be effected at the price(s) next computed
on the day they are received from you if, as set forth in each
Fund's current prospectus, they are received prior to the time
the price of its shares is calculated. Orders received after that
time will be effected at the price(s) computed on the next
business day. Orders for the purchase of 100,000 shares or more
of any of the Funds will be effected at an offering price
calculated to four decimal places. All orders must be accompanied
by payment in U.S. dollars. Orders payable by check must be drawn
payable in U.S. dollars on a U.S. bank, for the full amount of
the investment.
10. With respect to Funds offering both shares subject to a
front-end sales charge ("Class A Shares") and shares subject to a
contingent deferred sales charge ("Class B Shares"), you shall
conform to our written compliance standards as we may from time
to time provide to you in the future.
11. You are also invited to participate in the distribution of
shares of certain of the Funds which, although sold without or at
a reduced sales charge, have adopted a Plan ("Plan Funds")
pursuant to Rule 12b-1 under the Investment Company Act of 1940
("Plans"). Pursuant to such Plans, to the extent you provide
services as specified more fully in or in an attachment to a
service agreement between you and the Principal Underwriter, in
the promotion of shares of such Plan Funds, you shall be paid a
fee as provided for and in effect at any particular time as set
forth in the prospectuses for the Plan Funds which have such
Plans.
We shall furnish to the Board of Directors of the Plan Funds,
for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such
expenditures were made.
The Plans and provisions of any Agreement relating to such
Plans must be approved annually by a vote of the Plan Funds'
Directors, including such persons who are not interested persons
of the Plan Funds and who have no financial interest in the Plans
or any related agreement ("Rule 12b-1 Directors"). The Plans or
the provisions of this Agreement relating to such Plans may be
terminated at any time by the vote of a majority of the Plan
Funds' Boards of Directors, including Rule 12b-1 Directors, or by
a vote of a majority of the outstanding shares of the Plan Funds,
on sixty (60) days' written notice, without payment of any
penalty. The Plans or the provisions of this Agreement may also
be terminated by any act that terminates the Underwriting
Agreement between us and the Plan Funds, and/or the management
agreement between Franklin Advisers, Inc. or Templeton, Galbraith
& Hansberger Ltd. or their affiliates and the Plan Funds. In the
event of the termination of the Plans for any reason, the
provisions of this Agreement relating to the Plans will also
terminate.
Continuation of the Plans and provisions of this Agreement
relating to such Plans are conditioned on Rule 12b-1 Directors
being ultimately responsible for selecting and nominating any new
Rule 12b-1 Directors.
Under Rule 12b-1, Directors of any of the Plan Funds have a
duty to request and evaluate, and persons who are party to any
agreement related to a Plan have a duty to furnish, such
information as may reasonably be necessary to an informed
determination of whether the Plan or any agreement should be
implemented or continued.
Parties to this Agreement who provide services to Plan Funds
in the promotion of shares of such Funds should be aware that
under Rule 12b-1 Plan Funds are permitted to implement or
continue Plans or the provisions of this Agreement relating to
such Plans from year-to-year only if, based on certain legal
considerations, the board is able to conclude that the Plans will
benefit the Plan Funds. Absent such yearly determination the
Plans and the provisions of this Agreement relating to the Plans
must be terminated as set forth above.
You agree to waive payment of any amounts payable to you by us
under a Fund's Plan of Distribution pursuant to Rule 12b-1 until
such time as we are in receipt of such fee from the Fund.
The provisions of the management agreement between the Plan
Funds and Franklin Advisers, Inc. or Templeton, Galbraith &
Hansberger Ltd. and its affiliates, and/or of the Underwriting
Agreement between the Plan Funds and us, insofar as they relate
to Plans, are incorporated herein by reference, and shall control
in the event of any inconsistency.
12. We shall have no responsibility for the qualification of,
manner of sale, or status of persons selling shares of the Funds
under the laws regulating the sale of securities in any U.S. or
foreign jurisdiction. We shall not, in any event, be liable or
responsible for the issue, form, validity, enforceability and
value of such shares or for any matter in connection therewith,
and no obligation not expressly assumed by us in this Agreement
shall be implied. Nothing in this Agreement, however, shall be
deemed to be a condition, stipulation or provision binding any
person acquiring any security to waive compliance with any
provision of the Securities Act of 1933, or of the rules and
regulations of the Securities and Exchange Commission, or to
relieve the parties hereto from any liability arising under the
Securities Act of 1933.
13. If it is necessary to register or qualify the shares in
any foreign jurisdictions in which you intend to offer the
shares, it will be your responsibility to arrange for and to pay
the costs of such registration or qualification; prior to any
such registration or qualification you will notify us of your
intent and of any limitations that might be imposed on the Funds
and you agree not to proceed with such registration or
qualification without the written consent of the Funds and of
ourselves.
14. No person is authorized to give any information or make
any representations concerning shares of the Funds except those
contained in the current prospectus, or statement of additional
information issued by the Fund or by us as information
supplemental to such prospectus or statement of additional
information. We will supply prospectuses, reasonable quantities
of supplemental sale literature, sales bulletins, and additional
information as issued. You agree not to use other advertising or
sales material relating to the Funds except that which (a)
conforms to the requirements of any applicable laws or
regulations of any government or authorized agency in the U.S. or
any other country, having jurisdiction over the offering or sale
of shares of the Funds, and (b) is approved in writing by us in
advance of such use. Such approval may be withdrawn by us in
whole or in part upon notice to you, and you shall, upon receipt
of such notice, immediately discontinue the use of such sales
literature, sales material and advertising. You are not
authorized to modify or translate any such materials without our
prior written consent.
15. You further agree to indemnify, defend and hold harmless
the Principal Underwriter, the Funds, their officers, directors
and employees from any and all losses, claims, liabilities and
expenses whether or not resulting in any liability to any of them
including, but not limited to, violations of the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the Investment Company Act of 1940, as amended, or any
rule or regulation of any government or authorized agency, in the
U.S. or any other country, having jurisdiction over the sale of
shares made by you, arising out of the offer and sale by you of
shares of the Funds pursuant to this Agreement, any redemption or
exchange pursuant to telephone instructions received from you or
your agent or employees, or arising out of the breach by you of
any of the terms and conditions of this Agreement.
16. Each party to this Agreement may cancel its participation
in this Agreement by giving written notice to the other parties.
Such notice shall be deemed to have been given and to be
effective on the date on which it was either delivered personally
to the other parties or any officer or member thereof, or was
mailed postpaid or delivered to a telegraph office for
transmission to the other parties at their address as shown
herein. This Agreement shall terminate immediately upon the
appointment of a Trustee under the Securities Investor Protection
Act or any other act of insolvency by you. The termination of
this Agreement by any of the foregoing means shall have no effect
upon transactions entered into prior to the effective date of
termination. A trade placed by you subsequent to your voluntary
termination of the Agreement will not serve to reinstate the
Agreement. Reinstatement, except in the case of a temporary
suspension of a dealer will only be effective upon written
notification by us. This Agreement may be amended by us at any
time by written notice to you and your placing of an order after
the effective date and receipt of notice of any such Amendment
shall constitute your acceptance thereof.
17. Should any of your concession accounts with us have a
debit balance, we may offset and recover the amount owed from any
other account you have with us, without notice or demand to you.
In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted
to binding arbitration under the commercial arbitration rules of
the NASD or the American Arbitration Association. Judgment upon
any arbitration award may be entered by any state or federal
court having jurisdiction. This Agreement shall be construed in
accordance with the laws of the State of California, not
including any provision which would require the general
application of the law of another jurisdiction, and shall be
binding upon the parties hereto when signed by us and accepted by
you, either by your signature in the space provided below or by
your first trade entered after receipt of this Agreement.
Date:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
(Signature)
Name:
Title:
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
(415) 312/2000
Dealer Services - 800-524-4040
Order Room - 800-227-5041
700 Central Avenue
St. Petersburg, Florida 33701-3628
(813) 823/8712
Account Information - 800-354-9191
Switchboard - 800-237-0738
DEALER
(Firm's name)
By:
(Signature)
Name:
Title:
Address:
Telephone:
NASD CRD #
APPENDIX
Revised as of December 1, 1994
Franklin/Templeton Distributors, Inc. ("FTDI") serves as
principal underwriter for the following Funds:
AGE High Income Fund, Inc., Franklin Balance Sheet Investment
Fund, Franklin California Tax-Free Income Fund, Inc., Franklin
California Tax-Free Trust, Franklin Custodian Funds, Inc.,
Franklin Equity Fund, Franklin Federal Tax-Free Income Fund,
Franklin Gold Fund, Franklin International Trust, Franklin
Investors Securities Trust, Franklin Managed Trust, Franklin
Municipal Securities Trust, Franklin New York Tax-Free Trust,
Franklin New York Tax-Free Income Fund, Inc., Franklin Premier
Return Fund, Franklin Strategic Series, Franklin Tax-Advantaged
High Yield Securities Fund, Franklin Tax-Advantaged International
Bond Fund, Franklin Tax-Advantaged U.S. Government Securities
Fund, Franklin Tax-Free Trust, Franklin Strategic Mortgage
Portfolio, Franklin/Templeton Global Trust, Franklin Real Estate
Securities Fund, all Franklin Money Market Funds, Institutional
Fiduciary Trust, Templeton Growth Fund, Inc., Templeton World
Fund, Templeton Foreign Fund, Templeton Smaller Companies Growth
Fund, Inc., Templeton Global Opportunities Trust, Templeton
Developing Markets Trust, Templeton American Trust, Inc.,
Templeton Real Estate Securities Fund, Templeton Income Fund,
Templeton Money Fund, Templeton Institutional Funds, Inc.
(Foreign Equity Series, Growth Series, Global Fixed Income
Series, Emerging Market Series and Foreign Equity (South Africa
Free) Series), Templeton Global Rising Dividends Fund, Templeton
Global Infrastructure Fund, Templeton Americas Government
Securities Fund, Franklin/Templeton Japan Fund, and Templeton
Variable Products Series Funds (Templeton Bond Fund, Templeton
Asset Allocation Fund, Templeton Stock Fund, Templeton Money
Market Fund and Templeton International Fund).The following
information will assist FTDI in accurately identifying and
reporting the source of sales made by you under the Agreement.
Compliance is voluntary but strongly encouraged. The information
being requested will be used by FTDI solely in connection with
its business as principal underwriter under the Agreement.
1. Nature of Firm's Business
Please indicate how you would best describe the nature of your
firm's business with FTDI, and if you clear for others, how you
would best describe the business of the firms you clear for
(check all that apply):
Firm's Clear Business For
Clearing agent for other firms
National Broker/Dealer
Regional Broker/Dealer
Independent Financial Planner
Financial Planning Broker/Dealer
Bank
Bank Affiliated
Insurance Company
Foreign Broker/Dealer
Other, please describe ______________
2. Branch and Rep Listings
You agree to provide FTDI with certain information including
the names and addresses of your registered representatives and
their representative numbers and branch locations. You also agree
to update FTDI with changes to this information on a regular and
frequent basis. FTDI agrees not to sell, in whole or in part,
this information nor disclose such information except for
regulatory purposes, servicing of accounts, or informational, or
other mailings which are in the normal course of FTDI or its
affiliates' business, or where such disclosure may otherwise be
required by law or by any regulatory agency having jurisdiction
over FTDI's or its affiliates' business.
Back Office Contact
(The person to contact for branch and rep listings)
By:
(Same as signature on agreement above)
95.89/104 (10/94)
MUTUAL FUND PURCHASE AND SALES AGREEMENT FOR ACCOUNT OF BANK
CUSTOMERS
Effective: December 1, 1994
Franklin/Templeton Distributors, Inc. - Principal Underwriter
777 Mariners Island Blvd., San Mateo, CA 94404 700 Central
Avenue, St. Petersburg, Florida 33701-3628
Franklin Divisions Franklin Group of Funds
777 Mariners Island Blvd., San Mateo, CA 94404
415/312-2000 - 800/632-2350
500 5th Avenue, 55th Floor, New York, NY 212/869-1776
Templeton Divisions Templeton Group of Funds
700 Central Avenue, St. Petersburg, Florida 33701-3628
813/823-8712 - 800/237-0738
1. INTRODUCTION
This Agreement is entered into as of the date given on the
signature page. The parties to this Agreement are the bank
identified on that page ("Bank"), and Franklin/Templeton
Distributors, Inc. ("FTDI" or "we," "us"), in its capacity as
principal underwriter for any registered investment companies
("Fund(s)") which comprise the Franklin Group of Funds and the
Templeton Group of Funds, respectively, now or in the future. The
Appendix contains a current list of the Funds. The purpose of
this Agreement is to set forth the terms and conditions under
which FTDI will execute purchases and sales (redemptions) of Fund
shares ("Transaction(s)") at the request of Bank upon the order
and for the account of Bank's customers ("Customer(s)").
2. REPRESENTATIONS AND WARRANTIES OF BANK
Bank warrants and represents to FTDI and the Funds that:
a) Bank is a "bank" as defined in Section 3(a)(6) of the
Securities and Exchange Act of 1934, as amended (the "34
Act"):
"The term 'bank' means (A) a banking institution organized
under the laws of the United States, (B) a member bank of
the Federal Reserve System, (C) any other banking
institution, whether incorporated or not, doing business
under the law of any State or of the United States, a
substantial portion of the business of which consists of
receiving deposits or exercising a fiduciary power similar
to those permitted to national banks under the authority of
the Comptroller of the Currency pursuant to the first
section of Public Law 87-722 (12 U.S.C. 92a), and which is
supervised and examined by State or Federal authority having
supervision over banks, and which is not operated for the
purpose of evading the provisions of this title, and (D) a
receiver, conservator, or other liquidating agent of any
institution or firm included in clauses (A), (B) or (C) of
this paragraph."
b) Bank is authorized to enter into this Agreement, and Bank's
performance of its obligations and receipt of consideration
under this Agreement will not violate any law, regulation,
charter, agreement, or regulatory restriction to which Bank
is subject.
c) Bank has received all regulatory agency approvals and taken
all legal and other steps necessary for offering the
services Bank will provide to Customers in connection with
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL UNDERWRITER
FTDI warrants and represents to Bank that:
a) FTDI is a broker/dealer registered under the '34 Act.
b) FTDI is the principal underwriters of the Funds.
4. COVENANTS OF BANK
For each Transaction under this Agreement, Bank will:
a) be authorized to engage in the Transaction;
b) act as agent for the Customer;
c) act solely at the request of and for the account of the
Customer;
d) not submit an order unless Bank has already received the
order from the Customer;
e) not submit a purchase order unless Bank has already
delivered to the Customer a copy of the then current
prospectus for the Fund(s) whose shares are to be purchased;
f) not withhold placing any Customer's order for the purpose of
profiting from the delay;
g) have no beneficial ownership of the securities in any
purchase Transaction (the Customer will have the full
beneficial ownership), unless Bank is the Customer (in which
case, Bank will not engage in the Transaction unless the
Transaction is legally permissible for Bank); and
h) not accept or withhold any Fee otherwise allowed under
Sections 5(d) and (e) of this Agreement, if prohibited by
the Employee Retirement Income Security Act ("ERISA") or
trust or similar laws to which Bank is subject, in the case
of Transactions involving retirement plans, trusts, or
similar accounts.
i) maintain records of all sales and redemptions of shares made
through you and to furnish us with copies of such records on
request.
j) distribute prospectuses, statements of additional
information and reports to your customers in compliance with
the applicable requirements, except to the extent that we
expressly undertake to do so on your behalf.
While this Agreement is in effect, Bank will:
k) not purchase any shares from any person at a price lower
than the redemption price then quoted by the applicable
Fund;
l) repay FTDI the full Fee received by Bank under Sections 5(d)
and (e) of this Agreement, for any shares purchased under
this Agreement which are repurchased by the Fund within 7
business days after the purchase (in turn, FTDI shall pay to
the Fund the amount repaid by Bank. FTDI will notify Bank of
any such repurchase within 10 days.);
m) in connection with any Transaction on behalf of an
Individual Retirement Account, Self-Employed Retirement Plan
or other retirement accounts for which Franklin Trust
Company ("FTC") or Templeton Funds Trust Company ("TFTC"),
is the trustee or custodian, (i) act as agent for FTC or
TFTC, for the sole purpose of the receipt of applications
and contributions, and in that regard, solely with respect
to the establishment of the date the application or
contribution is received by the custodian or trustee, (ii)
not place any such order until Bank has received payment
along with any required plan documents, fully completed and
executed, and (iii) hold harmless, indemnify, and defend
FTDI, the Funds, FTC and TFTC from any claim, loss, or
liability, resulting directly or indirectly, in whole or in
part, from Bank's actions as agent;
n) be responsible for compliance with all laws and regulations,
including those of the applicable federal and state bank
regulatory authorities, with regard to Bank and Bank's
Customers; and
o) immediately notify FTDI in writing at the address given
below, should Bank cease to be a bank as set forth in
Section 2(a) of this Agreement.
5. TERMS AND CONDITIONS FOR TRANSACTIONS
a) Price
Transaction orders received from Bank will be accepted only
at the public offering price and in compliance with
procedures applicable to each order as set forth in the then
current prospectus for the applicable Fund. All orders must
be accompanied by payment in U.S. dollars. Orders payable by
check must be drawn payable in U.S. dollars on a U.S. bank,
for the full amount of the investment. All sales are made
subject to receipt of shares by us from the Funds. We
reserve the right in our discretion, without notice, to
suspend the sale of shares or withdraw the offering of
shares entirely.
Orders for the purchase of 100,000 or more shares of a Fund
will be effected at an offering price calculated to 4
decimal places.
b) Orders and Confirmations
Transaction orders shall be made using the procedures and
forms required by FTDI from time to time. Orders received on
any business day after the time for calculating the price of
Fund shares as set forth in each Fund's current prospectus
will be effected at the price determined on the next
business day. A written confirming statement will be sent to
Bank and to Customer upon settlement of each Transaction.
With respect to Funds offering both shares subject to a
front-end and sales charge ("Class A Shares") and shares
subject to a contingent deferred sales charge ("Class B
Shares"), you shall conform to our written compliance
standards as we may from time to time provide to you in the
future.
c) FTDI's Discretion and Transfer Agent's Requirements
All purchase orders are subject to acceptance or rejection
by FTDI and/or the Fund at their sole discretion. All
Transactions are subject to the then current requirements of
the Funds' transfer agent.
d) Payments by Bank for Purchases
On the settlement date for each purchase, Bank shall either
(i) remit the full purchase price by wire transfer to an
account designated by FTDI, or (ii) following FTDI's
procedures, wire the purchase price less the Fee allowed by
Section 5(e) of this Agreement. Twice monthly, FTDI will pay
Bank Fees not previously paid to or withheld by Bank. Each
calendar month, FTDI, as applicable, will prepare and mail
an activity statement summarizing all Transactions.
e) Fee
Where permitted by the prospectus for each Fund, a charge,
concession, or fee ("Fee") may be paid to Bank, related to
services provided by Bank in connection with Transactions.
The amount of the Fee, if any, is set by the relevant
prospectus. Adjustments in the Fee are available for certain
volume purchases, and Bank is solely responsible for
notifying FTDI when any purchase order is qualified for such
an adjustment.
f) Certain of the Funds which, although sold without or at a
reduced sales charge, have adopted a Plan ("Plan Funds")
pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("Plans"). Pursuant to such Plans, to the extent you
provide services as specified more fully in or in an
attachment to a service agreement between you and the
principal underwriter, in the promotion of shares of such
Plan Funds, you shall be paid a fee as provided for and in
effect at any particular time as set forth in the
prospectuses and statements of additional information for
the Plan Funds which have such Plans.
We shall furnish to the Board of Directors of the Plan
Funds, for their review on a quarterly basis, a written
report of the amounts expended under the Plans and the
purposes for which such expenditures were made.
The Plans and provisions of any Agreement relating to such
Plans must be approved annually by a vote of the Plan Funds'
Directors, including such persons who are not interested
persons of the Plan Funds and who have no financial interest
in the Plans or any related agreement ("Rule 12b-1
Directors"). The Plans or the provisions of this Agreement
relating to such Plans may be terminated at any time by the
vote of a majority of the Plan Funds' Boards of Directors,
including Rule 12b-1 Directors, or by a vote of a majority
of the outstanding shares of the Plan Funds on sixty (60)
days' written notice, without payment of any penalty. The
Plans or the provisions of this Agreement may also be
terminated by any act that terminates the Underwriting
Agreement between us and the Plan Funds and/or the
management agreement between Franklin Advisers, Inc. or
Templeton Galbraith & Hansberger Ltd. and the Plan Funds. In
the event of the termination of the Plans for any reason,
the provisions of this Agreement relating to the Plans will
also terminate.
Continuation of the Plans and provisions of this Agreement
relating to such Plans are conditioned on Rule 12b-1
Directors being ultimately responsible for selecting and
nominating any new Rule 12b-1 Directors.
Under Rule 12b-1, Directors of any of the Plan Funds have a
duty to request and evaluate, and persons who are party to
any agreement related to a Plan have a duty to furnish such
information as may reasonably be necessary to an informed
determination of whether the Plan or any agreement should be
implemented or continued.
Parties to this Agreement who provide services to Plan Funds
in the promotion of shares of such Funds should be aware
that under Rule 12b-1 Plan Funds are permitted to implement
or continue Plans or the provisions of this Agreement
relating to such Plans from year-to-year only if, based on
certain legal considerations, the board is able to conclude
that the Plans will benefit the Plan Funds. Absent such
yearly determination the Plans and the provisions of this
Agreement relating to the Plans must be terminated as set
forth above.
You agree to waive payment of any amounts payable to you by
FTDI under a Plan until such time as FTDI is in receipt of
such fee from the Plan Fund.
The provisions of the management agreement between the Plan
Funds and Franklin Advisers, Inc. or Templeton Galbraith &
Hansberger Ltd. and its affiliates, and/or of the
Underwriting Agreement between the Plan Funds and us,
insofar as they relate to Plans are incorporated herein by
reference, and shall control in the event of any
inconsistency.
g) Other Distribution Services
From time to time, FTDI may offer telephone and other
augmented services in connection with Transactions under
this Agreement. If Bank uses any such service, Bank will be
subject to the procedures applicable to the service, whether
or not Bank has executed any agreement required for the
service.
h) Additional Terms and Conditions
i) Delivery of Certificate and Cancellation of
Transactions
FTDI will not accept any conditional Transaction
orders. Delivery of certificates or confirmations for
shares purchased shall be made by the Fund conditional
upon receipt of the purchase price, subject to
deduction of any Fee. No certificates will be issued
unless specifically requested. If payment is not
received within the required time period, the sale may
be cancelled without notice or demand, and neither FTDI
nor the Fund(s) shall have any responsibility or
liability for such a cancellation. Alternatively, the
unpaid shares may be sold back to the Fund, and Bank
shall be liable for any resulting loss to FTDI or to
the Fund(s). You shall assume responsibility for any
loss to a Fund(s) caused by a correction made
subsequent to trade date, and you will immediately pay
such loss to the Fund(s) upon notification.
ii) Qualification of Shares
Except lack of good faith, FTDI shall not be
responsible expressly or by implication for the
qualification, issuance, form, validity,
enforceability, or value of shares of any of the Funds
for sale under the laws of any U.S. or foreign
jurisdiction. At Bank's request, FTDI will indicate to
Bank the states and jurisdictions in which Funds are
then qualified for sale. Bank shall be solely
responsible for compliance with all legal requirements
applicable to (1) those who may sell Fund shares on
behalf of Bank, and (2) those to whom such shares are
sold. If it is necessary to register or qualify the
shares in any foreign jurisdictions in which you intend
to offer the shares, it will be your responsibility to
arrange for and to pay the costs of such registration
or qualification; prior to any such registration or
qualification you will notify us of your intent and of
any limitations that might be imposed on the Funds and
you agree not to proceed with such registration or
qualification without the written consent of the Funds
and of ourselves. You further agree to indemnify,
defend and hold harmless the Principal Underwriter, the
Funds, their officers, directors and employees from any
and all losses, claims, liabilities and expenses
whether or not resulting in any liability to any of
them including, but not limited to, violations of the
Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the Investment
Company Act of 1940, as amended, or any rule or
regulation of any government or authorized agency, in
the United States or any other country, having
jurisdiction over the sale of shares made by you,
arising out of the offer and sale by you of shares of
the Funds pursuant to this Agreement, any redemption or
exchange pursuant to telephone instructions received
from you or your agent or employees, or arising out of
the breach by you of any of the terms and conditions of
this Agreement.
However, nothing in this Agreement shall be deemed to
be a condition, stipulation, or provision binding any
person acquiring any security to waive compliance with
any provision of the Securities Act of 1933, or of the
rules and regulations of the Securities and Exchange
Commission, or to relieve the parties hereto from any
liability arising under the Securities Act of 1933.
iii) Prospectus and Sales Materials
No person is authorized to make any representations
concerning shares of the Funds except those contained
in the current prospectus, statement of additional
information, or printed information issued by such Fund
or by FTDI as information supplemental to such
prospectus or statement of additional information. FTDI
will supply Bank with prospectuses, reasonable
quantities of supplemental sales literature, sales
bulletins, and additional information as issued.
iv) Limit on Advertising
Bank may not use advertising or sales material relating
to any Fund(s) other than materials delivered under
Section 5(h)(iii) of this Agreement, unless approved in
advance in writing by FTDI. Such approval may be
withdrawn by us in whole or in part upon notice to you,
and you shall, upon receipt of such notice, immediately
discontinue the use of such sales literature, sales
material and advertising. You are not authorized to
modify or translate any such materials without our
prior written consent. The use of any advertising
material must conform to the requirements of any
applicable laws and regulaton any government or
authorized agency, in the U.S. or any other country,
having jurisdiction over the offering or sale of shares
of the Funds.
v) Customers
Customers shall be deemed for all purposes to be Bank's
customers and not customers of FTDI. Customer names
shall be used by FTDI only for regulatory, servicing,
informational, and other mailings in the normal course
of Fund business, and may not be sold to others in a
list containing names of Bank's Customers only.
6.GENERAL
a) Successors and Assignments
This Agreement binds Bank and FTDI and their respective
heirs, successors and assigns. Bank may not assign its right
and duties under this Agreement without the advance, written
authorization of FTDI.
b) Paragraph Headings
The paragraph headings of this Agreement are for convenience
only, and shall not be deemed to define, limit, or describe
the scope or intent of this Agreement.
c) Severability
Should any provision of this Agreement be determined to be
invalid or unenforceable under any law, rule, or regulation,
that determination shall not affect the validity or
enforceability of any other provision of this Agreement.
d) Waivers
There shall be no waiver of any provision of this Agreement
except a written waiver signed by Bank and FTDI. No written
waiver shall be deemed a continuing waiver or a waiver of
any other provision, unless the waiver expresses such
intention.
e) Sole Agreement
This Agreement is the entire agreement of Bank and FTDI and
supersedes all oral negotiations and prior writings.
f) Governing Law
This Agreement shall be construed in accordance with the
laws of the State of California, not including any provision
which would require the general application of the law of
another jurisdiction, and shall be binding upon the parties
hereto when signed by us and accepted by you, either by your
signature in the space provided below or by your first trade
entered after receipt of this Agreement.
g) Arbitration
Should any of your concession accounts with us have a debit
balance, we may offset and recover the amount owed from any
other account you have with us, without notice or demand to
you. Either party may submit any dispute under this
Agreement to binding arbitration under the commercial
arbitration rules of the American Arbitration Association.
Judgment upon any arbitration award may be entered by any
state or federal court having jurisdiction.
h) Amendments
FTDI may amend this Agreement at any time by depositing a
written notice of the amendment in the U.S. mail, first
class postage pre-paid, addressed to Bank's address given
below. Bank's placement of any Transaction order after the
effective date of the written notice shall constitute Bank's
acceptance of the amendment.
i) Term and Termination
This Agreement shall continue in effect until terminated.
FTDI or Bank may terminate this Agreement at any time by
written notice to the other, but such termination shall not
affect the payment or repayment of Fees on Transactions
prior to the termination date. Termination also will not
affect the indemnities given under this Agreement.
WHEREFORE, the parties, by their duly authorized representatives,
have executed this Agreement.
Date:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
(Signature)
Name:
Title:
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
(415) 312/2000
Dealer Services - 800-524-4040
Order Room - 800-227-5041
700 Central Avenue
St. Petersburg, Florida 33701-3628
(813) 823/8712
Account Information - 800-354-9191
Switchboard - 800-237-0738
BANK
(Firm's name)
By:
(Signature)
Name:
Title:
Address:
Telephone:
APPENDIX
Revised as of December 1, 1994
Franklin/Templeton Distributors, Inc. ("FTDI") serves as
principal underwriter for the following Funds:
AGE High Income Fund, Inc., Franklin Balance Sheet Investment
Fund, Franklin California Tax-Free Income Fund, Inc., Franklin
California Tax-Free Trust, Franklin Custodian Funds, Inc.,
Franklin Equity Fund, Franklin Federal Tax-Free Income Fund,
Franklin Gold Fund, Franklin International Trust, Franklin
Investors Securities Trust, Franklin Managed Trust, Franklin
Municipal Securities Trust, Franklin New York Tax-Free Trust,
Franklin New York Tax-Free Income Fund, Inc., Franklin Premier
Return Fund, Franklin Strategic Series, Franklin Tax-Advantaged
High Yield Securities Fund, Franklin Tax-Advantaged International
Bond Fund, Franklin Tax-Advantaged U.S. Government Securities
Fund, Franklin Tax-Free Trust, Franklin Strategic Mortgage
Portfolio, Franklin/Templeton Global Trust, Franklin Real Estate
Securities Fund, all Franklin Money Market Funds, Institutional
Fiduciary Trust, Templeton Growth Fund, Inc., Templeton World
Fund, Templeton Foreign Fund, Templeton Smaller Companies Growth
Fund, Inc., Templeton Global Opportunities Trust, Templeton
Developing Markets Trust, Templeton American Trust, Inc.,
Templeton Real Estate Securities Fund, Templeton Income Fund,
Templeton Money Fund, Templeton Institutional Funds, Inc.
(Foreign Equity Series, Growth Series, Global Fixed Income
Series, Emerging Market Series and Foreign Equity (South Africa
Free) Series), Templeton Global Rising Dividends Fund, Templeton
Global Infrastructure Fund, Templeton Americas Government
Securities Fund, Franklin/Templeton Japan Fund, and Templeton
Variable Products Series Funds (Templeton Bond Fund, Templeton
Asset Allocation Fund, Templeton Stock Fund, Templeton Money
Market Fund and Templeton International Fund).The following
information will assist FTDI in accurately identifying and
reporting the source of sales made by you under the Agreement.
Compliance is voluntary but strongly encouraged. The information
being requested will be used by FTDI solely in connection with
its business as principal underwriter under the Agreement.
1. Nature of Firm's Business
Please indicate how you would best describe the nature of your
firm's business with FTDI, and if you clear for others, how you
would best describe the business of the firms you clear for
(check all that apply):
Firm's Clear Business For
Clearing agent for other firms
National Broker/Dealer
Regional Broker/Dealer
Independent Financial Planner
Financial Planning Broker/Dealer
Bank
Bank Affiliated
Insurance Company
Foreign Broker/Dealer
Other, please describe ______________
2. Branch and Rep Listings
You agree to provide FTDI with certain information including the
names and addresses of your registered representatives and their
representative numbers and branch locations. You also agree to
update FTDI with changes to this information on a regular and
frequent basis. FTDI agrees not to sell, in whole or in part,
this information nor disclose such information except for
regulatory purposes, servicing of accounts, or informational, or
other mailings which are in the normal course of FTDI or its
affiliates' business, or where such disclosure may otherwise be
required by law or by any regulatory agency having jurisdiction
over FTDI's or its affiliates' business.
Back Office Contact
(The person to contact for branch and rep listings)
By:
(Same as signature on agreement above)
MUTUAL FUND PURCHASE AND SALES AGREEMENT FOR BANK AFFILIATED
BROKER/DEALERS
Effective: December 1, 1994
Franklin/Templeton Distributors, Inc. - Principal Underwriter
777 Mariners Island Blvd., San Mateo, CA 94404
700 Central Avenue, St. Petersburg, Florida 33701-3628
Franklin Divisions Franklin Group of Funds
777 Mariners Island Blvd., San Mateo, CA 94404
415/312-2000 800/632-2350
500 5th Avenue, 55th Floor, New York, NY 212/869-1776
Templeton Divisions Templeton Group of Funds
700 Central Avenue, St. Petersburg, Florida 33701-3628
813/823-8712 800/237-0738
Franklin/Templeton Distributors, Inc., as Principal
Underwriter for the funds in the Franklin Group of Funds and the
Templeton Group of Funds, invites the dealer indicated below
(hereinafter "you" or "dealer") to participate in the
distribution of the shares of any or all funds for which we now,
or in the future, serve as principal underwriter (together,
hereafter referred to as "we," "our," "us"), subject to the terms
set forth below (this "Agreement"). The funds are collectively
referred to herein as the "Funds" and listed in the Appendix.
This Agreement is cumulative and supersedes any agreement in
effect prior to the effective date listed above. Your first trade
after receipt of this Agreement shall constitute your acceptance
of its term.
1. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and are
presently licensed to the extent necessary by the appropriate
regulatory agency of any state in which you will offer and sell
shares of the Funds. You agree that termination or suspension of
your membership with the NASD, or of your license to do business
by any state or federal regulatory agency, at any time shall
require you to notify us of such action and shall terminate or
suspend this Agreement forthwith; or, if you are not a member of
the NASD but are a dealer subject to the laws of a foreign
country, you agree to conform to the rules of fair practice of
such association. This Agreement is in all respects subject to
Rule 26 of the Rules of Fair Practice of the NASD, which shall
control any provisions to the contrary in this Agreement.
2. You are to offer and sell shares of each Fund only at the
public offering price which shall then be currently in effect.
The procedures relating to all orders and the handling of them
shall be subject to the terms of the then current prospectus and
statement of additional information (hereafter, the "prospectus")
and new account application, including amendments, for each such
Fund, and our written instructions from time to time.
3. You agree:
(a) To act as agent on behalf of your customers in all
transactions in shares of the Funds except as provided
in paragraph 4 hereof. You shall not have any authority
to act as agent for the issuer (the Funds), for the
Principal Underwriter, or for any other dealer in any
respect, nor will you represent to any third party that
you have such authority or are acting in such capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds
only from us and only for the purpose of covering
purchase orders you have already received from your
customers or for your own bona fide investment.
(d) To maintain records of all sales and redemptions of
shares made through you and to furnish us with copies of
such records on request.
(e) To distribute prospectuses and reports to your customers
in compliance with the applicable requirements, except
to the extent that we expressly undertake to do so on
your behalf.
(f) That you will not withhold placing customers' orders for
shares so as to profit yourself as a result of such
withholding or place orders for shares in amounts just
below the point at which sales charges are reduced so as
to benefit from a higher sales charge applicable to an
amount below the breakpoint.
(g) That if any shares confirmed to you hereunder are
repurchased or redeemed by any of the Funds within seven
business days after such confirmation of your original
order, you shall forthwith refund to us the full
concession allowed to you on such orders. We shall
forthwith pay to the appropriate Fund our share, if any,
of the "charge" on the original sale and shall also pay
to such Fund the refund from you as herein provided. We
shall notify you of such repurchase or redemption within
ten days from the date of settlement. Termination or
cancellation of this Agreement shall not relieve you or
us from the requirements of this subparagraph.
(h) That if payment for the shares purchased is not received
within the time customary for such payment, the sale may
be cancelled forthwith without any responsibility or
liability on our part or on the part of the Funds, or at
our option, we may sell the shares ordered back to the
Funds, in which latter case we may hold you responsible
for any loss to the Fund or loss of profit suffered by
us resulting from your failure to make payment as
aforesaid. We shall have no liability for any check or
other item returned unpaid to you after you have paid us
on behalf of a purchaser. We may refuse to liquidate the
investment unless we receive the purchaser's signed
authorization for the liquidation.
(i) That you shall assume responsibility for any loss to a
Fund(s) caused by a correction made subsequent to trade
date, provided such correction was not based on any
error, omission or negligence on our part, and that you
will immediately pay such loss to the Fund(s) upon
notification.
(j) That if on a redemption which you have ordered,
instructions in proper form, including outstanding
certificates are not received within the time customary,
the redemption may be cancelled forthwith without any
responsibility or liability on our part or on the part
of any Fund, or at our option, we may buy the shares
redeemed on behalf of the Fund, in which latter case we
may hold you responsible for any loss to the Fund or
loss of profit suffered by us resulting from your
failure to settle the redemption.
4. In connection with orders for the purchase of shares on
behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone,
or wire, you shall act as agent for the custodian or trustee of
such plans (solely with respect to the time of receipt of the
application and payments) and shall not place such order until
you have received from your customer payment for such purchase
and, if such purchase represents the first contribution to such a
plan, the completed documents necessary to establish the plan.
You agree to indemnify us and Franklin Trust Company and/or
Templeton Funds Trust Company for any claim, loss, or liability
resulting from incorrect investment instructions received from
you which cause a tax liability or other tax penalty.
5. We will not accept from you any conditional orders for
shares of any of the Funds. Delivery of certificates for shares
purchased shall be made by the Funds only against constructive
receipt of the purchase price, subject to deduction for your
concession and our portion of the sales charge, if any, on such
sale. No certificates will be issued unless specifically
requested.
6. On each purchase of shares by you from us, the total sales
charges and your dealer concessions shall be as stated in each
Fund's then current prospectus, subject to NASD rules and
applicable state and federal laws. Such sales charges and dealer
concessions are subject to reductions under a variety of
circumstances as described in the Funds' prospectuses. To obtain
these reductions, we must be notified when the sale takes place
which would qualify for the reduced charge. Sales charges on the
reinvestment of income dividends shall be allocated as stated in
each Fund's then current prospectus. If you fail to notify us of
the applicability of a reduction in the sales charge at the time
the trade is placed, neither we nor any of the Funds will be
liable for amounts necessary to reimburse any investor for the
reduction which should have been effected.
7. Redemptions or repurchases of shares will be made at the
net asset value of such shares in accordance with the current
prospectuses. Except as permitted by applicable law, you agree
not to purchase any shares from your customers at a price lower
than the redemption or repurchase prices then computed by the
Funds. You shall, however, be permitted to sell shares for the
account of the record owner to the Funds at the repurchase price
then currently in effect for such shares and may charge the owner
a fair commission for handling the transaction.
8. Telephone exchange orders will be effective only for shares
in plan balance (uncertificated shares) or for which share
certificates have been previously deposited and may be subject to
a $5 exchange fee as discussed in the prospectus. You may charge
the shareholder a fair commission for handling an exchange
transaction. Exchanges from a Fund sold with no sales charge to a
Fund which carries a sales charge and exchanges from a Fund sold
with a sales charge to a Fund which carries a higher sales charge
may be subject to a sales charge in accordance with the terms of
each Fund's prospectus.
9. All orders are subject to acceptance by us and become
effective only upon confirmation by us. If required by law, each
transaction shall be confirmed in writing on a fully disclosed
basis and, if confirmed by us, a copy of each confirmation shall
be sent simultaneously to you if you so request. All sales are
made subject to receipt of shares by us from the Funds. We
reserve the right in our discretion, without notice, to suspend
the sale of shares or withdraw the offering of shares entirely.
Telephone orders will be effected at the price(s) next computed
on the day they are received from you if, as set forth in each
Fund's current prospectus, they are received prior to the time
the price of its shares is calculated. Orders received after that
time will be effected at the price(s) computed on the next
business day. Orders for the purchase of 100,000 shares or more
of any of the Funds will be effected at an offering price
calculated to four decimal places. All orders must be accompanied
by payment in U.S. dollars. Orders payable by check must be drawn
payable in U.S. dollars on a U.S. bank, for the full amount of
the investment.
10. With respect to Funds offering both shares subject to a
front-end sales charge ("Class A Shares") and shares subject to a
contingent deferred sales charge ("Class B Shares"), you shall
conform to our written compliance standards as we may from time
to time provide to you in the future.
11. You are also invited to participate in the distribution of
shares of certain of the Funds which, although sold without or at
a reduced sales charge, have adopted a Plan ("Plan Funds")
pursuant to Rule 12b-1 under the Investment Company Act of 1940
("Plans"). Pursuant to such Plans, to the extent you provide
services as specified more fully in or in an attachment to a
service agreement between you and the Principal Underwriter, in
the promotion of shares of such Plan Funds, you shall be paid a
fee as provided for and in effect at any particular time as set
forth in the prospectuses for the Plan Funds which have such
Plans.
We shall furnish to the Board of Directors of the Plan Funds,
for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such
expenditures were made.
The Plans and provisions of any Agreement relating to such
Plans must be approved annually by a vote of the Plan Funds'
Directors, including such persons who are not interested persons
of the Plan Funds and who have no financial interest in the Plans
or any related agreement ("Rule 12b-1 Directors"). The Plans or
the provisions of this Agreement relating to such Plans may be
terminated at any time by the vote of a majority of the Plan
Funds' Boards of Directors, including Rule 12b-1 Directors, or by
a vote of a majority of the outstanding shares of the Plan Funds,
on sixty (60) days' written notice, without payment of any
penalty. The Plans or the provisions of this Agreement may also
be terminated by any act that terminates the Underwriting
Agreement between us and the Plan Funds, and/or the management
agreement between Franklin Advisers, Inc. or Templeton, Galbraith
& Hansberger Ltd. or their affiliates and the Plan Funds. In the
event of the termination of the Plans for any reason, the
provisions of this Agreement relating to the Plans will also
terminate.
Continuation of the Plans and provisions of this Agreement
relating to such Plans are conditioned on Rule 12b-1 Directors
being ultimately responsible for selecting and nominating any new
Rule 12b-1 Directors.
Under Rule 12b-1, Directors of any of the Plan Funds have a
duty to request and evaluate, and persons who are party to any
agreement related to a Plan have a duty to furnish, such
information as may reasonably be necessary to an informed
determination of whether the Plan or any agreement should be
implemented or continued.
Parties to this Agreement who provide services to Plan Funds
in the promotion of shares of such Funds should be aware that
under Rule 12b-1 Plan Funds are permitted to implement or
continue Plans or the provisions of this Agreement relating to
such Plans from year-to-year only if, based on certain legal
considerations, the board is able to conclude that the Plans will
benefit the Plan Funds. Absent such yearly determination the
Plans and the provisions of this Agreement relating to the Plans
must be terminated as set forth above.
You agree to waive payment of any amounts payable to you by us
under a Fund's Plan of Distribution pursuant to Rule 12b-1 until
such time as we are in receipt of such fee from the fund.
The provisions of the management agreement between the Plan
Funds and Franklin Advisers, Inc. or Templeton, Galbraith &
Hansberger Ltd. and its affiliates, and/or of the Underwriting
Agreement between the Plan Funds and us, insofar as they relate
to Plans, are incorporated herein by reference, and shall control
in the event of any inconsistency.
12. We shall have no responsibility for the qualification of,
manner of sale, or status of persons selling shares of the Funds
under the laws regulating the sale of securities in any U.S. or
foreign jurisdiction. We shall not, in any event, be liable or
responsible for the issue, form, validity, enforceability and
value of such shares or for any matter in connection therewith,
and no obligation not expressly assumed by us in this Agreement
shall be implied. Nothing in this Agreement, however, shall be
deemed to be a condition, stipulation or provision binding any
person acquiring any security to waive compliance with any
provision of the Securities Act of 1933, or of the rules and
regulations of the Securities and Exchange Commission, or to
relieve the parties hereto from any liability arising under the
Securities Act of 1933.
13. If it is necessary to register or qualify the shares in
any foreign jurisdictions in which you intend to offer the
shares, it will be your responsibility to arrange for and to pay
the costs of such registration or qualification; prior to any
such registration or qualification you will notify us of your
intent and of any limitations that might be imposed on the Funds
and you agree not to proceed with such registration or
qualification without the written consent of the Funds and of
ourselves.
14. No person is authorized to give any information or make
any representations concerning shares of the Funds except those
contained in the current prospectus, or statement of additional
information issued by the Fund or by us as information
supplemental to such prospectus or statement of additional
information. We will supply prospectuses, reasonable quantities
of supplemental sale literature, sales bulletins, and additional
information as issued. You agree not to use other advertising or
sales material relating to the Funds except that which (a)
conforms to the requirements of any applicable laws or
regulations of any government or authorized agency in the U.S. or
any other country, having jurisdiction over the offering or sale
of shares of the Funds, and (b) is approved in writing by us in
advance of such use. Such approval may be withdrawn by us in
whole or in part upon notice to you, and you shall, upon receipt
of such notice, immediately discontinue the use of such sales
literature, sales material and advertising. You are not
authorized to modify or translate any such materials without our
prior written consent.
15. You further agree to indemnify, defend and hold harmless
the Principal Underwriter, the Funds, their officers, directors
and employees from any and all losses, claims, liabilities and
expenses whether or not resulting in any liability to any of them
including, but not limited to, alleged violations of the
Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the Investment Company Act of 1940, as
amended, or any rule or regulation of any government or
authorized agency, in the U.S. or any other country, having
jurisdiction over the sale of shares made by you, arising out of
the offer and sale by you of shares of the Funds pursuant to this
Agreement, any redemption or exchange pursuant to telephone
instructions received from you or your agent or employees, or
arising out of the breach by you of any of the terms and
conditions of this Agreement.
16. Each party to this Agreement may cancel its participation
in this Agreement by giving written notice to the other parties.
Such notice shall be deemed to have been given and to be
effective on the date on which it was either delivered personally
to the other parties or any officer or member thereof, or was
mailed postpaid or delivered to a telegraph office for
transmission to the other parties at their address as shown
herein. This Agreement shall terminate immediately upon the
appointment of a Trustee under the Securities Investor Protection
Act or any other act of insolvency by you. The termination of
this Agreement by any of the foregoing means shall have no effect
upon transactions entered into prior to the effective date of
termination. A trade placed by you subsequent to your voluntary
termination of the Agreement will not serve to reinstate the
Agreement. Reinstatement, except in the case of a temporary
suspension of a dealer will only be effective upon written
notification by us. This Agreement may be amended by us at any
time by written notice to you and your placing of an order after
the effective date and receipt of notice of any such Amendment
shall constitute your acceptance thereof.
17. Should any of your concession accounts with us have a
debit balance, we may offset and recover the amount owed from any
other account you have with us, without notice or demand to you.
In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted
to binding arbitration under the commercial arbitration rules of
the NASD or the American Arbitration Association. Judgment upon
any arbitration award may be entered by any state or federal
court having jurisdiction. This Agreement shall be construed in
accordance with the laws of the State of California, not
including any provision which would require the general
application of the law of another jurisdiction, and shall be
binding upon the parties hereto when signed by us and accepted by
you, either by your signature in the space provided below or by
your first trade entered after receipt of this Agreement.
Date:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
(Signature)
Name:
Title:
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
(415) 312/2000
Dealer Services - 800-524-4040
Order Room - 800-227-5041
700 Central Avenue
St. Petersburg, Florida 33701-3628
(813) 823/8712
Account Information - 800-354-9191
Switchboard - 800-237-0738
DEALER
(Firm's name)
By:
(Signature)
Name:
Title:
Address:
Telephone:
APPENDIX
Revised as of December 1, 1994
Franklin/Templeton Distributors, Inc. ("FTDI") serves as
principal underwriter for the following Funds:
AGE High Income Fund, Inc., Franklin Balance Sheet Investment
Fund, Franklin California Tax-Free Income Fund, Inc., Franklin
California Tax-Free Trust, Franklin Custodian Funds, Inc.,
Franklin Equity Fund, Franklin Federal Tax-Free Income Fund,
Franklin Gold Fund, Franklin International Trust, Franklin
Investors Securities Trust, Franklin Managed Trust, Franklin
Municipal Securities Trust, Franklin New York Tax-Free Trust,
Franklin New York Tax-Free Income Fund, Inc., Franklin Premier
Return Fund, Franklin Strategic Series, Franklin Tax-Advantaged
High Yield Securities Fund, Franklin Tax-Advantaged International
Bond Fund, Franklin Tax-Advantaged U.S. Government Securities
Fund, Franklin Tax-Free Trust, Franklin Strategic Mortgage
Portfolio, Franklin/Templeton Global Trust, Franklin Real Estate
Securities Fund, all Franklin Money Market Funds, Institutional
Fiduciary Trust, Templeton Growth Fund, Inc., Templeton World
Fund, Templeton Foreign Fund, Templeton Smaller Companies Growth
Fund, Inc., Templeton Global Opportunities Trust, Templeton
Developing Markets Trust, Templeton American Trust, Inc.,
Templeton Real Estate Securities Fund, Templeton Income Fund,
Templeton Money Fund, Templeton Institutional Funds, Inc.
(Foreign Equity Series, Growth Series, Global Fixed Income
Series, Emerging Market Series and Foreign Equity (South Africa
Free) Series), Templeton Global Rising Dividends Fund, Templeton
Global Infrastructure Fund, Templeton Americas Government
Securities Fund, Franklin/Templeton Japan Fund, and Templeton
Variable Products Series Funds (Templeton Bond Fund, Templeton
Asset Allocation Fund, Templeton Stock Fund, Templeton Money
Market Fund and Templeton International Fund).
The following information will assist FTDI in accurately
identifying and reporting the source of sales made by you under
the Agreement. Compliance is voluntary but strongly encouraged.
The information being requested will be used by FTDI solely in
connection with its business as principal underwriter under the
Agreement.
1. Nature of Firm's Business
Please indicate how you would best describe the nature of your
firm's business with FTDI, and if you clear for others, how you
would best describe the business of the firms you clear for
(check all that apply):
Firm's Clear Business For
Clearing agent for other firms
National Broker/Dealer
Regional Broker/Dealer
Independent Financial Planner
Financial Planning Broker/Dealer
Bank
Bank Affiliated
Insurance Company
Foreign Broker/Dealer
Other, please describe ______________
2. Branch and Rep Listings
You agree to provide FTDI with certain information including the
names and addresses of your registered representatives and their
representative numbers and branch locations. You also agree to
update FTDI with changes to this information on a regular and
frequent basis. FTDI agrees not to sell, in whole or in part,
this information nor disclose such information except for
regulatory purposes, servicing of accounts, or informational, or
other mailings which are in the normal course of FTDI or its
affiliates' business, or where such disclosure may otherwise be
required by law or by any regulatory agency having jurisdiction
over FTDI's or its affiliates' business.
Back Office Contact
(The person to contact for branch and rep listings)
By:
(Same as signature on agreement above)
95.89/115 (10/94)
BANK SERVICE AGREEMENT AND SIGNATURE AUTHORITY RESOLUTIONS
AND CURRENT LIST OF AUTHORIZED SIGNERS
BANK: CITIBANK DELAWARE
I, DEBORAH R. GATZEK, hereby certify that:
A. I am the Secretary of the mutual fund(s) identified in List A ("List A
Funds") and List B ("List B Funds"), below, and the Assistant
Secretary of the mutual funds identified in List C ("List C Funds"),
below;
B. the following resolutions ("the Resolutions") were adopted by their
respective boards of directors/trustees (1) by List A Funds and List C
Funds at a meeting on Tuesday, August 22, 1989, and (2) by the List B
Fund by unanimous written consent effective September 5, 1989;
C. the persons named in List D are "Authorized Officers" under the
Resolution for (1) List A Funds, (2) List B Funds, and (3) List C
Funds, as of the date given next to my signature on this Certificate,
below, and are therefore authorized to sign banking agreements with
Citibank Delaware.
The Resolutions
1. Establishment of Bank Depository Relationship
RESOLVED, that pursuant to Section 17(f)(1) of the Investment Company
Act of 1940, Citibank Delaware is hereby appointed a depository for
the deposits of [Fund's name], and the President, Treasurer,
Secretary, and any Vice President, or any of them, are hereby
authorized to execute a bank agreement substantially in the form
presented to the Board of Trustees/Directors at its meeting on
Tuesday, August 22, 1989.
2. Ongoing Banking Relationship - New Services
RESOLVED, that the following officers are "Authorized Officers" of
[Fund's name] ("the Fund"), for the purposes of this resolution: (1) the
President, (2) the Secretary or Assistant Secretary, (3) any Vice
President, and (4) the Treasurer. Pursuant to Section 17(f)(1) of the
Investment company Act of 1940, the following actions are hereby authorized
with regard to products and services offered by Citibank Delaware ("the
Bank"): Any two Authorized Officers may enter into agreements on behalf of
the Fund for products and services (including, without limitation, computer
automated and electronic services for either record keeping or money
transfer), which products or services are offered by the Bank in connection
with the services provided by the Bank under the bank agreement. Any such
agreement may not lower the performance standards, legal liabilities, or
responsibilities of the Bank under the bank agreement. Any two of the
Authorized Officers may also adopt (a) forms of resolution, (b) processing
documentation or procedures, (c) forms of statements or reports, (d) forms
of checks drafts, (e) signature cards, (f) lists of authorized signers for
similar documentation or procedures, as they may deem necessary for the
performance by the Bank of its duties under (i) the bank agreement, or (ii)
any agreement entered into pursuant to the powers granted by this
resolution. Any agreement, resolution, document, or other matter adopted
from time to time pursuant to the powers granted by this resolution shall
be deemed to have been duly authorized by this board.
List A
AGE High Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investment Trust
Franklin Investors Securities Trust
Franklin Money Fund
Franklin New York Tax-Exempt Money Fund
Franklin Option Fund
Franklin Pennsylvania Investors Fund
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Universal Trust
Franklin Principal Maturity Trust
Institutional Fiduciary Trust
List B
Franklin Managed Trust
List C
Franklin California Tax-Free Income Fund, Inc.
Franklin Custodian Funds, Inc.
Franklin New York Tax-Free Income Fund, Inc.
List D.
Harmon E. Burns
Kenneth V. Domingues
Deborah R. Gatzek
Date September 6, 1989 /s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary/Assistant Secretary
AUTHORIZED OFFICERS' CERTIFICATE
I, the undersigned, hereby certify that I am an Authorized Officer under
the Resolution and that on the date given in this Authorized Officers'
Certificate, below, the persons named in the attached "Authorized Signers
List" (1 Page) were authorized to sign on behalf of (1) List A funds, (2)
List B Funds, and (3) List C Funds, in the capacities set forth in the
Authorized Signers List.
[NOTE: Any 2 Authorized Officers may sign.]
Date: September 11, 1989
/s/ Harmon E. Burns /s/ Kenneth V. Domingues
Harmon E. Burns Kenneth V. Domingues
Deborah R. Gatzek
AUTHORIZED SIGNERS LIST
1. The Persons listed on Page 3 of Attachment V to the ACH Service
Agreement are authorized signers with the authority as set forth in that
Attachment and that Agreement.
2. Any two of the persons listed below, signing together, are authorized
signers with the authority as set forth in the modified version of the
Citibank account signature card a photocopy of which is attached as Exhibit
I to this Authorized Signers List.
Name Signature
Oscar Apostol x /s/ Oscar Apostol
Oscar Apostol
Nancy Hessel x /s/ Nancy Hessel
Nancy Hessel
Rich Narcisso x /s/ Rich Narcisso
Rich Narcisso
Ellen Don x /s/ Ellen Don
Ellen Don
[NOTE: Any 2 Authorized Officers may sign.]
Date: September 11, 1989
/s/ Harmon E. Burns /s/ Kenneth V. Domingues
Harmon E. Burns Kenneth V. Domingues
Deborah R. Gatzek
EXHIBIT I
RESOLVED
1. That Citibank (Delaware) (hereinafter called the "Bank") be and
hereby is designated a depository of the funds of (hereinafter called the
"Corporation") and
(If officer(s) designated office(s) only. For example President, Treasurer
etc. If person(s) other than officer(s) Insert name(s))
appearing
(singly any two jointly or otherwise)
Is/are hereby authorized to sign for and on behalf of this Corporation
checks, drafts and other orders with respect to any funds at any time(s) to
the credit of this Corporation with the Bank and/or against any account(s)
of this Corporation maintained at any time(s) with the Bank. Inclusive of
any such checks, drafts and other orders in favor of any of the above
designated officer(s) and/or other person(s), and that the Bank be and
hereby is authorized (a) to pay the same to the debit of any account(s) of
this Corporation then maintained with it. (b) to receive for deposit to the
credit of this Corporation and/or for collection for the account of this
Corporation, any and all checks, drafts, notes and other instruments for
the payment of money, whether or not endorsed by this Corporation, which
may be submitted to it for such deposit and/or collection, it being
understood that each such item shall be deemed to have been unqualifiedly
endorsed by this Corporation, and (c) to receive, as the act of this
Corporation any and all stop-payment instructions (inclusive of any
relative agreement) with respect to any such checks, drafts or other orders
as aforesaid and reconcilement(s) of account when signed by any one or more
of the officer(s) and/or other person(s) as hereinabove designated.
2. That
(If officer(s) designate office(s) only. For example,
President, Treasurer etc. If person(s) other than officer(s), insert
name(s)
appearing
(singly, any two, jointly or otherwise)
Is/are hereby authorized for and on behalf of this Corporation, to
transact any and all other business with or through the Bank which at any
time(s) may be deemed by the said officer(s) and/or other person(s)
transacting the same to the advisable, including without limiting the
generality of the foregoing authority to (f) execute and deliver to the
Bank, automated customers services and other agreements relative to
performance of various computer services and (g) in reference to any of the
business or transactions hereinbefore in this subdivision "2" referred to,
to make, enter inf., execute and deliver to the Bank such negotiable or non-
negotiable instruments, indemnify or other agreements, obligation,
assignments, endorsements, receipts and/or other documents as may be deemed
by the officer(s) and/or other person(s) so acting to be necessary or
desirable.
3. That the Bank is further authorized to pay to the debt of any
account(s) of this Corporation, any and all checks, drafts and other
instruments for the payment of money drawn in the name of this Corporation
bearing or purporting to bear the facsimile signature(s) of
(If officer(s), designate office(s) only. For example, President,
Treasurer, etc. If person(s) other than officer(s), insert name(s)
appearing
(singly, any two, jointly or otherwise)
Inclusive of any in favor of any person(s) whose facsimile signature(s)
thereon, if the facsimile signature(s) thereon, regardless of by whom or
what means affixed, resemble(s) the specimen(s) thereof filed with the
Bank.
4. That any and all withdrawals of money and/or other transactions
heretofore had in behalf of this Corporation with the Bank are hereby
ratified, confirmed and approved, and that the Bank (and any interested
third party) may rely upon the authority conferred by this entire
resolution unless, and except to the extent that this resolution shall be
revoked or modified by a subsequent resolution of this Board and until a
certified copy of such subsequent resolution has been received by the Bank
I FURTHER CERTIFY that the following now occupy(ies) the (respective)
office(s) designated in the above quoted resolution and that the same is
(are) duly qualified as such officer(s) and that the specimen(s) of the
facsimile signature(s) below, if any is (are) that (those)of the persons
referred to by title or named in subdivision 3 of the foregoing resolution
as originally adopted:
Names and Titles Specimen Facsimile Signatures
(if applicable)
Name
Title
Name
Title
Name
Title
Name
Title
Name
Title
ACH CUSTOMER AGREEMENT
This is the ACH Customer Agreement between each Fund in the Franklin Group
of Funds (see list in Attachment A) for which it acts as shareholder
services agent ("You" or "company") and Citibank Delaware ("Citibank" or
"We" or "Us") and is part of, and is to be read in conjunction with, the
Citibank Cash Management Services Master Agreement dated September 11,
1989.
Citibank is participating depository financial institution of the Third
District Funds Transfer Association, which is a member of the National
Automated Clearing House Association("NACHA"). Execution of this Agreement
shall permit you to initiate ACH transactions ("Services") in accordance
with the operating rules and procedures of NACHA in existence as of the
date of this agreement and as amended from time to time. All terms in this
Agreement shall have the same meaning as in the NACHA rules unless stated
to the contrary.
The specific Services and our mutual understanding as to your and our
rights and responsibilities as part of the Services, will be described in
the separate Service Agreement ("Service Agreement") attached as Appendix
A.
You shall act as, and have all of the responsibilities of, the Originating
Company. You have chosen Citibank as the Originating Depository Financial
Institution ("ODFI") with all of the accompanying obligations of an ODFI.
Citibank agrees to make a best effort attempt to keep you abreast of
changes in the ACH Payments arena, including amendments to the NACHA
Operating Rules. It is your obligation to comply with the NACHA Rules
("Rules") and Regulation E ("Regulation") as they apply and to be aware of
any changes or updates to such Rules and Regulations including, but not
limited to, the Rules relating to customer authorizations, retention of
records and obligations to the receiving bank.
You agree to maintain a checking account ("Settlement Account") at Citibank
and agree to fund any Entries submitted and against which any rejected or
returned Entries may be credited or debited, as specified in the ACH
Service Agreement. Posting to this account will be with available funds on
the settlement day, or in case of returns, on the day Citibank receives
them, or as otherwise permitted by the ACH Service Agreement.
You will send all Entries to Citibank and Citibank agrees to process these
Entries in accordance with the Rules and Regulations and the procedures
outlined in the Service Agreement.
You represent and warrant now and at the time of each entry that you have:
-complied with all applicable Rules and Regulations;
-breached no warranties of an Originating Company;
-received the appropriate customer authorizations;
-not violated any federal, state or local laws
-regarding electronic funds transfer.
In the event that you breach any of the warranties in this Agreement, you
will indemnify Us and hold Us harmless.
As set forth in Appendix A, we will provide you with information on
returned items as it is provided to Us by the returning institution.
Except as set forth in Appendix A, it shall be your responsibility to
remake, re-submit and correct these items as well as to notify your
customer of such returned items.
We will rely on the accuracy and/or completeness of the information
provided by you. If you discover an error, it is your responsibility to
notify Us and We will use our best efforts to correct the Entry. We will
not, however, be liable for any of your errors.
We will be responsible for Our own negligence or willful misconduct but
will not be responsible for any failure, act or omission of third parties.
In no event will We be liable for any incidental, consequential, indirect
or special damages nor for losses outside of our direct control.
Neither party shall be liable for any loss, claim or damage rising from a
governmental interruption or act of God.
We regard acceptance of this Agreement as the authorization from your
Company's Board of Directors that the person executing it is authorized to
do so. Furthermore, you warrant that the signatory is authorized to
designate persons to perform the specific functions listed on the Service
Agreement. These functions include the initiation, modification and/or
deletion of financial services by facsimile or written communication.
Fees will be Citibank's standard prices or those listed in the separate
pricing schedule attached as Appendix B. After one (1) or two (2) years
from the date given below, depending on the particular service, prices may
be amended upon 30 days prior written notice unless otherwise provided for
in Appendix B. You are responsible for paying any sales or use tax
associated with the Services.
We reserve the right without notice to modify or terminate the ACH Services
to the Customer offered herein if customer has failed to meet its
obligations to Bank. Either Citibank or Company may terminate this
Agreement without payment of any penalty, at any time upon sixty (60) days
written notice thereof delivered by one to the other.
This Agreement, together with Appendices or their attachments, contain our
complete and exclusive agreement with respect the Services.
This Agreement shall be governed by the laws of the State of New York.
Agreed and accepted as of September 11, 1989.
CUSTOMER: FRANKLIN GROUP OF FUNDS CITIBANK:
By: /s/ Harmon E. Burns By: /s/ Francis B. Hagan
Harmon E. Burns Francis B. Hagan
Title: Vice President Title: Vice President
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
Title: Treasurer
CITIBANK DELAWARE ACH SERVICES - LIST OF PARTICIPATING FRANKLIN FUNDS
AGE High Income Fund, Inc.
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income fund
Franklin Gold Fund
Franklin Investment Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin New York Tax-Exempt Money Fund
Franklin New York Tax-Free Income fund, Inc.
Franklin Option Fund
Franklin Pennsylvania Investors Fund
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Universal Trust
Franklin Principal Maturity Trust
Institutional Fiduciary Trust
ACH SERVICE AGREEMENT
This Service Agreement and Attachments I, II, III, IV, and V are Appendix
"A" to the ACH Customer Agreement dated September 1, 1989, between Citibank
Delaware ("Bank") and each Fund (see list in Attachment A) in the Franklin
Group of Funds for which it acts as shareholder services agent ("COMPANY").
The following describes the mutual understanding of BANK and COMPANY:
1. COMPANY agrees to prepare and deliver ACH Entries ("Data") to BANK in
files formatted as specified in Attachment I. Each file of Data
delivered to BANK will consist of Batches of PPD Debit entries and
prenotes for the "Autocheck" application and PPD Credit entries and
prenotes for the "Dividend" application.
2. COMPANY agrees to deliver Data to Citibank Delaware according to the
specifications on Attachment II.
3. COMPANY agrees that Data will be delivered on the days indicated on
Attachment III. COMPANY understands that BANK will determine
Settlement Day to be the date specified by COMPANY as the "Effective
Entry Date" in the Batch Header of the file of Data delivered to BANK.
4. COMPANY agrees to meet a "Delivery Cutoff Time" of no later than 12:00
PM Eastern Time on delivery day. Delivery Cutoff Time means the time
at which a tape is received by Citibank Delaware or a transmission to
Citibank Delaware is completed.
5. BANK will deliver Data to the FED on "Processing Day". COMPANY agrees
that Processing Day will be one day prior to Settlement Day for the
Autocheck application and two days prior to Settlement Day for the
Dividend application, and that BANK will use the FED Day Cycle.
6. Should COMPANY deliver Data to BANK for processing on a non-business
day for BANK, COMPANY authorizes BANK to process such data on the
business day immediately following such day.
7. If Data is not received before the Day Cycle deadline on Processing
Day, BANK will process Data through the next available FED window.
8. COMPANY agrees to retain Data on file for two days following Delivery
Date to permit remaking of file at BANK's request.
9. For the Autocheck application, BANK will offset COMPANY's Settlement
Account #3815-1349 for the dollar value of all entries delivered on
Processing Day. For the Dividend application, BANK will offset
COMPANY's Settlement Account #3815-1322 for the dollar value of all
entries delivered on the day following processing Day. Offset
transactions will be posted in aggregate to the Settlement Account. Offset
transactions shall be assigned availability on Settlement Day. COMPANY
understands that final determinations of Settlement Day,
notwithstanding paragraph (3) above, shall be the day on which the FED
settles for such transactions with BANK.
10. BANK will make a best effort to advise COMPANY by phone within three
hours, but in no case later than one business day, after rejecting a
File of Data or an Individual Entry.
BANK will reject a File of Data if the dollar amount of the file
delivered exceeds $
BANK will reject individual Entries if the dollar amount of such entry
exceeds $
11. For the Autocheck application, entries received by BANK destined for
non-ACH member BANKS will be processed as PAC'S. For the Dividend
application, entries received by BANK destined for non-ACH member
BANKS will be rejected.
12. Return items received by BANK from the Federal Reserve Bank will be
posted by BANK to COMPANY'S Settlement Account individually.
Returns of debit originations received will be resubmitted to the FED
for collection if so specified by COMPANY on Attachment IV.
13. At COMPANY'S request, BANK will make changes to Data which has been
delivered to BANK, but which BANK has not yet delivered to the Federal
Reserve Bank, within the authorizations set forth upon Attachment V.
BANK reserves the right to refuse a request for a change to the Data
if in BANK'S opinion there is not sufficient time to effect the change
prior to delivery of Data to the Federal Reserve Bank.
14. BANK will provide COMPANY information about Returned ACH Entries
posted to COMPANY'S Settlement Account Via CitiCash Manager.
BANK will provide COMPANY information about Returned PAC Items posted
to COMPANY's Settlement Account via faxed report. All returned PACs
will be express mailed to COMPANY.
15. COMPANY will fund/withdraw funds from the Settlement Accounts as
specified on Attachment IV.
16. BANK will notify COMPANY promptly of any changes in these procedures
as specified in Attachment V.
This Service AGREEMENT may be amended, according to the terms of the ACH
Customer Agreement, either by mutual consent or by BANK, upon 45 days
written notice to COMPANY.
FRANKLIN GROUP OF FUNDS
COMPANY SIGNATURE: /s/ Harmon E. Burns
Harmon E. Burns
/s/ Kenneth V. Domingues
Kenneth V. Domingues
BANK SIGNATURE: /s/ Francis B. Hagan
Francis B. Hagan
ACH SERVICE AGREEMENT ATTACHMENT I
DATA FORMAT
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Debits (Autochecks)
Preauthorized Consumer Credits (Dividends)
Data will be delivered to BANK in the applicable NACHA "PPD"
format, as in effect from time to time.
ACH SERVICE AGREEMENT ATTACHMENT II
DATA DELIVERY SPECIFICATIONS
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Debits (Autochecks)
Preauthorized Consumer Credits ( Dividends)
Files of payment data for the Autocheck application will be
electronically transmitted to Citibank Delaware.
Files of payment data for the Dividend application will be
delivered to Citibank Delaware on magnetic tape via
courier. Payment data for the Dividend application may
be electronically transmitted to Citibank at a future
date that has been mutually agreed-upon by both Franklin
and Citibank and after sufficient testing has been
completed.
ACH SERVICE AGREEMENT ATTACHMENT III
ACH DATA TRANSMISSION SCHEDULE
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Debits (Autochecks)
ACH Operations needs to be informed of your file processing schedule(s) to
insure timely handling of your payment transactions. We will create a
processing schedule that tells us when to expect the receipt of data from
you. If you change your file delivery dates you must let us know in advance
so that we may correctly anticipate the receipt of your file.
Attached is a blank calendar for 1989. Our Bank holidays are shown. Please
indicate with an "X" each date on which we will receive your tape or
transmission for ACH processing. Please mark the associated settlement
(transaction posting) date with an "o". Note: This is the date that is in
positions 70 - 75 in the Batch Header Record of an ACH formatted file. We
will review this Calendar and contact you if there are any conflicts in
your anticipated settlement dates.
ACH SERVICE AGREEMENT ATTACHMENT IV
SERVICE OPTIONS
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Debits (Autochecks)
1. COMPANY will transfer funds into or out of the Settlement Account as
follows(choose one or more):
CONCENTRATION TRANSACTIONS
COMPANY will initiate an ACH Debit entry through Bank of America equal
to the amount of all entries originated.
FUNDING TRANSFERS
For debit balances as a result of returned ACH Debit entries, COMPANY
will pay them each day by originating that day an ACH Credit entry
through Bank of America to the account for an amount equal to the
debit balance.
2. COMPANY authorizes BANK to resubmit to the FED Debit Originations
which have been returned to BANK for
(x) Return Reason Code RO9 - Uncollected Funds
Number of times to resubmit 1
Minimum dollar amount to re-submit $
Maximum dollar amount to re-submit $
Maximum age (number of days from original effective date) 7
By: /s/ Harmon E. Burns
Harmon E. Burns
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
COMPANY SIGNATURE DATE: 9/11/89
ACH SERVICE AGREEMENT ATTACHMENT IV
SERVICE OPTIONS
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Credits (Dividends)
1. Company will transfer funds into or out of the Settlement Account as
follows (choose one or more):
CONCENTRATION TRANSACTIONS
For credit balances as a result of returned ACH Credit entries,
COMPANY will initiate an ACH Debit entry to the account through Bank
of America for an amount equal to the credit balance.
FUNDING TRANSFERS
COMPANY will initiate an ACH Credit entry through Bank of America
equal to the amount of all entries originated.
FRANKLIN GROUP OF FUNDS
By: /s/ Harmon E. Burns
Harmon E. Burns
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
COMPANY SIGNATURE DATE: 9/11/89
ACH SERVICE AGREEMENT ATTACHMENT V
AUTHORIZATIONS AND CONTRACTS
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Debits (Autochecks)
Preauthorized Consumer Credits (Dividends)
COMPANY hereby authorizes the following individuals to provide BANK with
information or instructions, or receive information from BANK, as
indicated. Where "Signature" authorization is required, BANK will not
process a requested change until a signed request form is received by FAX
from COMPANY.
1. Changes to Data after Delivery
(a) Delete a File or Batch
Authorized by One Signature
Authorized Individuals:
Carol Holder, Pam Hall, Carol Talbot
(b) Change Batch Effective Date
Authorized by one Signature
Authorized Individuals:
Carol Holder, Pam Hall, Carol Talbot
(c) Add Entry Detail
Not Authorized
(d) Change Entry Detail - Dollar Amount
Authorized by One Signature (Autochecks)
Authorized Individuals: Leon Mulgrew or Jarmila Kelly
Authorized by Two Signatures (Dividends)
Authorized Individuals: Laura McGeever or Steve Queen
and Rich Narcisso or Moe Adle
(e) Change Entry Detail - ABA Number or Account Number
Authorized by One Signature (Autochecks)
Authorized Individuals: Leon Mulgrew or Jarmila Kelly
Authorized by Two Signatures (Dividends)
Authorized Individuals: Laura McGreever or Steve Queen
and Rick Narcisso or Moe Adle
(f) Change Entry Detail - Non-Financial Fields
Authorized by One Signature (Autochecks)
Authorized Individual: Leon Mulgrew or Jarmila Kelly
Authorized by One Signature (Dividends)
Authorized Individuals: Laura McGeever or Steve Queen
(g) Delete an Entry Detail
Authorized by two signatures (Autochecks)
Authorized Individuals:
Maria Rivas, Rose Duran, or Margaret Hueser
and Leon Mulgrew or Jarmila Kelly
Authorized by Any Two Signatures (Dividends)
Authorized Individuals:
Rick Narcisso, Moe Adle, Laura McGeever, Steve Queen
2. Contact for Notification of Changes in BANK procedures or daily
operations issues:
Name: Jennifer Johnson Bolt
Telephone: 415/378-2990
3. Contact for tape or transmission delivery issues:
Name: Carol Holder
Telephone: 415/378-2691
4. Contact for delivery of paper reports or advices:
Name: Jeff Orlik
Address: 777 Mariners Island Boulevard
San Mateo, California 94404
Telephone: 415/378-4598 FAX: 415/378-5719
Please provide below signatures of the individual(s) listed on the previous
page as having signature authorization power:
Signature /s/ Carol Holder
Carol Holder
Signature /s/ Carol Talbot
Carol Talbot
Signature /s/ Laura McGeever
Laura McGeever
Signature /s/ Steve Queen
Steve Queen
Signature /s/ Rick Narcisso
Rick Narcisso
Signature /s/ Moe Adle
Moe Adle
Signature /s/ Leon Mulgrew
Leon Mulgrew
Signature /s/ Jarmila Kelly
Jarmila Kelly
Signature /s/ Maria Rivas
Maria Rivas
Signature /s/ Rose Duran
Rose Duran
Signature /s/ Margaret Hueser
Margaret Hueser
By: /s/ Harmon E. Burns
Harmon E. Burns
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
COMPANY SIGNATURE DATE: 9/11/89
APPENDIX B
CITICORP/CITIBANK ACH PAYMENTS
Franklin Administrative Services, Inc.
Corporation Price List
The following prices are guaranteed through July 1991.
ITEM PRICING PRICE
ACH Credit/Debit Items: $ .045
PAC Per Item $ .010
Fed Nighttime Surcharge - Debit $ .035
Fed Nighttime Surcharge - Credit $ .015
RETURNED ITEMS PRICE
Return Items - Retired (Less than 15 days) 1.00
Return Item - Retired (More than 15 days) 5.00
Dishonored Items - Customer Requested 15.00
ACH Return Resubmitted 1.00
PAC Return Item 10.00
OTHER PRICE
ACH File Maintenance (Waived through 7/90) 100.00
Warehouse Item Update 10.00
Warehouse Item Delete 5.00
Item Reversals 5.00
File Reversals 35.00
Retrieval Request 20.00
Investigation 20.00
OTHER PRICE
Exception Item Advice 5.00
Advice-Fax 15.00
Courier Free 10.00
Data Transmission Per File * 10.00
Tape Handling Charge Per File 10.00
Demand Deposit Account 85.00
CitiCash Manager System, Base Charge (Waived through 7/90) 135.00
CitiCash Manager Report 3.20
* Telecommunication line charges will be expensed to the customer if
Citibank initiates the connection.
CITIBANK DELAWARE ACCOUNT AGREEMENT
CORPORATE ACCOUNT NUMBER (8 Digits) 3815-1322
TAXPAYER I.D. NUMBER 94-2746684
PARENT COMPANY NAME Franklin Administrative Services, Inc.
CORPORATE ACCOUNT NAME * (see below)
GENERAL CORRESPONDENCE ADDRESS 777 Mariners Island Blvd.
San Mateo, CA 94404
ACCOUNT INFORMATION
RULE OFF CYCLE: [x] MONTHLY [ ] WEEKLY [ ] SEMI MONTHLY
[ ] FLEXIBLE [ ] DAILY
ACT (AUTOMATED CASH TRANSFER): [ ] YES [x] NO
COMPENSATION TYPE: [ ] FEE BASED (AUTOMATIC DEBIT) [x] BALANCE BASED
SPECIAL MAILING INSTRUCTIONS FOR CHECKING STATEMENTS:
[ ] SAME AS GENERAL CORRESPONDENCE ADDRESS
[x] DIFFERENT: FAS Accounting Attn: Ellen Don
777 Mariners Island Blvd.
San Mateo, CA 94404
In consideration of your opening the account, and continuing the same from
time to time in your discretion, the undersigned hereby agrees to be bound
by Citibank's rules governing this account, as they may be amended from
time to time.
FOR: FRANKLIN GROUP OF FUNDS By: /s/ Harmon E. Burns
Harmon E. Burns
DATE: 9-11-89 AUTHORIZED SIGNATURE /s/ K V Domingues
K V Domingues
Note: Initial are required next to any cross-outs or other
corrections/erasures.
* Franklin Administrative Services, Inc., as agent, nominee, and custodian
for each fund in the Franklin Group of Funds, as agent, nominee, and
custodian for each of their shareholders.
CITIBANK DELAWARE ACCOUNT AGREEMENT
CORPORATE ACCOUNT NUMBER (8 Digits) 3815-1349
TAXPAYER I.D. NUMBER 94-2746684
PARENT COMPANY NAME Franklin Administrative Services, Inc.
CORPORATE ACCOUNT NAME *(See below)
GENERAL CORRESPONDENCE ADDRESS 777 Mariners Island Blvd.
San Mateo, CA 94404
ACCOUNT INFORMATION
RULE OFF CYCLE: [x] MONTHLY [ ] WEEKLY [ ] SEMI MONTHLY
[ ] FLEXIBLE [ ] DAILY
ACT (AUTOMATED CASH TRANSFER): [ ] YES [x] NO
COMPENSATION TYPE: [ ] FEE BASED (AUTOMATIC DEBIT) [x] BALANCE BASED
SPECIAL MAILING INSTRUCTIONS FOR CHECKING STATEMENTS:
[ ] SAME AS GENERAL CORRESPONDENCE ADDRESS:
[x] DIFFERENT: FAS Accounting Attn: Ellen Don
777 Mariners Island Blvd.
San Mateo, CA 94404
In consideration of your opening to the account, and continuing the same
from time to time in your discretion, the undersigned hereby agrees to be
bound by Citibank's rules governing this account, as they may be amended
from time to time.
FOR: FRANKLIN GROUP OF FUNDS BY: /s/ Harmon E. Burns
Harmon E. Burns
DATE: 9-11-89 AUTHORIZED SIGNATURE BY: /s/ K V Domingues
K V Domingues
Note: Initials are required next to any cross-outs or other
corrections/erasures.
* Franklin Administrative Services Inc., as agent, nominee, and custodian
for each fund in the Franklin Group of Funds, as agent, nominee, and
custodian for each of their shareholders.
CITIBANK CASH MANAGEMENT SERVICES
MASTER AGREEMENT
This is the Master Agreement between each fund (see list in attachment A)
in the Franklin Group of Funds for which it acts as shareholder services
agent, (from now on "Customer" or "You") and Citibank Delaware (from now on
"Bank" or "We"), dated September 11, 1989, by which the Bank will provide
various Cash Management Services which the Customer will use. The specific
Cash Management Services provided and used are individually referred to in
subagreements and related product appendices. Each appendix contains
provisions which are specific to the particular service chosen by the
Customer. Appendices are not effective until properly executed. This
Agreement and the appendices are not effective until properly executed.
This Agreement and the appendices are designed to be read together. Where
there is a conflict in terms or meaning then the appendix meaning will
apply. All other provisions of this Agreement will remain effective.
Customer is responsible for appointing officials who will be authorized by
Customer to initiate instructions with Bank. When the Bank receives a
written communication from an official so authorized we will act and rely
on this communication that the instruction is approved by Customer's Board
of Directors. The officials will also be responsible for issuing, modifying
and maintaining passwords, identification numbers and codes when required.
We are responsible for failures for our equipment and software and for
willful misconduct or gross negligence of our employees and duly authorized
agents in providing Cash Management Services. We are not responsible for
acts or omissions of third parties. We are not liable for any indirect,
incidental, consequential or special damages, nor for other losses outside
our direct control.
Fees will be those agreed upon from time to time and do not include any
taxes which are solely Customer's responsibility.
Customer may cancel this Agreement or any appendix by giving us written
notice 30 days in advance. After the notice period, customer will not be
billed for services terminated. Because of the nature of Cash Management,
we must reserve the right to modify or terminate a particular service
without notice. We will give you reasonable notice where it is possible.
This agreement and services provided through it may not be delegated to any
subsidiary or parent of the Bank without advanced written approval by the
Customer.
All materials which we provide You with are the BANK's exclusive and
confidential property. Customer must keep there materials confidential by
using the same precautions You use when guarding Your own trade secrets.
Materials as used means software, programs, data bases, operating
documentation, trade secrets, proprietary data, processes and other
documentation but does not include those items which are in the public
domain or legally required to be made public. If a particular service is
terminated all materials relating to the service must be returned to Bank
within 30 days. At the end of this Agreement, all materials must be
returned. Nothing within this Agreement or any appendix will affect the
copyright status of any material and the provisions of this paragraph will
apply whether or not such property is copyrighted.
The Master Agreement, together with the subagreements and appendices You
select to implement a service and the respective product description and
pricing schedule and the Short Form Bank Agreement ("Bank Agreement") is
our entire Agreement with respect to Cash Management Services and
supersedes any prior or contemporaneous oral or written agreements. In the
event of any conflict or inconsistency, the provisions of the Bank
Agreement shall control. This Agreement will be interpreted under the New
York Law and the applicable laws and rules of any facility or intermediary
through which any service is provided.
CUSTOMER: (see list in attachment A) CITIBANK DELAWARE
By: /s/ Harmon E. Burns By: /s/ Francis B. Hagan
Harmon E. Burns Francis B. Hagan
signature Signature
Harmon E. Burns Francis B. Hagan
Print Print
Title: Vice President Title: Vice President
By: /s/ Kenneth V. Domingues
Kenneth v. Domingues
signature
Kenneth V. Domingues
Print
Title: Treasurer
Date: 9/11/89
CITIBANK DELAWARE ACH SERVICES - LIST OF PARTICIPATING FRANKLIN FUNDS
AGE High Income Fund, Inc.
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investment Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin New York Tax-Exempt Money Fund
Franklin New York Tax-Free Income Fund, Inc.
Franklin Option Fund
Franklin Pennsylvania Investors Fund
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Universal Trust
Franklin Principal Maturity Trust
Institutional Fiduciary Trust
CITIBANK CASH MANAGEMENT SERVICES
CITICASH MANAGER SUB-AGREEMENT
This page is the CitiCash Manager (CCM) sub-agreement and when properly
executed by Citibank and Customer is part of, and is to be read in
conjunction with, the CMS Master Agreement dated September 11, 1989.
Terminals
The CCM System will accept a large variety of cathodes ray tubes and
printing terminals. Bank will advise Customer about those which are
compatible with the System. It is Customer's responsibility to obtain and
maintain its own terminal and communications link to us, and to ensure that
its use of such terminal and communications link is in compliance with the
applicable requirements of law, including any requirements of
telecommunications authorities. Bank cannot be responsible for any failure
or capacity reductions in any communications for which it may have
contracted with public communications authorities or private communication
carriers.
Security
CCM has been designed so that it may be operated only upon entry of valid
ID, accompanied by a unique password. Control of each password is the
responsibility of each official who uses the System. CCM utilizes a Forced
Password Change. This feature requires CCM Users to change their password
at periodic intervals selected by your Security Manager. Passwords not
changed within 10 days of expiration will become automatically disabled. We
will consider any access to the CCM System through use of valid ID and
correct corresponding password, to be duly authorized and we will carry out
any instruction given within the access capability associated with the ID,
regardless of the actual identity of the individual who is actually
operating the System. While we will accept responsibility for unauthorized
access to the System by our employees, we cannot be liable for unauthorized
access by your employees similarly, we cannot accept responsibility for
errors, failures, acts of omissions of communications carriers,
correspondents or clearinghouses through which we effect your instructions
or receive or transmit information.
CUSTOMER: FRANKLIN GROUP OF FUNDS CITIBANK
By: /s/ Harmon E. Burns By: /s/ Francis B. Hagan
Harmon E. Burns Francis B. Hagan
Signature Signature
Harmon E. Burns Francis B. Hagan
Printed Printed
Title: Vice President Title: Vice President
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
Signature
Kenneth V. Domingues
Print
Title: Treasurer
Date: 9/10/89
CITIBANK CASH MANAGEMENT SERVICES
PRODUCT APPENDIX
CitiCash Manager: Inquiries Module
Citibank Balances and Transactions Only
This page is a "Product Appendix" referred to in the Master Agreement
regarding Cash Management Services between your Company and the undersigned
Bank, dated September 11, 1989, and forms a part of such Master Agreement.
Product Descriptions: The "Inquiries" module provides you with information
concerning balances in your Citibank, Delaware accounts and related
transaction details. Balance and transaction detail is available for the
prior day and for the 45 day period prior to that. In addition, some
account balance and transaction information is available on a same-day,
real-time basis. A detailed description of how to use this module is given
in the CitiCash Manager User Guide.
Special Note: Real-time data are subject to adjustment without notice
before our books are closed for the banking day.
CUSTOMER: FRANKLIN GROUP OF FUNDS CITIBANK DELAWARE
By: /s/ Harmon E. Burns By: /s/ Francis B. Hagan
Harmon E. Burns Francis B. Hagan
Signature Signature
Harmon E. Burns Francis B. Hagan
Print Print
Title: Vice President Title: vice President
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
Signature
Kenneth V. Domingues
Print
Title: Treasurer
Date: 9/11/89
SHORT FORM BANK AGREEMENT
DEPOSITS AND DISBURSEMENTS OF FUNDS
This Agreement is made as of September 11, 1989, between each fund listed
in attachment A ("Fund"), a Registered Investment Company [organization
type],and Citibank Delaware (Bank), a [jurisdiction and type of bank].
WITNESSETH:
WHEREAS, the Fund is registered as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a open-end
manager company and desires that its cash shall be held and administered by
the Bank pursuant to the terms of this Agreement; and
WHEREAS, the Bank has an aggregate capital, surplus, and undivided
profits in excess of Two Million Dollars ($ 2,000,000), and has its
functions and physical facilities supervised by federal authority and is
ready and willing to serve pursuant to and subject to the terms of this
Agreement:
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Fund, and Bank agree as follows:
1. Receipt and Disbursement of Money
a. Bank shall open and maintain a separate account or accounts in
such name(s) as the Fund requires, subject only to draft or order by Bank
acting pursuant to the terms of this Agreement, ("Direct Demand Deposit
Account"). Bank shall hold in such account or accounts, subject to the
provisions hereof, all funds received by it from or for the accounts of the
Fund. This shall include, without limitation, the proceeds from the sale of
capital shares of the Fund which shall be received along with proper
instructions from the Fund.
b. Bank shall make payments of cash to, or for the account of, the
Fund from such cash or Direct Demand Deposit Account as requested by the
Fund. Before making any such payment, Bank shall receive and may rely upon
orders from the Fund for the payment of money. Such orders may include, but
are not limited to, orders ("entries") specified in the ACH Service
Agreement.
Fund acknowledges that Bank is acting upon orders of the Fund in
performing the services provided for in this Agreement, that Bank has no
knowledge as to the particular requirements of the Fund, or any payee of a
payment order under this Agreement.
Bank is hereby authorized to endorse and collect for the account of
the Fund all checks, drafts or other orders for the payment of money,
including, without limitation, electronic funds transfers, received by Bank
for the account of the Fund.
2. Reports by Bank
Bank shall each business day make available to the Fund information in
such detail as has been agreed upon relating to all transactions and
entries to the account of the Fund for the preceding day. Bank shall
furnish such other reports as may be mutually agreed upon from time to
time.
3. Compensation
Bank shall be paid as compensation for its services pursuant to this
Agreement such compensation as may from time to time be agreed upon in
writing between the two parties.
4. Liabilities and Indemnifications
a. Bank shall not be liable for any action taken in good faith upon
any proper instructions herein described or certified copy of any
resolution of, the Board of Directors/Trustee/General Partner, and may rely
on the genuineness of any such document which it may in good faith believe
to have been validly executed.
b. The Fund agrees to indemnify and hold harmless the Bank and its
nominee from all taxes, charges, expenses, assessments, claims and
liabilities (including reasonable counsel fees) incurred or assigned
against it or its nominee in connection with the performance of this
Agreement, except such as may arise from negligent action, negligent
failure to act or willful misconduct of Bank or its nominee.
5. Records
Bank hereby acknowledges that all of the records it shall prepare and
maintain pursuant to this Agreement shall be the property of the Fund and,
if and to the extent applicable, of the principal underwriter of the shares
of the Fund, and that upon proper instructions of the Fund or each
principal underwriter, if any, or both, it shall:
a. Deliver said records to the Fund, principal underwriter or a
successor Bank, as appropriate;
b. Provide the auditors of the Fund or principal underwriter or any
securities regulatory agency with a copy of such records without charge;
and provide the Fund and successor Bank with a reasonable number of reports
and copies of such records at a mutually agreed upon charge appropriate to
the circumstances; and
c. Permit any securities regulatory agency to inspect or copy during
normal business hours of the Bank any such records.
6. Appointment of Agents
a. Bank shall have the authority, in its discretion, to appoint an
agent or agents to do and perform any acts or things for and on behalf of
the Bank, pursuant at all times to its instructions, as the Bank is
permitted to do under this Agreement.
b. Any agent or agents appointed to have physical custody of deposits
held under this Agreement or any part thereof must be a bank, or banks, as
that term is defined in Section 2(a) (5) of the 1940 act, having an
aggregate, surplus and individual profits of not less than $2,000,000 (or
such greater sum as may then be required by applicable laws).
7. Assignment and Termination
a. This Agreement may not be assigned by the Fund or the Bank without
written consent of the other party.
b. Either the Bank or the Fund may terminate this Agreement without
payment of any penalty, at any time upon one hundred twenty (120) days
written notice thereof delivered by one to the other, and upon the
expiration of said one hundred twenty (120) days, this Agreement shall
terminate. The Fund shall select such successor Bank within sixty (60) days
after the giving of such notice of termination, and the obligation of the
Bank named herein to deliver and transfer over said assets directly to such
successor Bank shall commence as soon as such successor is appointed and
shall continue until completed. At any time after termination hereof the
Fund may have access to the records of the administration of this
relationship whenever the same may be necessary.
Notwithstanding the above, Bank has the right without notice to modify or
terminate ACH services to the Fund as described in the ACH Customer
Agreement if the Fund has failed to meet its obligations to Bank under that
Agreement, or otherwise, upon thirty (30) days notice to the Fund. The Fund
will not be billed for services terminated.
c. If after termination of the services of the Bank, no successor
Bank has been appointed within the period above provided, the Bank may
deliver the cash (deposits) owned by the Fund to a bank or trust company of
its own selection having an aggregate capital, surplus and undivided
profits of not less than Two Million Dollars ($2,000.000) (or such greater
sum as may then be required by the laws and regulations governing the
conduct by the Fund of its business as an investment company) and having
its functions and physical facilities supervised by federal or state
authority, to be held as the property of the Fund under the terms similar
to those on which they were held by the retiring Bank, whereupon such bank
or trust company so selected by the Bank shall become the successor Bank
with the same effect as though selected by the Board of Directors of the
Fund.
8. California Department of Insurance
Should the California Department of Insurance (the "Department")
succeed to control of the Fund's assets in the event of the insolvency of
the Fund, the Bank shall, upon notice of such succession in writing to the
Bank by the Department, recognize the Department's succession to the
Trust's rights and obligations under this Agreement and, accordingly, will
cease to accept instructions from all proper officers of the Fund and shall
accept instructions hereunder from those persons identified to the Bank in
writing by the Department.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
(See attachment A) Citibank Delaware
(Fund's Name) (Bank's Name)
By: /s/ Harmon E. Burns By: /s/ Francis B. Hagan
Harmon E. Burns Francis B. Hagan
Name: Harmon E. Burns Name: Francis B. Hagan
Title: Vice President Title: Vice President
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
Name: Kenneth V. Domingues
Title: Treasurer
CITIBANK DELAWARE ACH SERVICES - LIST OF PARTICIPATING FUNDS
AGE High Income Fund, Inc.
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investment Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin New York Tax-Exempt Money Fund
Franklin New York Tax-Free Income Fund, Inc.
Franklin Option Fund
Franklin Pennsylvania Investors Fund
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Universal Trust
Franklin Principal Maturity Trust
Institutional Fiduciary Trust
CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into as of
April 1, 1995, by and between FRANKLIN PREMIER RETURN FUND, a California
corporation (the "Fund"), and BANK OF AMERICA NT & SA, a banking association
organized under the laws of the United States (the "Custodian").
RECITALS
A. The Fund is an investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), and invests and reinvests in
Domestic Securities and Foreign Securities.
B. The Custodian is, and has represented to the Fund that the
Custodian is a "bank" as that term is defined in Section 2(a)(5) of the 1940 Act
and is eligible to receive and maintain custody of investment company assets
pursuant to Section 17(f) and Rule 17f-2 thereunder.
C. The Fund and the Custodian desire to provide for the retention of
the Custodian as a custodian of the assets of the Fund as the parties hereto may
determine from time-to-time, 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. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings specified below:
"Board of Directors" shall mean the Board of Directors of the Fund.
"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.
"Domestic Securities" shall have the meaning provided in Subsection
2.1 hereof.
"Executive Committee" shall mean the executive committee of the
Board of Directors.
"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.
"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.
"Shares" shall mean shares of capital stock of the Fund.
"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 the Fund.
"Writing" shall mean a communication in writing, a communication by
telex, the Custodian's Global Custody Instruction SystemTM, 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. The Fund hereby appoints and
designates the Custodian as a custodian of the assets of the Fund including
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 the Fund delivered to it hereunder in the manner provided for
herein.
2.2 Delivery of Assets. The Fund agrees to deliver to the Custodian
Securities and cash owned by the Fund, payments of income, principal or capital
distributions received by the Fund with respect to Securities owned by the Fund
from time to time, and the consideration received by it for such Shares or other
securities of the Fund as may be issued and sold from time to time. The
Custodian shall have no responsibility whatsoever for any property or assets of
the Fund held or received by the Fund 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 Fund under the terms of this Agreement shall be
in "street name" or other good delivery form as determined by the Custodian.
2.3 Subcustodians. Upon receipt of Proper Instructions and a
certified copy of a resolution of the Board of Directors or of the Executive
Committee certified by the Secretary or an Assistant Secretary of the Fund, the
Custodian may from time to time appoint one or more Subcustodians or Foreign
Custodians to hold assets of the Fund 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 the 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 FUND 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 the Fund,
all non-cash property delivered by the 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 the 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 of
Directors 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 Fund, in the name or nominee name
of the Custodian or in the name or nominee name of any Subcustodian or Foreign
Custodian. The 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 the 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 the Fund, other than cash maintained by the
Fund in a bank account established and used in accordance with Rule 17f-3 under
the 1940 Act. Funds held by the Custodian for the Fund may be deposited by it to
its credit as Custodian in the banking departments of the Custodian, a
Subcustodian or a Foreign Custodian. It is understood and agreed by the
Custodian and the Fund that the rate of interest, if any, payable on such funds
(including foreign currency deposits) that are deposited with the Custodian may
not be a market rate of interest and that the rate of interest payable by the
Custodian to the Fund shall be agreed upon by the Custodian and the Fund from
time to time. Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that capacity.
3.5 Collection of Income; Trade Settlement; Crediting of Accounts.
The Custodian shall collect income payable with respect to Securities owned by
the Fund, settle Securities trades for the account of the Fund and credit and
debit the Fund's account with the Custodian in connection therewith as follows:
(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. The Custodian shall have no liability of any kind
to any person, including the Fund, if the Custodian effects payment on behalf of
the Fund as provided for herein or in Proper Instructions, and the seller or
selling broker fails to deliver the Securities purchased.
(b) Upon receipt of Proper Instructions, the Custodian shall
effect the sale of a Security by delivering a certificate or other indicia of
ownership, and shall credit the account of the Fund with the proceeds of such
sale on the contractual settlement date. The Custodian shall have no liability
of any kind to any person, including the Fund, if the Custodian delivers such a
certificate(s) or other indicia of ownership as provided for herein or in Proper
Instructions, and the purchaser or purchasing broker fails to effect payment to
the Fund 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 in connection with such
sale.
(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 the payable date.
Interest income on cash balances will be credited monthly to the account of the
Fund on the first Business Day (on which the Custodian is open for business)
following the end of each month. 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 the 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 of Directors with respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may, upon receipt of
Proper Instructions, appoint another bank or trust company, which is itself
qualified under the 1940 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 the 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 each 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 the 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 of Directors 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 the 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 the 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 the Fund or a nominee of the 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 the 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 the 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 the 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. Custodian shall each business day furnish
the 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 Custodian
shall furnish the Fund with a list of the portfolio securities showing the
quantity of each 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.
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 FUND
HELD OUTSIDE THE UNITED STATES
4.1 Custody outside the United States. The 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 Board of Directors or the
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 of
Directors or of the Executive Committee certified by the Secretary or an
Assistant Secretary of the Fund. 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 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 1940 Act, and (ii) cash and
cash equivalents in such amounts as the Custodian or the Fund may determine to
be reasonably necessary to effect the Fund's Foreign Securities transactions.
4.3 Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by the Custodian and the Fund, assets of the Fund shall
be maintained in Foreign Securities Depositories only through arrangements
implemented by the Custodian or Foreign Custodians pursuant to the terms hereof.
4.4 Segregation of Securities. The Custodian shall identify on its
books and records as belonging to the Fund, the Foreign Securities of the Fund
held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each agreement with a
Foreign Custodian shall provide generally that: (a) the Fund's assets will not
be subject to any right, charge, security interest, lien or claim of any kind in
favor of the Foreign Custodian or its creditors, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the Fund's
assets will be freely transferable without the payment of money or value other
than for custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) the independent public
accountants for the Fund will be given access to the records of the Foreign
Custodian relating to the assets of the Fund or confirmation of the contents of
those records; (e) the disposition of assets of the Fund held by the Foreign
Custodian will be subject only to the instructions of the Custodian or its
agents; (f) the Foreign Custodian shall indemnify and hold harmless the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the Foreign Custodian's
performance of its obligations under such agreement; (g) to the extent
practicable, the Fund's assets will be adequately insured in the event of loss;
and (h) the Custodian will receive periodic reports with respect to the
safekeeping of the Fund's assets, including notification of any transfer to or
from the Fund's account.
4.6 Access of Independent Accountants of the Fund. Upon request of
the Fund, the Custodian will use its best reasonable efforts to arrange for the
independent accountants 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 the 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 the 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 the Fund and delivery of Foreign Securities maintained for the
account of the 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 the 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 require the Foreign Custodian to
exercise reasonable care in the performance of its duties and to indemnify and
hold harmless the Custodian and the Fund 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. At the election of the
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.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform the Fund in the event
that the Custodian learns of a material adverse change in the financial
condition of a Foreign Custodian or is notified by (i) a foreign banking
institution employed as a Foreign Custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below $200
million or that its shareholders' equity has declined below $200 million (in
each case computed in accordance with generally accepted United States
accounting principles) and denominated in U.S. dollars, or (ii) a subsidiary of
a United States bank or bank holding company acting as a Foreign Custodian that
there appears to be a substantial likelihood that its shareholders' equity will
decline below $100 million or that its shareholders' equity has declined below
$100 million (in each case computed in accordance with generally accepted United
States accounting principles) and denominated in U.S. dollars.
(b) The custodian will furnish such information as may be
reasonably necessary to assist the Fund's Board of Directors 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 the 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.
The Custodian reserves the right to require that any Proper Instructions
delivered to the Custodian by telephone shall promptly thereafter be confirmed
in Writing by an Authorized Person, but the Fund will hold the Custodian
harmless for its failure to send such confirmation in writing, the failure of
such confirmation to conform to the telephone instructions received or the
Custodian's failure to produce such confirmation at any subsequent time. 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 Fund
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 Fund shall safeguard any
testkeys, identification codes or other security devices which the Custodian
shall make available to it. 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 the Fund as have been
designated by a resolution of the Board of Directors or of the 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.
Notwithstanding anything to the contrary contained in this
Agreement, if the Fund has executed or is otherwise bound by a funds transfer
service agreement, electronic trade payment service agreement, license agreement
for electronic access, MicroWire(R) service agreement or similar agreement, and
any related addenda and amendments thereto (each, a "Service Agreement"),
between the Fund and the Custodian, with regard to the transfer of funds to
and/or disbursement of funds from an account of the Fund, then any electronic
instruction on the part of the Fund and the Custodian's obligations relating
thereto shall be governed by the applicable Service Agreement. To the extent
that anything in this Agreement relating to electronic instructions to transfer
and/or disburse funds is inconsistent with any provision of the Service
Agreement, the Service Agreement shall control.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from
the 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 the Fund. The Custodian may receive and
accept a certified copy of a resolution of the Board of Directors 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 of Directors 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 Board of Directors to keep the books of account of
the Fund and/or compute the net asset value per Share of the outstanding Shares
of the 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 1940 Act and Rules 31a-1 and 31a-2
thereunder. All such records shall be the property of the Fund 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 Fund and employees and
agents of the Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of Securities 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 the
Fund and the Custodian.
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
the Fund for any loss which shall occur as the result of the failure of a
Foreign Custodian or a Foreign Securities Depository engaged by such Foreign
Custodian or 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. In the event of any loss to the Fund by reason
of the failure of the Custodian, a Foreign Custodian or a Foreign Securities
Depository 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. The 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 any of them in connection with the performance of
this Agreement, 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 or Foreign Securities Depository. The Custodian shall be
entitled to rely, and may act, on advice of counsel (who may be counsel for the
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 the 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 Fund. 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 of
Directors and may rely on the genuineness of any such documents which it may in
good faith believe to be validly executed. The Custodian shall not be liable for
any loss resulting from, or caused by, the direction of the 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 the Fund held
by the Custodian.
Section 12. LIMITED LIABILITY OF THE FUND
The Custodian acknowledges that it has received notice of and
accepts the limitations of the Fund's liability as set forth in its Articles of
Incorporation and By-Laws. The Custodian agrees that the 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 director, officer, employee, or agent 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 the Fund or the
Custodian by 60 days notice in Writing to the other provided that any
termination by the Fund shall be authorized by a resolution of the Board of
Directors, 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 Fund held by it.
If notice of termination is given by the Custodian, the Fund shall, within 60
days following the giving of such notice, deliver to the Custodian a certified
copy of a resolution of the Board of Directors specifying the names of the
persons to whom the Custodian shall deliver assets of the Fund held by it. 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 60 days following the giving
of a notice of termination by the Custodian, the Custodian does not receive from
the Fund a certified copy of a resolution of the Board of Directors specifying
the names of the persons to whom the Custodian shall deliver the assets of the
Fund held by it, 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 the Fund or (ii) be construed as or constitute a prohibition
against the provision by the Custodian or any of its affiliates to the 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 the Fund:
Franklin Premier Return Fund
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
Attention: Fund Manager
if to the Custodian:
Bank of America NT&SA
1455 Market Street
16th Floor, Dept. 5014
San Francisco, CA 94104
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 each 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
California (without giving effect to principles of conflict of laws).
14.8 Force Majeure. Subject to 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 Fund
and the Custodian and their respective successors and assigns, if any.
14.14 Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and supersedes all prior custody agreements
between the parties hereto relating to the subject matter hereof to the extent
inconsistent herewith.
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.
"Custodian": BANK OF AMERICA NT & SA
By /s/ illegible By /s/ Thomas E. Vinson
Its Assistant Vice President Its Vice President
"Fund": FRANKLIN PREMIER RETURN FUND
By Deborah R. Gatzek
Its Vice President
(Franklin logo)
FRANKLIN
RESOURCES, INC.
777 Mariners Island Blvd.
San Mateo, CA 94404
415/312-5818
FAX 415/312-3528
Martin L. Flanagan CPA, CFA
Senior Vice President
Chief Financial Officer
April 12, 1995
Mr. Stephen H. Kilbuck
Vice President Corporate Banking
Bank of America, NT & SA
555 California Street, 41st Floor
San Francisco, CA 94104
Dear Steve:
Various Franklin Funds/Portfolios (the "Funds") and Bank of America,
National Trust and Savings Association ("Bank") are parties to custody
agreements (the "Agreements") as well as separate cash management and deposit
services arrangements.
By this Letter Agreement, each of the Funds and Bank desire to establish
the cash compensation to be paid by each Fund for services rendered to it by
Bank.
Effective April 1, 1995, commencing with the first statement prepared
thereafter each Fund will pay to Bank a monthly fee in cash equal to an annual
rate of 87.5/100 ths. (.875) basis points of the net asset value of each such
Funds domestic portfolios held in custody by Bank and nine and three-tenths
(9.3) basis points of the net asset value of each such Funds international
portfolios held in custody by Bank or held by foreign sub-custodians calculated
as of the last business day of the month. For purposes of calculating the
monthly fee, 000007291 will be used as the monthly factor for the domestic
portfolio and .0000775 will be used as the monthly factor for the international
portfolio. The obligation of each Fund is separate from the obligation of any
other Fund.
The purpose of this Letter of Agreement is to provide for a fair level of
compensation to Bank for its service. The fee is based on the assumption that
each Fund will continue to use services of a type and volume comparable to the
services currently used. The parties agree that any party may initiate
discussions concerning revisions to the terms of this Letter Agreement at any
time it believes the level of compensation to be inappropriate. The parties
further agree that any party may, upon at least sixty (60) days' written notice,
terminate this Letter Agreement with respect to that party. Upon its
termination, if the parties have not agreed to a substitute fee arrangement, any
party may also terminate all or some of the service provided by Bank upon
additional sixty (60) days' written notice.
On an ongoing basis, Bank will continue to prepare the monthly corporate
account analysis statements on behalf of each Fund, which estimates all revenues
and expenses for the parties' relationship. From time to time, Bank and any
Fund(s) may renegotiate the estimated "prices" used in the account analysis
process. The account analysis statement will provide a basis for any
negotiations between the parties on the appropriateness of the fee agreement as
embodied in this Letter Agreement. However, no payment of any kind shall be due
on account of any shortfall on the account analysis statement.
Sincerely,
Authorized Officer for Each Trust/Franklin
Fund Portfolio (List Attached)
By /s/ Martin L. Flanagan
Martin L. Flanagan
Executive Financial Officer
ACCEPTED AND AGREED TO BY:
BANK OF AMERICA, NT & SA
By /s/ Stephen H. Kilbuck
Title: Vice President
FRANKLIN GROUP OF FUNDS
FUND # FUND INIT NAME OF FUND
022 FUT FRANKLIN UNIVERSAL TRUST - (closed-end)
033 FPMT FRANKLIN PRINCIPAL MATURITY TRUST - (closed-end)
024 FMIT FRANKLIN MULTI-INCOME TRUST - (closed-end)
101 FGF FRANKLIN GOLD FUND
102 FPRF FRANKLIN PREMIER RETURN FUND
(Franklin Option Fund until April 30, 1991)
103 FEF FRANKLIN EQUITY FUND
105 AGE AGE HIGH INCOME FUND, INC.
FCF FRANKLIN CUSTODIAN FUNDS, INC.
106 GROWTH SERIES
107 UTILITIES SERIES
108 DYNATECH SERIES
109 INCOME SERIES
110 U.S. GOVERNMENT SECURITIES SERIES
111* FMF FRANKLIN MONEY FUND (MMP feeder as of 8/1/94)
112 FCTFIF FRANKLIN CALIFORNIA TAX-FREE INCOME FUND, INC.
113* FFMF FRANKLIN FEDERAL MONEY FUND (USGSMMP feeder as of 8/1/94)
114 FTEMF FRANKLIN TAX-EXEMPT MONEY FUND
115 FNYTFIF FRANKLIN NEW YORK TAX-FREE INCOME FUND, INC.
116 FFTFIF FRANKLIN FEDERAL TAX-FREE INCOME FUND
FTFT FRANKLIN TAX-FREE TRUST
118 FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
119 FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
120 FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
121 FRANKLIN INSURED TAX-FREE INCOME FUND
122 FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
123 FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
126 FRANKLIN ARIZONA TAX-FREE INCOME FUND
127 FRANKLIN COLORADO TAX-FREE INCOME FUND
128 FRANKLIN GEORGIA TAX-FREE INCOME FUND
129 FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
130 FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
160 FRANKLIN MISSOURI TAX-FREE INCOME FUND
161 FRANKLIN OREGON TAX-FREE INCOME FUND
162 FRANKLIN TEXAS TAX-FREE INCOME FUND
163 FRANKLIN VIRGINIA TAX-FREE INCOME FUND
164 FRANKLIN ALABAMA TAX-FREE INCOME FUND
165 FRANKLIN FLORIDA TAX-FREE INCOME FUND
166 FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
167 FRANKLIN INDIANA TAX-FREE INCOME FUND
168 FRANKLIN LOUISIANA TAX-FREE INCOME FUND
169 FRANKLIN MARYLAND TAX-FREE INCOME FUND
170 FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
171 FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
172 FRANKLIN KENTUCKY TAX-FREE INCOME FUND
174 FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
177 FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
178 FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
FCTFT FRANKLIN CALIFORNIA TAX-FREE TRUST
124 FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
125 FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND
152 FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME
FUND
FNYTFT FRANKLIN NEW YORK TAX-FREE TRUST
(Franklin New York-Tax Exempt Money Fund until 1/91)
131 FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
153 FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
181 FRANKLIN NEW YORK INSURED TAX-FREE INCOME FUND
FIST FRANKLIN INVESTORS SECURITIES TRUST
135 FRANKLIN GLOBAL GOVERNMENT INCOME FUND
(formerly Franklin Global Opportunity Income Fund)
136 FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT
SECURITIES FUND
137 FRANKLIN CONVERTIBLE SECURITIES FUND
138* FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
(formerly Franklin Adjustable Rate Mortgage Fund)
(USGARMP feeder)
139 FRANKLIN EQUITY INCOME FUND
(Franklin Special Equity Income Fund until 8/17/93)
151* FRANKLIN ADJUSTABLE RATE SECURITIES FUND
(ARSP retail feeder)
IFT INSTITUTIONAL FIDUCIARY TRUST
140* MONEY MARKET PORTFOLIO (MMP feeder)
141* FRANKLIN LATE DAY MONEY MARKET PORTFOLIO
(Franklin Government Investors Money Market
Portfolio until 6/15/93)
142* FRANKLIN U.S. GOVERNMENT SECURITIES MONEY MARKET
PORTFOLIO (USGSMMP feeder)
143* FRANKLIN U.S. TREASURY MONEY MARKET PORTFOLIO
144* FRANKLIN INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT
SECURITIES FUND (USGARMP feeder)
145* FRANKLIN INSTITUTIONAL ADJUSTABLE RATE SECURITIES FUND
(ARSP feeder)
146* FRANKLIN U.S. GOVERNMENT AGENCY MONEY MARKET FUND
147* AEA CASH MANAGEMENT FUND (MMP feeder)
(formerly Franklin Star MOney Market Portfolio)
149* FRANKLIN CASH RESERVES FUND (MMP feeder)
150 FBSIF FRANKLIN BALANCE SHEET INVESTMENT FUND
154 FTAIBF FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
155 FTAUSGSF FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
156 FTAHYSF FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
FMT FRANKLIN MANAGED TRUST
117 FRANKLIN CORPORATE QUALIFIED DIVIDEND FUND
(Franklin Corporate Cash Portfolio until 5/31/91)
158 FRANKLIN RISING DIVIDENDS FUND
159 FRANKLIN INVESTMENT GRADE INCOME FUND
- ---- FRANKLIN INSTITUTIONAL RISING DIVIDENDS FUND (PT feeder)
(not yet filed)
157 FSMP FRANKLIN STRATEGIC MORTGAGE PORTFOLIO (effective 2/1/93)
FMST FRANKLIN MUNICIPAL SECURITIES TRUST
173 FRANKLIN HAWAII MUNICIPAL BOND FUND
175 FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
176 FRANKLIN WASHINGTON MUNICIPAL BOND FUND
220 FRANKLIN TENNESSEE MUNICIPAL BOND FUND
221 FRANKLIN ARKANSAS MUNICIPAL BOND FUND
FSS FRANKLIN STRATEGIC SERIES (changed from Cal 250)
194 FRANKLIN STRATEGIC INCOME FUND
195 FRANKLIN MIDCAP GROWTH FUND (filed - not yet being sold)
196 FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
(formerly FISCO MidCap Growth Fund)
197 FRANKLIN GLOBAL UTILITIES FUND
198 FRANKLIN SMALL CAP GROWTH FUND
199 FRANKLIN GLOBAL HEALTH CARE FUND
ARSP ADJUSTABLE RATE SECURITIES PORTFOLIOS (THE PARENT)
182 U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
(master fund)
183 ADJUSTABLE RATE SECURITIES PORTFOLIO (filed under 1940
Act Only) (master fund)
MMP THE MONEY MARKET PORTFOLIOS (master fund parent)
(filed under 1940 Act only)
184* THE MONEY MARKET PORTFOLIO (master fund)
186* THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
(master fund)
187 MGP MIDCAP GROWTH PORTFOLIO (master fund) (1940 Act filing only
- not yet being sold)
PT THE PORTFOLIOS TRUST (master fund parent) (1940 Act filing
only - not yet being sold)
188 THE RISING DIVIDENDS PORTFOLIO (master fund)
FIT FRANKLIN INTERNATIONAL TRUST
190 FRANKLIN PACIFIC GROWTH FUND
191 FRANKLIN INTERNATIONAL EQUITY FUND
FREST FRANKLIN REAL ESTATE SECURITIES TRUST
192 FRANKLIN REAL ESTATE SECURITIES FUND
FTGT FRANKLIN TEMPLETON GLOBAL TRUST (formerly Huntington Funds)
210* FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND
211* FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
212* FRANKLIN TEMPLETON HARD CURRENCY FUND
213* FRANKLIN TEMPLETON HIGH INCOME CURRENCY FUND
FVF FRANKLIN VALUEMARK FUNDS (ALLIANZ)
821 MONEY MARKET FUND
822 EQUITY GROWTH FUND
823 PRECIOUS METALS FUND
824 REAL ESTATE SECURITIES FUND
825 UTILITY EQUITY FUND
826 HIGH INCOME FUND
827 GLOBAL INCOME FUND
828 INVESTMENT GRADE INTERMEDIATE BOND FUND
829 INCOME SECURITIES FUND
830 U.S. GOVERNMENT SECURITIES FUND
831 ZERO COUPON FUND - 1995
832 ZERO COUPON FUND - 2000
833 ZERO COUPON FUND - 2005
834 ZERO COUPON FUND - 2010
835 ADJUSTABLE U.S. GOVERNMENT FUND
836 RISING DIVIDENDS FUND
837 TEMPLETON PACIFIC GROWTH FUND (Pacific Growth Fund
until 10/15/93)
838 TEMPLETON INTERNATIONAL EQUITY FUND (International
Equity Fund until 10/15/93)
839 TEMPLETON DEVELOPING MARKETS EQUITY FUND
840 TEMPLETON GLOBAL GROWTH FUND
841 TEMPLETON WORLDWIDE ASSET ALLOCATION FUND
(not yet effective)
891 FGST FRANKLIN GOVERNMENT SECURITIES TRUST (AETNA)
193 FRANKLIN STABLE VALUE FUND
511 FRANKLIN TEMPLETON MONEY FUND II (expected effective
date: 05/01/95)
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: _____________________________
Its: _____________________________
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: ______________________________
Harmon E. Burns
Their: Vice President
By: ______________________________
Deborah R. Gatzek
Their: Vice President & Secretary
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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Delaware Business Trust U.S. Government Adjustable Rate Mortgage
Portfolios 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
Trust 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
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income California Corporation
Fund
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Delaware Business Trust Templeton Pacific Growth Fund
Trust 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
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
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.
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
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Advantaged California Limited
International Bond Fund Partnership
Franklin Tax-Advantaged U.S. California Limited
Government Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Delaware Business Trust Franklin Real Estate Securities Fund
Trust
Franklin Strategic Mortgage Delaware Business Trust
Portfolio
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)
- -------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust 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 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
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------------------------------
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>
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: ______________________
Title: ______________________
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: ______________________
Harmon E. Burns
Title: Vice President
By: ______________________
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
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
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
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
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.
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
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Advantaged International Bond California Limited
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)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
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
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust 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 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
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
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 Global
Asset Allocation Fund Small
Cap Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
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>
AGREEMENT OF MERGER
BETWEEN
FOF, INC.
and
FRANKLIN OPTION FUND, INC.
This Agreement of Merger is entered into between FOF, INC.,
a California corporation (herein "Surviving Corporation") and
Franklin Option Fund, Inc., a Hawaii corporation (herein "Merging
Corporation").
The parties hereto mutually agree as follows:
1. Merging Corporation shall be merged into Surviving
Corporation, which shall be governed by the laws of the State of
California.
2. Each outstanding share and any fractional shares of
Merging Corporation shall be converted to an equivalent number of
shares of Surviving Corporation.
3. The outstanding shares of Surviving Corporation
immediately prior to the effectiveness of the merger shall be
redeemed and cancelled upon payment to the holders thereof of
cash equal to such shares' respective proportionate interest in
the net assets of the corporation at such time.
4. Article I of the Articles of Incorporation of the
Surviving Corporation is amended to read as follows:
"The name of this corporation is FRANKLIN OPTION FUND."
5. Merging Corporation shall from time to time, as and when
requested by Surviving Corporation, execute and deliver all such
documents and instruments and take all such action necessary or
desirable to evidence or carry out this merger.
6. The effect of the merger and the effective date of the
merger are as prescribed by law.
IN WITNESS WHEREOF, the parties have executed this Agreement
this 22nd day of April, 1983.
FOF, INC.
/s/ Charles B. Johnson
Charles B. Johnson, President
/s/ Harmon E. Burns
Harmon E. Burns, Secretary
FRANKLIN OPTION FUND
/s/ Charles B. Johnson
Charles B. Johnson
/s/ Harmon E. Burns
Harmon E. Burns, Secretary
OFFICERS' CERTIFICATE
OF
F 0 F, INC.
Charles B. Johnson and Harmon E. Burns certify that:
1. They are the president and secretary, respectively, of F
0 F, INC., a California corporation.
2. The Agreement of Merger in the form attached was duly
approved by the Board of Directors of the corporation.
3. The total number of outstanding shares of the only class
of shares of the corporation entitled to vote is 10.
4. The principal terms of the Agreement of Merger in the
form attached were approved by a vote of the outstanding shares
which exceeded the vote required, which requirement was a
majority of the outstanding shares.
We further declare under penalty of perjury under the laws
of the State of California that the matters set forth in this
Certificate are true and correct of our own knowledge.
Dated: April 22, 1983
/s/ Charles B. Johnson
Charles B. Johnson, President
/s/ Harmon E. Burns
Harmon E. Burns, Secretary
OFFICERS' CERTIFICATE
OF
FRANKLIN OPTION FUND, INC.
Charles B. Johnson and Harmon E. Burns certify that:
1. They are the president and secretary, respectively, of
Franklin Option Fund, Inc., a Hawaii corporation.
2. The Agreement of Merger in the form attached was duly
approved by the Board of Directors of the corporation.
3. The total number of outstanding shares of the only class
of shares of the corporation entitled to vote is 919,164.
4. The principal terms of the Agreement of Merger in the
form attached were approved by a vote of the outstanding shares
which exceeded the vote required, which requirement was seventy-
five (75%) percent of the outstanding shares.
We further declare under penalty of perjury under the laws
of the State of California that the matters set forth in this
Certificate are true and correct of our own knowledge.
Dated: April 22, 1983
/s/ Charles B. Johnson
Charles B. Johnson, President
/s/ Harmon E. Burns, Secretary
Harmon E. Burns, Secretary
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors of
Franklin Premier Return Fund
We consent to the incorporation by reference in Post-Effective Amendment No. 55
to the Registration Statement of Franklin Premier Return Fund on Form N-1A File
No. (2-12647) of our report dated January 31, 1996 on our audit of the financial
statements and financial highlights of Franklin Premier Return Fund, which
report is included in the Annual Report to Shareholders for the year ended
December 31, 1995, which is incorporated by reference in the Registration
Statement.
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
February 27, 1996
FRANKLIN PREMIER RETURN FUND
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Franklin
Premier Return Fund (the "Fund"), which Plan shall take effect on the 1st day of
May, 1994 (the "Effective Date of the Plan"). The Plan has been approved by a
majority of the Board of Directors of the Fund (the "Board of Directors"),
including a majority of the directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan (the "non-interested directors"), cast in person at a meeting called for
the purpose of voting on such Plan.
In reviewing the Plan, the Board of Directors considered the schedule and
nature of payments and terms of the Management Agreement between the Fund and
Franklin Advisers, Inc. ("Advisers") and the terms of the Underwriting Agreement
between the Fund and Franklin/Templeton Distributors, Inc. ("Distributors"). The
Board of Directors concluded that the compensation of Advisers, under the
Management Agreement, and of Distributors, under the Underwriting Agreement, was
fair and not excessive; however, the Board of Directors also recognized that
uncertainty may exist from time to time with respect to whether payments to be
made by the Fund to Advisers, Distributors, or others or by Advisers or
Distributors to others may be deemed to constitute distribution expenses of the
Fund. Accordingly, the Board of Directors determined that the Plan should
provide for such payments and that adoption of the Plan would be prudent and in
the best interest of the Fund and its shareholders. Such approval included a
determination that in the exercise of their reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all expenses incurred by
Distributors or others in the promotion and distribution of the shares of the
Fund, including but not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its affiliates, which form of
agreement has been approved from time to time by the directors, including the
non-interested directors.
2. The maximum amount which may be reimbursed by the Fund to Distributors or
others pursuant to Paragraph 1 herein shall be 0.25% per annum of the average
daily net assets of the Fund. Said reimbursement shall be made quarterly by the
Fund to Distributors or others.
3. In addition to the payments which the Fund is authorized to make pursuant to
paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers, Distributors
or other parties on behalf of the Fund, Advisers or Distributors make payments
that are deemed to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1 under the Act, then such payments shall be deemed to have
been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Directors, for their review, on a
quarterly basis, a written report of the monies reimbursed to it and to others
under the Plan, and shall furnish the Board of Directors with such other
information as the Board of Directors may reasonably request in connection with
the payments made under the Plan in order to enable the Board of Directors to
make an informed determination of whether the Plan should be continued.
5. The Plan shall continue in effect for a period of more than one year only so
long as such continuance is specifically approved at least annually by a vote of
the Board of Directors, including the non-interested directors, cast in person
at a meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the Fund or by vote of a majority of the
non-interested directors, on not more than sixty (60) days' written notice, or
by Distributors on not more than sixty (60) days' written notice, and shall
terminate automatically in the event of any act that constitutes an assignment
of the Management Agreement between the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this Plan, may not be
amended to increase materially the amount to be spent for distribution pursuant
to Paragraph 2 hereof without approval by a majority of the Fund's outstanding
voting securities.
8. All material amendments to the Plan, or any agreements entered into pursuant
to this Plan, shall be approved by a vote of the non-interested directors cast
in person at a meeting called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and nomination of the Fund's
non-interested directors shall be committed to the discretion of such
non-interested directors.
This Plan and the terms and provisions thereof are hereby accepted and agreed to
by the Fund and Distributors as evidenced by their execution hereof.
FRANKLIN PREMIER RETURN FUND
By: /s/ Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: Harmon E. Burns
BASE PERIOD RETURN = Ending value - beginning value
------------------------------
Beginning value
= 1,000829 - 1.00
------------------------------
1.00
= 0.000829
= 0.0829%
CURRENT YIELD = Base period return x 365/7
= 0.000829 X 52.1428571
= 0.04322643
= 4.3226%
EFFECTIVE YIELD = (Base period return + 1) -1
------------------------------
365/7
= 0.000829 +1 -1
------------------------------
365/7
= 1.000829 -1
------------------------------
365/7
= 1.04415560 -1
= 0.04415560
= 4.42%
POWER OF ATTORNEY
The undersigned officers and directors of Franklin Premier
Return Fund (the "Registrant") hereby appoint MARK H. PLAFKER,
HARMON E. BURNS, DEBORAH R. GATZEK, KAREN L. SKIDMORE AND LARRY
L. GREENE (with full power to each of them to act alone) his
attorney-in-fact and agent, in all capacities, to execute, and to
file any of the documents referred to below relating to Post-
Effective Amendments to the Registrant's registration statement
on Form N-1A under the Investment Company Act of 1940, as
amended, and under the Securities Act of 1933 covering the sale
of shares by the Registrant under prospectuses becoming effective
after this date, including any amendment or amendments increasing
or decreasing the amount of securities for which registration is
being sought, with all exhibits and any and all documents
required to be filed with respect thereto with any 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 could do if personally present, thereby ratifying
all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.
The undersigned officers and directors hereby execute this
Power of Attorney as of this 16th day of February 1995.
/s/ Edward B. Jamieson /s/ Frank H. Abbott, III
Edward B. Jamieson, Frank H. Abbott, III,
Principal Executive Officer Director
and Director
/s/ S. Joseph Fortunato /s/ David W. Garbellano
S. Joseph Fortunato, David W. Garbellano,
Director Director
/s/ Charles B. Johnson /s/ Hayato Tanaka
Charles B. Johnson, Hayato Tanaka,
Director Director
/s/ R. Martin Wiskemann
R. Martin Wiskemann,
Director
/s/ Martin L. Flanagan /s/ Diomedes Loo-Tam
Martin L. Flanagan, Diomedes Loo-Tam,
Principal Financial Officer Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of
Franklin Premier Return Fund (the "Fund").
As Secretary of the Fund, I further certify that the following
resolution was adopted by a majority of the Directors of the Fund.
RESOLVED, that a Power of Attorney, substantially in the
form of the Power of Attorney presented to this Board,
appointed Harmon E. Burns, Deborah R. Gatzek, Karen L.
Skidmore, Larry L. Greene and Mark H. Plafker as attorneys-
in-fact for the purpose of filing documents with the SEC, be
executed by each Director 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.
/s/ Deborah R. Gatzek
Dated: February 16, 1995 Deborah R. Gatzek
Secretary
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN PREMIER RETURN FUND DECEMBER 31, 1995 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 35,182,513
<INVESTMENTS-AT-VALUE> 36,819,590
<RECEIVABLES> 4,301,899
<ASSETS-OTHER> 53,076
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,174,565
<PAYABLE-FOR-SECURITIES> 1,793,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62,172
<TOTAL-LIABILITIES> 1,855,922
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,966,954
<SHARES-COMMON-STOCK> 5,423,517
<SHARES-COMMON-PRIOR> 4,193,484
<ACCUMULATED-NII-CURRENT> 70,714
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (356,102)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,637,077
<NET-ASSETS> 39,318,643
<DIVIDEND-INCOME> 464,056
<INTEREST-INCOME> 796,036
<OTHER-INCOME> 0
<EXPENSES-NET> (366,072)
<NET-INVESTMENT-INCOME> 894,020
<REALIZED-GAINS-CURRENT> 355,611
<APPREC-INCREASE-CURRENT> 4,911,516
<NET-CHANGE-FROM-OPS> 6,161,147
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (857,567)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,254,336
<NUMBER-OF-SHARES-REDEEMED> (1,120,306)
<SHARES-REINVESTED> 96,003
<NET-CHANGE-IN-ASSETS> 13,687,910
<ACCUMULATED-NII-PRIOR> 34,261
<ACCUMULATED-GAINS-PRIOR> (711,713)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 198,598
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 366,072
<AVERAGE-NET-ASSETS> 31,307,870
<PER-SHARE-NAV-BEGIN> 6.110
<PER-SHARE-NII> .180
<PER-SHARE-GAIN-APPREC> 1.140
<PER-SHARE-DIVIDEND> (.180)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 7.250
<EXPENSE-RATIO> 1.170
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
