As filed with the Securities and Exchange Commission on February
28, 1995.
File Nos.
33-11962
811-5008
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. 8 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10 (X)
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
(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)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[X] on May 1, 1995 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.
EXHIBIT PAGE
Declaration Pursuant to Rule 24f-2. The issuer 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 23,
1995.
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial "Financial Highlights";
Information "Performance"
4. General Description "About the Franklin
of Registrant Partners Funds";
"Investment Objective and
Policies of Each Fund";
"Risk Considerations";
"General Information"
5. Management of the "Management of the Funds";
Fund "Portfolio Operations"
5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to
Performance Shareholders
Capital Stock and "About the Franklin
6. Other Securities Partners Funds";
"Distributions to
Shareholders"; "Taxation
of the Funds and Their
Shareholders"; "How to Get
Information Regarding an
Investment in the Funds";
"General Information";
"Summary of Partnership
Agreements";
7. Purchase of "How to Invest in a Fund";
Securities Being "Other Programs and
Offered Privileges Available to
Fund Shareholders";
"Exchange Privilege";
"Telephone Transactions";
"Valuation of Fund
Shares;" "General
Information"
8. Redemption or "How to Sell Shares of the
Repurchase Funds"; "Telephone
Transactions"
9. Pending Legal Not Applicable
Proceedings
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents "Contents"
12. General Information "About the Funds" (See
and History also the Prospectus "About
the Franklin Partners
Funds"; "General
Information")
13. Investment "The Investment Objectives
Objectives and and Policies of the Funds"
Policies (See also the Prospectus
"Investment Objective and
Policies of Each Fund")
14. Management of the "Officers and Managing
Registrant General Partners"
15. Control Persons and "General Information"
Principal Holders
of Securities
16. Investment Advisory "Investment Advisory and
and Other Services Other Services"; "The
Funds' Underwriter" (See
also the Prospectus
"Management of the Funds";
"Portfolio Operations")
17. Brokerage "The Funds' Policies
Allocation Regarding Brokers Used on
Portfolio Transactions"
18. Capital Stock and "Additional Information
Other Securities Regarding Fund Shares";
"General Information" (See
also the Prospectus "How
to Invest in a Fund"; "How
to Sell Shares of the
Funds"; "General
Information")
19. Purchase, "Additional Information
Redemption and Regarding Fund Shares"
Pricing of (See also the Prospectus
Securities Being "How to Invest in a Fund";
Offered "How to Sell Shares of the
Funds"; "Valuation of Fund
Shares"; "Telephone
Transactions")
20. Tax Status "Additional Information on
Distributions and
Taxation" (See also the
Prospectus "Taxation of
the Funds and Their
Shareholders")
21. Underwriters "The Funds' Underwriter"
22. Calculation of "General Information"
Performance Data
23. Financial "Financial Statements"
Statements
FRANKLIN
PARTNERS
Funds (Registered Trademark)
Franklin Tax-Advantaged
U.S. Government Securities Fund
Franklin Tax-Advantaged
High Yield Securities Fund
Franklin Tax-Advantaged
International Bond Fund
PROSPECTUS MAY 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
The Franklin Partners Funds (Registered Trademark) (collectively
or separately, the "Funds" or "Fund") consists of three separate
and distinct funds: Franklin Tax-Advantaged U.S. Government
Securities Fund (the "Government Fund"), Franklin Tax-Advantaged
High Yield Securities Fund (the "High Yield Fund"), and Franklin
Tax-Advantaged International Bond Fund (the "International Bond
Fund"), each a California limited partnership.
Each Fund is designed to earn income for qualifying non-United
States ("U.S.") investors that is not subject to U.S. federal
income tax or U.S. tax withholding requirements (including "Non-
Resident Alien" tax withholding).
The primary investment objective of the Government Fund is
current income through investment in obligations of the U.S.
government, its agencies or instrumentalities. The assets of this
Fund will be primarily invested in obligations of the Government
National Mortgage Association ("GNMA"), an agency of the U.S.
government.
The primary investment objective of the High Yield Fund is to
earn a high level of current income, with capital appreciation as
a secondary objective. The assets of this Fund will generally be
invested in various classes of fixed-income debt securities of
U.S. issuers, which may include high risk securities, although
securities of non-U.S. issuers also may be acquired.
The primary investment objective of the International Bond Fund
is to seek current income by investing in debt securities of non-
U.S. issuers and foreign currency denominated debt securities of
U.S. issuers.
SHARES OF THE FUNDS 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
FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THE HIGH YIELD FUND MAY INVEST UP TO 100% OF ITS PORTFOLIO IN NON-
INVESTMENT GRADE BONDS, COMMONLY KNOWN AS "JUNK BONDS," WHICH
ENTAIL DEFAULT AND OTHER RISKS GREATER THAN THOSE ASSOCIATED WITH
HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THE HIGH YIELD FUND IN
LIGHT OF THE SECURITIES IN WHICH THE FUND INVESTS. SEE "RISK
CONSIDERATIONS - HIGH YIELDING, FIXED-INCOME SECURITIES."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is intended to set forth in a clear and concise
manner information about each Fund that a prospective investor
should know before investing. After reading the Prospectus, it
should be retained for future reference; it contains information
about the purchase and sale of shares and other items which a
prospective investor will find useful to have.
A Statement of Additional Information concerning the Funds (the
"SAI"), dated May 1, 1995, 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 some investors. It
has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is
available without charge from the Funds or from the Funds'
principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above
(in U.S. only).
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.
CONTENTS PAGE
Expense Table
Financial Highlights
About the Franklin Partners Funds
Investment Objective and
Policies of Each Fund
Risk Considerations
Management of the Funds
Distributions to Shareholders
Taxation of the Funds
and Their Shareholders
How to Invest in a Fund
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Funds
Telephone Transactions
Valuation of Fund Shares
How to Get Information
Regarding an Investment in the Funds
Performance
General Information
Account Registrations
Summary of Partnership Agreements
Portfolio Operations
Appendix
EXPENSE TABLE
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in each Fund. These figures are based on restated operating
expenses of each Fund for the fiscal year ended December 31,
1994.
GOVERNMENT HIGH YIELD INTERNATIONAL
FUND FUND BOND FUND
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
Imposed on Purchases
(as a percentage of 4.25% 4.25% 4.25%
offering price)
Deferred Sales Charge None* None* None*
Exchange Fee (per $5.00** $5.00** $5.00**
transaction)
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees 0.49% 0.63% 0.63%***
Maximum 12b-1 Fees 0.07%+ 0.08%+ 0.07%+
Other Expenses 0.08% 0.14% 0.39%
Total Fund Operating
Expenses 0.64% 0.85% 1.09%***
*Investments of $1 million or more are not subject to front-end
sales charge; however, a contingent deferred sales charge of 1%
is imposed on certain redemptions within 12 months of the
calendar month following such investments.
**$5.00 fee imposed only on Timing Accounts as described under
"Exchange Privilege." All other exchanges are processed without a
fee.
***Represents the amount that would have been paid by the
International Bond Fund. The investment manager, however, limited
its management fees and assumed responsibility for making
payments to offset a portion of the operating expenses otherwise
payable by such Fund. With this reduction, the Fund paid no
management fees and total operating expenses, including
management fees, amounted to 0.32% of average net assets. This
arrangement may be discontinued by the investment manager at any
time.
+Annualized. Actual 12b-1 fees incurred by the Government Fund,
High Yield Fund and International Bond Fund for the period July
1, 1994 through December 31, 1994 were .03%, .04% and .04%,
respectively. 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.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in a Fund. Rather the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates
the expenses, including the initial sales charge, that apply to a
$1,000 investment in a Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of
each time period. As noted in the table above, none of the Funds
charge a redemption fee:
GOVERNMENT HIGH YIELD INTERNATIONAL
FUND FUND BOND FUND
1 Year $ 49 $ 51 $ 53
3 Years 62 68 76
5 Years 77 88 100
10 Years 119 143 170
THE EXAMPLE IS BASED ON THE TOTAL OPERATING EXPENSES OF EACH
FUND, INCLUDING FEES SET BY CONTRACT, AS 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 each Fund and only indirectly by
shareholders as a result of their investment in such Fund. See
"Management of the Fund" for a description of each Fund's
expenses. In addition, federal regulations require the example to
assume an annual return of 5%, but a Fund's actual return may be
more or less than 5%.
FINANCIAL HIGHLIGHTS
Set forth below is a table containing the financial highlights
for a share of each Fund from its inception (i.e. effective date
of the registration statement for each Fund) throughout the
fiscal years ended December 31. Except for the International Bond
Fund for the periods ending prior to January 1, 1990, the figures
for the years ending subsequent to December 31, 1988 are covered
by the report of Coopers & Lybrand L.L.P., the Funds' independent
auditors, whose audit report thereon appears in the financial
statements in the Funds' Annual Report to Shareholders. The
figures for the International Bond Fund for the periods ending
prior to January 1, 1990 were audited by Tait, Weller & Baker,
the Fund's independent auditors for those periods. The remaining
figures, which are also audited, are not covered by the auditors'
current report. See the discussion "Reports to Shareholders"
under "General Information."
<TABLE>
<CAPTION>
YEAR NET ASSET NET REALIZED DIVIDENDS NET ASSET NET ASSETS RATIO OF RATIO OF
ENDED VALUE NET & UNREALIZED TOTAL FROM FROM NET VALUE AT END EXPENSES NET INCOME PORTFOLIO
DECEM- BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT AT END TOTAL OF YEAR TO AVERAGE TO AVERAGE TURNOVER
BER 31 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME OF YEAR RETURN++ (IN 000's) NET ASSETS NET ASSETS RATE
- ------ --------- ---------- ------------- ---------- ---------- ------- -------- ---------- ---------- ---------- --------
FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 $10.00 $0.620 $1.420 $2.040 $(0.360) $11.68 - % $13,688 1.67% 7.49% 120.00%
1988 11.68 0.790 (0.590) 0.200 (0.800) 11.08 (2.85) 9,485 1.62 7.13 47.00
1989 11.08 0.820 0.160 0.980 (0.860) 11.20 9.15 4,709 1.72 7.64 12.00
1990(2) 11.20 1.133 0.819 1.952 (1.202) 11.95 15.46* 4,236 0.95(4) 9.75 18.40
1991 11.95 1.018 0.112 1.130 (1.030) 12.05 9.86 5,060 - (4) 9.05 60.77
1992 12.05 1.012 (1.110) (0.098) (1.102) 10.85 (1.43) 12,662 0.13(4) 9.71 15.26
1993 10.85 0.808 0.505 1.313 (0.823) 11.34 12.13 19,606 0.25(4) 7.31 6.80
1994 11.34 0.794 (0.560) 0.234 (.794) 10.78 2.06 22,725 0.29(4) 7.69 6.46
<CAPTION>
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987(1) $10.00 $0.603 $ 0.070 $ 0.673 $(0.603) $10.07 6.64% $ 9,401 - % 10.46%+ 31.53%
1988 10.07 0.986 $(0.180) 0.806 (0.986) 9.89 7.80 42,703 0.26(3) 9.62 6.80
1989 9.89 0.965 0.280 1.245 (0.965) 10.17 12.75 67,864 0.46(3) 9.55 7.07
1990 10.17 0.922 0.060 0.982 (0.922) 10.23 9.82 86,967 0.60(3) 9.16 9.36
1991 10.23 0.865 0.570 1.435 (0.865) 10.80 14.31 127,637 0.80 8.13 12.42
1992 10.80 0.785 (0.050) 0.735 (0.785) 10.75 6.80 312,645 0.67 7.22 15.26
1993 10.75 0.733 0.160 0.893 (0.733) 10.91 8.19 574,007 0.59 6.63 14.63
1994 10.91 0.704 (1.150) (.446) (0.704) 9.76 (4.26) 456,421 0.61 6.92 10.20
<CAPTION>
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987(1) 10.00 0.516 (0.760) (0.244) (0.516) 9.24 (2.60) 2,923 - 12.67+ -
1988 9.24 1.076 0.020 1.096 (1.076) 9.26 11.79 21,346 0.18(3) 10.88 2.64
1989 9.26 1.173 (0.740) 0.433 (1.173) 8.52 4.10 34,722 0.25(3) 13.08 4.95
1990 8.52 1.132 (2.430) (1.298) (1.132) 6.09 (16.89) 27,155 0.55(3) 15.51 13.29
1991 6.09 0.982 1.890 2.872 (0.982) 7.98 49.19 57,469 0.87 12.96 38.35
1992 7.98 0.922 0.420 1.342 (0.922) 8.40 16.96 39,131 0.76 11.00 29.79
1993 8.40 0.815 0.570 1.385 (0.815) 8.97 16.72 69,545 0.76 9.17 32.27
1994 8.97 0.770 (0.990) (0.220) (0.760) 7.99 (2.58) 81,151 0.81 9.36 18.39
* For the period June 9, 1990 (transfer of management) to December 31, 1990.
(1) For the period May 4, 1987 (effective date) to December 31, 1987.
(2) On June 9, 1990, the investment manager changed from Pilgrim
Management Corporation to Franklin Advisers, Inc.
(3) Without a fee reduction by the investment manager, the ratio of
operating expenses to average net assets for the fiscal years ended
December 31, 1988, 1989 and 1990 would have been: .87%, .76% and .76%,
respectively, for the U.S. Government Securities Fund; and .98%, .78%
and .79%, respectively, for the High Yield Securities Fund.
(4) Without a fee reduction by the investment manager, the ratio of operating
expenses to average net assets for the fiscal years ended December 31, 1990,
1991, 1992, 1993 and 1994 would have been 1.42%, .89%, .92%, .97%, and 1.06%.
respectively.
+ Annualized
++ Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends at the offering price and capital gains, if any, at
net asset value. Effective July 1, 1994, with the implementation of the 12b-1
distribution plans, as discussed in this Prospectus, the existing
sales charge on reinvested dividends has been eliminated.
</TABLE>
ABOUT THE FRANKLIN PARTNERS FUNDS
Each Fund is an open-end, diversified management investment
company, registered with the SEC under the Investment Company Act
of 1940 (the "1940 Act"), and organized as a limited partnership
in the state of California. The form of organization was adopted
to preserve, for qualifying non-U.S. investors, the current
exemptions from U.S. federal income tax and U.S. federal
withholding tax, including U.S. "Non-Resident Alien" tax
withholding (principally, the "portfolio interest" exemption for
distributions from the Government Fund and the High Yield Fund
and the exemption from U.S. income taxation of foreign source
income for distributions from the International Bond Fund) that
would be available to direct owners of the types of securities in
which each Fund invests. Because the Funds are limited
partnerships, distributions made by the Funds retain their
original character so that qualifying income is not subject to
U.S. federal income taxation when received by the Funds'
qualifying non-U.S. investors. Each Fund issues only one class of
shares in the form of limited partnership interests, and
purchasers of shares of a Fund (referred to herein as
"shareholders" or "limited partners") are required to become
limited partners of that Fund. Shares of a Fund may be purchased
(minimum investment $2,500 initially and $100 thereafter) at the
then current public offering price which is equal to such Fund's
net asset value (see "Valuation of Fund Shares") plus a sales
charge based upon a variable percentage (ranging from 4.25% to 0%
of the offering price) depending upon the amount invested. (See
"How to Invest in a Fund.")
ELIGIBLE INVESTORS
Each Fund is designed primarily for investors who are not
considered to be U.S. citizens, residents, corporations,
partnerships, trusts or estates, or who are not non-U.S. persons
engaged in a U.S. trade or business under the Internal Revenue
Code of 1986, as amended (the "Code"). Investment by non-U.S.
persons through U.S. trusts or estates is permitted. Investment
by U.S. investors into the High Yield and International Bond
Funds is not permitted. The Government Fund is available to U.S.
investors. Since the Government Fund expects to be invested
primarily in GNMA Certificates, the income from such investments
would generally be subject to federal, state or local taxation
for most U.S. investors. (See the discussion subcaptioned "U.S.
Tax Treatment of U.S. Investors" under "Taxation of the Funds and
Their Shareholders.")
All prospective investors must furnish the Funds with account
registration information and information on their tax status as
required by the Investment Application and Subscription Agreement
("Application") included with this Prospectus, and either a
Certificate of Foreign Status on Form W-8 (or substitute) or the
Payer's Request for Taxpayer Identification Number on Form W-9,
as applicable. By purchasing shares, each investor will be deemed
to have provided the Special Power of Attorney included in the
Application and each non-U.S. investor is consenting to
disclosure of the information contained in the Certificate of
Foreign Status (which includes each investor's name and permanent
address) to the Funds and, to the extent required by the Code, to
the U.S. Internal Revenue Service ("IRS") and to issuers of debt
obligations in which the Funds invest.
CERTAIN TAX CONSIDERATIONS
Due to the structure of each Fund as a limited partnership based
in the U.S. and the primary reliance on the portfolio interest
exemption and the exemption of foreign source interest from U.S.
income taxation under the Code to eliminate U.S. tax and tax
withholding on distributions made to shareholders, certain
factors should be considered by prospective investors, which are
discussed more fully under "Taxation of the Funds and Their
Shareholders" in this Prospectus and under "Additional
Information on Distributions and Taxation" in the SAI.
1. Qualifying income generated by each Fund will not be subject
to U.S. federal income tax and U.S. tax withholding requirements
for qualifying non-U.S. shareholders, provided that the Fund is
not deemed to be engaged in a trade or business in the U.S. Each
Fund has obtained an opinion of its counsel, Thelen, Marrin,
Johnson & Bridges, to the effect that it should not be deemed to
be engaged in a trade or business in the U.S. if the Fund follows
certain policies and guidelines concerning its investment
activities. This opinion is based on counsel's interpretation of
applicable court decisions and other authorities and not on any
specific U.S. Treasury regulations because no such regulations
have been promulgated. Although each Fund and its counsel believe
that their position is fully supported by applicable law, there
can be no assurance that the IRS or a court of law would not take
a contrary position.
2. A shareholder with an address outside the U.S. must furnish
the Fund in which it invests with a Certificate of Foreign Status
on IRS Form W-8 to avoid U.S. tax withholding at the rate of 30%.
If the Fund does not have such a Certificate on file, the Fund
must withhold the tax from any distributions (including
redemption distributions) to the shareholder to the extent that
such distributions include income from U.S. sources. In addition,
in the absence of a Certificate, to the extent that a Fund has
not distributed all of the U.S. source income allocable to the
shareholder during the year, the Fund will be required to apply
withholding (by liquidating shares at the end of the year) to the
undistributed U.S. source income allocated to the shareholder for
the year.
3. As a partnership, each Fund will be required to file an annual
return with the IRS and the California Franchise Tax Board which
identifies each shareholder's allocated share of the Fund's net
income and gains for the taxable year, whether or not such income
and gains have been distributed. Each Fund will also file an
annual form with the IRS with respect to each non-U.S.
shareholder (which includes, as an attachment, the Form W-8 [or
substitute] furnished by the shareholder) indicating, if
applicable, that no amount was withheld with respect to income
allocated to such shareholder that qualified for the portfolio
interest exemption or any other applicable exemption under the
Code.
4. The value of Fund shares directly owned by a non-U.S.
individual upon the death of such individual may be subject to
U.S. estate taxes (and possibly state inheritance taxes), subject
to certain exemptions and to the terms of any applicable treaty
between the U.S. and the individual's country of residence.
INVESTMENT OBJECTIVE
AND POLICIES OF EACH FUND
The objective of each Fund is a fundamental policy and may not be
changed without shareholder approval.
FRANKLIN TAX-ADVANTAGED
U.S. GOVERNMENT SECURITIES FUND
The investment objective of this Fund is current income through
investment in a portfolio limited to securities which are
obligations of the U.S. government, its agencies or
instrumentalities. At least 65% of the assets of this Fund will
be invested in such securities. The assets of this Fund are
expected to be invested primarily in obligations of the
Government National Mortgage Association, popularly called GNMAs
or Ginnie Maes.
Obligations of the U.S. government, its agencies and
instrumentalities may also include, but are not limited to, U.S.
Treasury bonds, notes and bills, Treasury Certificates of
Indebtedness and securities issued by agencies and
instrumentalities of the U.S. government, including those issued
or guaranteed by the Department of Housing and Urban Development,
the Farmers Home Administration, the Small Business
Administration, the Export-Import Bank, Banks for Cooperatives,
the Commodity Credit Corporation, the Federal Deposit Insurance
Corporation, Federal Farm Credit Banks, the Federal Financing
Bank, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Land Banks and the Federal Land Bank Association, the
Federal Savings and Loan Insurance Corporation, the General
Insurance Fund, Government Services Administration, the Product
Credit Association, the Student Loan Marketing Association, the
Tennessee Valley Authority, and the U.S. Postal Service.
To produce income that is not subject to U.S. federal income tax
or U.S. withholding tax for its non-U.S. investors, the Fund
limits its investments to U.S. government obligations issued
after July 18, 1984 in registered form. In the case of GNMAs, the
Fund limits itself to GNMA Certificates representing interests in
underlying mortgages which were also issued after July 18, 1984
or which meet certain other qualifying conditions under the Code,
all of the interest on which will qualify for the "portfolio
interest" exemption under the Code.
INFORMATION ABOUT GNMAS
GNMAs are mortgage-backed securities representing part ownership
of a pool of mortgage loans. GNMA Certificates differ from bonds
in that principal is scheduled to be paid back by the borrower
over the length of the loan rather than returned in a lump sum at
maturity. The Government Fund will purchase "modified pass-
through" type GNMA Certificates for which principal and interest
are guaranteed by the U.S. government, rather than the "straight
pass-through" Certificates for which such guarantee is not
available. This Fund may also purchase "variable rate" GNMA
Certificates or any other type which may be issued with GNMA's
guarantee.
THE GNMA GUARANTEE OF PRINCIPAL AND INTEREST ON GNMA CERTIFICATES
IS BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES
GOVERNMENT. GNMA MAY BORROW U.S. TREASURY FUNDS TO THE EXTENT
NEEDED TO MAKE PAYMENTS UNDER ITS GUARANTEE.
GNMA Certificates are created by an "issuer," which is a Federal
Housing Administration ("FHA") approved lender, such as mortgage
bankers, commercial banks and savings and loan associations, who
also meet criteria imposed by GNMA. The issuer assembles a
specific pool of mortgages insured by either the FHA or the
Farmers Home Administration or guaranteed by the Veterans
Administration. Upon application by the issuer, and after
approval by GNMA of the pool, GNMA provides its commitment for
the guarantee of principal and interest on the GNMA Certificates
secured by the mortgages included in the pool. The GNMA
Certificates, endorsed by GNMA, are then sold by the issuer
through securities dealers.
When mortgages in the pool underlying a GNMA Certificate are
prepaid by mortgagees or as a result of foreclosure, such
principal payments are passed through to the Certificate holders
(such as the Fund). Accordingly, the life of the GNMA Certificate
is likely to be substantially shorter than the stated maturity of
the mortgages in the underlying pool. Because of such variation
in prepayment rights, it is not possible to accurately predict
the life of a particular GNMA Certificate. Generally, GNMA
Certificates bear a stated "coupon rate" which represents the
effect of FHA-Veterans Administration mortgage rates for the
underlying pool of mortgages, less 0.5% which constitutes the
GNMA and issuer's fees. For providing its guarantee, GNMA
currently receives an annual fee of 0.06% of the outstanding
principal on Certificates backed by single-family dwelling
mortgages, and the issuer currently receives an annual fee of
0.44% for assembling the pool and for passing through monthly
payments of interest and principal.
Payments to holders of GNMA Certificates consist of the monthly
distributions of interest and principal less the GNMA and
issuer's fees. The portion of the monthly payment which
represents a return of principal will be reinvested by the
Government Fund in then-available GNMA obligations which may bear
interest at a rate higher or lower than the obligation from which
the payment was received. The actual yield to be earned by the
holder of a GNMA Certificate is calculated by dividing such
payments by the purchase price paid for the GNMA Certificate
(which may be at a premium or a discount from the face value of
the Certificate). Unpredictable prepayments of principal,
however, can greatly change realized yields. In a period of
declining interest rates it is more likely that mortgages
contained in GNMA pools will be prepaid thus reducing the
effective yield. Moreover, any premium paid on the purchase of a
GNMA Certificate will be lost if the obligation is prepaid. In
periods of falling interest rates this potential for pre-payment
may reduce the general upward price increase of GNMA Certificates
which might otherwise occur. As with other debt instruments, the
price of GNMA Certificates is likely to decrease in times of
rising interest rates. Price changes of the GNMA Certificates
held by the Government Fund have a direct impact on the net asset
value per share of the Government Fund. When interest rates rise,
the value of a GNMA Certificate will generally decline.
Conversely, when rates fall, the GNMA Certificate value may rise
although not as much as other debt issues due to the prepayment
feature.
ALTHOUGH THE SECURITIES IN THE GOVERNMENT FUND'S PORTFOLIO ARE
GUARANTEED AS TO PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT OR
ITS INSTRUMENTALITIES, THE MARKET VALUE OF THESE SECURITIES, UPON
WHICH DAILY NET ASSET VALUE IS BASED, MAY FLUCTUATE BASED UPON
SUCH FACTORS AS CHANGING INTEREST RATES. AS A RESULT, THE PRICE
PER SHARE THE SHAREHOLDER RECEIVES ON REDEMPTION MAY BE MORE OR
LESS THAN THE PRICE PAID FOR THE SHARES. THE DISTRIBUTIONS PER
SHARE PAID BY THE FUND MAY ALSO VARY.
FRANKLIN TAX-ADVANTAGED
HIGH YIELD SECURITIES FUND
The principal investment objective of this Fund is to earn a high
level of current income. As a secondary objective, the High Yield
Fund seeks capital appreciation to the maximum extent possible,
consistent with its principal objective.
TYPES OF SECURITIES WHICH THE
HIGH YIELD FUND MAY PURCHASE
Current yield is the primary standard used by this Fund in
selecting its securities, although potential for capital
appreciation may also be considered. The Fund will invest in
fixed-income debt securities of U.S. and non-U.S. issuers
(including corporate and municipal bonds, short-term paper and
secured obligations) which are offering the highest yield
available without excessive risk at the time of purchase. The
Fund's investment manager will attempt to avoid excessive risk by
performing an independent credit analysis of the issuer, as
described below, and by diversifying the Fund's investments among
different issuers. To produce income that is not subject to U.S.
federal income tax or U.S. withholding tax for non-U.S.
investors, the Fund limits its investments in securities of U.S.
issuers to debt securities issued after July 18, 1984 in
registered form.
Depending upon prevailing market and economic conditions, when
purchasing fixed-income debt securities, the High Yield Fund will
invest at least 65% of its total assets in investment grade or
lower grade securities (those having a rating below the three
highest grades assigned by Moody's Investors Service ["Moody's"]
or Standard & Poor's Corporation ["S&P"], two national securities
rating organizations ["NSROs"]). Such lower rated securities are
regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. (See the discussion
under "Risk Considerations - Asset Composition Table" for the
ratings assigned by Moody's for the securities held by the
portfolio of the High Yield Fund as of the end of the fiscal
year.)
The Fund may also, for defensive purposes, temporarily invest its
assets in U.S. government securities, commercial paper (short-
term debt securities of large corporations), various bank debt
instruments or other money market instruments. The income from
certain types of such short-term investments may not qualify as
"portfolio interest" income or income otherwise exempt under the
Code and, therefore, would generally be subject to U.S. tax and
withholding requirements.
Various investment services publish ratings of some of the types
of securities in which the High Yield Fund may invest. Higher
yields are ordinarily available from securities in the lower
rated categories of the NRSROs (that is, securities rated Baa or
lower by Moody's or BBB or lower by S&P - see the Appendix to
this Prospectus) or from unrated securities of comparable
quality. These ratings, which represent the opinions of the NSROs
with respect to the issuer's ability to pay interest and repay
principal, do not purport to reflect the risk of fluctuations in
market value, are not absolute credit standards, and will be
considered in connection with the investment of the High Yield
Fund's assets, but will not be a determining or limiting factor.
The High Yield Fund may invest in securities regardless of their
rating (including securities in the lowest rating categories) or
in securities which are not rated. The High Yield Fund will not
invest in securities that are rated below Ca by Moody's or CC by
S&P, or which, if unrated, are not at least of comparable quality
as determined by the investment manager. Securities in these
rating categories are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the
obligation. The High Yield Fund will not purchase issues that are
in default. As noted above, the High Yield Fund will not invest
in securities which are felt by management to involve excessive
risk. In the event the rating on an issue held in the High Yield
Fund's portfolio is changed by the ratings service or the
security goes into default, such event will be considered by the
High Yield Fund in its evaluation of the overall investment
merits of that security but will not necessarily result in an
automatic sale of the security.
Rather than relying principally on the ratings assigned by rating
services, the investment analysis of securities being considered
for the High Yield Fund includes, among other things,
consideration of relative values, based on such factors as:
anticipated cash flow; interest coverage; asset coverage;
earnings prospects; the experience and managerial strength of the
issuer; responsiveness to changes in interest rates and business
conditions; debt maturity schedules and borrowing requirements;
and the issuer's changing financial condition and public
recognition thereof. Because the High Yield Fund's portfolio will
consist of debt securities, changes in the level of interest
rates, among other things, will likely affect the value of the
Fund's holdings and thus the value of a shareholder's investment.
Certain of the high yield, fixed-income securities in which this
Fund may invest may be purchased at a discount. The High Yield
Fund does not intend to purchase securities for the purpose of
achieving capital gains, but generally will hold them as long as
current yields on such securities remain attractive. Capital
losses may be realized when securities purchased at a premium are
held to maturity or are called or redeemed at a price lower than
their purchase price. Capital gains or losses also may be
realized upon the sale of securities.
Although the High Yield Fund is not limited with respect to the
maturity of its portfolio securities, generally the majority of
that Fund's investments will be intermediate to long-term
investments that mature in ten years or more.
Because of the High Yield Fund's policy of seeking high current
yield and its ability to invest in lower grade debt securities, a
higher degree of risk (including the risk of bankruptcy or
default by the issuer of a high yield, lower rated security) may
accompany an investment in this Fund than would be the case in a
more conservative income-type investment company. In addition,
this Fund will be more dependent on the investment manager's
judgment, analysis and experience in achieving its investment
objective than is the case for funds that invest in higher
quality bonds. As in any other investment, there is no assurance
that the Fund's objectives will be obtained.
On December 31, 1994, fiscal year end, the High Yield Fund held
no defaulted securities.
FOR ADDITIONAL RISK FACTORS, SEE THE SECTION CAPTIONED "RISK
CONSIDERATIONS - HIGH YIELDING, FIXED-INCOME SECURITIES."
FRANKLIN TAX-ADVANTAGED
INTERNATIONAL BOND FUND
The primary investment objective of the International Bond Fund
is to seek current income by investing in readily marketable
bonds and debentures of non-U.S. issuers and foreign currency
denominated bonds and debentures of U.S. issuers. Under normal
conditions, this Fund attempts to invest 100%, and will invest at
least 65%, of its total assets in these securities, and the
domiciles of the issuers or the currency denominations will
include at least three different countries. The International
Bond Fund intends to limit its investments to issuers domiciled
in, and instruments denominated in the currencies of, developed
countries. To produce income that is not subject to U.S. tax or
withholding, this Fund limits its investments generally to either
debt securities issued after July 18, 1984 in registered form
which, if giving rise to U.S. source interest, will generate
"qualifying portfolio interest" income, or debt securities of
foreign issuers not engaged in a U.S. trade or business, which
will generate "non-U.S. source" income.
To protect against losses resulting from changes in foreign
currency exchange rates, the International Bond Fund may engage
in various strategies to hedge its portfolio against these risks.
These strategies include use of foreign currency options, foreign
currency futures, options on such futures and forward foreign
exchange contracts. While the International Bond Fund's use of
hedging strategies is intended to reduce the volatility of the
net asset value of its shares, this Fund's net asset value will
still fluctuate and there can be no assurance that such hedging
transactions will be effective.
The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and
movements in the price of the securities and currencies which are
the subject of the hedge, as well as imperfect correlation due to
the difference in maturities of the hedged position. These
strategies also involve the risk that the International Bond Fund
may not be able to close an options or futures position, or that
this Fund could lose its margin deposit or collateral in the
event of bankruptcy of the broker with whom it has an open
position.
The International Bond Fund may also, for hedging purposes,
purchase foreign currencies in the form of bank deposits as well
as other foreign money market instruments, including but not
limited to banker's acceptances, certificates of deposits,
commercial paper, short-term government and corporate obligations
and repurchase agreements, subject to certain tax restrictions.
In addition, this Fund may invest the cash balances which it may
be required (for operational purposes) to hold outside of the
U.S. in foreign currency-denominated instruments (generally bank
accounts).
Under current tax laws, certain foreign exchange gains realized
by the International Bond Fund from its hedging activities may be
subject to U.S. federal income tax and withholding requirements.
See "The Investment Objectives and Policies of the Funds" in the
SAI for a more detailed discussion of the International Bond
Fund's authorized hedging activities. In addition to the risks
resulting from fluctuations in currency exchange rates and the
attendant risks involved in using hedging techniques, there are
certain risks involved in a U.S. investment company's investment
in the securities of non-U.S. issuers. These risks include
devaluation of currencies, imposition of non-U.S. withholding
taxes on Fund income, reduced availability in the U.S. of public
information concerning non-U.S. issuers, future political and
economic developments and the imposition of currency exchange
regulations or other foreign governmental laws or restrictions,
and the fact that non-U.S. companies are not generally subject to
the same type of accounting, auditing and financial reporting
standards or other regulatory practices and requirements that are
applicable to U.S. domestic companies. Moreover, securities of
many non-U.S. issuers may be less liquid than the securities of
comparable U.S. issuers and their prices more volatile, and the
International Bond Fund will incur transaction costs in
converting assets from one currency to another. In addition, with
respect to certain foreign countries, there is the possibility of
expropriation or the nationalization of issuers of securities
held by the International Bond Fund, confiscatory taxation and
limitations on the use or removal of monies (e.g., currency
blockages) or other Fund assets. Although the International Bond
Fund is not limited with respect to the maturity of its portfolio
securities, it is anticipated that the majority of the Fund's
investments will be intermediate to long-term investments that
mature in ten years or more.
Although certain risks are involved in forward foreign exchange
contracts, foreign currency options, foreign currency futures and
related options on such futures (as discussed above and in the
SAI), the investment manager believes that, because the
International Bond Fund will only engage in these transactions
for hedging purposes, the use of these strategies will not
subject the Fund to the risks frequently associated with the
speculative use of forward contracts, options and futures
transactions. In addition, the International Bond Fund will not
invest funds in foreign currency positions, the principal amount
of which taken through options on foreign currencies, foreign
currency futures contracts, forward foreign currency contracts
and options on foreign currency futures contracts with respect to
any particular foreign currency would exceed the sum of the
principal amount of securities denominated in such foreign
currency owned or committed to be purchased by the Fund. Tax
requirements may further limit the International Bond Fund's
ability to engage in these hedging transactions and strategies.
There were no securities in the portfolio of the International
Bond Fund which were in default on their contractual provisions
at fiscal year end.
In order to comply with guidelines concerning each Fund's
investment activities and to strengthen its position that it is
not engaged in a U.S. trade or business, a Fund may have to
refrain from the sale or purchase of particular securities under
circumstances in which such securities would otherwise have been
sold or purchased. Conversely, in order to protect the value of
its investments, a Fund may have to take actions which are not
consistent with the guidelines and may weaken its tax position.
The effect of the guidelines is more pronounced for the High
Yield Fund and the International Bond Fund because of the nature
of their investments. See the tax section of this Prospectus for
further information.
FURTHER RISK DISCUSSION IS INCLUDED UNDER THE CAPTION "RISK
CONSIDERATIONS - HIGH YIELDING, FIXED-INCOME SECURITIES."
SOME OF THE FUNDS' OTHER INVESTMENT POLICIES
LONG-TERM INVESTMENTS. It is not the policy of any Fund to
purchase or sell securities for trading purposes as such activity
may cause the Fund to be deemed to be engaged in a trade or
business in the U.S. for U.S. federal income tax purposes.
Rather, it is the policy of each Fund to purchase securities for
long-term investment to generate income. To the extent consistent
with guidelines each Fund follows in order not to be deemed to be
engaged in a trade or business in the U.S., however, each Fund
may make changes in its investments in accordance with
management's appraisal of the factors affecting the market and
the national economy in order to protect the Fund from losses in
the value of its investments.
REPURCHASE AGREEMENTS. Each Fund, individually or together with
other funds in the Franklin Group of Funds, 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 such Fund to experience
a loss or delay in the liquidation of the collateral securing the
repurchase agreement. Each Fund might also incur disposition
costs in liquidating the collateral. Each 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 a 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 Managing General Partners and will be held pursuant to a
written agreement.
ILLIQUID INVESTMENTS. It is the policy of each 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 such 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.
BORROWING. The Funds do not borrow money or mortgage or pledge
any of their assets except that the Funds may borrow for
temporary or emergency purposes, and pledge their assets
therefor, in an amount up to 5% of total asset value of each
Fund, and subject to certain tax requirements.
SECURITIES OF NON-U.S. ISSUERS. Securities of non-U.S. issuers
cannot be purchased by the Government Fund. There are no
restrictions on investment of assets of the High Yield Fund or
the International Bond Fund in non-U.S. securities, provided such
investments are consistent with the investment objectives and
policies of such Funds. The High Yield Fund, however, presently
has no intention of investing more than 10% of its net assets in
securities of non-U.S. issuers not publicly traded in the U.S.
Interest income from non-U.S. securities will generally be exempt
from U.S. federal income tax and U.S. tax withholding.
There are certain risks involved in a U.S. investment company's
investment in the securities of non-U.S. issuers. These risks
include: fluctuations in currency exchange rates, devaluation of
currencies, imposition of withholding taxes on Fund income,
reduced availability in the U.S. of public information concerning
non-U.S. issuers, future political and economic developments and
the imposition of currency exchange regulations or other
governmental laws or restrictions, and the fact that non-U.S.
companies are not generally subject to the same type of
accounting, auditing and financial reporting standards or other
regulatory practices and requirements that are applicable to U.S.
companies. Moreover, securities of many non-U.S. issuers may be
less liquid than the securities of comparable U.S. issuers and
their prices more volatile, and the Fund will incur transaction
costs in converting assets from one currency to another.
Brokerage commissions and custody fees for non-U.S. securities
are also generally higher than those in the U.S. In addition,
with respect to certain countries, there is the possibility of
expropriation or the nationalization of issuers of securities
held by a Fund, confiscatory taxation, and limitations on the use
or removal of monies (e.g., currency blockages) or other Fund
assets.
The High Yield Fund will ordinarily purchase securities of non-
U.S. issuers which are traded in the U.S. or purchase American
Depositary Receipts ("ADRs"), which are certificates issued by
U.S. banks representing the right to receive securities of a non-
U.S. issuer deposited with that bank or a correspondent bank.
ADRs purchased by the High Yield Fund will be "sponsored," that
is, establishment of the issuing facility is brought about by the
participation of the issuer and the depository institution
pursuant to a deposit agreement which sets out the rights and
responsibilities of the issuer, the depositary and the ADR
holder. The Fund may purchase the securities of non-U.S. issuers,
located in developed countries only, directly in non-U.S.
markets.
Investments in non-U.S. securities, where delivery takes place
outside the U.S., will have to be made in compliance with any
applicable currency restrictions and other tax laws and laws
limiting the amount and types of such investments.
Securities which are acquired by the High Yield Fund or the
International Bond Fund outside the U.S. and which are publicly
traded in the U.S. or on a recognized non-U.S. securities
exchange or securities market are not considered by the Fund to
be illiquid assets so long as (i) the securities, if resold, may
be sold in one or more such trading markets, (ii) the Fund
reasonably believes it can readily dispose of the securities for
cash in one or more of such markets, and (iii) current market
quotations are readily available.
Consistent with each Fund's intention to produce income that is
not subject to U.S. federal income tax or U.S. withholding tax
for qualifying non-U.S. investors, each Fund will generally
invest in debt securities of U.S. issuers that are issued after
July 18, 1984 in registered form or in debt securities of non-
U.S. issuers that are not engaged in U.S. trade or business so
that the income generated by such investments may be treated as
"portfolio interest" or "non-U.S. source" income, respectively.
(See "Taxation of the Funds and Their Shareholders.")
The Funds are subject to a number of additional investment
restrictions, some of which may be changed only with the approval
of shareholders, which further limit their activities to some
extent. A list of these restrictions and more information
concerning the policies discussed herein are included in the SAI.
Each Fund's total return, as calculated pursuant to the formula
prescribed by the SEC, for the one- and five-year periods ended
on December 31, 1994 and since inception was as follows:
ONE-YEAR FIVE-YEAR FROM
PERIOD PERIOD INCEPTION
Government
Fund -8.17% 6.16% 7.70%*
High Yield
Fund -6.58% 10.03% 8.36%*
International
Bond Fund -2.12% n/a 7.47**
*Inception May 4, 1987
**From change of investment manager on June 9, 1990
Further information regarding performance is contained in the
"Performance" section of this Prospectus.
RISK CONSIDERATIONS
HIGH YIELDING, FIXED-INCOME SECURITIES
Corporate debt securities are subject to the risk of an issuer's
inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and
general market liquidity (market risk). Lower rated or unrated
securities are more likely to react to developments affecting
market and credit risk in making investment decisions as to
corporate debt obligations for the High Yield Fund.
Bonds rated BB or below by S&P or Baa or below by Moody's (or
comparable unrated securities) are considered by S&P and Moody's,
on balance, to be speculative and questionable as to payment of
principal and interest thereon. They will generally involve more
credit risk than securities in the higher rating categories. The
market values of such securities tend to reflect individual
corporate developments to a greater extent than do values of
higher rated securities, which react primarily to fluctuations in
the general level of interest rates. Such lower rated securities
also tend to be more sensitive to economic conditions than higher
rated securities. Even securities rated BBB by S&P or Baa by
Moody's, ratings which are considered investment grade, possess
some speculative characteristics.
Companies that issue high yielding, fixed-income securities are
often highly leveraged and may not have more traditional methods
of financing available to them. Therefore, the risk associated
with acquiring the securities of such issuers is generally
greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of high yielding
securities may experience financial stress. During these periods,
such issuers may not have sufficient cash flow to meet their
interest payment obligations. The issuer's ability to service its
debt obligations may also be adversely affected by specific
corporate developments, the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional
financing. The risk of loss due to default by the issuer may be
significantly greater for the holders of high yielding securities
because such securities are generally unsecured and are often
subordinated to other creditors of the issuer. To date the
International Bond Fund has not held any securities which have
defaulted. As of December 31, 1994, none of the High Yield Fund's
portfolio was in default. No issues held by the High Yield Fund
defaulted in the past fiscal year and a total of one issue
defaulted over the prior three years. In general, securities
which default lose much of their value in the time period prior
to the actual default so that a Fund's net assets are impacted
prior to the default. The High Yield and International Bond Funds
may retain an issue which has defaulted because such issue may
present an opportunity for subsequent price recovery. The high
yield bond market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recent
recession disrupted the market for high yield bonds and adversely
affected the value of outstanding bonds and the ability of
issuers of such bonds to repay principal and interest. Those
adverse effects may continue even as the economy recovers.
High yielding, fixed-income securities frequently have call or
buy-back features which would permit an issuer to call or
repurchase the securities from a Fund. Although such securities
are typically not callable for a period from three to five years
after their issuance, when calls are exercised by the issuer
during periods of declining interest rates, a Fund must replace
such called securities with lower yielding securities, decreasing
the net investment income to such Fund and thus distributions to
shareholders. The premature disposition of a high yielding
security due to a call or buy-back feature, the deterioration of
the issuer's creditworthiness, or a default may also make it more
difficult for a Fund to manage the timing of its receipt of
income, which may have tax implications. A Fund's investment in
deferred interest bonds or bonds that provide for payment of
interest-in-kind, if any, may cause the Fund to recognize and
allocate income to shareholders prior to the receipt of cash
payments. The Fund may also be required under the Code and
Treasury regulations to accrue income for income tax purposes on
defaulted obligations and allocate such income to the Fund's
shareholders even though the Fund is not currently receiving
interest or principal payments on such obligations.
The High Yield and International Bond Funds may have difficulty
disposing of certain high yielding securities because there may
be a thin trading market for a particular security at any given
time. The market for lower rated, fixed-income securities
generally tends to be concentrated among a smaller number of
dealers than is the case for securities which trade in a broader
secondary retail market. Generally, purchasers of these
securities are predominantly dealers and other institutional
buyers, rather than individuals. To the extent the secondary
trading market for a particular high yielding, fixed-income
security does exist, it is generally not as liquid as the
secondary market for higher-rated securities. Reduced liquidity
in the secondary market may have an adverse impact on market
price and such Fund's ability to dispose of particular issues,
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 Funds to obtain market quotations based on
actual trades for purposes of valuing each Fund's portfolio.
Current values for these high yield issues are obtained from
pricing services and/or a limited number of dealers and may be
based upon factors other than actual sales. (See "Valuation of
Fund Shares.")
The High Yield Fund and the International Bond Fund may acquire
such securities that are sold without registration under the
federal securities laws and therefore carry restrictions on
resale. While many recent high yielding securities have been sold
with registration rights, covenants and penalty provisions for
delayed registration, if a Fund were required to sell such
restricted securities before the securities have been registered,
it may be deemed an underwriter of such securities as defined in
the Securities Act of 1933, which entails special
responsibilities and liabilities. The Funds may incur special
costs in disposing of such securities; however, the Funds will
generally incur no costs when the issuer is responsible for
registering the securities.
The High Yield and International Bond Funds may acquire such
securities during an initial underwriting. Such securities
involve special risks because they are new issues. The Funds have
no arrangement with their underwriters or any other person
concerning the acquisition of such securities, and the investment
manager will carefully review the credit and other
characteristics pertinent to such new issues.
Factors adversely impacting the market value of high yielding
securities will adversely impact the net asset value of the High
Yield Fund and the International Bond Fund. For example, adverse
publicity regarding lower rated bonds, which appeared during 1989
and 1990, along with highly publicized defaults of some high
yield issuers, and concerns regarding a sluggish economy which
continued in 1993, depressed the prices for many such securities.
In addition, each Fund may incur additional expenses to the
extent it is required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings. The
Funds will rely on the investment manager's judgment, analysis
and experience in evaluating the creditworthiness of an issuer.
In this evaluation, the investment manager will take into
consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its
operating history, the quality of the issuer's management and
regulatory matters.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon, deferred interest and pay-in-
kind bonds. Such bonds carry an additional risk in that, unlike
bonds which pay interest throughout the period to maturity, the
Funds will realize no cash until the cash payment date and, if
the issuer defaults, the Funds may obtain no return at all on
their investment. Zero coupon, deferred interest and pay-in-kind
bonds involve additional special considerations.
Zero coupon or deferred interest securities are debt obligations
which do not entitle the holder to any periodic payments of
interest prior to maturity or a specified date when the
securities begin paying current interest (the "cash payment
date") and therefore are generally issued and traded at a
discount from their face amounts or par value. The discount
varies depending on the time remaining until maturity or the cash
payment date, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. The
discount, in the absence of financial difficulties of the issuer,
typically decreases as the final maturity or cash payment date of
the security approaches. The market prices of zero coupon
securities are generally more volatile than the market prices of
securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do
non-zero coupon or deferred interest securities having similar
maturities and credit quality.
Pay-in-kind bonds are securities which pay interest through the
issuance of additional bonds. The Funds will be deemed to receive
interest over the life of such bonds and income will be allocated
to the shareholders as if interest were paid on a current basis,
although no cash interest payments are received by the Funds
until the cash payment date or until the bonds mature.
For tax imposed restrictions on trading, see "U.S. Tax Treatment
of Non-U.S. Investors" under "Taxation of the Funds and Their
Shareholders."
Because of the High Yield Fund's policy of investing in higher
yielding, higher risk securities, an investment in the High Yield
Fund is accompanied by a higher degree of risk than is present
with an investment in higher rated, lower yielding securities.
Accordingly, an investment in the High Yield Fund should not be
considered a complete investment program, and should be carefully
evaluated for its appropriateness in light of the investor's
overall investment needs and goals. Persons on fixed incomes,
such as retired persons, should also consider the increased risk
of loss to principal which is present with an investment in
higher risk securities such as those in which the High Yield Fund
invests. The International Bond Fund may also invest a portion of
its assets in comparable securities, although the International
Bond Fund currently does not intend to invest more than 5% of its
assets in such securities.
ASSET COMPOSITION TABLE
During fiscal year ended December 31, 1994, the High Yield Fund
had an average of 92.69% of its assets invested in bonds rated
below investment grade (Baa or lower by Moody's) and 0% in bonds
which had not been rated by Moody's. A total of 93.78% of the
High Yield Fund's assets were invested in bonds. A credit rating
by an NRSRO evaluates only the safety of principal and interest
of the bond, and does not consider the market value risk
associated with an investment in such a bond. As stated earlier,
ratings published by ratings services, such as Moody's, will be
considered in connection with the investment of the assets of the
High Yield Fund, although such ratings will not be determinative.
The table below shows the percentage invested in each of the
specific rating categories by Moody's and those that are not
rated. The information was prepared based on a dollar weighted
average of the Fund's portfolio composition based on month-end
assets for each of the 12 months in the fiscal year ended
December 31, 1994. A description of each rating category by
Moody's is included in the Appendix.
HIGH YIELD
FUND
Aaa
Aa
A
Baa 1.09%
Ba 20.03%
B 70.34%
Caa 2.15%
Ca 0.17%
Unrated 0%
HOW SHAREHOLDERS PARTICIPATE
IN THE RESULTS OF THE FUNDS' ACTIVITIES
The assets of each Fund are invested in portfolio securities. If
the securities owned by such Fund increase in value, the value of
the shares which the shareholder owns will increase. If the
securities owned by such Fund decrease in value, the value of the
shareholder's shares will also decline. In this way, shareholders
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, a shareholder
may anticipate that the value of a Fund's shares will fluctuate
with movements in the broader equity and bond markets as well. In
particular, changes in interest rates, including changes in the
prevailing rates of interest in any of the countries in which the
International Bond and High Yield Funds invest, will affect the
value of a Fund's portfolio and thus its share price. Increased
rates of interest which frequently accompany inflation and/or a
growing economy are likely to have a negative effect on the value
of Fund shares. In addition, with respect to the High Yield and
International Bond Funds, changes in currency valuations will
impact the price of Fund shares. History reflects both increases
and decreases in interest rates in individual countries and
throughout the world, and in currency valuations, which may
reoccur unpredictably in the future.
MANAGEMENT OF THE FUNDS
Each Fund, as a limited partnership, is managed by its Managing
General Partners, who establish the Fund's policies and supervise
and review the operations and management of the Fund pursuant to
an Agreement of Limited Partnership (the "Partnership
Agreement"). The provisions of each Partnership Agreement are
summarized herein under the heading "Summary of Partnership
Agreements," and a copy of each Fund's Partnership Agreement is
reproduced in its entirety in the SAI. The Managing General
Partners of each Fund have been elected for an indefinite term.
The day-to-day operations of each Fund are administered by
officers appointed by the Managing General Partners.
Each Fund has a corporate Non-Managing General Partner who does
not participate in the management of the Fund, but who is
obligated to maintain (together with the Managing General
Partners) a minimum 1% investment in each Fund. Franklin
Partners, Inc., a California corporation, is the Non-Managing
General Partner for each Fund. All of the outstanding stock of
Franklin Partners, Inc. is owned by Franklin Resources, Inc.
("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.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as each
Fund's investment manager. Advisers is a wholly-owned subsidiary
of Resources. Through its subsidiaries, Resources is engaged in
various aspects of the financial services industry. Advisers acts
as investment manager or administrator to 33 U.S. registered
investment companies (111 separate series) with aggregate assets
of over $73 billion.
Pursuant to a management agreement with each Fund, the Manager
supervises and implements each Fund's investment activities and
provides certain administrative services and facilities which are
necessary to conduct each Fund's business.
The "Expense Table" at the front of this Prospectus includes the
management fees and total operating expenses (expressed as a
percentage of average monthly net assets) which were paid, or
which would have otherwise been payable, by each of the Funds
during the fiscal year ended December 31, 1994. As noted in the
Expense Table, the International Bond Fund paid no management
fees and only a portion of its operating expenses, the balance of
which was assumed by Advisers. This action by Advisers to limit
its management fees and assume responsibility for payment of
certain operating expenses related to the operations of the
International Bond Fund may be terminated by Advisers at any
time.
Among the responsibilities of the Manager under each management
agreement is the selection of brokers and dealers through whom
transactions in each 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 each Fund, as factors in selecting
a broker. Further information is included under "The Funds'
Policies Regarding Brokers Used on Portfolio Transactions" in the
SAI.
Shareholder accounting and many of the clerical functions for
each Fund are performed by Franklin/Templeton Investor Services,
Inc. ("Investor Services" or "Shareholder Services Agent") in its
capacity as transfer agent and dividend-paying agent. Investor
Services is a wholly-owned subsidiary of Resources.
SUBADVISORY AGREEMENT
Pursuant to a subadvisory agreement between Advisers and
Templeton Investment Counsel, Inc. ("TICI"), a Florida
corporation with offices at Broward Financial Centre, Suite 2100,
Fort Lauderdale, Florida 33394-3091, an indirect wholly-owned
subsidiary of Resources, TICI provides certain investment
services with respect to the assets of the International Bond
Fund. TICI is registered as an investment adviser under the
Investment Advisers Act of 1940. TICI and its Templeton
affiliates currently manage approximately $41.8 billion for U.S.
registered management investment companies. Under the subadvisory
agreement, TICI will provide, subject to the Manager's
discretion, a portion of the investment advisory services for
which the Manager is responsible pursuant to its management
agreement relating to the International Bond Fund. For its
services, TICI will receive from Advisers a monthly fee based on
the value of the International Bond Fund's net assets as of the
close of business on the last business day of each month: 1/2 of
5/96 of 1% of the average daily net assets of the Fund up to and
including $100 million; 1/2 of 1/24 of 1% of the average daily
net assets over $100 million up to and including $250 million;
and 1/2 of 9/240 of 1% of average daily net assets in excess of
$250 million. This will not be a separate expense of the Fund but
will be paid from the investment advisory fees received by
Advisers.
PLANS OF DISTRIBUTION
Each Fund has adopted a distribution plan (the "Plan" or "Plans")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plans, each
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 a Fund, Distributors or its
affiliates. The maximum amount which each Fund may pay to
Distributors or others for such distribution expenses is 0.15%
per annum of the average daily net assets of the Fund, payable on
a quarterly basis. All expenses of distribution and marketing in
excess of 0.15% per annum will be borne by Distributors, or
others who have incurred them, without reimbursement from the
Fund. The Plan for each Fund 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 Plans
are included in the maximum operating expenses which may be borne
by each Fund.
DISTRIBUTIONS TO SHAREHOLDERS
A proportionate share of each Fund's net investment income is
allocated to shareholders daily and distributed monthly on or
about the last business day of that month. The amount of such
distributions may vary from month to month and is not guaranteed
in any way. Daily allocations of net investment income will
commence on the day following receipt of an investor's money or
settlement of a wire order trade.
Increases and decreases in the value of a Fund's portfolio
securities are reflected in the value of a shareholder's shares
in the Fund without regard to whether the increases or decreases
have been realized through a sale or other disposition of the
securities. Net capital gains (or losses) realized by each Fund
on transactions in their respective portfolio securities are
allocated among the shareholders for tax purposes in accordance
with the tax allocation methods described below and any net
capital gains (or losses) are allocated as described below.
Net capital gains and losses realized by a Fund on transactions
in its investment portfolio are allocated among the shareholders
of a Fund under a formula designed generally to allocate realized
gains to shareholders to whom net unrealized gains have been
credited previously and to allocate realized losses to
shareholders to whom net unrealized losses have been debited
previously. Realized gains or losses in excess of the amounts
allocated under the formula are allocated among all shareholders
in proportion to the number of shares owned on the day the gain
or loss is realized. Since Treasury regulations do not specify a
particular method of allocating gains and losses for tax purposes
in these circumstances, it is possible that the IRS could
challenge the Funds' method of allocating capital gains and
losses.
After each calendar year, each Fund is required to send
shareholders (regardless of whether they are or are not U.S.
taxpayers) a U.S. Federal and State of California tax form (Form
K-1) which identifies their share of net income, gains and losses
for the taxable year and (for non-U.S. taxpayers) a U.S. Federal
Form 1042S. Copies of these forms will be filed with the IRS and
the California Franchise Tax Board.
REINVESTMENT OF DISTRIBUTIONS
Unless requested otherwise in writing or on the Application,
distributions of income will be automatically reinvested in the
shareholder's account in the form of additional shares on the
reinvestment date. Shareholders have the right to change their
election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective only as
to distributions for which the record date is seven or more
business days after the Fund has been notified. All distributions
are authorized by the Managing General Partners who, at any time,
have the right to modify the amount of the distributions to
reflect each Fund's financial situation. See the SAI for more
information.
Many of the Funds' shareholders receive their distributions in
the form of additional shares. This is a convenient way to
accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so acquired
remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive distributions of income in
cash. By completing the "Special Payment Instructions for
Distributions" section of the Application, included with this
Prospectus, a shareholder may direct the selected distributions
to another fund in the Franklin Templeton Funds, to another
person, or directly to a checking account. If the bank at which
the account is maintained is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing.
Distributions which may be paid in the interim will be sent to
the address of record. Additional information regarding automated
fund transfers may be obtained from Franklin's Shareholder
Services Department. Income distributions are eligible for
investment in another fund in the Franklin Group of Funds or the
Templeton Group at net asset value.
TAXATION OF THE FUNDS
AND THEIR SHAREHOLDERS
The following summary of U.S. federal income tax law applicable
to the Funds and their shareholders is based on statutes,
regulations, rulings, case law and other authorities in effect as
of the date of this Prospectus. Additional information on tax
matters relating to the Funds and their shareholders is included
in the section entitled, "Additional Information on Distributions
and Taxation" in the SAI.
U.S. Tax Status of the Funds. Each Fund has obtained a ruling
from the IRS to the effect that the Fund will be classified as a
partnership and that its general and limited partners will be
treated as partners for tax purposes. The rulings are conditioned
on maintenance by the general partners at all times of a minimum
1% aggregate investment in each item of partnership income, gain,
loss, deduction or credit. The general partners intend to comply
with this requirement, which is contained in each Fund's
Partnership Agreement.
As limited partnerships, the Funds are not subject to U.S.
federal income tax or, as a general rule, to state income tax.
Although federal tax legislation enacted in 1987 will cause
publicly traded partnerships, including partnerships such as the
Funds, to be taxed as corporations, this legislation will not
apply to the Funds until after 1997, provided that the Funds do
not add a "substantial new line of business" prior to that time.
The Managing General Partners of the Funds intend to avoid
changes in Fund activities which might constitute the addition of
a "substantial new line of business" and will determine at the
appropriate time whether the Funds may be continued in the same
or modified form after 1997.
In a limited partnership, the character of any income earned or
capital gains realized by each Fund flows through directly to its
shareholders and is taxed at that level. Shareholders generally
are liable for payment of taxes on their allocated share of Fund
income and realized capital gains. To the extent, however, that a
Fund earns income or realizes capital gains in a form that is
exempt from U.S. federal income tax for non-U.S. investors (as
discussed below), qualifying non-U.S. shareholders are likewise
not subject to the payment of U.S. federal income tax or U.S.
withholding tax on their allocated share of these types of income
from the Funds, subject to the conditions stated below. U.S.
withholding tax refers to the withholding requirements under
Sections 1441 and 1442 of the Code (which impose withholding at
the rate of 30%, subject to reductions pursuant to tax treaties)
and, if applicable, Section 3406 of the Code (which imposes back-
up withholding at the rate of 31%).
To the extent the High Yield Fund and the International Bond Fund
generate income or capital gains from debt obligations purchased
or issued outside of the U.S., such Funds may be required to pay
taxes in foreign countries on such income or gains. Non-U.S.
investors in those Funds may be able to obtain a credit or other
relief from such taxes under the tax laws of their own countries
or under treaties between their countries and the countries
imposing such taxes on the Funds.
U.S. Tax Treatment of Non-U.S. Investors. A non-U.S. investor
(i.e., an investor other than a U.S. citizen or resident or a
U.S. corporation, partnership, estate or trust as defined in the
Code) investing in a Fund who was deemed to be engaged in a trade
or business in the U.S. would be subject to U.S. federal income
tax on any ordinary income and capital gains realized by the Fund
to the extent such income and gains were deemed to be effectively
connected with the conduct of such trade or business. (U.S.
taxation of such income and gains would not be avoided under the
terms of an applicable U.S. income tax treaty because such
investor would be deemed to have a permanent establishment in the
U.S.)
Each Fund, however, has obtained an opinion of its counsel to the
effect that neither the Funds, nor their shareholders solely by
virtue of their investment in the Funds, should be deemed to be
engaged in a trade or business in the U.S. if the Funds adhere to
their stated investment objectives, policies and restrictions and
to certain guidelines concerning their investment activities.
Each Fund intends to comply with these restrictions and
guidelines. Assuming that the Funds comply with the guidelines,
any non-U.S. investor of a Fund should not be deemed to be
engaged in a trade or business in the U.S. solely by virtue of an
investment in the Fund. Investors should also note that their
investments in other funds in the Franklin Group of Funds
(Registered Trademark) or in other U.S. investments generally
would not, by themselves, cause them to be deemed to be engaged
in a trade or business in the U.S.; however, it is possible that
an investor could be deemed to be engaged in a trade or business
in the U.S. if the investor engages in frequent trading (as
opposed to investment) activity and generally does not hold U.S.
investments for any substantial period of time.
If a Fund were deemed to be engaged in a U.S. trade or business
by the IRS or a court of law, then its non-U.S. shareholders
would be subject to U.S. federal income tax and the Fund would be
obligated to withhold tax at the highest rate applicable to a
particular class of shareholders on effectively connected taxable
income allocable to each non-U.S. shareholder within that class
(see the SAI).
Assuming that a non-U.S. investor is not engaged in a trade or
business in the U.S., ordinary income realized by each Fund will
not be subject to U.S. federal income tax (including "Non-
Resident Alien" withholding taxes), if (i) the ordinary income
consists of interest income which qualifies for the "portfolio
interest" exemption under Sections 871(h) and 881(c) of the Code
(or is otherwise exempt from U.S. tax withholding), (ii) the
investor has furnished a valid and effective original or
certified copy of an original Form W-8 (or substitute) to the
Funds and has renewed the Form W-8 as required, (iii) the Funds
have no actual knowledge that the investor is in fact a U.S.
person and (iv) the investor is not (a) a "10-percent
shareholder," as defined in Section 871(h)(3) of the Code, of the
issuer of a security held by the Fund which generates the
portfolio interest income, (b) a controlled foreign corporation
related to such issuer, or (c) a bank deemed to be receiving such
interest (other than interest on an obligation of the U.S.) on an
extension of credit made pursuant to a loan agreement entered
into in the ordinary course of its trade or business. The Funds
have been advised that interest income will qualify for the
"portfolio interest" exemption if it is paid with respect to a
debt obligation issued after July 18, 1984 in registered form
with respect to which the U.S. person who would otherwise be
required to withhold U.S. federal income tax from such interest
under Section 1441 or 1442 of the Code (i.e., the Fund) has
received a valid and effective statement (such as that contained
in the Application) that the beneficial owner of the obligation
(i.e., the shareholder) is not a U.S. person.
A Fund's investments in zero coupon or deferred interest
securities or in pay-in-kind bonds are subject to special tax
rules concerning the amount, timing and character of the income
allocations made to shareholders by causing the Fund to recognize
income prior to the receipt of cash payments. This income will
qualify for the "portfolio interest" exemption, provided that the
other requirements relating to the exemption are satisfied.
Certain foreign exchange gains and losses realized by the High
Yield Fund and the International Bond Fund may be treated as
ordinary income and losses rather than capital gains and losses.
Such ordinary income does not appear to be subject to U.S.
federal income tax (including withholding taxes) for a non-U.S.
investor who is not engaged in a trade or business in the U.S.
With respect to the High Yield Fund and the International Bond
Fund, a non-U.S. investor who is not engaged in a trade or
business in the U.S. will also not be subject to U.S. federal
income tax (including withholding taxes) on ordinary income
realized by the Fund which constitutes "non-U.S. source" income.
The Fund has been advised that interest income will be deemed to
be "non-U.S. source" income if it is received with respect to
securities issued by governments other than the U.S. or by a non-
U.S. corporation unless the corporation is engaged in a trade or
business in the U.S. Interest on securities of all non-U.S.
corporations engaged in a trade or business in the U.S. is
generally treated at least in part as U.S. source income,
although such interest may be exempt from U.S. withholding taxes
by virtue of qualifying for the portfolio interest exemption.
A non-U.S. investor who is not engaged in a U.S. trade or
business will generally not be subject to U.S. federal income tax
(including withholding taxes) on the allocated share of net short-
term or long-term capital gains realized by a Fund or on proceeds
from the redemption of Fund shares, provided that the investor is
not treated as a U.S. resident under the Code. In the case of an
individual, a non-U.S. investor is one who has been physically
present in the U.S. for less than 31 days during the current
calendar year. An individual who is physically present in the
U.S. for at least 31 but less than 183 days during the current
calendar year will still be treated as a non-U.S. investor,
provided that the total number of days physically present in the
current calendar year and the two preceding calendar years does
not exceed 183 days (counting all of the days in the current
calendar year, only one-third of the days in the first preceding
calendar year and only one-sixth of the days in the second
preceding calendar year). An individual who is physically present
in the U.S. for 183 days or more during the current calendar year
is generally not treated as a non-U.S. investor. In addition,
lawful permanent residents or green card holders may not be
treated as non-U.S. investors. Investors should contact their tax
advisors for more specific information regarding the
determination of U.S. residency status for tax purposes.
Redemption proceeds will also not be subject to U.S. tax if they
constitute non-U.S. source income by virtue of the investor's non-
U.S. status. Even if proceeds of redemptions are not subject to
U.S. tax under the rules just described, the Funds may still be
required to withhold on the portion of such proceeds which
represents the investor's allocable share of income or gains of
the Funds which would otherwise be subject to withholding.
Non-U.S. investors who do not furnish a valid and effective Form
W-8 (or substitute) may be subject to U.S. withholding taxes on
their allocated shares of income and gains realized by the Funds
and on proceeds from redemptions of their shares. Regardless of
whether a valid and effective Form W-8 (or substitute) is
furnished, non-U.S. investors will be subject to U.S. withholding
taxes on their allocated shares of income realized by the Funds
from sources other than (i) "portfolio interest," (ii) "U.S.
source" income otherwise exempt from withholding, (iii) "non-U.S.
source" income, and (iv) net realized capital gains, unless such
withholding taxes are reduced or eliminated under the terms of an
applicable U.S. income tax treaty and the investor complies with
all procedures for claiming the benefits of such a treaty. It is
the intention of each Fund to withhold amounts required by the
Code with respect to non-qualifying income and/or non-qualifying
investors either at the time of distribution or by subsequent
redemption of shares in the investor's account.
Investors may also be subject to taxation on income and gain
earned from their investment in the Fund imposed by state and
local jurisdictions or by their country of residence for tax
purposes. In addition, the value of shares owned by a U.S. or non-
U.S. shareholder may be subject to U.S. federal estate tax (and
state inheritance tax) upon the death of the shareholder.
The foregoing discussion is only a summary and does not address
potential tax liability under the tax laws of any country other
than the U.S. A complete discussion will depend on the
jurisdiction in which the investor resides for tax purposes. The
foregoing discussion also assumes the investor is generally not
subject to U.S. tax or withholding with respect to other income
or activities unrelated to an investment in the Funds or to U.S.
state tax or withholding. Should an investor become subject to
U.S. or state tax or withholding, the tax consequences of owning,
exchanging, or redeeming shares of the Funds will be
significantly different and an investor in this circumstance
should consult a tax adviser.
U.S. Tax Treatment of U.S. Investors. Each shareholder of a Fund
who is treated under the Code as a U.S. citizen or resident or a
U.S. corporation, partnership, estate or trust will be subject to
U.S. federal income tax on such shareholder's distributive share
of each item of income, deduction, credit, gain or loss realized
by the Fund, notwithstanding the fact that such income may not
have been distributed and that a portion of such income may
consist of "portfolio interest" or other income which would be
exempt from U.S. tax if allocated to a non-U.S. person. Fund
shareholders may not use Fund losses to offset "passive activity
income" from other investments or "passive activity losses" from
other investments to offset Fund income.
State Tax Considerations. As a general rule, partnerships are not
considered to be separate taxable entities under state law. Title
31 of the U.S. Code exempts U.S. government obligations and the
interest they pay from taxation under state, municipal or local
authority. To the extent the Government Fund earns interest
income on obligations of the U.S., its agencies or
instrumentalities (other than GNMAs and other indirect
obligations of the U.S.), such income is generally exempt from
state and local income tax. Income generated from investment in
GNMAs, however, is subject to state and local income tax in most
states.
It is possible that certain states such as California could take
the position that nonresident shareholders of the Funds
(including shareholders who are not subject to U.S. federal
income taxation) are subject to tax in such states on their
shares of Fund income derived from sources within the respective
states as a result of Fund activities conducted in the state. The
Funds intend to file a partnership tax return and Forms K-1 in
the state of California, but to take the position with respect to
other states that they are under no obligation to file any other
tax or information returns in such states because their
activities in any such state would not be extensive enough to
support the exercise of taxing jurisdiction by such state.
The Funds believe that shareholders who are not residents of
California should not be subject to income tax in California
because the activities of the Funds would not rise to the level
of conduct of a trade or business in California. If a Fund were
determined to be conducting a trade or business (rather than
merely investing), however, the Fund would be required to
withhold California income tax at the rate of 11% of the income
amounts allocable to non-U.S. shareholders and 7% of income
amounts allocable to U.S. shareholders who reside outside
California. Prospective investors in the Funds may wish to
consult their own tax advisers about the risks of taxation of
their distributive shares of Fund income and gains in states
other than their states or countries of residence and the
availability of tax credits in their own states or countries for
taxes paid to such states.
In the event non-U.S. investors in the Funds are subject to state
taxation of their distributive shares of Fund income and gains,
such income may be exempt from state taxation to the extent it
consists of interest on direct obligations of the U.S. See the
SAI for more information concerning taxation of shareholders.
HOW TO INVEST IN A FUND
Partnership interests (referred to herein as "shares") of the
Funds are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter
of the shares of the Funds. The use of the term "securities
dealer" shall include other financial institutions which,
pursuant to an agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with each Fund.
Such reference, however, is for convenience only and does not
indicate a legal conclusion of capacity. The minimum initial
investment is $2,500 and subsequent investments must be $100 or
more. These minimums may be waived when the shares are being
purchased through plans established by the Franklin Templeton
Group. The Funds and Distributors reserve the right to refuse any
order for the purchase of shares, and all orders must be paid for
in U.S. dollars.
A 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 such Fund.
PURCHASE PRICE OF FUND SHARES
Shares of each Fund are offered at the public offering price
which is the net asset value per share, plus a sales charge, next
computed (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund, or (2) after
receipt of an order by mail from the shareholder directly in
proper form (which generally means a completed Application
accompanied by a negotiable check in U.S. funds). The sales
charge is a variable percentage of the offering price depending
upon the amount of the sale. On orders for 100,000 shares or
more, the offering price will be calculated to four decimal
places. On orders for less than 100,000 shares, the offering
price will be calculated to two decimal places using standard
rounding criteria. A description of the method of calculating net
asset value per share is included under the caption "Valuation of
Fund Shares."
Set forth below is a table of total sales charges or underwriting
commissions and dealer concessions.
TOTAL SALES CHARGE
DEALER
CONCESSION
AS A
AS A AS A PERCENTAGE
PERCENTAGE OF PERCENTAGE OF OF
SIZE OF TRANSACTION OFFERING NET AMOUNT OFFERING
AT OFFERING PRICE PRICE INVESTED PRICE
*,***
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less 3.50% 3.63% 3.25%
than $250,000
$250,000 but less 2.75% 2.83% 2.50%
than $500,000
$500,000 but less 2.15% 2.20% 2.00%
than $1,000,000
$1,000,000 or more none none (see
below)**
*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributor,from its
own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more: 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. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at
times be allowed to the securities dealer. If 90% or more of the
sales commission is allowed, such securities dealer may be deemed
to be an underwriter as that term is defined in the Securities
Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on
certain redemptions of investments of $1 million or more within
12 months of the calendar month following such investments
("contingency period"). See "How to Sell Shares of the Funds -
Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales
charge on the purchase of Fund shares is determined by adding the
amount of the shareholder's current purchase plus the cost or
current value (whichever is higher) of a shareholder's existing
investment in one or more of the funds in the Franklin Group of
Funds r and the Templeton Group of Funds. Included for these
aggregation purposes are (a) the mutual funds in the Franklin
Group except Franklin Valuemark Funds and Franklin Government
Securities Trust (the "Franklin Funds"), (b) other investment
products in the Franklin Group underwritten by Distributors or
its affiliates (although certain investments may not have the
same schedule of sales charges and/or may not be subject to
reduction) and (c) the U.S. mutual funds in the Templeton Group
of Funds except Templeton American Trust, Inc., Templeton Capital
Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds").
(Franklin Funds and Templeton Funds are collectively referred to
as the "Franklin Templeton Funds."). Sales charge reductions
based upon aggregate holdings of (a), (b) and (c)above ("Franklin
Templeton Investments") may be effective only after notification
to Distributors that the investment qualifies for a discount.
Distributors, or one of its affiliates, out of its own resources,
may also provide additional compensation to securities dealers in
connection with sales of shares of the Franklin Templeton Funds.
Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training
programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and
programs regarding one or more of the Franklin Templeton Funds,
and other dealer-sponsored programs or events. In some instances,
this compensation may be made available only to certain
securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of Franklin
Templeton Funds. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips
taken by invited registered representatives and members of their
families to locations within or outside of the United States for
meetings or seminars of a business nature. Dealers may not use
sales of the Funds' shares to qualify for this compensation to
the extent such may be prohibited by the laws of any state or any
self-regulatory agency, such as the National Association of
Securities Dealers, Inc. None of the aforementioned additional
compensation is paid for by the Funds or their shareholders.
Certain officers and Managing General Partners of the Funds are
also affiliated with Distributors. A detailed description is
included in the SAI.
All investors should complete the Application included with this
Prospectus and submit a signed (or duly certified copy thereof)
Form W-8 (or substitute) or W-9, as applicable. For joint
accounts, each joint owner must furnish a separate Form W-8 (or
substitute). BY PURCHASING FUND SHARES, THE INVESTOR AGREES TO BE
BOUND BY THE TERMS AND CONDITIONS OF THE PARTNERSHIP AGREEMENT
AND SPECIAL POWER OF ATTORNEY AND ACCEPTS ALL THE TERMS,
REPRESENTATIONS AND WARRANTIES CONTAINED IN THE APPLICATION.
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which provide
for a reduced sales charge. To be certain to obtain the reduction
of the sales charge, the investor or the dealer should notify
Distributors at the time of each purchase of shares which
qualifies for the reduction. In determining whether a purchase
qualifies for any of the discounts, investments in any of the
Franklin Templeton Investments may be combined with those of the
investor's spouse and children under the age of 21. In addition,
the aggregate investments of a trustee or other fiduciary account
(for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of
the account.
In addition, an investment in the Funds may qualify for a
reduction in the sales charge under the following programs:
1. RIGHTS OF ACCUMULATION. The cost or current value (whichever
is higher) of existing investments in the Franklin Templeton
Investments may be combined with the amount of the current
purchase in determining the sales charge to be paid.
2. LETTER OF INTENT. An investor may immediately qualify for a
reduced sales charge on a purchase of shares of a Fund by
completing the Letter of Intent section of the Application (the
"Letter of Intent" or "Letter"). By completing the Letter, the
investor expresses an intention to invest during the next 13
months a specified amount which if made at one time would qualify
for a reduced sales charge and grants to Distributors a security
interest in the reserved shares and irrevocably appoints
Distributors as attorney-in-fact with full power of substitution
to surrender for redemption any or all shares for the purpose of
paying any additional sales charge due. Purchases under the
Letter will conform with the requirements of Rule 22d-1 under the
1940 Act. The investor or the investor's securities dealer must
inform Investor Services or Distributors that this Letter is in
effect each time a purchase is made.
AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE
LISTED UNDER "DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES")
ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five
percent (5%) of the amount of the total intended purchase will be
reserved in shares of the Fund in which you invest, registered in
the investor's name, to assure that the full applicable sales
charge will be paid if the intended purchase is not completed.
The reserved shares will be included in the total shares owned as
reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by
the investor. The reserved shares will not be available for
disposal by the investor until the Letter of Intent has been
completed or the higher sales charge paid. For more information,
see "Additional Information Regarding Purchases" in the SAI.
GROUP PURCHASES
An individual who is a member of a qualified group may also
purchase shares of the Funds at the reduced sales charge
applicable to the group as a whole. The sales charge is based
upon the aggregate dollar value of shares previously purchased
and still owned by the group, plus the amount of the current
purchase. For example, if members of the group had previously
invested and still held $80,000 of a Fund's shares and now were
investing $25,000, the sales charge would be 3.50%. Information
concerning the current sales charge applicable to a group may be
obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for
more than six months; (ii) has a purpose other than acquiring
shares of the Funds at a discount; and (iii) satisfies uniform
criteria which enable Distributors to realize economies of scale
in its costs of distributing shares. A qualified group must have
more than 10 members, be available to arrange for group meetings
between representatives of the Funds or Distributors and the
members, agree to include sales and other materials related to
the Funds in its publications and mailings to members at reduced
or no cost to Distributors, and seek to arrange for payroll
deduction or other bulk transmission of investments to the Funds.
If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such time
as the investor notifies the Funds and the investor's employer to
discontinue further investments. Due to the varying procedures
used to prepare, process and forward the payroll deduction
information to the Funds, there may be a delay between the time
of the payroll deduction and the time the money reaches the
Funds. The investment in the Funds will be made at the offering
price per share determined on the day that both the check and
payroll deduction data are received in required form by the
Funds.
PURCHASES AT NET ASSET VALUE
Shares of the Funds may be purchased without the imposition of
either a front-end sales charge ("net asset value") or a
contingent deferred sales charge by (1) officers, trustees,
directors, managing general partners and full-time employees of
the Funds, any of the Franklin Templeton Funds, or of the
Franklin Templeton Group, and by their spouses and family
members; and (2) companies exchanging shares with or selling
assets pursuant to a merger, acquisition or exchange offer; and
(3) insurance company separate accounts for pension plan
contracts; (4) accounts managed by the Franklin Templeton Group;
(5) shareholders of Templeton Institutional Funds, Inc.
reinvesting redemption proceeds from that fund under an employee
benefit plan qualified under Section 401 of the Internal Revenue
Code of 1986, as amended, in shares of a Fund; (6) certain unit
investment trusts reinvesting their distributions from the trusts
in the Fund; (7) registered securities dealers and their
affiliates, for their investment account only, and (8) registered
personnel and employees of securities dealers and by their
spouses and family members, in accordance with the internal
policies and procedures of the employing securities dealer.
Shares of the Funds may be purchased at net asset value by
persons who have redeemed, within the previous 120 days, their
shares of a Fund or another fund of the Franklin Templeton Funds
which were purchased with a front-end sales charge or assessed a
contingent deferred sales charge on redemption. An investor may
reinvest an amount not exceeding the redemption proceeds. While
credit will be given for any contingent deferred sales charge
paid on the shares redeemed, a new contingency period will begin.
Shares of the Funds redeemed in connection with an exchange into
another fund (see "Exchange Privilege") are not considered
"redeemed" for this privilege. In order to exercise this
privilege, a written order for the purchase of shares of the Fund
must be received by such Fund or the Fund's Shareholder Services
Agent within 120 days after the redemption. The 120 days,
however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service.
The redemption is a taxable transaction but reinvestment without
a sales charge may affect the amount of gain or loss recognized
and the tax basis of the shares reinvested. If there has been a
loss on the redemption, the loss may be disallowed if a
reinvestment in the same fund is made within a 30-day period.
Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus
and the SAI.
Dividends and capital gains received in cash by the shareholder
may also be used to purchase shares of the Fund or another of the
Franklin Templeton Funds at net asset value and without the
imposition of a contingent deferred sales charge within 120 days
of the payment date of such distribution. To exercise this
privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be
obtained from Shareholder Services at 1-800/632-2301. See
"Distributions in Cash" under "Distributions to Shareholders."
Shares of the Funds may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
investors who have, within the past 60 days, redeemed an
investment in an unaffiliated mutual fund which charged the
investor a contingent deferred sales charge upon redemption and
which has investment objectives similar to those of the
respective Fund.
Shares of the Funds may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
registered investment advisors and/or their affiliated broker-
dealers, who have entered into a supplemental agreement with
Distributors, on behalf of their clients who are participating in
a comprehensive fee program (sometimes known as a wrap fee
program).
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Funds may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
trust companies and bank trust departments for funds over which
they exercise exclusive discretionary investment authority and
which are held in a fiduciary, agency, advisory, custodial or
similar capacity for qualifying investors. (In such case, the
beneficial owner, if a non-U.S. person, may still be required to
submit an executed Form W-8 [or substitute]) Such purchases are
subject to minimum requirements with respect to amount of
purchase, which may be established by Distributors. Currently,
those criteria require that the amount invested or to be invested
during the subsequent 13-month period in these Funds or any of
the Franklin Templeton Investments must total at least
$1,000,000. Orders for such accounts will be accepted 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.
Refer to the SAI for further information.
GENERAL
Securities laws of states in which the Funds' shares are offered
for sale may differ from the interpretations of federal law, and
banks and financial institutions selling Fund shares may be
required to register as dealers pursuant to state law.
If the purchase or sale of shares of a Fund with the assistance
of certain banks, as described herein, were deemed to be an
impermissible activity for such bank(s) under the Glass-Steagall
Act, or other federal laws, such activities would be discontinued
by such bank(s). Investors utilizing such bank assistance would
then be able to seek other avenues to invest in the Fund shares,
such as broker-dealers registered with the SEC.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION
ARE NOT AVAILABLE DIRECTLY FROM THE FUNDS TO SHAREHOLDERS WHOSE
SHARES ARE HELD, OF RECORD, BY A FINANCIAL INSTITUTION OR
NETWORKED ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING
CORPORATION ("NSCC") (SEE THE SECTION CAPTIONED "ACCOUNT
REGISTRATIONS" IN THIS PROSPECTUS).
SHARES EVIDENCING PARTNERSHIP
INTEREST IN THE FUNDS
The Funds do not issue certificates of partnership interest.
Shares for an initial investment as well as subsequent
investments, including the reinvestment of income, are generally
credited to an account in the name of an investor on the books of
the Funds and are reflected in periodic confirmation statements.
Maintaining shares in uncertificated form (also known as "plan
balance") minimizes the risk of loss or theft of a share
certificate.
CONFIRMATIONS
A shareholder will receive a confirmation statement quarterly to
confirm the distributions reinvested during that period and after
each other transaction which affects the account. This statement
will also show the total number of a Fund's shares owned by the
shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to
arrange to make additional purchases of shares automatically on a
monthly basis by electronic funds transfer from a checking
account, if the bank which maintains the account is a member of
the Automated Clearing House, or by preauthorized checks drawn on
the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Application included with
this Prospectus contains the requirements applicable to this
program. In addition, shareholders may obtain more information
concerning this program from their securities dealer or from
Distributors.
The market value of each Fund's shares is subject to fluctuation.
Before undertaking any plan for systematic investment, the
investor should keep in mind that such a program does not assure
a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction, although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. The plan may be established on a monthly, quarterly, semi-
annual or annual basis. Income distributions to the shareholder's
account are received in additional shares at net asset value.
Payments will then be made from the liquidation of shares at net
asset value on the day of the transaction (which is generally the
first business day of the month in which the payment is
scheduled) with payment generally received by the shareholder
three to five days after the date of liquidation. By completing
the "Special Payment Instructions for Distributions" section of
the Application included with this Prospectus, a shareholder may
direct the selected withdrawals to another of the Franklin
Templeton Funds, to another person, or directly to a checking
account. If the bank at which the account is maintained is a
member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last option
is requested, the shareholder should allow at least 15 days for
initial processing. Withdrawals which may be paid in the interim
will be sent to the address of record. Liquidation of shares may
reduce or possibly exhaust the shares in the shareholder's
account, to the extent withdrawals exceed shares earned through
income distributions, particularly in the event of a market
decline. If the withdrawal amount exceeds the total plan balance,
the account will be closed and the remaining balance will be sent
to the shareholder. As with other redemptions, if the investor is
subject to U.S. tax, a liquidation to make a withdrawal payment
is a sale for federal income tax purposes. Because the amount
withdrawn under the plan may be more than the shareholder's
actual income, part of the payment may be a return of the
shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional shares of the Funds would be
disadvantageous because of the sales charge on the additional
purchases. The shareholder should ordinarily not make additional
investments of less than $5,000 or three times the annual
withdrawals under the plan during the time such a plan is in
effect. A Systematic Withdrawal Plan may be terminated on written
notice by the shareholder or the Funds, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Funds' receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving
written notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or
exchanging shares of the Funds available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
NON-U.S. INVESTORS SHOULD NOTE THAT INCOME FROM OTHER FUNDS IN
THE FRANKLIN Group of Funds (Registered Trademark) OR THE
TEMPLETON GROUP MAY BE SUBJECT TO U.S. TAX AND WITHHOLDING
REQUIREMENTS AND THAT FREQUENT USE OF THIS EXCHANGE PROCEDURE,
TOGETHER WITH OTHER TRADING ACTIVITIES, COULD CAUSE THEM TO BE
DEEMED TO BE ENGAGED IN A U.S. TRADE OR BUSINESS AND THEREFORE
SUBJECT TO U.S. TAXATION.
The Franklin Templeton Funds consist of a number of mutual funds
with various investment objectives or policies. The shares of
most of these mutual funds are offered to the public with a sales
charge. If the shareholder's investment objective or outlook for
the securities markets changes, shares of a Fund may be exchanged
for shares of the other Franklin Partners Funds, Franklin
Templeton Funds which are eligible for sale in the shareholder's
state, or country, of residence and in conformity with such
fund's stated eligibility requirements and investment minimums.
Investors should review the prospectuses of the fund they wish to
exchange from and the fund they wish to exchange into for all
specific requirements or limitations on exercising the exchange
privilege, for example, minimum holding periods or applicable
sales charges.
Exchanges are made on the basis of the net asset values of the
funds involved, except as set forth below. Exchanges of shares of
a 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 investment on
which no sales charge was paid was transferred in from a fund on
which the investor paid a sales charge. Exchanges of shares of a
Fund which were purchased with a lower sales charge to 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. When an investor requests the
exchange of the total value of a Fund account, accrued but unpaid
income distributions will be reinvested in such Fund at net asset
value on the date of the exchange, and then the entire share
balance will be exchanged into the new fund in accordance with
the procedures set forth above. Because the exchange is
considered a redemption and purchase of shares, shareholders who
are otherwise subject to U.S. tax may realize a gain or loss for
federal income tax purposes. Backup withholding and information
reporting may also apply.
NON-U.S. INVESTORS MAY BE SUBJECT TO WITHHOLDING ON EXCHANGES
UNLESS A FORM W-8 (OR SUBSTITUTE) IS ON FILE.
There are differences among the funds in the Franklin Group of
Funds and the Templeton Group. Before making an exchange, a
shareholder should obtain and review a current prospectus of the
fund into which the shareholder wishes to transfer. Exchanges
will be effected upon receipt of written instructions signed by
all account owners.
The use of the exchange program may be discontinued or modified
by the Funds at any time upon 60 days' written notice to
shareholders.
ADDITIONAL INFORMATION REGARDING EXCHANGES
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. The
12-month period will be tolled (or stopped) for the period such
shares are exchanged into and held in a Franklin or Templeton
money market fund. See also "How to Sell Shares of the Funds -
Contingent Deferred Sales Charge.
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing
services to purchase or redeem shares based on predetermined
market indicators ("Timing Accounts") will be charged a $5.00
administrative service fee per each such 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 Timing Accounts.
Each Fund reserves the right to temporarily or permanently
terminate the exchange privilege or reject any specific purchase
order for any Timing Account or any 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 dollars, or more than 1% of
the Fund's net assets. Accounts under common ownership or
control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market
indicators, will be aggregated for purposes of the exchange
limits.
In addition, each Fund reserves the right to refuse the purchase
side of exchange requests by any Timing Account, 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.
A shareholder's purchase exchanges 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 coincide with a "market timing"
strategy may be disruptive to the Fund and therefore may be
refused.
Finally, as indicated under "How to Invest in a Fund," each Fund
and Distributors reserve the right to refuse any order for the
purchase of shares.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of each Fund's
shares, Investor Services will accept exchange orders by
telephone or other means of electronic transmission from
securities dealers who execute a dealer or similar agreement with
Distributors. A securities dealer may charge a fee for handling
an exchange.
Use of the exchange privilege in conjunction with market timing
services offered through numerous securities dealers has become
increasingly popular as a means of capital management. In the
event that a substantial portion of a 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 Funds to initially invest this money in
short-term, interest-bearing money market instruments, unless it
is felt that attractive investment opportunities consistent with
a Fund's investment objective 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.
HOW TO SELL SHARES OF THE FUNDS
A shareholder may at any time liquidate shares owned and receive
from that Fund the value of the shares by forwarding a written
request, signed by all registered owners, to Investor Services at
the address shown on the back cover of this Prospectus. The
shareholder will then receive from the Fund the value of the
shares based upon the net asset value per share 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 (at 1:00 p.m. Pacific time)
each day that the New York Stock Exchange (the "Exchange") is
open for business, will receive the price calculated on the
following business day. Shareholders are advised to provide a
telephone number(s) where they may be reached during business
hours, or in the evening if preferred. Investor Services' ability
to contact a shareholder promptly when necessary will speed the
processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) 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(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address
other than the shareholder's address of record,
preauthorized bank account or brokerage firm account;
(4) 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.
Signature(s) 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 which are members of a
national securities exchange or a clearing agency or which 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.
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 officer(s) 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
trustee(s), and (2) a copy of the pertinent pages of the trust
document listing the trustee(s) or a Certification for Trust if
the trustee(s) 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 the
applicable law of the state or country of residence since these
accounts have varying requirements, depending upon the state or
country of residence.
For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services Department
or the securities dealer may call Franklin's Dealer Services
Department.
Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper form,
except that a Fund may delay the mailing of the redemption check,
or a portion thereof, until 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. In addition, 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 invested by the
shareholder, depending on fluctuations in the market value of
securities owned by the Funds. Payments by the Funds will be made
only in U.S. dollars.
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin/Templeton Telephone
Redemption Authorization Agreement (the "Agreement"), included
with this Prospectus, may redeem shares of the Funds by
telephone. THE AGREEMENT AND ADDITIONAL INFORMATION MAY ALSO BE
OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT THE
ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE
FUNDS 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."
For shareholder accounts with a completed Agreement on file,
redemptions of shares may be made for up to $50,000 per day per
Fund account. Telephone redemption requests received before 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, a shareholder should
follow the other redemption procedures set forth in this
Prospectus. Institutional accounts (certain corporations, bank
trust departments, and government entities which qualify to
purchase shares at net asset value pursuant to the terms of this
Prospectus) which wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges
Agreement which is available from Franklin's Institutional
Services Department by telephoning 1/800/321-8563.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers on
qualified investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of the
calendar month following their purchase. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested distributions) or the total cost of such shares, and
is retained by Distributors. In determining if a charge applies,
shares not subject to a contingent deferred sales charge are
deemed to be redeemed first, in the following order: (i) Shares
representing amounts attributable to capital appreciation of
those shares held less than 12 months; (ii) shares purchased with
reinvested distributions; and (iii) other shares held longer than
12 months; and followed by any shares held less than 12 months,
on a "first in, first out" basis.
The contingent deferred sales charge is waived for: exchanges;
redemptions through a Systematic Withdrawal Plan set up 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); and
redemptions initiated by the Funds due to a shareholder's account
falling below the minimum specified account size.
Requests for redemptions for 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.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Funds will accept redemption orders by telephone or other
means of electronic transmission from securities dealers who have
entered into a dealer or similar agreement with Distributors.
This is known as a repurchase. The only difference between a
normal redemption and a repurchase is that if the shareholder
redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer
receives the order which is promptly transmitted to the Fund,
rather than on the day the Fund receives the shareholder's
written request in proper form. These documents, as described in
the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt
of a repurchase order from the dealer, the Fund will still
require a signed letter of instruction and all other documents
set forth above. A shareholder's 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 the
shareholder's 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
distributions 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 a shareholder's best interest to have
the required documentation completed and forwarded to the Fund as
soon as possible. The shareholder's securities dealer may charge
a fee for handling the order. The SAI contains more information
on the redemption of shares.
TELEPHONE TRANSACTIONS
Shareholders of each Fund and their investment representative of
record, if any, will be able to execute various transactions by
calling Investor Services at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in address,
(ii) change a distribution option and (iii) transfer Fund shares
in one account to another identically registered account in the
Fund. Shareholders who complete and file an Agreement will be
able to redeem shares of a Fund, as more fully set forth under
"How to Sell Shares of the Funds - Redemptions by Telephone."
VERIFICATION PROCEDURES
Each 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 Funds 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 the shareholder caused
by an unauthorized transaction. Shareholders are, of course,
under no obligation to apply for telephone transaction
privileges. In any instance where a 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
loss which may occur because of a delay in implementing a
transaction.
GENERAL
During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In such
situations, shareholders may wish to contact their investment
representative for assistance or send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Funds nor Investor Services will be liable for any
loss resulting from the inability of a shareholder to execute a
telephone transaction.
The telephone transaction privilege may be modified or
discontinued by the Funds at any time upon 60 days' written
notice to shareholders.
VALUATION OF FUND SHARES
The net asset value per share of each Fund is determined
separately as of 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, which includes the maximum
sales charge of the Fund).
The net asset value per share of each Fund is determined in the
following manner: The aggregate of all liabilities, accrued
expenses and taxes and any necessary reserves are deducted from
the aggregate gross value of all assets, and the difference is
divided by the number of shares of the Fund outstanding. As
discussed under "How to Invest in a Fund," the offering price is
the net asset value plus a sales charge, which varies with the
amount of money being invested. To determine the aggregate net
assets of a Fund, cash and receivables are valued at their
realizable amounts. Interest is recorded as accrued. 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. Over-the-counter portfolio
securities for which market quotations are readily available are
valued within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the
securities. 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. 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 Managing General Partners of
each Fund. With the approval of the Managing General Partners, a
Fund may utilize a pricing service, bank or securities dealer to
perform any of the above described functions.
HOW TO GET INFORMATION REGARDING
AN INVESTMENT IN THE FUNDS
Any questions or communications regarding a shareholder's account
should be directed to Investor Services at the address shown on
the back cover of this Prospectus.
From a touch-tone phone, shareholders may obtain current price,
yield or performance information specific to a fund in the
Franklin Funds by calling the automated Franklin TeleFACTS"
system (day or night) at 1-800/247-1753 (in the U.S. only).
Information about the Funds may be accessed by entering Fund Code
54 for the International Bond Fund, 55 for the Government Fund or
56 for the High Yield Fund followed by the # sign, when requested
to do so by the automated operator. SHAREHOLDERS MAY REQUEST,
CONFIRMATION STATEMENTS, YEAR END STATEMETNS, MONEY FUND DRAFTS,
AND, DEPOSIT SLIPS THROUGH THE SYSTEM.
To assist shareholders and securities dealers wishing to speak
directly with a representative, the following is a list of the
various Franklin departments, telephone numbers and hours of
operation to call. The same numbers may be used when calling from
a rotary phone:
HOURS OF OPERATION
(PACIFIC TIME)
(MONDAY THROUGH
DEPARTMENT NAME TELEPHONE NO. FRIDAY)
Shareholder 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Services
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing
impaired) 1-800/851-0637 6:00 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 all
of Franklin's service departments may be accessed, recorded and
monitored. These calls can be determined by the presence of a
regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to
shareholders may contain various measures of the Funds'
performance, including current yield, various expressions of
total return and current distribution rate. They may occasionally
cite statistics to reflect 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 (offering price
includes sales charge) 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 Funds 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 distributions 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 each Fund's
portfolio investments; it is calculated by dividing each 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.
Yield, which is calculated according to a formula prescribed by
the SEC (see the SAI), is not indicative of the distributions
which were or will be paid to the Funds' shareholders.
Distributions paid to shareholders are reflected in the current
distribution rate which may be quoted to shareholders. The
current distribution rate is computed by dividing the total
amount of income per share paid by each Fund during the past 12
months by the current maximum offering price. Under certain
circumstances, such as when there has been a change in the amount
of distribution payout or a fundamental change in investment
policies, it might be appropriate to annualize the distributions
paid during the period such policies were in effect, rather than
using the distributions 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 interest, such as short-term capital gains, and is
calculated over a different period of time.
In each case, performance figures are based upon past performance
and will reflect all recurring charges against the Funds' 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
Funds, 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
Funds' yield, distribution rate or total return may be in any
future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Funds' fiscal years end on December 31. Annual Reports
containing audited financial statements of the Funds, including
the auditors' report, and Semi-Annual Reports containing
unaudited financial statements are automatically sent to
shareholders. Additional copies may be obtained, without charge,
upon request to the Trust at the telephone number or address set
forth on the cover page of this prospectus.
Additional information on Fund performance is included in the
Funds' Annual Report and the SAI.
REDEMPTIONS BY THE FUNDS
The Funds reserve the right to redeem, at net asset value, shares
of any shareholder whose account has been in existence for at
least 12 months and has a value of less than $2,000, but only
where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a
period of at least six months, provided advance notice is given
to the shareholder. More information is included in the SAI.
Although each Fund is offering only its own shares, it is
possible that one Fund might become liable for any misstatements
in this Prospectus about one of the other Funds. The Managing
General Partners of each Fund have considered this factor in
approving the use of a single, combined Prospectus.
Prior to June 9, 1990, the International Bond Fund was managed by
Pilgrim Management Corporation ("PMC") and was one of the three
mutual funds constituting the Pilgrim Foreign Investors Funds. At
a special meeting of shareholders held on June 7, 1990,
shareholders of the International Bond Fund voted to approve a
change in management which resulted in the appointment of
Advisers as investment manager of such Fund, which then changed
its name from Pilgrim International Bond Fund.
Distribution or redemption checks sent to shareholders do not
earn interest or any other income during the time such checks
remain uncashed and neither the Funds nor their affiliates will
be liable for any loss to the shareholder caused by the
shareholder's failure to cash such check(s).
"Cash" payments to or from a Fund may be made by check, draft or
wire. The Funds have no facility to receive, or pay out, cash in
the form of currency.
ACCOUNT REGISTRATIONS
`
An account registration should reflect the investor's 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, a shareholder may transfer an account in one
of the Funds carried in "nominee" name by the shareholder's
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 the shareholder's
delivering securities dealer. To effect the transfer, a
shareholder 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 the delivering securities dealer and the Fund after
the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the
services of the NSCC.
The Fund may conclusively accept instructions from an owner or
the owner's nominee listed in publicly available nominee lists,
regardless of whether the account was initially registered in the
name of or by the owner, the nominee, or both. If a securities
dealer or other representative is of record on an investor's
account, the investor 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 Funds and the Shareholder Services
Agent, and to have authorized them to execute the instructions
without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in
the near future, 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.
SUMMARY OF PARTNERSHIP AGREEMENTS
Each Fund is a California limited partnership. The Government
Fund and the High Yield Fund were organized on January 27, 1987
and the International Bond Fund was organized on September 4,
1986. As limited partnerships, the Funds are not required to hold
annual meetings and do not intend to do so. Each Fund, however,
will hold meetings of partners for such purposes as electing new
or additional general partners, changing fundamental investment
policies, approving an investment management agreement or a
distribution plan and, at the request of shareholders owning 10%
or more of the shares of a Fund, replacing its general partners.
All shares of each Fund are of one class, have one vote and, when
issued, are fully paid, nonassessable and redeemable. All shares
of each Fund have equal voting, distribution and liquidation
rights but have no subscription, preemptive or conversion rights.
There is no cumulative voting.
The full text of the Partnership Agreement of each Fund is set
forth in the SAI. The following statements summarize and explain
certain provisions of each Partnership Agreement and are
qualified in their entirety by the terms of each Fund's
respective Partnership Agreement.
VOTING RIGHTS OF PARTNERS. Each Fund's shareholders, or limited
partners, have the voting, approval, consent or similar rights
required under the 1940 Act for voting security holders.
Shareholders of each Fund have the exclusive right to vote on
matters affecting that Fund as set forth in the Partnership
Agreement.
A meeting of the shareholders may be called by the Managing
General Partners or by limited partners holding 10% or more of
the outstanding shares. Shareholders on the record date of a
meeting will be entitled to vote at that meeting if they are
admitted as limited partners prior to the meeting date.
General Partners. The general partners of each Fund consist of a
number of individuals, referred to as Managing General Partners,
and one corporate general partner, referred to as the Non-
Managing General Partner (together, the "General Partners"). The
Managing General Partners have complete and exclusive control
over the management, conduct and operation of each Fund.
The General Partners have been elected for an indefinite term by
the shareholders of each Fund. If at any time the number of
Managing General Partners is reduced to less than three, the
remaining Managing General Partners shall, within 120 days, call
a meeting for the purpose of electing an additional Managing
General Partner(s) so as to restore their number to at least
three. Each Partnership Agreement provides that the General
Partners are not personally liable to any shareholder of the Fund
for the repayment of any amounts standing in the account of any
shareholder, and that any such payment shall be solely from the
assets of each respective Fund, except liability incurred by
reason of the General Partners' willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of their office. Each Partnership Agreement also
provides that the General Partners will not be liable to any
shareholder by reason of any failure to withhold income tax or
any change in any federal or state tax laws applicable to the
Fund or its shareholders as long as the General Partners have
acted in good faith and in a manner reasonably believed to be in
the best interests of the shareholders. A General Partner is
generally entitled to indemnification from each Fund against
liabilities and expenses to which the General Partner may become
subject in the capacity of a General Partner of that Fund,
including any liability resulting from failure to withhold income
tax or any change in applicable income tax laws, provided the
General Partner has acted in good faith and for a purpose which
such partner reasonably believed to be in the best interests of
the Fund or its shareholders. Such indemnification is limited to
the assets of that respective Fund.
LIABILITY OF LIMITED PARTNERS. Generally, limited partners are
not personally liable for obligations of the partnership of which
they are shareholders unless they participate in the control of
the partnership's activities. Under the terms of each Partnership
Agreement, each Fund's limited partners do not have the right to
participate in the control of the Fund's activities, but they may
exercise the right to vote on matters affecting the basic
structure of the Fund, including matters requiring shareholder
approval under the 1940 Act.
Under California law, the liability of each limited partner (in
the capacity of a limited partner) for the losses, debts and
obligations of the Fund is generally limited to the partner's
capital contribution (which is the price of such partner's shares
net of all sales charges) and the partner's share of any
undistributed income or assets of the Fund. A limited partner
may, however, under certain circumstances, be required to return
amounts previously distributed for the benefit of the Fund's
creditors. Each Fund intends to include in its contracts a
provision limiting the claims of creditors to the Fund's assets
and may carry insurance in such amounts as the Managing General
Partners, in their judgment, consider reasonable to cover
potential liabilities of the Fund. In addition, the Partnership
Agreement for each Fund provides for indemnification out of the
Fund's property for any shareholder held personally liable for
any obligation of the Fund. Each Partnership Agreement also
provides that the Fund shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation
of the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of liability as a
limited partner is limited to circumstances in which the Fund
itself would be unable to meet its obligations. The Manager
believes that, in view of the above and in view of the character
of the operations of each Fund as an investment company, the risk
of personal liability to shareholders is extremely remote.
ADMISSION OF LIMITED PARTNERS. In order to be admitted as a
limited partner, a purchaser of shares is either required to
complete a partnership subscription agreement, including a
special power of attorney, in the form set forth in the
Application, or to take action indicating acceptance thereof.
Admission of a purchaser as a limited partner also requires the
consent of the Managing General Partners and the addition of the
purchaser to the Partnership List of the Fund. The Partnership
List is a current list of all shareholders who are partners,
their addresses and the amount of their contributions and current
share ownership. The Managing General Partners of each Fund,
while recognizing that they have the right to withhold their
consent, have stated that they intend to give such consent as a
matter of course to eligible investors and the Partnership List
will be updated daily on each business day.
PROHIBITION OF ASSIGNMENT OF SHARES. A limited partner of any
Fund does not have the right to voluntarily transfer or assign
shares to any other person other than to secure a loan. In the
event that any person who is holding shares as collateral becomes
the owner of such shares due to foreclosure or otherwise, such
person shall not have the right to be substituted as a limited
partner but shall have the right (upon presentation of
satisfactory evidence to the Managing General Partners of the
right to succeed to the interests of the Limited Partner): (1) to
redeem the shares and (2) to receive distributions with respect
to such shares. Under limited circumstances, a successor in
interest of a limited partner shall have the right to be
substituted as a limited partner.
TERM OF EXISTENCE - DISSOLUTION. The Government Fund and the High
Yield Fund will continue until December 31, 2050, and the
International Bond Fund will continue until December 31, 2036 but
shall be dissolved before such date if and when: (1) the
shareholders of a Fund approve the prior dissolution of the Fund;
(2) a Fund disposes of all of its assets; (3) a General Partner
withdraws and the remaining General Partners do not elect to
continue the operations of the Partnership; or (4) there are no
remaining General Partners (unless the shareholders agree by
unanimous vote to continue the Fund in circumstances where the
last remaining General Partner was not removed by them, and new
General Partners are promptly elected by the shareholders).
Except by requiring a Fund to redeem outstanding shares as
described under "How to Sell Shares of a Fund," limited partners
have no right to the return of any part of their contributions to
any Fund until dissolution of the Fund. Distributions by each
Fund, whether upon redemption, dissolution or otherwise, will be
in proportion to the number of outstanding shares held without
regard to the dollar amount contributed to the Fund or the amount
of any profits of the Fund received.
OTHER PROVISIONS. Each Partnership Agreement also provides
procedures for the pricing, purchase and redemption of shares of
each Fund as described in this Prospectus, as well as procedures
relating to the giving of notices, the calling of meetings and
the solicitation of shareholder consents. In addition, each
Partnership Agreement contains provisions relating to the
maintenance of books and records by each Fund, the allocation for
U.S. tax purposes of items of income, gain, loss, deduction and
credit, and the procedures by which amendments to a Partnership
Agreement may be effected. Limited partners have the right to
obtain current copies of the Partnership List, the Partnership
Agreement and certain other records of each Fund of which they
are shareholders for their personal use only. The Partnership
List and other records of each Fund, although available to other
limited partners upon request and to certain other persons in
connection with Fund matters, are not matters of public record.
PORTFOLIO OPERATIONS
The following persons are primarily responsible for the day-to-
day management of the Funds' portfolios:
GOVERNMENT FUND
Jack Lemein
Roger Bayston
Anthony Coffey
HIGH YIELD FUND
Chris Molumphy
Betsy Hofman-Schwab
Martin Wiskemann
INTERNATIONAL BOND FUND
Neil S. Devlin
Thomas J. Dickson
Edward B. Jamieson
Serena Perin
BIOGRAPHICAL INFORMATION
Roger Bayston
Portfolio Manager
Franklin Advisers, Inc.
Mr. Bayston is a Chartered Financial Analyst and holds a Master
of Business Administration degree from the University of
California at Los Angeles. He earned his Bachelor of Science
degree from the University of Virginia. Prior to joining
Franklin, Mr. Bayston was an Assistant Treasurer for Bankers
Trust Company. Following completion of the Masters degree
program, Mr. Bayston joined Franklin in 1991. Mr. Bayston has
managed the Government Fund since 1991.
Anthony Coffey
Portfolio Manager
Franklin Advisers, Inc.
Mr. Coffey holds a Master of Business Administration degree from
the University of California at Los Angeles. He earned his
Bachelor of Arts degree from Harvard University. Prior to joining
Franklin in 1989, Mr. Coffey was an associate with the Analysis
Group. He is a member of several securities industry committees
and has managed the Government Fund since 1989.
Neil S. Devlin
Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Devlin holds a Bachelor of Arts degree in economics and
philosophy from Brandeis University. He is currently a level II
CVA candidate. Prior to joining Templeton in 1987, Mr. Devlin was
a portfolio manager and a bond analyst with Constitutional
Capital Management of Boston and a bond trader ad research
analyst for the Bank of New England. He has managed the
International Bond Fund since January 1995.
Thomas J. Dickson
Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Dickson received his Bachelor of Science degree in managerial
economics from the University of California at Davis. Mr.
Dickson joined Franklin in 1992 and moved to Templeton in 1994.
He started managing the International Bond Fund since January
1995.
Betsy Hofman-Schwab
Portfolio Manager
Franklin Advisers, Inc.
Ms. Hofman-Schwab holds a Master of Business Administration
degree from the College of Notre Dame in California. She earned
her Bachelor of Science degree in finance at the College of Notre
Dame in California. She has been with Franklin since 1981 and has
managed the High Yield Fund since its inception.
Edward B. Jamieson
Senior Vice President and Portfolio Manager
Franklin Advisers, Inc.
Mr. Jamieson holds a bachelor of arts degree from Bucknell
University and a master's degree in accounting and finance from
the University of Chicago Graduate School of Business. Mr.
Jamieson has been with Advisers since 1987 and for the year prior
thereto, he was treasurer of Beatrice Consumer Products, Inc.
From 1981 to 1985 he was an executive with Pepsico, Inc.'s
Corporate Treasury where he served as Director of International
Treasury. He has managed the International Bond Fund since 1990.
Jack Lemein
Senior Vice President
and Portfolio Manager
Franklin Advisers, Inc.
Mr. Lemein holds a bachelor of science degree in finance from the
University of Illinois. Mr. Lemein has been in the securities
industry since 1967. He is a member of several securities
industry-related committees and associations. Mr. Lemein joined
Franklin in 1984 and has managed the Government Fund since its
inception.
Chris Molumphy
Portfolio Manager
Franklin Advisers, Inc.
Mr. Molumphy is a Chartered Financial Analyst and holds a Master
of Business Administration degree in finance from the University
of Chicago. He earned his Bachelor of Arts degree in economics
from Stanford University. Mr. Molumphy is a member of several
securities industry associations. He has managed the High Yield
Fund since joining Franklin in 1988.
Serena Perin
Portfolio Manager
Templeton Investment Counsel, Inc.
Ms. Perin holds a Bachelor of Arts degree in business economics
from Brown University. She served as a research assistant to a
member of Parliament in London, England. Ms. Perin is a member of
several securities industry associations. She has managed the
International Bond Fund since joining Franklin in November 1991.
Ms. Perin moved to Templeton in 1994.
R. Martin Wiskemann
Senior Vice President
and Portfolio Manager
Franklin Advisers, Inc.
Mr. Wiskemann holds a degree in business administration from the
Handelsschule of the State of Zurich, Switzerland. He has been in
the securities business for more than 30 years, managing mutual
fund equity and fixed-income portfolios, and private investment
accounts. He is a member of several securities industry
associations. He joined Franklin in 1972 and has managed the High
Yield Fund since its inception.
APPENDIX
DESCRIPTION OF BOND RATINGS*
MOODY'S
AAA: Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
AA: Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have predominantly
speculative elements and their future cannot be considered as
well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
CA: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
S&P
AAA: Bonds rated AAA are the highest grade debt obligations. This
rating indicates an extremely strong capacity to pay principal
and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in small
degree.
A: Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to
pay principal and interest for bonds in this category than for
bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
*Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise
such ratings, they undertake no obligation to do so.
FRANKLIN
PARTNERS
FUNDS (REGISTERED TRADEMARK)
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
STATEMENT OF
ADDITIONAL INFORMATION
MAY 1, 1995
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
About the Funds (See also the Prospectus
"About the Franklin Partners Funds" )
The Investment Objectives and Policies
of the Funds (See also the Prospectus
"Investment Objective and Policies of Each Fund")
Additional Information on
Distributions and Taxation
Officers and Managing General Partners
Investment Advisory and Other Services
(See also the Prospectus "Management
of the Funds")
The Funds' Policies Regarding Brokers
Used on Portfolio Transactions
Additional Information Regarding Fund
Shares (See also the Prospectus "How to
Invest in a Fund," "How to Sell Shares of
a Fund," "Valuation of Fund Shares")
The Funds' Underwriter
General Information
Financial Statements
Appendix A
Appendix B
Appendix C
The Franklin Partners Funds (Registered Trademark) (collectively,
the "Funds" or separately, the "Fund") consist of three separate
and distinct funds: Franklin Tax-Advantaged U.S. Government
Securities Fund (the "Government Fund"), Franklin Tax-Advantaged
High Yield Securities Fund (the "High Yield Fund"), and Franklin
Tax-Advantaged International Bond Fund (the "International Bond
Fund"), each a California limited partnership.
A Prospectus for the Funds dated May 1, 1995, as may be amended
from time to time, which provides the basic information a
prospective investor should know before investing in the Funds,
may be obtained without charge from the Funds or from the Funds'
principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address listed above.
THIS STATEMENT OF ADDITIONAL INFORMATION ("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 FUNDS, AND SHOULD BE READ IN
CONJUNCTION WITH THE FUNDS' PROSPECTUS.
ABOUT THE FUNDS
Each Fund is a separate and distinct management investment
company, registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 (the "1940
Act"). Each Fund issues only one class of shares, in the form of
partnership interests, and purchasers of shares of a Fund are
required to become limited partners of such Fund.
THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUNDS
As noted in the Prospectus, each Fund has its own investment
objective, which is a fundamental policy, and follows policies
designed to achieve that objective. In addition, unless otherwise
noted, the following restrictions have been adopted as
fundamental policies for the Funds, which means that they may not
be changed without the approval of a majority of the shares of
the applicable Fund.
THE GOVERNMENT FUND AND THE HIGH YIELD FUND
MAY NOT:
1. Borrow money or mortgage or pledge any of the assets of the
Fund, except that the Funds may borrow from banks for temporary
or emergency purposes in an amount up to 5% of total asset value.
2. Buy any securities on "margin" or sell any securities
"short."
3. Lend any funds or other assets, except by the purchase of
publicly distributed bonds, debentures, notes or other debt
securities and except that both Funds may enter into repurchase
agreements.
4. Act as underwriter of securities issued by other persons
except insofar as a Fund may be technically deemed an underwriter
under the federal securities laws in connection with the
disposition of portfolio securities.
5. Invest more than 5% of the value of its gross assets in the
securities of any one issuer, except that this limitation does
not apply to investments in securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities.
6. Purchase the securities of any issuer, if, as a result, a
Fund would own more than 10% of any class of the outstanding
voting securities of such issuer.
7. Purchase from or sell to its officers and general partner, or
any firm of which any officer or general partners is a member, as
principal, any securities, except that a Fund may deal with such
persons or firms as brokers and pay a customary brokerage
commission; retain securities of any issuer, if to the knowledge
of a Fund, one or more of its officers, general partners or
investment adviser, own beneficially more than one-half of 1% of
the securities of such issuer and all such officers and general
partners together own beneficially more than 5% of such
securities.
8. Purchase any securities issued by a corporation which has not
been in continuous operation for three years, but such period may
include the operation of a predecessor. This is not a fundamental
policy and may be changed by a Fund's Managing General Partners
without shareholder approval.
9. Acquire, lease or hold real estate (except such as may be
necessary or advisable for the maintenance of its offices) or
interests in oil, gas or other mineral exploration or development
programs (does not preclude investment in marketable securities
of companies engaged in such activities, provided that such
securities do not constitute "United States ("U.S.") real
property interests" for U.S. federal income tax purposes).
10. Invest in commodities and commodity contracts, puts, calls,
straddles, spreads or any combination thereof. (Does not preclude
authorized transactions in foreign currencies.)
11. Invest in companies for the purpose of exercising control or
management.
12. Concentrate more than 25% of the market value of its assets
in the securities of companies engaged in any one industry (does
not apply to investment in the securities of the U.S. government,
its agencies or instrumentalities).
13. Issue senior securities, as defined in the 1940 Act, except
that this restriction shall not be deemed to prohibit a Fund from
(a) making any permitted borrowing, mortgages or pledges, or (b)
entering into repurchase transactions. This is not a fundamental
policy of the Funds and may be changed by the Funds' Managing
General Partners without shareholder approval.
THE INTERNATIONAL BOND FUND MAY NOT:
1. With respect to at least 75% of its total assets, invest in
the securities of any one issuer (other than the U.S. government
and its agencies and instrumentalities), if immediately after and
as a result of such investment (a) more than 5% of the total
assets of the Fund would be invested in such issuer or (b) more
than 10% of the outstanding voting securities of such issuer
would be owned by the Fund.
2. Make loans to others, except through the purchase of debt
securities in accordance with its investment objectives and
policies or to the extent the entry into a repurchase agreement
is deemed to be a loan.
3. (a) Borrow money, except temporarily for extraordinary or
emergency purposes from a bank and then not in excess of
25% of its total assets (at the lower of cost or fair
market value). Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at
least 300% of all borrowings, and no additional
investments may be made while any such borrowings are in
excess of 5% of total assets.
(b) Mortgage, pledge or hypothecate any of its assets except
in connection with any such borrowings.
4. Purchase securities on margin, sell securities short,
participate on a joint or joint and several basis in any
securities trading account, or underwrite securities. (Does not
preclude the Fund from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of portfolio
securities. Does not preclude permissible foreign currency
hedging transactions.)
5. Buy or sell interests in oil, gas or mineral exploration or
development programs, or real estate. (Does not preclude
investments in marketable securities of companies engaged in such
activities to the extent such securities do not constitute U.S.
real property interests for U.S. federal income tax purposes.)
6. Purchase or hold securities of any issuer, if, at the time of
purchase or thereafter, any of the Managing General Partners or
officers of the Fund or its investment adviser own beneficially
more than 1/2 of 1%, and such Managing General Partners or
officers holding more than 1/2 of 1% together own beneficially
more than 5% of the issuer's securities.
7. Invest more than 5% of the value of its total assets in
securities of any issuer which has not had a record, together
with predecessors, of at least three years of continuous
operation. This is not a fundamental policy and may be changed by
the Fund's Managing General Partners without prior shareholder
approval.
8. Purchase or sell commodities or commodity contracts or invest
in put, call, straddle or spread options. (Does not preclude
transactions in foreign exchange for hedging purposes, including
forward foreign exchange transactions, the purchase or sale of
foreign currency options, foreign currency futures transactions
and the purchase or sale of options on foreign currency futures,
or transactions in foreign exchange in connection with the
investment of cash balances held outside of the U.S.)
9. Invest more than 10% of its assets in securities with legal
or contractual restrictions on resale, securities which are not
readily marketable, and repurchase agreements with more than
seven days to maturity.
10. Invest in any issuer for purposes of exercising control or
management.
11. Concentrate more than 25% of the market value of its assets
in the securities of companies engaged in any one industry. (Does
not apply to investment in the securities of the U.S. government,
its agencies or instrumentalities.)
12. Issue senior securities, as defined in the 1940 Act, except
that this restriction shall not be deemed to prohibit the Fund
from (a) making any permitted borrowings, mortgages or pledges,
or (b) entering into repurchase transactions.
In order to change any of the foregoing fundamental restrictions,
approval must be obtained by the applicable Fund's shareholders.
Such approval requires the affirmative vote of the lesser of (i)
67% or more of voting securities present at a meeting if the
holders of more than 50% of voting securities are represented at
that meeting or (ii) holders of more than 50% of the outstanding
voting securities.
RISK FACTORS PERTAINING TO THE HIGH YIELD FUND AND THE
INTERNATIONAL BOND FUND
SECURITIES OF NON-U.S. ISSUERS. The Government Fund will not
acquire the securities of non-U.S. issuers under any
circumstances. The High Yield Fund and the International Bond
Fund will not acquire outside of the U.S. the securities of non-
U.S. issuers under circumstances where, at the time of
acquisition, such Funds have reason to believe that they could
not resell the securities in a public market. (Investors should
recognize, however, that securities of non-U.S. issuers are often
bought or sold with less frequency and volume, and therefore may
have greater price volatility than is the case with many U.S.
securities.) Notwithstanding the fact that such Funds intend to
acquire the securities of non-U.S. issuers only where there are
public markets, investments by the Funds in the securities of
such issuers may be considered as tending to increase the risks
with respect to the liquidity of the Funds' portfolios and their
ability to meet a large number of shareholder's redemption
requests should there be economic or political turmoil in a
country in which such Funds had a substantial portion of their
assets invested or should relations between the United States and
other countries deteriorate markedly.
The interest payable on the securities of non-U.S. issuers held
by the High Yield Fund and the International Bond Fund may be
subject to withholding taxes in countries other than the U.S.
and, while individual investors may be able to claim some credit
or deduction for such taxes with respect to their allocated
shares of such tax payments, the general effect of these taxes
will be to reduce the Funds' income. In addition the expense
ratio of the High Yield Fund and the International Bond Fund may
also be slightly higher than the expenses of the Government Fund
due to special costs associated with maintaining custody of
foreign securities, the higher commission rates charged on many
foreign exchanges, and other factors.
SPECIAL CONSIDERATIONS RELATING TO FOREIGN EXCHANGE. The value in
U.S. dollars of the assets of the High Yield Fund and the
International Bond Fund that are invested in securities of non-
U.S. issuers may be affected favorably or unfavorably by changes
in currency exchange rates and exchange control regulations, and
each Fund may incur costs in connection with conversions between
various currencies. The Funds may conduct their currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in a particular currency exchange market or through
forward foreign currency exchange contracts and currency futures
contracts entered into for hedging purposes as explained below.
HEDGING AND FOREIGN CURRENCY TRANSACTIONS. The High Yield Fund
and the International Bond Fund may engage in the following
strategies to hedge their portfolios against risk associated with
currency fluctuations. Use of these strategies may be limited by
requirements of the Funds to purchase and hold their securities
for long-term investment and to meet other tax requirements
imposed by the Internal Revenue Code and U.S. Treasury
regulations. These strategies include the use of currency
options, currency futures, options on such futures and forward
foreign currency exchange contracts. While such strategies'
intention would be to reduce the volatility of the net asset
value of the Funds' shares, the Funds' net asset value would
still fluctuate and no assurance could be given of the
effectiveness of such transactions. Hedging against currency
fluctuations does not eliminate price fluctuations in the hedged
securities that are attributable to interest rate changes and
other factors.
The use of futures transactions involves the risk of imperfect
correlation between movements in the price of futures contracts
and movements in the price of the currencies which are the
subject of the hedge. These strategies also involve the risk that
a Fund may not be able to close an option or futures position, or
that a Fund could lose its margin deposit or collateral in the
event of bankruptcy of the broker with whom the Fund has an open
position.
Although certain risks are involved in forward foreign currency
exchange contracts, currency options, currency futures and
options on such futures, the Funds' investment manager believes
that, because the Funds will only engage in these transactions
for hedging purposes, the use of these strategies will not
subject the Funds to the risks frequently associated with the
speculative use of forward contracts, options and futures
transactions. Moreover, the High Yield Fund and the International
Bond Fund may not purchase or sell foreign currency futures or
options on such futures if the sum of the initial margin deposits
on all of the Funds' futures positions and the premiums paid for
related options would exceed 5% of a Fund's total assets. Each
Fund is also required to maintain in a segregated account cash
and high quality liquid debt securities in an amount equal to the
currency to be purchased by the Fund under a forward, futures or
option on a futures contract providing for such purchase.
Foreign exchange gains and gains realized by each Fund from its
hedging activities may be subject to U.S. tax and withholding
requirements.
The following is a description of the hedging instruments the
High Yield Fund and the International Bond Fund may utilize with
respect to foreign currency exchange rate fluctuation risks:
A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the
contract agreed upon by the parties at a price set at the time of
the contract. These contracts are individually negotiated and
privately traded directly between currency traders (usually large
commercial banks) and their customers. The High Yield Fund and
the International Bond Fund are authorized to deal in forward
contracts with respect to the currencies in which their portfolio
securities are (or will be) denominated as a hedge against
contractual agreements to purchase or sell a specified security
at a specified future date (up to one year) and price at the time
of the contract. Each Fund's dealings in forward contracts will
be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the forward purchase
or sale of currency with respect to receivables or payables of a
Fund accruing in connection with the purchase and sale of its
portfolio securities denominated in a particular currency.
Position hedging is the forward sale of currency with respect to
portfolio security positions denominated or quoted in such
currency. Hedging against a decline in the value of a currency
does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities
decline. Such transactions also preclude the opportunity for gain
if the value of the hedged currency should rise. Moreover, it may
not be possible for the High Yield Fund or the International Bond
Fund to hedge against a devaluation that is so generally
anticipated that neither Fund is able to contract to sell the
currency at a price above the devaluation level it anticipates.
Listed currency options give the purchaser of such options the
right to buy or sell a particular currency at a fixed price on a
future date. Listed options are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an
exchange or clearing corporation) which are issued by a clearing
corporation and have standardized strike prices and expiration
dates. By way of illustration, a Fund may use currency options to
hedge the stated value in U.S. dollars of an investment in a
Japanese yen-denominated security. In such circumstances, for
example, the Fund may purchase a currency put option enabling it
to sell a specified amount of yen for dollars at a specified
price by a future date. To the extent the hedge is successful, a
loss in the value of the yen relative to the dollar will tend to
be offset by an increase in the value of the put option. To
offset, in whole or in part, the cost of acquiring such a put
option, the Fund may also sell a call option which, if exercised,
requires it to sell a specified amount of yen for dollars at a
specified price by a future date (a technique called a
"straddle"). By selling the call option in this illustration, the
Fund relinquishes the opportunity to profit from increases in the
relative value of the yen to the dollar.
Each Fund will cover currency call options which it has written
by maintaining in a segregated account cash or securities
denominated in the currency that is the subject of the call
option, in an amount equal to the value of the optioned currency.
The High Yield Fund and the International Bond Fund will cover
currency put options which they have written by maintaining in a
segregated account cash or high quality liquid debt securities in
an amount equal to the value of currency which such Fund is
required to purchase under the put option. The exchanges on which
options on currencies are traded have generally established
limitations governing the maximum number of call or put options
on the same underlying currency (whether or not covered) which
may be written by a single investor, whether acting alone or in
concert with others (regardless of whether such options are
written on the same or different exchanges or are held or written
on one or more accounts or through one or more brokers). "Trading
limits" are imposed on the maximum number of contracts which any
person may trade on a particular trading day. The Funds'
investment manager does not believe that these trading and
position limits will have any adverse impact on the portfolio
strategies for hedging the portfolio of either the High Yield
Fund or the International Bond Fund.
Currency futures are standardized contracts traded on commodities
exchanges which involve an obligation to purchase or sell a
predetermined amount of currency at a predetermined date at a
specified price. The High Yield Fund and the International Bond
Fund would incur brokerage costs and would be required to make
and maintain "margin" deposits in connection with transactions in
futures contracts, as described below. The Funds would also be
required to segregate assets to cover futures contracts requiring
the purchase of foreign currencies. Options on currency futures
entitle the Funds to assume a position in an underlying currency
futures contract. Futures contracts and options for futures
contracts are traded on boards of trades or futures exchanges
regulated by the Commodity Futures Trading Commission, a U.S.
government agency.
At the time a futures contract or related futures option
transaction is entered into, cash or U.S. government securities
equal to the market value of the Fund's obligation under the
contract or option transaction (less any related margin deposits)
is deposited in a segregated account with the Fund's custodian
bank to collateralize the position and thereby ensure that such
position is unleveraged. The segregated account is marked to
market daily. The Funds will not engage in such hedging
transactions if the sum of the initial margin deposits on all of
the Fund's futures positions and premiums paid for related
futures options would exceed 5% of the Fund's total assets.
The use of futures and options contracts by the High Yield Fund
and the International Bond Fund involves the risk of imperfect
correlation between movements in the price of such contracts and
movements in the price of securities and currencies which are the
subject of the hedge. If the price of the contract moves more or
less than the price of the security or currency, the Fund will
experience a gain or loss which will not be completely offset by
movements in the price of the securities which are the subject of
the hedge.
Neither the High Yield Fund nor the International Bond Fund will
speculate in forward foreign currency exchange contracts,
currency options, currency futures or options on such futures and
will engage in transactions in such contracts and options solely
for the purpose of hedging against currency risk, as described
herein. Accordingly, the aggregate value of the currency which is
the subject of such contracts and options will not exceed the
market value of the securities it owns and which are denominated
in such currency, or the expected acquisition price of securities
which it has committed or anticipates to purchase and which are
denominated in such currency. In the case of securities which
have been sold by the High Yield Fund or the International Bond
Fund but not yet delivered, the aggregate value of the currency
which is the subject of such contracts and options will not
exceed the proceeds of such sale denominated in such currency.
The Funds intend to enter into options and futures transactions
only if there appears to be a liquid secondary market for such
options or futures. There can be no assurance, however, that a
liquid secondary market will exist at any specific time. Thus, it
may not be possible to close an option or futures position. The
inability to close options and futures positions also could have
an adverse impact on a Fund's ability to hedge its portfolio
effectively. In addition, there is the risk of loss by a Fund of
margin deposits or collateral in the event of bankruptcy of a
broker with whom a Fund has an open position in a foreign
currency option, a futures contract or a futures option.
The High Yield Fund and the International Bond Fund may also, for
hedging purposes, purchase currencies in the form of bank
deposits as well as other non-U.S. dollar denominated money
market instruments, including, but not limited to, banker's
acceptances, certificates of deposits, commercial paper, short-
term government and corporate obligations and repurchase
agreements. Each Fund's dealing in foreign exchange transactions
will be limited to the transactions described above and may be
further limited by tax restrictions. Neither Fund is required to
enter into such transactions with regard to its positions and
transactions in the securities of non-U.S. issuers, and will not
do so unless deemed appropriate by each Fund's investment
manager. In addition, while these transactions may minimize the
risk to the value of each Fund's portfolio securities resulting
from adverse currency movements with respect to the U.S. dollar,
they do not eliminate fluctuations in the underlying prices of
the securities. Such transactions may limit potential gain from a
favorable change in the relationship between the U.S. dollar and
other currencies. Unanticipated changes in currency exchange
rates may result in poorer overall performance for the High Yield
Fund and the International Bond Fund than if they had not engaged
in such foreign exchange transactions.
OTHER POLICIES. There are no restrictions or limitations on
investments in obligations of the U.S., or of corporations
chartered by Congress as federal government instrumentalities for
any of the Funds. The underlying assets of each Fund may be
retained in cash, including cash equivalents which are Treasury
bills, commercial paper and short-term bank obligations such as
certificates of deposit, banker's acceptances and repurchase
agreements, subject to certain tax restrictions. It is intended,
however, that only so much of the underlying assets of each Fund
be retained in cash as is deemed necessary for normal operation
of such Fund. Each Fund may invest in securities that cannot be
offered to the public for sale without first being registered
under the Securities Act of 1933 ("restricted securities"), or in
other securities which, in the opinion of the Managing General
Partners, may be otherwise illiquid. It is the policy of each
Fund, however, that illiquid securities may not constitute, at
the time of purchase or at any time, more than 10% of the value
of the total net assets of the Fund in which they are held.
Generally, an "illiquid" security is any security that cannot be
disposed of promptly and in the ordinary course of business at
approximately the amount at which the Fund has valued the
security. Notwithstanding this limitation, the Funds' Managing
General Partners have authorized each Fund to invest in
restricted securities where such investment is consistent with
such Fund's investment objective and has authorized such
securities to be considered to be liquid to the extent the
Manager determines that there is a liquid institutional or other
market for such securities. For example, restricted securities
which may be freely transferred among qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended, and for which a liquid institutional market has
developed will be considered liquid even though such securities
have not been registered pursuant to the Securities Act of 1933.
The Managing General Partners will review any determination by
the Manager to treat a restricted security as a liquid security
on an ongoing basis, including the Manager's assessment of
current trading activity and the availability of reliable price
information. In determining whether a restricted security is
properly considered a liquid security, the Manager and the
Managing General Partners will take into account the following
factors: (i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the
security and the number of other potential purchasers; (iii)
dealer undertakings to make a market in the security; and (iv)
the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). To
the extent a Fund invests in restricted securities that are
deemed liquid, the general level of illiquidity in that Fund may
be increased if qualified institutional buyers become
uninterested in purchasing these securities or the market for
these securities contracts.
SECURITIES TRANSACTIONS
It is intended that portfolio changes in each Fund will be made
as infrequently as possible. Such changes will be based on market
and economic factors generally, and special considerations
affecting any particular security such as the limitation of loss
or realization of price appreciation at a time believed to be
opportune. Subject to the policy of each Fund not to purchase or
sell securities for trading purposes and to certain tax
restrictions, however, changes in particular portfolio holdings
may be made if a security has reached its anticipated level of
performance or when required for operational or other reasons.
The sale of securities held for relatively short periods and
reinvestment of the proceeds will result in increased brokerage
and transaction costs to the Funds.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXATION
DISTRIBUTIONS
As explained more fully in the following paragraphs, the daily
allocation of income by each Fund will be in a "defined amount"
equal to the daily distributable net investment income of such
Fund for that day. The daily distributable net investment income
for a particular day will be equal to the interest income for
that day, less the daily expenses for that day. For the purpose
of computing its book net income, each Fund will account for net
investment income in accordance with generally accepted
accounting principles (see "Significant Accounting Policies" in
the Notes to the Financial Statements).
ADDITIONAL INFORMATION REGARDING
U.S. TAX TREATMENT OF U.S. INVESTORS
A shareholder's adjusted basis in his partnership interest in a
Fund (i.e., his aggregate shares in the Fund) will generally be
the aggregate prices paid for such shares (including sales
charges), increased by the amounts of such shareholder's
distributive share of items of income and gain of the Fund and
reduced, but not below zero, by the amounts of such shareholder's
distributive share of Fund losses and the amount of any cash
distributions (including distributions upon redemption of shares)
received by such shareholder. Subject to the limitations
discussed below, each shareholder will generally be permitted to
deduct his distributive share of Fund losses to the extent of his
adjusted basis in his Fund shares. For purposes of the "passive
activity loss" rules, an individual shareholder's share of the
Fund's income or loss will be treated as "portfolio" income or
loss. Thus, income from the Fund may not be offset by losses from
"passive activities" of the shareholder, and losses from the Fund
will not reduce the shareholder's income from "passive
activities." An individual shareholder's share of certain
expenses of the Fund will be treated as a "miscellaneous itemized
deduction" and will be deductible only by a shareholder who
itemizes deductions and only to the extent that the shareholder's
total miscellaneous itemized deductions from all sources exceed
2% of the shareholder's adjusted gross income. An individual
shareholder whose adjusted gross income exceeds a specified
amount (generally $114,700 in 1995) must reduce the otherwise
allowable itemized deductions by an amount equal to 3% of the
excess adjusted gross income.
U.S. shareholders of a Fund will not be subject to federal income
tax on cash distributions received in redemption of Fund shares
to the extent such distributions do not exceed the shareholders'
adjusted basis in their Fund shares. Redemptions of shares may be
subject to 31% backup withholding in the case of non-exempt U.S.
shareholders who have failed to furnish the Fund with their
correct taxpayer identification numbers on Form W-9.
Each item of partnership income or gain will retain its character
for tax purposes when allocated to the shareholders.
TAX CONSEQUENCES OF BEING DEEMED
ENGAGED IN A U.S. TRADE OR BUSINESS
As stated in the Prospectus, each Fund has obtained an opinion of
its counsel, Thelen, Marrin, Johnson & Bridges, to the effect
that neither the Fund nor its non-U.S. shareholders solely by
virtue of their investment in the Fund should be deemed to be
engaged in a trade or business in the U.S. if the Fund adheres to
its stated investment objectives, policies and restrictions and
to certain guidelines and operating procedures concerning its
investment activities. These opinions are based upon case law and
other authorities in effect as of the date of this Statement of
Additional Information. In the event this position is challenged,
it is the intention of each Fund to contest the challenge. A
final determination by a court of law, however, to the effect
that a Fund is engaged in a U.S. trade or business would have
material tax consequences for the Fund's shareholders. Such a
determination would nullify the applicability of the "portfolio
interest" exemption and cause all income of the Fund to be deemed
to be effectively connected with such trade or business
(including such "portfolio interest" and capital gains realized
by the Fund or the shareholders) and therefore subject to U.S.
federal income tax and U.S. tax withholding requirements.
OFFICERS AND MANAGING GENERAL PARTNERS
The Managing General Partners of each Fund have the
responsibility for the overall management of that Fund, including
general supervision and review of its investment activities. The
Managing General Partners, in turn, elect the officers of each
Fund who are responsible for administering the day-to-day
operations. The affiliations of the officers and Managing General
Partners of each Fund and their principal occupations for the
past five years are listed below. Managing General Partners who
are deemed to be "interested persons" of a Fund, as defined in
the 1940 Act, are indicated by an asterisk (*).
Frank H. Abbott, III
1045 Sansome St.
San Francisco, CA 94111
Managing General Partner
President and Director, Abbott Corporation (an investment
company); Director, Mother Lode Gold Mines Consolidated; and
director, trustee or managing general partner, as the case may
be, of 30 of the investment companies in the Franklin Group of
Funds.
Harris J. Ashton
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Managing General Partner
President, Chief Executive Officer and Chairman of the Board,
General Host Corporation (nursery and craft centers); Director,
RBC Holdings, Inc. (a bank holding company) and Bar-S Foods; and
director, trustee or managing general partner, as the case may
be, of 54 of the investment companies in the Franklin Templeton
Group of Funds.
*Kenneth V. Domingues
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards and
Managing General Partner
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 36 of the
investment companies in the Franklin Group of Funds.
S. Joseph Fortunato
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Managing General Partner
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 56 of the investment
companies in the Franklin Templeton Group of Funds.
David W. Garbellano
111 New Montgomery St., #402
San Francisco, CA 94105
Managing General Partner
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 29 of the investment companies in the Franklin Group of
Funds.
*Charles B. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Managing General Partner
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 55 of the investment companies in the Franklin Templeton
Group of Funds.
*Charles E. Johnson
777 Mariners Island Blvd.
San Mateo CA 94404
Managing General Partner
Senior Vice President and Director, Franklin Resources, Inc.;
Senior Vice President, Franklin Templeton Distributors, Inc.;
President and Director, Templeton Worldwide, Inc. and Franklin
Institutional Services Corporation; officer and/or director, as
the case may be, of some of the subsidiaries of Franklin
Resources, Inc. and officer and/or director or trustee, as the
case may be, of 24 of the investment companies in the Franklin
Templeton Group of Funds.
*Rupert H. Johnson, Jr.
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Managing General Partner
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 42 of the
investment companies in the Franklin Templeton Group of Funds.
Gordon S. Macklin
8212 Burning Tree Road
Bethesda, MD 20817
Managing General Partner
Chairman, White River Corporation (information services);
Director, Fund American Enterprises Corporation, Martin Marietta
Corporation, MCI Communications Corporation, MedImmune, Inc.
(biotechnology), Infovest Corporation (information services), and
Fusion Systems Corporation (industrial technology); and director,
trustee or managing general partner, as the case may be, of 51 of
the investment companies in the Franklin Templeton Group of
Funds; formerly, Chairman, Hambrecht and Quist Group; Director, H
& Q Healthcare Investors; and President, National Association of
Securities Dealers, Inc.
Harmon E. Burns
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 41 of the investment companies in the
Franklin Templeton Group of Funds.
Martin L. Flanagan
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 60 of the investment companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek
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 36 of the investment companies in
the Franklin Group of Funds.
Diomedes Loo-Tam
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 36 of the
investment companies in the Franklin Group of Funds.
Edward V. McVey
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 31 of the investment companies
in the Franklin Group of Funds.
R. Martin Wiskemann
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
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 19 of the investment
companies in the Franklin Group of Funds.
Managing General Partners of the Government Fund and the High
Yield Fund not affiliated with the investment manager are
currently paid fees of $150 per quarter plus $150 per meeting
attended from each Fund and are reimbursed for expenses incurred
in connection with attending such meetings. During the fiscal
year ended December 31, 1994, fees totalling $7,650 were paid by
the Government Fund to Messrs. Abbott ($1,650), Ashton ($1,500),
Fortunato ($1,500), Garbellano ($1,500) and Macklin ($1,500).
During the fiscal year ended December 31, 1994, fees totalling
$8,400 were paid by the High Yield Fund to Messrs. Abbott
($1,800), Ashton ($1,650), Fortunato ($1,650), Garbellano
($1,650) and Macklin ($1,650). As indicated above, certain of the
Managing General Partners and officers hold positions with other
companies in the Franklin Group of Funds (Registered Trademark)
and the Templeton Group of Funds. For the calendar year ended
December 31, 1994, Messrs. Abbott, Ashton, Fortunato, Garbellano
and Macklin received total fees of $176,870,$319,925, $336,065,
$153,300 and $303,685, respectively, from the various Franklin
and Templeton Funds for which they serve as directors, trustees
or managing general partners and for which they spent significant
time in preparation for and attendance at the meetings which are
scheduled at least once per month. The Managing General Partners
of the International Fund are not currently, but may in the
future, be paid fees and receive reimbursement of expenses for
attending meetings. No officer or Managing General Partner
received any other compensation directly from the Funds. As of
February 10, 1995, the Managing General Partners and officers, as
a group, together with Franklin Partners, Inc. as the Non-
Managing General Partner, owned 596,495 or 1.3% of the total
outstanding shares of the Government Fund, 122,064 or 1.2% of the
outstanding shares of the High Yield Fund and 34,839 or 1.7% of
the total outstanding shares of the International Bond Fund.
Officers and Managing General Partners, as a group, owned of
record and beneficially approximately 54 shares of the High Yield
Fund, 96 shares of the International Bond Fund and 41 shares of
the Government Fund or less than 1% of each Fund's outstanding
shares. In addition, many of the Funds' Managing General Partners
own shares in various of the other funds in the Franklin Group of
Funds and the Templeton Group of Funds. Certain officers or
Managing General Partners who are shareholders of Franklin
Resources, Inc. may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are
brothers.
Investment Advisory and Other Services
The investment manager of each Fund is Franklin Advisers, Inc.
("Advisers" or "Manager"). Advisers is a wholly-owned subsidiary
of Franklin Resources, Inc. ("Resources"), a publicly owned
holding company whose shares are listed on the New York Stock
Exchange ("Exchange"). Resources owns several other subsidiaries
which are involved in investment management and shareholder
services. The Manager and other subsidiary companies of Resources
currently manage over $114 billion in assets for over 3.7 million
shareholders. The preceding table indicates those officers and
Managing General Partners who are also affiliated persons of
Distributors and Advisers.
Pursuant to a management agreement with each Fund, the Manager
provides investment research and portfolio management services,
including the selection of securities for each Fund to purchase,
hold or sell and the selection of brokers through whom each
Fund's portfolio transactions are executed. The Manager's
activities are subject to the review and supervision of each
Fund's Managing General Partners to whom the Manager renders
periodic reports of each Fund's investment activities. The
Manager, at its own expense, furnishes each Fund with office
space and office furnishings, facilities and equipment required
for managing the business affairs of each 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
each Fund. Each Fund bears all of the expenses not assumed by the
Manager. See the Statement of Operations in the financial
statements in the Funds' Annual Report for additional details of
these expenses.
Pursuant to the management agreements, each 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 each Fund; 1/24 of 1% (approximately 1/2
of 1% per year) of net assets of each 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 each Fund in excess of $250
million.
For fiscal years ended December 31, 1992, 1993 and 1994, the High
Yield Fund paid $249,995, $340,356 and $481,741 in management
fees and the Government Fund paid $1,185,915, $2,331,382 and
$2,608,074 for the respective years.
For the fiscal years ended December 31, 1992, 1993 and 1994, the
management fees which would have been accrued by Advisers for the
International Bond Fund were $59,203, $100,033 and $141,108,
respectively. Advisers, however, agreed in advance to waive its
management fees, and the International Bond Fund paid no
management fees for those periods.
The Manager has limited its management fees and has assumed
responsibility for making payments, if necessary, to offset
certain operating expenses otherwise payable by the International
Bond Fund. This action by the Manager to limit its management
fees and to assume responsibility for payment of the expenses
related to the operations of the International Bond Fund may be
terminated by the Manager at any time. The management agreements
for each Fund specify that the management fee will also be
reduced to the extent necessary to comply with the most stringent
limits on the expenses which may be borne by a Fund prescribed by
any state in which a Fund's shares are offered for sale. The most
stringent current limit requires the Manager to reduce or
eliminate such fee to the extent that aggregate operating
expenses of each Fund (excluding interest, taxes, brokerage
commissions and extraordinary expenses such as litigation costs)
would otherwise exceed in any fiscal year 2 1/2% of the first $30
million of net assets of each Fund, 2% of the next $70 million of
net assets of each Fund and 1 1/2% of average annual net assets
of each Fund in excess of $100 million. Expense reductions have
not been necessary based on state requirements.
The management agreements are in effect until April 30, 1996.
Thereafter, they may continue in effect thereafter for successive
annual periods providing such continuance is specifically
approved at least annually by a vote of each such Fund's Managing
General Partners or by a vote of the holders of a majority of
each Fund's outstanding voting securities, and in either event by
a majority vote of each Fund's Managing General Partners who are
not parties to the management agreements or interested persons of
any such party (other than as Managing General Partners of the
Funds), cast in person at a meeting called for that purpose. Each
management agreement may be terminated without penalty at any
time by the Fund or by the Manager on 60 days' written notice and
will automatically terminate in the event of their assignment, as
defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services"
or "Shareholder Services Agent"), a wholly-owned subsidiary of
Resources, is the shareholder servicing agent for each Fund and
acts as each Fund's transfer agent and distribution-paying agent.
Investor Services is compensated by each Fund on the basis of a
fixed fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian of the securities
and other assets of each Fund. 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 independent auditors for each Fund.
During the fiscal year ended December 31, 1994, their auditing
services consisted of rendering an opinion on the financial
statements included in the Funds' Annual Report.
THE FUNDS' POLICIES REGARDING
BROKERS USED ON PORTFOLIO TRANSACTIONS
Under the current management agreements with Advisers, the
selection of brokers and dealers to execute transactions in each
Fund's portfolios is made by the Manager in accordance with
criteria set forth in the management agreements and any
directions which each Fund's Managing General Partners may give.
When placing a portfolio transaction, the Manager attempts to
obtain the best net price and execution of the transaction. On
portfolio transactions which are done on a securities exchange,
the amount of commission paid by a 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 Funds will seek 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 a Fund's best interests, the Manager may place
portfolio transactions with brokers who provide the types of
services described below, even if it means the Fund will have to
pay a higher commission than would be the case 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 data 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 each Fund, specifically including the
quotations necessary to determine the value of each 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 each 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 Advisers from
dealers effecting transactions in portfolio securities. The
allocation of transactions in order to obtain additional research
services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of
individuals and research staff of other securities firms. As long
as it is lawful and appropriate to do so, the Manager and its
affiliates may use this research and data in their investment
advisory capacities with other clients. Provided that each 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 a 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 Funds tender portfolio securities pursuant to a
tender-offer solicitation. As a means of recapturing brokerage
for the benefit of the Funds, any portfolio securities tendered
by a 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 agreements 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 each 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 each Fund is concerned. In other instances it is possible
that the ability to participate in volume transactions and to
negotiate lower brokerage commissions will be beneficial to the
Funds.
The High Yield Fund and the International Bond Fund anticipate
that brokerage transactions involving the securities of non-U.S.
issuers will be conducted primarily on the principal stock
exchange of such countries. Most foreign stock exchange
transactions are executed at fixed commission rates. Fixed
commissions on foreign stock exchange transactions are generally
higher than negotiated commissions on United States transactions,
although the Funds will endeavor to achieve the best net results
in effecting their portfolio transactions. There is generally
less government supervision and regulation of stock exchanges and
brokers outside the United States.
During the fiscal years ended December 31, 1993 and 1994, the
Funds paid no brokerage commissions. For fiscal year 1992, the
High Yield Fund paid $594 in brokerage commissions while the
Government Fund and the International Bond Fund paid none. As of
December 31, 1994, the Funds did not own securities of their
regular broker-dealers.
ADDITIONAL INFORMATION
REGARDING FUND 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 a shareholder's account
for the transaction as of a date and with a foreign currency
exchange factor determined by the drawee bank.
In connection with exchanges (see Prospectus "Exchange
Privilege"), it should be noted that since the proceeds from the
sale of shares of an investment company generally are not
available until the fifth business day following the redemption,
the funds into which Fund shareholders 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 a Fund
to complete an exchange for shares of any of the invesment
companies will be effected at the closed of business on the day
the request is in proper form at the net asset value then
effective.
Shares are eligible to receive distributions beginning on the
first business day following settlement of the purchase
transaction, through the date on which the Fund writes a check or
sends a wire on redemption transactions.
All shares will be redeemed in cash (paid by check in U.S.
dollars). The value of shares on redemption or repurchase may be
more or less than the investor's cost or capital contribution,
depending upon the market value of the respective Fund's
portfolio securities at the time of redemption or repurchase.
Distribution checks which are returned to a Fund marked "unable
to forward" by the postal service will be deemed to be a request
by the shareholder to change the distribution option and the
proceeds will be reinvested in additional shares at net asset
value until new instructions are received.
Each Fund may deduct from a shareholder's account the costs of
its efforts to locate the shareholder if the shareholder's mail
is returned as undeliverable or the Fund is otherwise unable to
locate the shareholder or verify the current mailing address.
These costs may include a percentage of the account when a search
company charges a percentage fee in exchange for their location
services.
Under agreements with certain banks in Taiwan, Republic of China,
the Funds' 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, or an affiliate of 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 Funds 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 each Fund will be offered with the
following schedule of sales charges:
SALES
SIZE OF PURCHASE IN CHARGE
U.S. DOLLARS
Up to $100,000 3%
$100,000 to $400,000 2%
Over $400,000 0%
PURCHASES AND REDEMPTIONS
THROUGH SECURITIES DEALERS
Orders for the purchase of shares of a Fund received in proper
form prior to 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 1:00 p.m. Pacific time will be effected at
each Fund's public offering price on the day it is next
calculated. The use of the term "securities dealers" herein shall
include other financial institutions which, pursuant to an
agreement with Distributors (directly or through affiliates),
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 the
customer resulting from failure to do so must be settled between
the customer and the securities dealer.
SPECIAL NET ASSET VALUE PURCHASES
As discussed in the Prospectus under "How to Buy Shares of the
Funds - Description of Special Net Asset Value Purchases,"
certain categories of investors may purchase shares of the Funds
without a front-end sales charge ("net asset value") or a
contingent deferred sales charge. Distributors or one of its
affiliates may make payments, out of its own resources, to
securities dealers who initiate and are responsible for such
purchases, as indicated below. As a condition for these payments,
Distributors or its affiliates may require reimbursement from the
securities dealers with respect to certain redemptions made
within 12 months of the calendar month following purchase, as
well as other conditions, all of which may be imposed by an
agreement between Distributors, or its affiliates, and the
securities dealer.
The following amounts may be paid by Distributors or one of its
affiliates, out of its own resources, to securities dealers who
initiate and are responsible for (i) purchases of most equity and
taxable-income Franklin Templeton Funds made at net asset value
by certain designated retirement plans (excluding IRA and IRA
rollovers): 1.00% 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 (ii)
purchases of most taxable income Franklin Templeton Funds made at
net asset value by 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 $10
million or more, Distributors, or one of its affiliates, out of
its own resources, may pay up to 1% of the amount invested.
LETTER OF INTENT
An investor 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 the
investor wants 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. 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. The shareholder's 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 made by the
shareholder, other than by a designated benefit 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. An
investor who executes a Letter of Intent prior to a change in the
sales charge structure for the Fund 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 with the Fund.
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 the investor's name, unless the investor is a
designated benefit plan. If the total purchases, less
redemptions, equal the amount specified under the Letter, the
reserved shares will be deposited to an account in the name of
the investor or delivered to the investor or the investor's
order. 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. 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,
the investor 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 which 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 the investor's account will be deposited to an account in the
name of the investor or delivered to the investor or to the
investor's order. 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 such 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 the investor.
If a Letter of Intent is executed on behalf of a benefit plan
(such plans are described under "Purchases at Net Asset Value" in
the Prospectus), the level and any reduction in sales charge for
these designated benefit plans will be based on actual plan
participation and the projected investments in the Franklin
Templeton Funds under the Letter of Intent. Benefit 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 benefit plans entitled to receive retroactive
adjustments in price for investments made before executing the
Letter of Intent.
REDEMPTIONS IN KIND
Each 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 such Fund's net assets at the
beginning of such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commission. In
the case of requests for redemption in excess of such amounts,
the Managing General Partners reserve the right to make payments
in whole or in part in securities or other assets of the Fund
from which the shareholder is redeeming, 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. Should the Fund do
so, a shareholder may incur brokerage fees in converting the
securities to cash. The Funds do not intend to redeem illiquid
securities in kind; however, should it happen, shareholders may
not be able to timely recover their investment and may also incur
brokerage costs in selling such securities.
REDEMPTIONS BY THE FUNDS
Due to the relatively high cost of handling small investments,
each Fund reserves the right to redeem, involuntarily, at net
asset value the shares of any shareholder whose account has been
in existence for at least 12 months and (i) whose account
contains less than $2,000, or such lesser amount to be determined
by the Managing General Partners upon notice to all shareholders,
and (ii) who has not made an investment (other than the
reinvestment of any distributions) within the six months
preceding notice of the Fund's intention to take this action. In
the event it is determined that such a redemption should be made
by a Fund, six months' notice of the Fund's intention to redeem
will be given, during which period the shareholder can increase
the value of the account to the minimum amount, thereby avoiding
redemption.
CALCULATION OF NET ASSET VALUE
As noted in the Prospectus, each Fund generally calculates net
asset value as of 1:00 p.m. Pacific time each day that the
Exchange is open for trading. As of the date of this SAI, the
Funds are 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.
Each Fund's portfolio securities are valued as stated in the
Prospectus. 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 value of such securities used in
computing the net asset value of a Fund's shares are determined
as of such times. Occasionally, events affecting the value of
such securities may occur between the times at which they are
determined and 1:00 p.m. Pacific time 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 Managing General
Partners.
THE FUNDS' UNDERWRITER
Pursuant to underwriting agreements in effect until April 30,
1995, Distributors acts as principal underwriter in a continuous
public offering for shares of each Fund.
Distributors pays the expenses of distribution of each Fund's
shares, including advertising expenses and the costs of printing
sales material and prospectuses used to offer shares to the
public. Each 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.
The underwriting agreements will continue in effect for
successive annual periods provided that their continuance is
specifically approved at least annually by a vote of each Fund's
Managing General Partners, or by a vote of the holders of a
majority of each Fund's outstanding voting securities, and in
either event by a majority vote of Managing General Partners who
are not parties to the underwriting agreement or interested
persons of any such party (other than as Managing General
Partners), cast in person at a meeting called for that purpose.
The underwriting agreements terminate automatically in the event
of their assignment and may be terminated by either party on 90
days' written notice.
Until April 30, 1994, distributions 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 distributions
paid after April 30, 1994, such reinvestment will be at net asset
value.
In connection with the offering of the High Yield Fund's shares,
aggregate underwriting commissions for the fiscal years ended
1992, 1993 and 1994 were $341,120, $691,683 and $400,528,
respectively. After allowances to dealers, Distributors retained
$22,661, $32,168 and $24,102, during the respective periods. In
connection with the offering of the Government Fund's shares,
aggregate underwriting commissions for the fiscal years ended
1992, 1993 and 1994 were $4,805,768, $6,282,489 and $2,067,833,
respectively. After allowances to dealers, Distributors retained
$109,843, $190,128 and $150,068, during the respective periods.
For fiscal years ended December 31, 1992, 1993 and 1994,
underwriting commissions for the International Bond Fund were
$265,867, $303,473 and $219,143, respectively, of which $9,039,
$12,255 and $12,763 was retained by Distributors for the
respective periods. Distributors received no other compensation
from the Funds for acting as underwriter.
DISTRIBUTION PLANS
The Funds have approved Distribution Plans pursuant to Rule 12b-1
under the 1940 Act (the "Plans") whereby each Fund may pay up to
a maximum of 0.15% per annum of its average daily net assets for
expenses incurred in the promotion and distribution of its
shares.
In implementing each Plan, the Managing General Partners have
determined that initially the annual fees payable thereunder will
be equal to the sum of: (i) the amount obtained by multiplying
0.15% by the average daily net assets represented by shares of a
Fund that were acquired by investors on or after the Effective
Date of each Plan ("New Assets"), and (ii) the amount obtained by
multiplying 0.05% by the average daily net assets represented by
shares of each Fund that were acquired before the Effective Date
of each Plan ("Old Assets"). Such fees will be paid to the
current securities dealers of record on the shareholder's
account. In addition, until such time as the maximum payment of
0.15% is reached on a yearly basis, up to an additional 0.02%
will be paid to Distributors under each 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
each Plan, such as advertising.
The fees are a Fund expense so that all shareholders regardless
of when they purchased their shares will bear expenses under the
Plans at the same rate. That rate initially will be at least
0.07% (0.05% plus 0.02%) of 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 the Effective Date to outstanding Fund shares increases,
the expenses attributable to payments under each Plan will also
increase (but will not exceed 0.15% of average daily net assets).
While this is the currently anticipated method for calculating
fees payable under each Plan, the Plans permit each Fund's
Managing General Partners to allow the respective Fund to pay a
full 0.15% on all assets at any time. The approval of the
Managing General Partners would be required to change the method
of calculating the payments to be made under each Plan.
Pursuant to the Plans, 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
each 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 Plans, the Plans also provide that to the
extent each 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 Plans.
In no event shall the aggregate asset-based sales charges which
include payments made under the Plans, plus any other payments
deemed to be made pursuant to the Plans, 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 Plans relating to required
reports, term, and approval are consistent with Rule 12b-1. The
Plans do 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 Plans 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 Plans 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 Plans have been approved by the Managing General Partners of
the Funds, including those Managing General Patners who are not
interested persons, as defined in the 1940 Act. The Plans are
effective through June 30, 1995 and renewable annually by a vote
of the Managing General Partners, including a majority vote of
the Managing General Partners who are non-interested persons of
the Funds and who have no direct or indirect financial interest
in the operation of the Plans, cast in person at a meeting called
for that purpose. It is also required that the selection and
nomination of such Managing General Partners be done by the non-
interested Managing General Partners. The Plans and any related
agreement may be terminated at any time, without any penalty, by
vote of a majority of the non- interested Managing General
Partners 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 Management Agreement with
the Manager, or by vote of a majority of each 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 Plans 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 each Fund's
outstanding shares, and all material amendments to the Plans or
any related agreements shall be approved by a vote of the non-
interested Managing General Partners, 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 Managing
General Partners 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 Managing General Partners with such other
information as may reasonably be requested in order to enable the
Managing General Partners to make an informed determination of
whether the Plan should be continued.
For the fiscal year ended December 31, 1994, the total amount
paid by the Government Fund, High Yield Fund and the
International Bond Fund pursuant to the Plans were $174,620,
$29,926, and $8,166, which were used for the following purposes.
GOVERNMENT FUND
DOLLAR AMOUNT
Advertising $15,716
Printing and mailing of $12,223
prospectuses to other than current
shareholders.
Payments to underwriters $24,447
Payments to brokers or dealers $122,234
HIGH YIELD FUND
DOLLAR AMOUNT
Advertising $3,292
Printing and mailing of $2,693
prospectuses to other than current
shareholders.
Payments to underwriters $4,190
Payments to brokers or dealers $19,751
INTERNATIONAL BOND FUND
DOLLAR AMOUNT
Advertising $1,551
Printing and mailing of $1,143
prospectuses to other than current
shareholders.
Payments to underwriters $1,470
Payments to brokers or dealers $4,001
GENERAL INFORMATION
Each Fund is organized as a California limited partnership
pursuant to the California Revised Limited Partnership Act. The
full text of the Agreement of Limited Partnership of each Fund is
set forth herein as Appendix A (Government Fund), Appendix B
(High Yield Fund) and Appendix C (International Bond Fund). The
California Revised Limited Partnership Act does not specifically
authorize the exercise by limited partners of the voting rights
required by the 1940 Act which are specified in each Partnership
Agreement. Although there are no authoritative judicial decisions
on this matter and no absolute assurances can be given on this
point, it is the opinion of counsel to each Fund that the
existence or exercise of these voting rights will not subject the
limited partners of any Fund to liability as general partners
under California laws. There is not, however, specific statutory
or other authority for the existence or exercise of some or all
these voting rights in most other jurisdictions. As a result, to
the extent that a Fund is subject to the jurisdiction of courts
in these other jurisdictions, it is possible that these courts
may not apply California law, or, if they apply California law,
they may nevertheless interpret the law to subject the Funds'
limited partners to liability as general partners.
Investors in each Fund will be informed of its progress through
periodic reports. Financial statements certified by independent
auditors will be submitted to shareholders at least annually.
PERFORMANCE
As noted in the Prospectus, each Fund may from time to time quote
various performance figures to illustrate the Fund's past
performance. It may occasionally cite statistics to reflect its
volatility or risk.
Performance quotations by investment companies are subject to
rules adopted by the Securities and Exchange Commission ("SEC").
These rules require the use of standardized perform- ance
quotations or, alternatively, that every non- standardized
performance quotation furnished by each 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 each Fund are based on the standardized
methods of computing performance mandated by the SEC. An
explanation of those and other methods used by each 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, or fractional portion thereof, that would
equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes the maximum sales
charge is deducted from the initial $1,000 purchase order and all
income distributions 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, or fractional portion
thereof, 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
sales charge in effect currently.
In considering the quotations of total return by the Funds,
investors should remember that the maximum 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 a Fund. The actual
performance of an investment will be affected less by this charge
the longer an investor retains the investment in a Fund. The
average annual compounded rates of return for each Fund for the
indicated periods ended on the date of the financial statements
incorporated herein by reference were as follows:
ONE-YEAR FIVE-YEAR FROM
PERIOD PERIOD INCEPTION
Government Fund -8.17% 6.16% 7.70%*
High Yield Fund -6.58% 10.03% 8.36%*
International
Bond Fund -2.12% n/a 7.47%**
*Inception May 4, 1987
**From change of investment manager on June 9, 1990
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
(or fractional portion thereof)
As discussed in the Prospectus, each Fund may quote total rates
of return in addition to its average annual total return. Such
quotations are computed in the same manner as each Fund's average
annual compounded rate, except that such quotations will be based
on each Fund's actual return for a specified period rather than
to its average return over one-, five-, and ten-year periods, or
fractional portion thereof. The total rates of return for each
Fund for the indicated periods ended on the date of the financial
statements incorporated herein by reference were follows:
ONE-YEAR FIVE-YEAR FROM
PERIOD PERIOD INCEPTION
Government Fund -8.17% 34.86% 76.60%*
High Yield Fund -6.58% 61.27% 85.09%*
International
Bond Fund -2.12% n/a 38.98%**
*Inception May 4, 1987
**From change of investment manager on June 9, 1990
YIELD
Current yield reflects the income per share earned by each Fund's
portfolio investments.
Current yield 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 each Fund for the 30-day period ended on the date of
the financial statements incorporated herein by reference were as
follows:
Government Fund 7.05%
High Yield Fund 10.15%
International Bond Fund 8.54%
These figures were obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
----
cd
where:
a =dividends 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 income distributions
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 a 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
distributions per share paid by a 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 income
distribution payout, or a fundamental change in investment
policies, it might be appropriate to annualize the distributions
paid over the period such policies were in effect, rather than
using the distributions 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 interest, such as short-term capital gain, 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 the
Standard & Poor's 500 Stock Index. 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 premise is that greater volatility connotes greater risk
undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
With respect to those categories of investors who are permitted
to purchase shares of each Fund at net asset value, sales
literature pertaining to the Funds may quote a "Current
Distribution for Net Asset Value Investments." This rate is
computed by adding the income distributions paid by each Fund
during the last 12 months and dividing that sum by the Fund's
current net asset value. Figures for yield, total return, and
other measures of performance for Net Asset Value Investments may
also be quoted. These will be derived as described elsewhere in
this Statement of Additional Information with the substitution of
net asset value for the public offering price.
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 Funds may include in their 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 advisers and underwriter
of both the Franklin Group of Funds and Templeton Group of Funds.
COMPARISONS
To help investors better evaluate how an investment in a Fund may
satisfy their investment objective, advertisements and other
materials regarding the Funds may discuss various measures of a
Fund's 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
distributions.
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
distributions.
c) 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.
d) 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.
e) 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.
f) 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.
g) 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.
h) Savings and Loan Historical Interest Rates - as published in
the U.S. Savings & Loan League Fact Book.
i) Salomon Brothers Broad Bond Index or its component indices -
The Broad Index measures yield, price, and total return for
Treasury, Agency, Corporate, and Mortgage bonds.
j) Lehman Brothers Aggregate Bond Index or its component indices
- - The Aggregate Bond Index measures yield, price and total return
for Treasury, Agency, Corporate, Mortgage, and Yankee bonds.
k) International Business Communications Money Fund
Report(Registered Trademark) - Industry averages for seven-day
annualized and compounded yields of taxable, tax-free, and
government money funds.
l) Bond Buyers 20-Bond Index - an index of municipal bond yields
based upon yields of 20 general obligation bonds maturing in 20
years.
m) Bond Buyers 30-Bond Index - an index of municipal bond yields
based upon yields of 20 revenue bonds maturing in 30 years.
n) Historical data supplied by the research departments of First
Boston Corporation, the J.P. Morgan companies, Salomon Brothers,
Merrill Lynch, Pierce Fenner & Smith, Lehman Brothers and
Bloomberg L.P.
From time to time, advertisements or information for each 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 highlight or summarize the information discussed in more
detail in the communication.
Advertisements or information may also compare a Fund's
performance to the return on certificates of deposit or other
investments. Investors should be aware, however, that an
investment in a 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 any of the Funds
is not insured by any federal, state or private entity. In
assessing such comparisons of performance, an investor should
keep in mind that the composition of the investments in the
reported indices and averages is not identical to the Fund's
portfolio, that the indices and averages are generally unmanaged,
and that the items included in the calculations of such 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 Funds
will continue this performance as compared to such other
averages.
OTHER FEATURES AND BENEFITS
Each Fund may help investors achieve various investment goals
such as accumulating money for retirement, saving for a down
payment on a home, college costs and/or other long-term goals.
The Franklin College Costs Planner may assist an investor 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 an investor through the
steps to start a retirement savings program. Of course, an
investment in a Fund cannot guarantee that such goals will be
met.
MISCELLANEOUS INFORMATION
The Funds are members 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 45 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 $114 billion in assets under
management for more than 3.8 million shareholder accounts and
offers 110 U.S.-based mutual funds. Each Fund may identify itself
by its NASDAQ or CUSIP number.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin
number one in service quality for five of the past seven years.
As of February 10, 1995, the persons known to the Funds to own
beneficially or of record more than 5% of the Funds' outstanding
shares were as follows:
NAME AND ADDRESS NUMBER OF PERCENT OF
OF BENEFICIAL OWNER SHARES OWNED SHARES
HIGH YIELD FUND
Paul W. C. Watt 575,542.59 5.6%
3385 Stagecoach Drive
Lafayette CA 94549-1824
Access persons of the Franklin Templeton Group, as defined in SEC
Rule 17(j) under the 40 Act, who are employees of Franklin
Resources, Inc. or their subsidiearies, 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 deceisions must file
annual reports of their securities holdings each January alnd
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 a shareholder's account, each 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 financial statements contained in the Annual Report to
Shareholders of Franklin Partners Funds dated December 31, 1994
are incorporated herein by reference.
FRANKLIN TAX-ADVANTAGED
U.S. GOVERNMENT SECURITIES FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
Dated May 1, 1987
as amended April 28, 1988 and May 1, 1991
APPENDIX "A"
TABLE OF CONTENTS
1. GENERAL PROVISIONS
1.1 Formation
1.2 Name and Place of Business
1.3 Term
1.4 Agent for Service of Process
1.5 Certificate of Limited Partnership
1.6 Other Acts/Filings
2. DEFINITIONS
2.1 Affiliate
2.2 Capital Account
2.3 General Partner
2.4 Holder of Record or Holder of a Share
2.5 Limited Partner
2.6 Majority Vote
2.7 Managing General Partner
2.8 Net Asset Value (per Share)
2.9 Non-Managing General Partner
2.10 Officers
2.11 Persons
2.12 Partners
2.13 Partnership
2.14 Partnership Act
2.15 Partnership Group
2.16 Partnership List
2.17 Registration Statement
2.18 Secretary of State
2.19 Share (including fractional Shares)
2.20 Substituted Limited Partner
2.21 Tax Code
2.22 Transfer Agent
2.23 1940 Act
3. ACTIVITIES AND PURPOSE
3.1 Operating Policy
3.2 Investment Objectives
3.3 Investment and Operating Limitations
3.4 Other Authorized Activities
4. GENERAL PARTNERS
4.1 Identity and Number
4.2 Managing and Non-Managing General Partners
4.3 General Partners' Contributions
4.4 Management and Control
4.5 Action by the Managing General Partners
4.6 Limitations of the Authority of the Managing General
Partners
4.7 Right of General Partners to Become Limited Partners
4.8 Termination of a General Partner
4.9 Additional or Successor General Partners
4.10 Liability to Limited Partners
4.11 Assignment and Substitution
4.12 No Agency
4.13 Reimbursement and Compensation
4.14 Indemnification
5. LIMITED PARTNERS
5.1 Identity of Limited Partners
5.2 Admission of Limited Partners
5.3 Contributions of the Limited Partners
5.4 Additional Contributions of Limited Partners
5.5 Use of Contributions
5.6 Redemption by Limited Partners
5.7 Minimum Contribution and Mandatory Redemption
5.8 Limited Liability
5.9 No Power to Control Operations
5.10 Tax Responsibility
6. SHARES OF PARTNERSHIP INTEREST
7. PURCHASE AND EXCHANGE OF SHARES
7.1 Purchase of Shares
7.2 Net Asset Value
7.3 Exchange of Shares
8. REDEMPTION OR REPURCHASE OF SHARES
8.1 Redemption of Shares
8.2 Payment for Redeemed Shares
9. MATTERS AFFECTING THE PARTNERSHIP'S BASIC STRUCTURE
9.1 Rights of Limited Partners
9.2 Action of the Partners
9.3 Meeting
9.4 Notices
9.5 Validity of Vote for Certain Matters
9.6 Adjournment
9.7 Waiver of Notice and Consent to Meeting
9.8 Quorum
9.9 Required Vote
9.10 Action by Consent Without a Meeting
9.11 Record Date
9.12 Proxies
9.13 Number of Votes
10. DISTRIBUTIONS AND ALLOCATION OF PROFITS AND LOSSES
10.1 Fees of General Partners
10.2 Distributions of Income and Gains
10.3 Allocation of Income, Gains, Losses, Deductions and
Credits
10.4 Returns of Contributions
10.5 Capital Accounts
10.6 Allocations for Tax Purposes
11. ASSIGNMENT OF SHARES; SUCCESSOR IN INTEREST; SUBSTITUTION
OF PARTNERS
11.1 Prohibition on Assignment
11.2 Rights of the Holders of Shares as Collateral or
Judgment Creditor
11.3 Death, Incompetency, Bankruptcy or Termination of the
Existence of a Partner
11.4 Substituted Limited Partners
12. DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
12.1 Dissolution
12.2 Liquidation
12.3 Termination
13. BOOKS, RECORDS, ACCOUNTS AND REPORTS
13.1 Books and Records
13.2 Limited Partners' Rights to Records
13.3 Accounting Basis and Fiscal Year
13.4 Tax Returns
13.5 Filings with Regulatory Agencies
13.6 Tax Matters and Notice Partner
14. AMENDMENTS OF PARTNERSHIP DOCUMENTS
14.1 Amendments in General
14.2 Amendments Without Consent of Limited Partners
14.3 Amendments Needing Consent of Affected Partners
14.4 Amendments to Certificate of Limited Partnership
14.5 Amendments After Change of Law
15. MISCELLANEOUS PROVISIONS
15.1 Notices
15.2 Section Headings
15.3 Construction
15.4 Severability
15.5 Governing Law
15.6 Counterparts
15.7 Entire Agreement
15.8 Cross-References
15.9 Power of Attorney to the General Partners
15.10 Further Assurances
15.11 Successors and Assigns
15.12 Waiver of Action for Partition
15.13 Creditors
15.14 Remedies
15.15 Custodian
15.16 Use of Name Franklin
15.17 Authority
15.18 Signatures
15.19 Arbitration
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
(a California limited partnership)
This amended and restated AGREEMENT OF LIMITED PARTNERSHIP
("Partnership Agreement") is entered into as of this 1st day of
May, 1987 by and among the undersigned individuals, as Managing
General Partners; FRANKLIN PARTNERS, INC., a California
corporation, as Non-Managing General Partner (collectively, the
"General Partners"); and each of the persons identified on the
Partnership List of the Partnership as limited partners (the
"Limited Partners").
This Partnership Agreement amends and restates in its
entirety the Agreement of Limited Partnership dated as of January
20, 1987.
1. GENERAL PROVISIONS
1.1 Formation. The parties hereby agree to continue
the limited partnership (the "Partnership") under the terms and
conditions set forth below pursuant to the California Revised
Limited Partnership Act (the "Partnership Act").
1.2 Name and Place of Business. The name of the
Partnership is Franklin Tax-Advantaged U.S. Government Securities
Fund (a California limited partnership), or such other name as
shall be selected from time to time by the Managing General
Partners upon notice to the Limited Partners. The principal place
of business of the Partnership shall be 777 Mariners Island
Boulevard, San Mateo, California 94404, or such other place or
places as the Managing General Partners may deem necessary or
desirable to the conduct of the Partnership's activities,
including places or the conduct of activities relating to its
investments, the location and holding of its assets, the
execution of its portfolio transactions and other operations.
1.3 Term. The term of the Partnership commenced upon
the filing of the Certificate of Limited Partnership with the
Secretary of State on January 27, 1987 and shall continue until
the 31st day of December, 2050, unless terminated earlier in
accordance with the provisions of this Partnership Agreement.
1.4 Agent for Service of Process. The agent for
service of process on the Partnership in California is Murray L.
Simpson, Esq. or such other eligible California resident
individual or corporation qualified to act as an agent for
service of process as the Managing General Partners shall
designate.
1.5 Certificate of Limited Partnership. The Managing
General Partners have caused a Certificate of Limited Partnership
to be filed with the Secretary of State in accordance with the
terms of the Partnership Act.
1.6 Other Acts/Filings. The Partners shall from time
to time execute or cause to be executed all such certificates,
fictitious business name statements, and other documents, and do
or cause to be done all such filings, recordings, publishings,
and other acts as the Managing General Partners may deem
necessary or appropriate to comply with the requirements of law
for the formation and operation of the Partnership in all
jurisdictions in which the Partnership shall desire to conduct
its activities.
2. DEFINITIONS
When used in this Partnership Agreement the following
terms shall have the meanings set forth below:
2.1 Affiliate. "Affiliate" shall mean:(i) any person
directly or indirectly controlling, controlled by or under common
control with another person; (ii) a person owning or controlling
10% or more of the outstanding securities of that other person;
(iii) any officer, director or partner of that other person; and
(iv) if that other person is an officer, director or partner, any
company for which that person acts in any such capacity (person
shall include any natural person, partnership, corporation,
association or other legal entity).
2.2 Capital Accounts. The accounts maintained for
each Partner in accordance with Section 10.5 hereof.
2.3 General Partner. Each of the initial General
Partners designated in the Preamble and any other person or
entity who shall hereafter become a General Partner.
2.4 Holder of Record or Holder of a Share.
(a) a General Partner;
(b) a Limited Partner if he or it has not
redeemed or transferred all of his (its) Shares of the
Partnership pursuant to Sections 8 or 11;
(c) a purchaser of a Share or Shares of the
Partnership who has made good payment to the Partnership and who
has not redeemed all his Shares; or
(d) the successor in interest of a Partner under
Section 11.
2.5 Limited Partner. The original Limited Partner and
all other persons who shall hereafter be admitted to the
Partnership as additional Limited Partners or Substituted Limited
Partners, except those persons who:
(a) have redeemed all Shares of the Partnership
owned by them and such redemption has been reflected in the
Partnership List; or
(b) have been replaced by a Substituted Limited
Partner to the extent of their entire Limited Partnership
Interest. Reference to a "Limited Partner" shall mean any one of
the Limited Partners.
2.6 Majority Vote. The affirmative vote of the lesser
of (i) 67% or more of the Shares represented at a meeting and
entitled to vote if more than 50% of the then outstanding shares
are present or represented by proxy, or (ii) more than 50% of the
then outstanding Shares entitled to vote.
2.7 Managing General Partner. Each General Partner
who is an individual.
2.8 Net Asset Value (per Share). The value (in U.S.
Dollars) of a Share as determined in accordance with Section 7.2
hereof.
2.9 Non-Managing General Partner. Each General
Partner that is not an individual (i.e., any General Partner that
is a corporation, association, partnership, joint venture or
trust).
2.10 Officers. Those persons designated by the
Managing General Partners to perform administrative and
operational functions on behalf of the Managing General Partners.
2.11 Person. An individual, partnership, joint
venture, association, corporation or trust.
2.12 Partners. Collectively, the General Partners and
the Limited Partners. "Partner" means any one of the Partners.
2.13 Partnership. The limited partnership created and
continued by this Partnership Agreement.
2.14 Partnership Act. The California Revised Limited
Partnership Act (Chapter 3 of Title 2 of the Corporations Code of
California) as such Act may be amended from time to time.
2.15 Partnership Group. All other limited partnerships
organized under the Partnership Act of which Franklin Resources,
Inc. or any parent, subsidiary or affiliate of Franklin
Resources, Inc. is a General Partner and which are registered
under the 1940 Act as open-end management investment companies.
2.16 Partnership List. A current list of all the
Partners containing the information specified in Section
13.1(a)(i) hereof.
2.17 Registration Statement. The Registration
Statement on Form N-1A, registering the Shares of the Partnership
under the Securities Act of 1933 and the 1940 Act, as such
Registration Statement may be amended from time to time.
2.18 Secretary of State. The Secretary of State of the
State of California.
2.19 Share (including fractional Shares). A
partnership interest in the Partnership. Reference to "Shares"
shall be to more than one Share.
2.20 Substituted Limited Partner. A successor in
interest of a Limited Partner who has complied with the
conditions set forth in Section 11.
2.21 Tax Code. The Internal Revenue Code of 1986 or
corresponding provisions of subsequent revenue laws, and all
regulations, rulings and other promulgations or judicial
decisions thereunder.
2.22 Transfer Agent. The person appointed by the
Managing General Partners to be primarily responsible for
maintaining the Partnership List and certain other records of the
Partnership.
2.23 1940 Act. The Investment Company Act of 1940, as
amended, or as it may hereafter be amended, and the Rules and
Regulations thereunder.
3. ACTIVITIES AND PURPOSE
3.1 Operating Policy. The Partnership will be
authorized and empowered to operate and will operate as an open-
end, diversified management investment company registered
pursuant to the 1940 Act.
3.2 Investment Objectives. Subject to the limitations
set forth in this Partnership Agreement, the investment objective
of the Partnership shall be to invest and reinvest its assets in
investment securities which shall consist primarily, but not
necessarily exclusively, of debt securities.
3.3 Investment and Operating Limitations. The
following additional fundamental policies and investment
restrictions have been adopted by the Partnership and cannot be
changed except by Majority Vote. These investment restrictions
provide that the Partnership may not:
(a) With respect to at least 75% of its total
assets, invest in the securities of any one issuer (other than
the U.S. Government and its agencies and instrumentalities), if
immediately after and as a result of such investment (i) more
than 5% of the total assets of the Partnership would be invested
in such issuer or (ii) more than 10% of the outstanding voting
securities of such issuer would be owned by the Partnership.
(b) Make loans to others, except through the
purchase of debt securities in accordance with its investment
objectives and policies or to the extent the entry into a
repurchase agreement is deemed to be a loan.
(c) (i) borrow money, except temporarily from a
bank for extraordinary or emergency purposes and then not in
excess of 5% of its total assets (at the lower of cost or fair
market value). Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least
300% of all borrowings.
(ii) Mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowings.
(d) Purchase securities on margin, sell
securities short, participate on a joint or joint and several
basis in any securities trading account, or underwrite
securities.(Does not preclude the Partnership from obtaining such
short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.)
(e) Buy or sell interests in oil, gas or mineral
exploration or development programs, or real estate. (Does not
preclude investments in marketable securities of companies
engaged in such activities.)
(f) Purchase or hold securities of any issuer,
if, at the time of purchase or thereafter, any of the General
Partners or Officers of the Partnership or its investment
adviser(s) own beneficially more than of 1%, and such General
Partners or Officers holding more than of 1% together own
beneficially more than 5% of the issuer's securities.
(g) Invest more than 5% of the value of its total
assets in securities of any issuer which has not had a record,
together with predecessors, of at least three years of continuous
operation.
(h) Purchase or sell commodities or commodity
contracts or invest in puts, calls, straddles or spread options.
(Does not preclude authorized transactions in foreign
currencies.)
(i) Invest in securities of other investment
companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets.
(j) Invest more than 10% of its assets in
securities with legal or contractual restrictions or which are
not readily marketable (except for permissible transactions in
repurchase agreements).
(k) Invest in any issuer for purposes of
exercising control or management.
3.4 Other Authorized Activities. Subject to the
limitations set forth in this Partnership Agreement, the
Partnership shall have the power to purchase and sell securities,
issue evidences of indebtedness in connection with Partnership
business, to join or become a partner in limited or general
partnerships and to do any and all other things and acts, and to
exercise any and all of the powers that a natural person could do
or exercise and which now or hereafter may be lawfully done or
exercised by a limited partnership.
4. GENERAL PARTNERS
4.1 Identity and Number. The names of the General
Partners and their last known business or residence address shall
be set forth in the Certificate of Limited Partnership, as it may
be amended from time to time; this same information, together
with the amounts of the contributions of each General Partner and
their current Share ownership, shall be set forth in alphabetical
order in the Partnership List. The General Partners shall be
identified as such on the Partnership List and also shall be
identified separately as Managing General Partners or Non-
Managing General Partners. The Managing General Partners may from
time to time recommend to the Partners that additional persons be
admitted as General Partners; provided, however, that if at any
time following the effective date of the Partnership's
Registration Statement the number of Managing General Partners is
reduced to less than three, the remaining Managing General
Partners shall, within 120 days, call a meeting of Partners for
the purpose of electing an additional Managing General Partner or
Managing General Partners so as to restore the number of Managing
General Partners to at least three.
4.2 Managing and Non-Managing General Partners. Only
individuals may act as Managing General Partners, and all General
Partners who are individuals shall act as Managing General
Partners. Any General Partner that is a corporation, association,
partnership, joint venture or trust shall act as a Non-Managing
General Partner. Except as provided in Section 4.4 hereof, a Non-
Managing General Partner as such shall take no part in the
management, conduct or operation of the Partnership's activities
and shall have no authority to act on behalf of the Partnership
or to bind the Partnership. All General Partners, including
Managing and Non-Managing General Partners, shall be subject to
election and removal by the Partners as hereinafter provided.
4.3 General Partners' Contributions.
(a) Each General Partner, as such, shall make a
contribution of cash to the Partnership sufficient to purchase at
least one Share and shall continue to own unencumbered at least
one such Share at all times while serving as a General Partner.
The amount contributed by each General Partner shall be the
amount actually invested in Shares of the Partnership at their
Net Asset Value, which amount shall not include any sales
charges. The amount of such contributions and the number of
Shares owned by each General Partner shall be set forth in the
Partnership List.
(b) The Non-Managing General Partner shall, in
its capacity as such Non-Managing General Partner, be obligated
to contribute to the Partnership through the purchase of Shares
from time to time amounts sufficient to enable the General
Partners in the aggregate, to maintain in their capacities as
General Partners an interest in each material item of Partnership
income, gain, loss, deduction or credit equal to at least 1% of
each such item at all times during the existence of the
Partnership. If upon termination of the Partnership, the General
Partners have a negative balance in their Capital Accounts, they
shall in their capacity as General Partners be obligated to make
additional capital contributions in cash equal to the lesser of
(i) the negative balance in their Capital Accounts or (ii) the
amount, if any, by which 1.01% of the total capital contributions
of the Limited Partners exceeds the total capital contributions
of the General Partners prior to such termination. For as long as
the Non-Managing General Partner retains its status as such, it
shall not redeem or assign Shares held by it in its capacity as
the Non-Managing General Partner or otherwise accept
distributions in cash or property if such action would result in
the failure of the General Partners to maintain such an interest.
In the event that the Non-Managing General Partner is removed or
stands for re-election and is not re-elected by the Partners
pursuant to Section 9 hereof, the Non-Managing General Partner
may, upon not less than thirty (30) days' written notice, redeem
its Shares in the same manner as is provided in Section 8 hereof.
In the event that the Non-Managing General Partner voluntarily
withdraws or declines to stand for re-election, the Non-Managing
General Partner may, upon not less than thirty (30) days' written
notice following the occurrence of an event described in (i),
(ii) or (v) in Section 4.8(a), redeem its Shares in the same
manner as provided in Section 8. In the event that the Non-
Managing General Partner is removed, stands for re-election and
is not re-elected, voluntarily withdraws or declines to stand for
re-election, the Managing General Partners shall cause the
Certificate of Limited Partnership to be amended as provided in
Section 14.4 hereof to reflect such withdrawal.
4.4 Management and Control. Subject to the terms of
the Partnership Agreement and the 1940 Act, the Partnership will
be managed by the Managing General Partners, who will have
complete and exclusive control over the management, conduct and
operation of the Partnership's activities, and, except as
otherwise specifically provided in this Partnership Agreement,
the Managing General Partners shall have the rights, powers and
authority, on behalf of the Partnership and in its name, to
exercise all of the rights, powers and authority of partners of a
partnership without limited partners. The Managing General
Partners may contract on behalf of the Partnership in conformity
with the 1940 Act with one or more banks, trust companies or
investment advisers for the performance of such functions as the
Managing General Partners may determine, but subject always to
their continuing supervision, including, without limitation, the
investment and reinvestment of all or part of the Partnership's
assets and execution of portfolio transactions, the distribution
of Shares, and any or all administrative functions. The Managing
General Partners may appoint officers or agents to perform such
duties on behalf of the Partnership and the Managing General
Partners as the Managing General Partners deem desirable. Such
officers or agents need not be General or Limited Partners. The
Managing General Partners may also employ persons to perform
various duties on behalf of the Partnership as employees of the
Partnership. The Managing General Partners shall devote
themselves to the affairs of the Partnership to the extent they
may determine necessary for the efficient conduct thereof, which
need not, however, occupy their full time. The General Partners
may also engage in other activities or businesses, whether or not
similar in nature to the activities of the Partnership, subject
to the limitations of the 1940 Act.
In the event that no Managing General Partner shall
remain for the purpose of managing and conducting the operations
of the Partnership, the Non-Managing General Partner shall
promptly call a meeting of the Limited Partners to be held within
sixty (60) days of the date the last Managing General Partner
ceases to act in such capacity to elect new Managing General
Partners up to a maximum number of Managing General Partners
theretofore admitted to the Partnership (but no fewer than
three). For the period of time during which no Managing General
Partner shall remain, the Non-Managing General Partner, subject
to the terms and provisions of this Partnership Agreement, shall
be permitted to engage in the management, conduct and operation
of the activities of the Partnership.
4.5 Action by the Managing General Partners. Unless
otherwise required by the 1940 Act with respect to any particular
action, the Managing General Partners shall act only by the vote
of a majority of the Managing General Partners at a meeting duly
called at which a quorum of the Managing General Partners is
present or by unanimous written or telephonic consent of the
Managing General Partners without a meeting. At any meeting of
the General Partners, a majority of the Managing General Partners
shall constitute a quorum. If there shall be more than one
Managing General Partner, no single Managing General Partner
shall have authority to act on behalf of the Partnership or to
bind the Partnership. The Managing General Partners shall appoint
one of their number to be Chairman. Meetings of the Managing
General Partners may be called orally or in writing by the
Chairman or by any two Managing General Partners. Notice of the
time, date and place of all meetings of the Managing General
Partners shall be given by an Officer or by the party calling the
meeting to each Managing General Partner by telephone or telegram
sent to his home or business address at least twenty-four hours
in advance of the meeting or by written notice mailed to his home
or business address at least seventy-two hours in advance of the
meeting. Notice need not be given to any Managing General Partner
who attends the meeting without objecting to the lack of notice
or who executes a written waiver of notice with respect to the
meeting. The Chairman, if present, shall preside at all meeting
of Partners.
4.6 Limitations of the Authority of the Managing
General Partners. The Managing General Partners shall have no
authority without the vote or written consent or ratification of
the Limited Partners to:
(a) do any act in contravention of this
Partnership Agreement, as it may be amended from time to time;
(b) do any act which would make it impossible to
carry on the ordinary operations of the Partnership;
(c) confess a judgment against the Partnership;
(d) possess Partnership property, or assign their
rights in specific property, for other than a partnership
purpose;
(e) admit a person as a General Partner except in
accordance with Section 9 hereof; or
(f) admit a person as a Limited Partner, except
in accordance with Section 5 hereof.
4.7 Right of General Partners to Become Limited
Partners. A General Partner may also own Shares as a Limited
Partner without obtaining the consent of the Limited Partners and
thereby become entitled to all the rights of a Limited Partner to
the extent of the Limited Partnership interest so acquired. Such
event shall not, however, be deemed to reduce or otherwise affect
any of the General Partners' liability hereunder as a General
Partner. If a General Partner shall also become a Limited
Partner, the contributions and Share ownership of such General
Partner shall be separately designated in the Partnership List to
reflect his interest in each capacity.
4.8 Termination of a General Partner.
(a) The interest of a General Partner shall
terminate and such party shall have no further right or power to
act as a General Partner (except to execute any amendment to this
Partnership Agreement to evidence his termination):
(i) upon death of the General Partner;
(ii) upon an adjudication of incompetency of
the General Partner;
(iii) if such Partner is removed or stands
for re-election and is not re-elected by the Partners, as
provided in Section 9 below;
(iv) in the case of the Non-Managing General
Partner, upon the filing of a certificate of dissolution, or its
equivalent, or voluntary or involuntary petition in bankruptcy
for such Non-Managing General Partner; or
(v) if such Partner voluntarily retires
upon not less than ninety (90) days' written notice to the other
General Partners.
(b) Notwithstanding the foregoing, the Non-
Managing General Partner shall not voluntarily withdraw or
otherwise voluntarily terminate its status as the Non-Managing
General Partner until the earliest of (i) 180 days from the date
that the Non-Managing General Partner gives the other General
Partners its written notice of its intention to withdraw as a Non-
Managing General Partner, (ii) the date that a successor Non-
Managing General Partner, who has agreed to assume the
obligations of Section 4.3(b) hereof, is elected by the Partners
pursuant to Section 9 hereof, or (iii) the date that another
General Partner assumes the obligations imposed upon the Non-
Managing General Partner pursuant to Section 4.3(b) hereof. The
failure of the Non-Managing General Partner to seek re-election
at any meeting of the Partners called for such purpose shall be
deemed to constitute a voluntary withdrawal as of the date of
notice of such meeting and shall constitute written notice as at
the date of such meeting of its intention to withdraw as a Non-
Managing General Partner, unless it has delivered written notice
at an earlier date.
(c) In the event a General Partner ceases to be a
General Partner, the remaining General Partners shall have the
right to continue the operations of the Partnership.
(d) Termination of a person's status as a General
Partner shall not affect his status, if any, as a Limited
Partner. A General Partner may retain Shares owned in his
capacity as a Limited Partner provided such General Partner has
been or is admitted to Partnership as a Limited Partner in
accordance with Section 5.2.
(e) A person who ceases to be a General Partner
shall nevertheless be deemed to be acting as a General Partner
with respect to a third party doing business with the Partnership
until an amended Certificate of Limited Partnership is filed with
the Secretary of State.
4.9 Additional or Successor General Partners. A
person may be added or substituted as a General Partner only upon
his admission by the Partners at a meeting of Partners or by
written consent without a meeting as provided in Section 9
hereof. Each General Partner, by becoming a General Partner,
consents to the admission as an added or substituted General
Partner of any person elected by the Partners in accordance with
this Partnership Agreement. Any person who is elected to be
admitted as a General Partner at a meeting of the Partners or by
written consent in accordance with Section 9 hereof and who shall
not be serving as a General Partner at the time of such election,
shall be admitted to the Partnership as a General Partner
effective as of the date of such election. Any General Partner
who is not re-elected at any such meeting in the manner specified
in Section 9 shall be deemed to have withdrawn as of the date of
such meeting.
4.10 Liability to Limited Partners. The General
Partners shall not be personally liable for the repayment of any
amounts standing in the account of a Limited Partner or holder of
Shares including, but not limited to, contributions with respect
to such Shares, except by reason of their wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of their office. Any payment, other than
in the event of wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of
his office by a General Partner, which results in a personal
liability to Limited Partners or holders of Shares, shall be
solely from the Partnership's assets.
So long as the General Partners have acted in good
faith and in a manner reasonably believed to be in the best
interests of the Limited Partners, the General Partners shall not
have any personal liability to any holder of Shares or to any
Limited Partner by reason of (1) any failure to withhold income
tax under Federal or state tax laws with respect to income
allocated to Limited Partners or (2) any change in the Federal or
state tax laws or in interpretation thereof as they apply to the
Partnership, the holders of the Shares or the Limited Partners,
whether such change occurs through legislative, judicial or
administrative action.
4.11 Assignment and Substitution. Each Share held by a
General Partner in his capacity as a General Partner shall be
designated as such, and each such Share shall be nonassignable,
except to another person who already is a General Partner, and
then only with the consent of the Managing General Partners, and
shall be redeemable by the Partnership only in the event that (i)
the holder thereof has ceased to be a General Partner of the
Partnership or (ii) in the opinion of counsel for the Partnership
redemption of Shares held by a General Partner would not
jeopardize the status of the Partnership as a partnership for
Federal income tax purposes.
4.12 No Agency. Except as provided in Section 15.9
below, nothing in this Partnership Agreement shall be construed
as establishing any General Partner as an agent of any Limited
Partner.
4.13 Reimbursement and Compensation. Managing General
Partners may receive reasonable compensation for their services
as Managing General Partners and will be reimbursed for all
reasonable out-of-pocket expenses incurred in performing their
duties hereunder.
4.14 Indemnification.
(a) Subject to the exceptions and limitations
contained in Subsection (b) below:
(i) Every person who is, or has been, a
General Partner, an officer and/or Director of a corporate
General Partner or Officer of the Partnership (hereinafter
referred to as "Covered Person") shall be indemnified by the
Partnership to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by
him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of
his being or having been a General Partner, an officer and/or
Director of a Corporate General Partner or officer of the
Partnership and against amounts paid or incurred by him in the
settlement thereof;
(ii) the words "claim", "action", "suit", or
"proceeding" shall include, without limitation, any
administrative inquiry, audit, investigation or other form of
regulatory actions and shall apply to all claims, actions, suits
or proceedings (civil, criminal or other, including appeals),
actual or threatened while in office or thereafter, and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided
hereunder to a Covered Person who shall have been finally
adjudicated by a court or other body before which the proceeding
was brought (i) to be liable to the Partnership or its Partners
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office or (ii) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the
Partnership.
(c) In the event of a settlement, or other
disposition not involving a final adjudication as provided
insubsection (b), indemnification shall be provided unless there
has been a determination that such Covered Person did engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office,
(i) by the court or other body approving
the settlement or other disposition;
(ii) by vote of at least a majority of those
Managing General Partners who are neither interested persons (as
defined in the 1940 Act) of the Partnership nor are parties to
the matter based upon a review of readily available facts (as
opposed to a full trial-type inquiry); or
(iii) by written opinion of independent legal
counsel, based upon a review of readily available facts (as
opposed to a full trial-type inquiry); provided, however, that
any Partner may, by appropriate legal proceedings, challenge any
such determination by the Managing General Partners, or by
independent counsel.
(d) The rights of indemnification herein provided
may be insured against by policies maintained by the Partnership,
shall be severable, shall not be exclusive of or affect any other
rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be such
General Partner, officer and/or Director of a Corporate General
Partner or officer of the Partnership and shall inure to the
benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to
indemnification to which Partnership personnel, other than
Covered Persons, and other persons may be entitled by contract or
otherwise under law.
(e) Expenses incurred in connection with the
preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in subsection (a)
of this Section 4.14 shall be paid by the Partnership from time
to time in advance prior to final disposition thereof upon
receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the Partnership if
it is ultimately determined that he is not entitled to
indemnification under this Section 4.14; provided, however, that
either (i) such Covered Persons shall have provided appropriate
security for such undertaking, (ii) the Partnership is insured
against losses arising out of any such advance payments, or (iii)
either a majority of the Managing General Partners who are
neither interested persons (as defined in the 1940 Act) of the
Partnership nor are parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a
review of readily available facts (as opposed to a full trial-
type inquiry), that there is reason to believe that such Covered
Person will be found entitled to indemnification under this
Section 4.14.
5. LIMITED PARTNERS
5.1 Identity of Limited Partners. The names of the
Limited Partners and their last known business or residence
addresses, together with the amounts of their contributions and
their current Share ownership, shall be set forth in alphabetical
order in the Partnership List.
5.2 Admission of Limited Partners. The Managing
General Partners may admit a purchaser of Shares as a Limited
Partner, upon (i) the execution by such purchaser of such
subscription documents and other instruments as the Managing
General Partners may deem necessary or desirable to effectuate
such admission, which documents, if any shall be required, shall
be described in the Partnership's Registration Statement, (ii)
the purchaser's acceptance of all the terms and provisions of
this Partnership Agreement, including the power of attorney set
forth in Section 15.9 hereof, as the same may have been amended
in such manner as shall be specified by the Managing General
Partners, and (iii) the addition of such purchaser to the
Partnership List. The admission of a purchaser as a Limited
Partner shall be effective upon his addition to the Partnership
List provided good payment has been received by the Partnership
for the purchased Shares. The Managing General Partners shall
cause the Partnership List to be amended daily on each day that
its Transfer Agent is open for business to reflect the admission
of new Limited Partners. In no event shall the consent or
approval of any of the Limited Partners be required to effectuate
such admission. Each purchaser of a Share of the Partnership who
becomes a Limited Partner shall be bound by all the terms and
conditions of this Partnership Agreement including, without
limitation, the allocation of income, gains, losses, deductions
and credits as provided in Section 10.3. Notwithstanding anything
in this Partnership Agreement to the contrary, the Managing
General Partners reserve the right to refuse to admit any Person
as a Limited Partner who has not completed, signed and furnished
to the Partnership or its designated agent an account
application, a Certificate of Foreign Status on Form W-8 or such
other required documents as may be described in the Registration
Statement, and any other Person if, in their judgment, it would
not be in the Partnership's best interests to admit such Person.
5.3 Contributions of the Limited Partners. The amount
contributed by each Limited Partner to the Partnership shall be
the amount actually invested in Shares of the Partnership at
their Net Asset Value, which amount shall not include any sales
charges and which amount may be less than the offering price paid
by such Limited Partner for his Shares to the extent the offering
price includes any sales charges. All contributions shall be made
in U.S. dollars, which shall be invested in Shares of the
Partnership at Net Asset Value. The amount of such contributions
and the number of Shares owned by each Partner shall be set forth
in the Partnership List.
5.4 Additional Contributions of Limited Partners. No
Limited Partner shall be required to make any additional
contributions to (or investments in) or lend additional funds to
the Partnership, and no Limited Partner shall be liable for any
additional assessment therefor. A Limited Partner may make an
additional contribution (or investment), however, at his option
through the purchase of additional Shares subject to the same
terms and conditions as his initial contribution.
5.5 Use of Contributions. The aggregate of all
capital contributions shall be, and hereby are agreed to be,
available to the Partnership to carry out the objects and
purposes of the Partnership.
5.6 Redemption by Limited Partners. A Limited Partner
may redeem his Shares at any time in accordance with Section 8.
The Managing General Partners shall cause the Partnership List to
be amended daily on each day that its Transfer Agent is open for
business to reflect the redemption of Shares by any Limited
Partner and the withdrawal or return through such redemption, in
whole or in part, of the contribution of any Limited Partner.
Except as provided in Sections 8.1, 10.04 and 12.2 hereof, a
Limited Partner shall have no right to the return or withdrawal
of his contribution.
5.7 Minimum Contribution and Mandatory Redemption.
The Managing General Partners shall determine the minimum amounts
required for the initial or additional contributions of a Limited
Partner, which amounts may, from time to time, be changed by the
Managing General Partners. Additionally, the Managing General
Partners may, from time to time, establish a minimum total
investment for Limited Partners, and there is reserved to the
Partnership the right to redeem automatically the interest of any
Limited Partner the value of whose investment, due to
redemptions, is less than such minimum upon the giving of at
least 30 days' notice to such Limited Partner, provided that such
minimum total investment is not greater than the investment of
any Limited Partner at the time the new minimum total investment
becomes effective. The amounts which the Managing General
Partners shall fix from time to time for initial or additional
contributions and the amount of the minimum total investment
shall be stated in the Partnership's current Registration
Statement.
5.8 Limited Liability.
(a) No Limited Partner shall be liable for any
debts or obligations of the Partnership and each Limited Partner
shall be indemnified by the Partnership against any such
liability; provided, however, that contributions of a Limited
Partner and his share of any undistributed assets of the
Partnership shall be subject to the risks of the operations of
the Partnership and subject to the claims of the Partnership's
creditors, and provided further, that after any Limited Partner
has redeemed his Shares or otherwise received the return of any
part of his contribution or any distribution of assets of the
Partnership, he will be liable to the Partnership for:
(i) any money or other property wrongfully
distributed to him; and
(ii) any sum, not in excess of the amount of
such distribution, necessary to discharge any liabilities of the
Partnership to creditors who extended credit or whose claims
arose before such returns or distributions were made, but only to
the extent that the assets of the Partnership are not sufficient
to discharge such liabilities.
The obligation of a Limited Partner to return all
or any part of a distribution made to him shall be the sole
obligation of such Limited Partner and not of the General
Partners.
(b) If an action is brought against a Limited
Partner to satisfy an obligation of the Partnership, the
Partnership, upon notice from the Limited Partner about the
action, will either pay the claim itself or, if the Partnership
believes the claim to be without merit, will undertake the
defense of the claim itself.
(c) The General Partners shall not have any
personal liability to any Holder of Shares or to any Limited
Partner for the repayment of any amounts standing in the account
of a Limited Partner including, but not limited to, contributions
with respect to such Shares. Any such payment shall be solely
from the assets of the Partnership. The General Partners shall
not be liable to any Holder of Shares or to any Limited Partner
by reason of any change in the Federal income tax laws or any
State or local income or franchise tax laws as they apply to the
Partnership or the Limited Partners, whether such change occurs
through legislative, judicial or administrative action, so long
as the General Partners have acted in good faith and in a manner
reasonably believed to be in the best interests of the Limited
Partners.
5.9 No Power to Control Operations. A Limited Partner
shall have no right to and shall take no part in control of the
Partnership's operations or activities but may exercise the
rights and powers of a Limited Partner under this Partnership
Agreement, including without limitation, the voting rights and
the giving of consents and approvals provided for in Section 9
hereof. The exercise of such rights and powers are deemed to be
matters affecting the basic structure of the Partnership and not
the control of its operations or activities.
5.10 Tax Responsibility. Each Limited Partner shall
(a) provide the Managing General Partners with any tax
information which may be required under applicable law, (b) pay
any penalties imposed on such Limited Partner for any non-
compliance with applicable tax laws, and (c) be subject to
withholding of income tax by the Partnership to the extent
required by law.
6. SHARES OF PARTNERSHIP INTEREST
All interests in the Partnership, including
contributions by the General Partners, pursuant to Section 4.3
and by the Limited Partners, pursuant to Section 5.3, shall be
expressed in units of participation herein referred to as
"Shares" (which term includes fractional Shares). Each Share
shall represent an equal proportionate interest in the income and
assets of the Partnership with each other Share outstanding.
7. PURCHASE AND EXCHANGE OF SHARES
7.1 Purchase of Shares. The Partnership may offer
Shares on a continuing basis to investors. Except for the initial
purchase of Shares by the initial Limited Partner and the General
Partners, all Shares issued shall be issued and sold at the Net
Asset Value (plus such sales charge or other charge as may be
applicable to the purchase of the Shares) next computed after
receipt of a purchase order in accordance with the Partnership's
Registration Statement in effect at the time the order is
received. Only investors who agree to be admitted, and who are
eligible for admission, as Limited Partners pursuant to Section
5.2 shall be eligible to purchase Shares (unless such investor
has already been admitted as a Partner). Orders for the purchase
of Shares shall be accepted on any day that the Partnership's
Transfer Agent is open for business (which shall normally be
limited to those days when the New York Stock Exchange is open
for business). The form in which purchase orders may be presented
shall be as set forth in the Partnership's Registration Statement
in effect at the time the order is received. The Managing General
Partners on behalf of the Partnership reserve the right to reject
any specific order and to suspend the Partnership's offering of
new Shares at any time. Payment for all Shares must be made in
U.S. dollars.
7.2 Net Asset Value. The Net Asset Value per Share of
the Partnership shall be determined as of the close of the New
York Stock Exchange on each day the Exchange is open for trading
or as of such other time or times as the Managing General
Partners may determine in accordance with the provisions of the
1940 Act. The Net Asset Value per Share shall be expressed in
U.S. dollars and shall be computed by dividing the value of all
the assets of the Partnership, less its liabilities, by the
number of Shares outstanding (including Shares held by General
Partners). Portfolio securities will be valued at their fair
value using methods determined in good faith by the Managing
General Partners in accordance with the 1940 Act. The Partnership
may suspend the determination of the Net Asset Value during any
period when the New York Stock Exchange is closed, other than
customary weekend and holiday closings, during periods when
trading on the Exchange is restricted as determined by the
Securities and Exchange Commission (the "Commission") or during
any emergency as determined by the Commission which makes it
impracticable for the Partnership to dispose of its securities or
value its assets, or during any other period permitted by order
of the Commission for the protection of investors.
7.3 Exchange of Shares. Shares of the Partnership may
be exchanged for (i.e., redeemed and reinvested in) shares of
other investment companies as provided in the Partnership's
Registration Statement in effect at the time of the exchange.
8. REDEMPTION OR REPURCHASE OF SHARES
8.1 Redemption of Shares.
(a) The Partnership will redeem from any Partner
all or any portion of the Shares owned by him provided that the
Partner delivers to the Partnership or its designated agent
notice of such redemption, stating the number of Shares to be
redeemed, together with a properly endorsed Share certificate(s)
where certificate(s) have been issued, in good order for transfer
and in proper form as determined by the Managing General Partners
and the Partnership's Transfer Agent. The Partner shall be
entitled to payment in U.S. Dollars of the Net Asset Value of his
Shares (as set forth in Section 7.2 hereof). Any such redemption
shall be in accordance with Section 4 with respect to General
Partners or Section 5 with respect to Limited Partners. Any
distribution upon redemption pursuant to this Section 8.1 shall,
in accordance with Section 10.4 below, constitute a return in
full of the redeeming Partner's contribution attributable to the
Shares which are redeemed regardless of the amount distributed
with respect to such Shares. No consent of any of the Partners
shall be required for the withdrawal or return of a Limited
Partner's contribution. The Managing General Partners shall have
sole discretion to determine the amount of cash to be distributed
to a withdrawing Partner. All redemptions shall be recorded on
the Partnership List, which shall be amended daily on each day
that the Partnership's Transfer Agent is open for business.
(b) The Managing General Partners may suspend
redemptions and defer payment of the redemption price at any
time, subject to the Rules and Regulations of the Securities and
Exchange Commission. The Partnership may suspend or withhold
redemptions or repurchases of shares (including exchanges
pursuant to Section 7.3) or redeem shares for the purpose of
satisfying any tax withholding obligations under Federal or state
tax laws.
8.2 Payment for Redeemed Shares. Payments for Shares
redeemed or repurchased by the Partnership will be made in U.S.
Dollars within seven days after receipt by the Partnership's
Transfer Agent of a written redemption request in proper form as
specified in Section 8.1 above. If a redemption request is
received with respect to Shares for which the Partnership has not
yet received good payment, the Partnership may delay the mailing
of a redemption check until such time as it has assured itself
that good payment has been collected for the purchase of such
Shares.
9. MATTERS AFFECTING THE PARTNERSHIP'S BASIC STRUCTURE
9.1 Rights of Limited Partners.
(a) As provided in the Partnership Act, the
Limited Partners shall have the right to vote together with the
General Partners in accordance with the provisions of this
Section 9 only upon the following matters affecting the basic
structure of the Partnership, which include the voting, approval,
consent or similar rights required under the 1940 Act for voting
security holders:
(i) the right to remove General Partner(s);
(ii) the right to elect new General
Partner(s), except in the circumstance where the last remaining
or surviving General Partner has been removed;
(iii) the right to approve or terminate
investment advisory, underwriting and distribution contracts and
plans;
(iv) the right to ratify or reject the
appointment and to terminate the employment of the independent
public accountants of the Partnership;
(v) the right to approve or disapprove the
sale of all or substantially all of the assets of the
Partnership;
(vi) the right to approve the incurrence of
indebtedness by the Partnership other than in the ordinary course
of its operations;
(vii) the right to approve transactions in
which the General Partners have an actual or potential conflict
of interest with the Limited Partners or the Partnership;
(viii) the right to terminate the
Partnership, as provided in Section 12 hereof;
(ix) the right to elect to continue the
operations of the Partnership, except in circumstances where the
last remaining or surviving General Partner has been removed; and
(x) the right to amend this Partnership
Agreement, including, without limitation, the right to approve or
disapprove proposed changes in the investment and operating
limitations set forth in Section 3.3 and the right to approve or
disapprove proposed changes in the nature of the Partnership's
activities as such activities are described herein; provided,
however, that no such amendment shall conflict with the 1940 Act
so long as the Partnership intends to remain registered
thereunder, nor affect the liability of the General Partners
without their consent nor the limited liability of the Limited
Partners as provided under Section 5.8 above.
Notwithstanding the foregoing, the right of
Limited Partners to vote on matters affecting the basic structure
of the Partnership as designated herein shall not be construed as
a requirement that all such matters be submitted to the Limited
Partners for their approval or be so approved to the extent such
approval is not required by the Partnership Act, the 1940 Act or
this Partnership Agreement.
(b) Notwithstanding the foregoing, no vote,
approval or other consent shall be required of the Limited
Partners with respect to any matter not affecting the basic
structure of the Partnership, including, without limitation, the
following:(i) any change in the amount or character of the
contribution of any Limited Partner; (ii) any change in the
procedures for the purchase or redemption of Shares, (iii) the
substitution or deletion of a Limited Partner; (iv) the admission
of any additional Limited Partner; (v) the retirement,
resignation, death or incompetency of a Managing General Partner;
(vi) any addition to the duties or obligations of the General
Partners, or any reduction in the rights or powers granted to the
General Partners herein, for the benefit of the Limited Partners;
(vii) the correction of any false or erroneous statement, or
change in any statement in order to make such statement
accurately represent the agreement among the General and Limited
Partners, in this Partnership Agreement; (viii) the addition of
any omitted provision or amendment of any provision to cure,
correct or supplement any ambiguous, defective or inconsistent
provision hereof; or (ix) such amendments as may be necessary to
conform this Partnership Agreement to the requirements of the
Partnership Act, the 1940 Act, the Tax Code or any other law or
regulation applicable to the Partnership.
(c) The Limited Partners shall have no right or
power to cause the termination and dissolution of the Partnership
except as set forth in this Partnership Agreement. No Limited
Partner shall have the right to bring an action for partition
against the Partnership.
9.2 Action of the Partners. Actions which require the
vote of the Limited Partners under Section 9.1 of this
Partnership Agreement shall be taken at a meeting of both the
General and Limited Partners, or by consent without a meeting as
provided in Section 9.10. All Partners' meetings shall be held at
such place as the Managing General Partners shall designate. The
Partners may vote at any such meeting in person or by proxy.
9.3 Meetings. Meetings of the Partnership for the
purpose of taking any action which the Limited Partners are
permitted to take under this Partnership Agreement may be called
by a majority vote of the Managing General Partners or by Limited
Partners representing 10% or more of the outstanding Shares.
Written notice of such meeting shall be given in accordance with
Section 9.4.
9.4 Notices.
(a) Whenever Partners are required or permitted
to take any action at a meeting, a written notice of the meeting
shall be given not less than ten (10), nor more than sixty (60),
days before the date of the meeting to each Partner entitled to
vote at the meeting. The notice shall state the place, date, and
hour of the meeting and the general nature of the business to be
transacted, and no other business may be transacted.
(b) Notice of a Partners' meeting or any report
shall be given either personally or by mail or other means of
written communication, addressed to the Partner at the address of
the Partner appearing on the books of the Partnership or given by
the Partner to the Partnership for the purpose of notice, or, if
no address appears or is given, at the place where the principal
executive office of the Partnership is located or by publication
at least once in a newspaper of general circulation in the county
in which the principal executive office is located. The notice or
report shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other
means of written communication. An affidavit of mailing of any
notice or report in accordance with the provisions of this
subsection, executed by a General Partner, shall be prima facie
evidence of the giving of the notice or report.
If any notice or report addressed to the Partner
at the address of the Partner appearing on the books of the
Partnership is returned to the Partnership marked to indicate
that the notice or report to the Partner could not be delivered
at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if they are
available for the Partner at the principal executive office of
the Partnership for a period of one year from the date of the
giving of the notice or report to all other Partners.
(c) Upon written request to the General Partners
by any person entitled to call a meeting of Partners, the General
Partners immediately shall cause notice to be given to the
Partners entitled to vote that a meeting will be held at a time
requested by the person calling the meeting, not less than ten
(10), 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 entitled to call the
meeting may give the notice.
9.5 Validity of Vote for Certain Matters. Any Partner
approval at a meeting, other than unanimous approval by those
entitled to vote, with respect to the matters set forth in
Section 9.1(a) shall be valid only if the general nature of the
proposal so approved was stated in the notice of meeting or in
any written waiver of notice.
9.6 Adjournment. When a Partners' meeting is
adjourned to another time or place, notice need not be given of
the adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the
adjourned meeting the Partnership may transact any business which
might have been transacted at the original meeting. If the
adjournment is for more than forty-five (45) days or if after the
adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each Partner
of record entitled to vote at the meeting in accordance with
Section 9.4.
9.7 Waiver of Notice and Consent to Meeting. The
transactions of any meeting of Partners, however called and
noticed, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote, not
present in person or by proxy, signs a written waiver of notice
or a consent to the holding of the meeting or an approval of the
minutes thereof. All waivers, consents, and approvals shall be
filed with the Partnership records or made a part of the minutes
of the meeting. Attendance of a person at a meeting shall
constitute a waiver of notice of the meeting, except when the
person objects, at the beginning 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 required to be included in the notice of
the meeting but not so included, if the objection is expressly
made at the meeting. Neither the business to be transacted at nor
the purpose of any meeting of Partners need be specified in any
written waiver of notice, except as provided in Section 9.6.
9.8 Quorum. The presence in person or by proxy of
more than forty percent (40%) of the outstanding Shares on the
record date for any meeting constitutes a quorum at such meeting.
The Partners present at a duly called or held meeting at which a
quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough Partners to
leave less than a quorum, if any action taken (other than
adjournment) is approved by Partners holding a majority of the
Shares then represented at such meeting (except as otherwise may
be required by the 1940 Act or the Partnership Act). In the
absence of a quorum, any meeting of Partners may be adjourned
from time to time by the vote of a majority in interest of the
Limited Partners represented either in person or by proxy, but no
other business may be transacted except as provided in this
Section 9.8. The Managing General Partners may adjourn such
meeting to such time or times as determined by the Managing
General Partners.
9.9 Required Vote. Any action which requires the vote
of the Limited Partners may be taken by the General Partners with
(i) the Majority Vote of the then outstanding Shares or (ii) if
at a meeting, with a majority vote of those Shares present if the
quorum requirements of Section 9.8 hereof have been satisfied
(except as otherwise may be required by the 1940 Act or the
Partnership Act); provided, however, that the admission of a
General Partner shall require the affirmative vote of at least a
majority of the then outstanding Shares, and provided further,
that the admission of a General Partner or an election to
continue the operations of the Partnership after a General
Partner ceases to be a General Partner (other than by removal)
when there is no remaining or surviving General Partner shall
require the affirmative vote of all the Limited Partners.
9.10 Action by Consent Without a Meeting. Any action
which may be taken at any meeting of the Partners may be taken
without a meeting if a consent in writing, setting forth the
action so taken, shall be signed by Partners having not less than
the minimum number of votes that would be necessary to authorize
or take that action at a meeting. In the event the Limited
Partners are requested to consent on a matter without a meeting,
each Partner shall be given notice of the matter to be approved
in the same manner as described in Section 9.4. In the event any
General Partner, or Limited Partners representing 10% or more of
the outstanding Shares request a meeting for the purpose of
discussing or voting on the matter, notice of such meeting shall
be given in accordance with Section 9.4 and no action shall be
taken until such meeting is held. Unless delayed in accordance
with the provisions of the preceding sentence, any action taken
without a meeting will be effective ten (10) days after the
required minimum number of voters have signed the consent;
however, the action will be effective immediately if the General
Partners and Limited Partners representing at least 90% of the
Shares of the Partners have signed the consent.
9.11 Record Date.
(a) In order that the Partnership may determine
the Partners of record entitled to notices of any meeting or to
vote, or entitled to receive any distribution or to exercise any
rights in respect of any other lawful action, the Managing
General Partners, or Limited Partners representing more than 10%
of the Shares then outstanding, may fix, in advance, a record
date which is not more than sixty (60) or less than ten (10)
days prior to the date of the meeting and not more than sixty
(60) days prior to any other action. If no record date is fixed,
the record date shall be determined as provided in the
Partnership Act.
(b) The determination of Partners of record
entitled to notice of or to vote at a meeting of Partners shall
apply to any adjournment of the meeting unless the Managing
General Partners, or the Limited Partners who called the meeting,
fix a new record date for the adjourned meeting, but the Managing
General Partners, or the Limited Partners who called the meeting,
shall fix a new record date if the meeting is adjourned for more
than forty-five (45) days from the date set for the original
meeting.
(c) Any Holder of a Share prior to the record
date for a meeting shall be entitled to vote at such meeting,
provided such person becomes a Partner prior to the date of the
meeting.
9.12 Proxies. A Partner may vote at any meeting of the
Partnership by a proxy executed in writing by the Partner. All
such proxies shall be filed with the Partnership before or at the
time of the meeting. The law of California pertaining to
corporate proxies will be deemed to govern all Partnership
proxies as if they were proxies with respect to shares of a
California corporation. A proxy may be revoked by the person
executing the proxy in a writing delivered to the Managing
General Partners at any time prior to its exercise.
Notwithstanding that a valid proxy is outstanding, powers of the
proxy holder will be suspended if the person executing the proxy
is present at the meeting and elects to vote in person.
9.13 Number of Votes. All Shares have equal voting
rights. Each Partner shall have the right to vote the number of
Shares standing of record in such Partner's name as of the record
date set forth in the notice of meeting.
10. DISTRIBUTIONS AND ALLOCATION OF PROFITS AND LOSSES
10.1 Fees of General Partners. As compensation for
services rendered to the Partnership, each Managing General
Partner may be paid a fee during each year, which fee shall be
fixed by the Managing General Partners. All the General Partners
shall be entitled to reimbursement of reasonable expenses
incurred by them in connection with their performance of their
duties as General Partners. Neither payment of compensation or
reimbursement of expenses to a General Partner hereunder nor
payment of fees to any Affiliate of a General Partner for the
performance of services to the Partnership shall be deemed a
distribution for purposes of Section 10.2, nor shall any such
payment affect such person's right to receive any distribution to
which he would otherwise be entitled as a Holder of Shares.
10.2 Distributions of Income and Gains. Subject to the
provisions of the Partnership Act and the terms of Section 10.4
hereof, the Managing General Partners in their sole discretion
shall determine the amounts, if any, to be distributed to Holders
of Shares, the record date for purposes of such distributions and
the time or times when such distributions shall be made.
Distributions of income may be in cash (U.S. Dollars) or in
additional full and fractional Shares of the Partnership, at the
option of the Holder of Shares, valued at the Net Asset Value on
the record date, which amount may be less than the offering price
to the extent it includes any sales charges. With respect to
capital gains, the Managing General Partners may determine at
least annually what portion, if any, of the Partnership's capital
gains will be distributed and any such distribution may be in
cash or in additional full and fractional Shares of the
Partnership at the Net Asset Value on the record date.
Notwithstanding the foregoing, the Managing General Partners
shall not be required to make any distribution of income or
capital gains for any taxable year. The Managing General Partners
may require that such distributions be reinvested in additional
shares of the Partnership, determine that no withdrawal should be
made from an account, or institute withholding of taxes pursuant
to Federal or state tax laws on distributions to the extent
required by law.
10.3 Allocation of Income, Gains, Losses, Deductions
and Credits. The net income, gains, losses, deductions and
credits of the Partnership shall be allocated equally among the
outstanding Shares of the Partnership on a regular basis to be
determined by the Managing General Partners. The net income
earned by the Partnership shall consist of the interest accrued
on portfolio securities, less expenses, since the most recent
determination of income. Original issue discount will be
amortized as an income item. Market discount and premiums will be
treated as capital items except as otherwise required for Federal
income tax purposes. Expenses of the Partnership will be accrued
on a regular basis to be determined by the Managing General
Partners. A Holder of a Share shall be allocated the
proportionate part of such items actually realized by the
Partnership for each such full accrual period during which such
Share was owned by such Holder. A person shall be deemed to be a
Holder of a Share on a specific day if he is the record holder of
such Share on such day (regardless of whether or not such record
holder has yet been admitted as a Partner).
10.4 Returns of Contributions. Except upon dissolution
of the Partnership by expiration of its terms or otherwise
pursuant to Section 12 hereof (which shall be the time for return
to each Partner of the value of the Shares acquired by his
contributions, subject to the priorities therein), and except
upon redemption of Shares of the Partnership as provided in
Section 8, no Partner has the right to demand return of any part
of his contribution. The Managing General Partners may, however,
from time to time, elect to permit partial returns of the value
of the Shares acquired by his contributions to Holders of Shares,
provided that:
(a) all liabilities of the Partnership to persons
other than General and Limited Partners have been paid or, in the
good faith determination of the Managing General Partners, there
remains property of the Partnership sufficient to pay them; and
(b) the Managing General Partners cause the
Partnership List to be amended to reflect a reduction in
contributions.
In the event that the Managing General Partners
elect to make a partial return of the value of Shares acquired by
contributions to Holders of Shares, such distribution shall be
made pro rata to all of the Holders of Shares in accordance with
the number of Shares held by each. Each General and Limited
Partner, by becoming such, consents to any such pro rata
distribution therefore or thereafter duly authorized and made in
accordance with such provisions and to any distribution through
redemption of Shares pursuant to Section 8 above.
10.5 Capital Accounts. In addition to any capital
accounts required to be maintained for accounting purposes in
accordance with generally accepted accounting principles, the
Partnership shall maintain two Capital Accounts for each Partner,
one for book purposes and the other for tax purposes. Each such
Capital Account shall be maintained in accordance with the
requirements of Treasury Regulations Section 1.704-1(b). Each
such Capital Account shall be credited with the Partner's capital
contributions and share of profits, shall be charged with such
Partner's share of losses, distributions and withholding taxes
(if any) and shall otherwise appropriately reflect transactions
of the Partnership and the Partners. At the end of each day, the
book Capital Accounts of all Partners shall be adjusted to
reflect unrealized appreciation or depreciation in the value of
the Partnership's assets which accrued on that day. Further
adjustments shall then be made to reflect any purchases and
redemptions of Shares by the Partners. The intent of these
adjustments is to achieve consistency and equivalence between
book Capital Accounts and the Net Asset Value per Share used to
determine the value of the Shares purchased, redeemed or
liquidated in accordance with industry practice for investment
partnerships such as the Partnership. Adjustments to tax Capital
Accounts to take into account allocations of gains and losses
realized by the Partnership for tax purposes shall be made in the
manner described in Section 10.6. A Substituted Limited Partner
shall be deemed to succeed to the book and tax Capital Accounts
of the Partner whom such Substituted Limited Partner replaced.
10.6 Allocations for Tax Purposes.
(a) General. For each fiscal year, items of
income, deduction, loss or credit from normal operations (other
than from the disposition or deemed disposition of assets of the
Partnership) shall be allocated for income tax purposes among the
Partners in proportion to the amounts distributed to them during
such year pursuant to Sections 10.3 and 10.4 hereof. The
Partners' tax Capital Accounts shall be adjusted to reflect
allocations of such items of income, deduction, loss or credit.
(b) Special Allocations. Allocations of gains
and losses from the disposition or deemed disposition of assets
of the Partnership to Partners for tax purposes shall be made in
accordance with the following method which is intended to ensure
that allocations for tax purposes reflect the economic experience
of the Partners with respect to their interests in the
Partnership:
(i) With respect to each Partner, a daily
account of unrealized appreciation/depreciation and realized
gain/loss shall be maintained. Each day's net unrealized
appreciation/depreciation in the assets of the Partnership and
each day's net realized gains/losses of the Partnership shall be
allocated to the Partners in proportion to their book Capital
Account balances at the beginning of such day. Any entry of
realized gain or loss into any Partner's account for net realized
gains/losses shall result in an equal and offsetting adjustment
to the Partner's account for net unrealized appreciation/
depreciation for that day. Purchases of Shares and partial or
complete redemptions of Shares shall be regarded as occurring at
the end of each day, after entries and adjustments in the
Partners' accounts for net unrealized appreciation/depreciation
and net realized gains/losses have been made. The amounts for
each Partner's share of net unrealized appreciation/depreciation
and net realized gains/losses, together with adjustments made to
reflect purchases or redemptions of Shares, shall be combined to
arrive at each Partner's ending book Capital Account balance for
the day.
(ii) At the end of each year, the daily
amounts of net unrealized appreciation/depreciation and net
realized gains/losses shall be aggregated to arrive at a total
amount for net unrealized appreciation/depreciation and a total
amount for net realized gains/losses for each Partner for the
year. These two amounts shall be combined to arrive at each
Partner's "Investment Experience." Net gains realized by the
Partnership shall be allocated among the Partners whose
Investment Experience is positive, and each such Partner's
allocable share of such gains for tax purposes shall be equal to
a fraction the numerator of which is the Partner's Investment
Experience and the denominator of which is the total Investment
Experience of the Partners whose Investment Experience is
positive. Net losses realized by the Partnership shall be
allocated among the Partners whose Investment Experience is
negative, and each such Partner's allocable share of such losses
shall be computed in the manner described in the previous
sentence, except that the word "negative" shall be substituted
for the word "positive." Each Partner's tax Capital Account shall
then be adjusted to reflect such Partner's allocable share of
Partnership realized gains or losses for such year. The Partners'
accounts for unrealized appreciation/depreciation and net
realized gains/losses, adjusted appropriately to reflect the
allocation of the net gain realized or the net loss realized,
shall be carried over to the next year.
(iii) In the event of a partial or complete
redemption of Shares which results in a distribution in excess of
a Partner's tax Capital Account, the Partnership may make an
election to adjust the basis of Partnership assets under Section
754 of the Code, and the Partnership may increase the tax basis
of its Partnership assets in accordance with Section 743(b) and
755 of the Code by the difference between the amount of the
distribution made to the redeeming Partner in redemption of his
Shares and his tax Capital Account.
(c) Minimum Gain Chargeback. A Partner's share
of Minimum Gain shall be computed in accordance with Treasury
Department Regulations Section 1.704-1(b)(4)(iv)(f). In the event
that there is a net decrease in the Partnership's Minimum Gain
during any taxable year and any Partner has a negative book
Capital Account (after taking into account reductions for items
described in paragraphs (4), (5) and (6) of book Treasury
Department Regulations Section 1.704-1(b)(2)(ii)(d)) and such
negative balance exceeds the sum of (i) the amount that such
Partner is obligated to restore upon liquidation of the
Partnership and (ii) such Partner's share of the Minimum Gain at
the end of such taxable year, such Partner shall be allocated
Partnership profits for such year (and, if necessary, subsequent
years) in an amount necessary to eliminate such excess negative
balance as quickly as possible. Allocations of profits to such
Partners having such excess negative book Capital Accounts shall
be made in proportion to the amounts of such excess negative book
Capital Account balances. The term "Minimum Gain" means the
excess of the outstanding balances of all nonrecourse
indebtedness which is secured by property of the Partnership over
the adjusted basis of such property for federal income tax
purposes, as computed in accordance with the provisions of
Treasury Department Regulations Section 1.704-1(b)(4)(iv)(c).
(d) Qualified Income Offset. Notwithstanding
anything in Sections 10.3 and 10.6 to the contrary, in the event
any Partner unexpectedly receives any adjustments, allocations or
distributions described in Treasury Department Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(d)(5) or 1.704-
1(b)(2)(ii)(d)(6), items of Partnership income (including gross
income) and gain shall be specially allocated to such Partner in
an amount and manner sufficient to eliminate the deficit balance
in his book Capital Account (in excess of (i) the amount he is
obligated to restore upon liquidation of the Partnership or upon
liquidation of his interest in the Partnership and (ii) his share
of the Minimum Gain) created by such adjustments, allocations or
distributions as quickly as possible.
11. ASSIGNMENT OF SHARES; SUCCESSOR IN INTEREST;
SUBSTITUTION OF PARTNERS
11.1 Prohibition on Assignment. Except for
redemptions as provided in Section 8, a Partner shall not have
the right to sell, transfer or assign his Shares to any other
person, but may pledge them as collateral.
11.2 Rights of the Holders of Shares as Collateral or
Judgment Creditor. In the event that any person who is holding
Shares as collateral or any judgment creditor becomes the owner
of such Shares due to foreclosure or otherwise, such person shall
not have the right to be substituted as a Limited Partner, but
shall only have the rights, upon the presentation of evidence
satisfactory to the Managing General Partners of his right to
succeed to the interests of the Limited Partner, set forth
immediately below:
(a) To redeem the Shares in accordance with the
provisions of Section 8 hereof; and
(b) To receive any subsequent distributions made
with respect to such Shares.
Upon receipt by the Partnership of evidence
satisfactory to the Managing General Partners of his ownership of
Shares, the owner shall become a Holder of Record of the subject
Shares and his name shall be recorded on the books of record of
the Partnership maintained for such purpose either by the
Partnership or its Transfer Agent. Such owner shall be liable to
return any excess distributions pursuant to Section 5.8(a).
However, although such owner shall own an equity interest in the
Partnership in the form of Shares, such owner shall have none of
the rights or obligations of a Substituted Limited Partner unless
and until he is admitted as such.
11.3 Death, Incompetency, Bankruptcy or Termination of
the Existence of a Partner. In the event of the death or an
adjudication of incompetency or bankruptcy of an individual
Partner (or, in the case of a Partner that is a corporation,
association, partnership, joint venture or trust, an adjudication
of bankruptcy, dissolution or other termination of the existence
of such Partner), the successor in interest of such Partner
(including without limitation the Partner's executor,
administrator, guardian, conservator, receiver or other legal
representative), upon the presentation of evidence satisfactory
to the Managing General Partners of his right to succeed to the
interests of the Partner, shall have the rights set forth below:
(a) to redeem the Shares of the Partner in
accordance with the provisions of Section 8 hereof;
(b) to receive any subsequent distributions made
with respect to such Shares; and
(c) to be substituted as a Limited Partner upon
compliance with the conditions of the admission of a Limited
Partner as provided in Sections 5 and 11 hereof.
Upon receipt by the Partnership of evidence
satisfactory to the Managing General Partners of his right to
succeed to the interests of the Partner, the successor in
interest shall become a Holder of Record of the subject Shares
and his name shall be recorded on the books of record of the
Partnership maintained for such purpose either by the Partnership
or its Transfer Agent.
11.4 Substituted Limited Partners.
(a) A person shall not become a Substituted
Limited Partner unless the Managing General Partners consent to
such substitution (which consent may be withheld in their
absolute discretion) and receive such instruments and documents
(including those specified in Section 5.2), and a reasonable
transfer fee as the Managing General Partners shall require.
(b) The original Limited Partner shall cease to
be a Limited Partner, and the person to be substituted shall
become a Substituted Limited Partner, as of the date on which the
person to be substituted has satisfied the requirements set forth
above and as of the date the Partnership List is amended to
reflect his admission as a Substituted Limited Partner. The
Managing General Partners agree to cause such amendments to the
Partnership List to be processed daily on each day that its
Transfer Agent shall be open for business. Thereafter the
original Limited Partner shall have no rights or obligations with
respect to the Partnership insofar as the Shares transferred to
the Substituted Limited Partner are concerned other than
liabilities which the original Limited Partner may have had to
the Partnership on the date of transfer, and the Substituted
Limited Partners shall be liable to return any excess
distributions pursuant to Section 5.8(a) hereof.
(c) Unless and until a person becomes a
Substituted Limited Partner, his status and rights shall be
limited to the rights of a Holder of Shares pursuant to Sections
11.3(a) and 11.3(b). A Holder of Shares who does not become a
Substituted Limited Partner shall have no right to inspect the
Partnership's books or to vote on any of the matters on which a
Limited Partner would be entitled to vote. A Holder of Shares who
has become a Substituted Limited Partner has all the rights and
powers, and is subject to the restrictions and liabilities of a
Limited Partner under this Agreement.
(d) Any person admitted to the Partnership as a
Substituted Limited Partner shall be subject to and bound by the
provisions of this Partnership Agreement as if originally a party
to this Partnership Agreement.
12. DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
12.1 Dissolution. The Partnership shall be dissolved
and its affairs shall be wound up upon the happening of the first
to occur of the following:
(a) the stated term of the Partnership has
expired unless the Partners by a Majority Vote have previously
amended the Partnership Agreement to state a different term;
(b) the Partnership has disposed of all of its
assets;
(c) A General Partner has ceased to be a General
Partner and the remaining General Partners do not elect to
continue the operations of the Partnership;
(d) There is only one General Partner remaining
and such General Partner has ceased to be a General Partner as
set forth in Section 4.8; provided, however, that if the last
remaining or surviving General Partner ceases to be a General
Partner other than by removal, the Limited Partners may agree by
unanimous vote to continue the operations of the Partnership and
to admit one or more General Partners in accordance with the
Partnership Agreement;
(e) a decree of judicial dissolution has been
entered by a court of competent jurisdiction; or
(f) the Partners by a Majority Vote have voted to
dissolve the Partnership.
12.2 Liquidation.
(a) In the event of dissolution as provided in
Section 12.1, the assets of the Partnership shall be distributed
as follows:
(i) all of the Partnership's debts and
liabilities to persons (including Partners to the extent
permitted by law) shall be paid and discharged, and any reserve
deemed necessary by the Managing General Partners for the payment
of such debts shall be set aside; and
(ii) the balance of the assets of the
Partnership (and any reserves not eventually used to satisfy
debts of the Partnership) shall be liquidated and distributed pro
rata to the Partners in accordance with the number of Shares held
by each.
(b) Upon dissolution, each Partner shall look
solely to the assets of the Partnership for the return of his
capital contribution and shall be entitled to receive only a
distribution of a pro rata share of Partnership property and
assets, as provided in Section 12.2 (a). If the Partnership
property remaining after the payment or discharge of the debts
and liabilities of the Partnership is insufficient to return the
capital contribution of each Limited Partner, such Limited
Partner shall have no recourse against any General Partner, the
assets of any other partnership of which any General Partner is a
partner, or any other Limited Partner. The winding up of the
affairs of the Partnership and the distribution of its assets
shall be conducted exclusively by the Managing General Partners,
who are authorized to do any and all acts and things authorized
by law for these purposes. In the event of dissolution where
there is no remaining General Partner, and there is a failure to
appoint a new General Partner, the winding up of the affairs of
the Partnership and the distribution of its assets shall be
conducted by such person as may be selected by Majority Vote,
which person is hereby authorized to do any and all acts and
things authorized by law for these purposes.
12.3 Termination. Upon the completion of the
distribution of Partnership assets as provided in this Section
and the termination of the Partnership, the General Partner(s) or
other person acting as liquidator (or the Limited Partners, if
necessary) shall cause the Certificate of Limited Partnership of
the Partnership to be cancelled and shall take such other actions
as may be necessary to legally terminate the Partnership.
13. BOOKS, RECORDS, ACCOUNTS AND REPORTS
13.1 Books and Records.
(a) The Partnership shall continuously maintain
an office in the State of California, at which the following
books and records shall be kept:
(i) A Partnership List (or copy thereof)
which shall be a current list of the full name and last known
business or residence address of each Partner, set forth in
alphabetical order together with the contribution and the share
in profits and losses of each Partner, which list shall
separately identify the interests of General and Limited
Partners.
(ii) A copy of the Certificate of Limited
Partnership and all certificates of amendments thereto, together
with executed copies of any powers of attorney pursuant to which
any such certificate has been executed.
(iii) Copies of the Partnership's Federal,
state and local income tax or information returns and reports, if
any, for the six most recent taxable years.
(iv) Copies of this Partnership Agreement
and all amendments thereto.
(v) Financial statements of the Partnership
for the six most recent fiscal years.
(vi) The Partnership's books and records for
at least the current and past three fiscal years.
(b) The Partnership shall also maintain at its
principal office such additional books and records as are
necessary for the operation of the Partnership.
13.2 Limited Partners' Rights to Records.
(a) Upon the request of a Limited Partner, the
Managing General Partners shall promptly deliver to the Limited
Partner, at the Partnership's expense, a copy of the items set
forth in Section 13.1(a)(i), (ii) and (iv), provided, however,
that such books and records and the information contained therein
shall be treated as confidential and that such access shall be
for proper Partnership purposes only and not for the private or
commercial use of any Partner and further provided that the
Partnership may require a Partner to enter into an undertaking to
that effect.
(b) Each Limited Partner shall have the right
upon reasonable request to each of the following:
(i) To inspect and copy during normal
business hours, at the Limited Partner's expense, any of the
Partnership's records required to be kept pursuant to the
Partnership Act.
(ii) To obtain from the Managing General
Partners promptly after becoming available, at the Limited
Partner's expense, a copy of any Federal, state and local income
tax or information returns required to be filed by the
Partnership for each year.
(c) The Managing General Partners shall promptly
furnish to a Limited Partner a copy of any amendment to this
Partnership Agreement executed by the Managing General Partners
pursuant to a power of attorney from the Limited Partner.
(d) The Managing General Partners shall send to
each Partner within ninety (90) days after the end of each
taxable year such information as is necessary to complete Federal
and state income tax or information returns or such information
as is required by the Tax Code.
(e) At any time that the Partnership shall have
more than 35 Limited Partners:
(i) The Managing General Partners shall
cause an annual report to be sent to each of the Partners not
later than 120 days after the close of the Partnership's fiscal
year. That report shall contain a balance sheet as of the end of
the fiscal year and an income statement and statement of changes
in financial position for the fiscal year.
(ii) Limited Partners representing at least
5% of the outstanding Shares of the Partnership may make a
written request to the Managing General Partners for an income
statement of the Partnership for the initial three-month, six-
month or nine-month period of the current fiscal year ended more
than thirty (30) days prior to the date of the request and a
balance sheet of the Partnership as of the end of that period.
The statement shall be delivered or mailed to the Limited
Partners within thirty (30) days thereafter.
(iii) The financial statements referred to in
this subsection shall be accompanied by the report thereon, if
any, of the independent accountants engaged by the Partnership
or, if there is no such report, the certificate of the Managing
General Partners that such financial statements were prepared
without audit from the books and records of the Partnership.
(f) The Managing General Partners shall cause to
be transmitted to each Partner such other reports and information
as shall be required by the 1940 Act, the Partnership Act or the
Tax Code.
13.3 Accounting Basis and Fiscal Year. The
Partnership's books and records (i) shall be kept on a basis
chosen by the Managing General Partners in accordance with the
accounting methods followed by the Partnership for Federal income
tax purposes and otherwise in accordance with generally accepted
accounting principles applied in a consistent manner, (ii) shall
reflect all Partnership transactions, (iii) shall be appropriate
and adequate for the Partnership's business and for the carrying
out of all provisions of this Partnership Agreement, and (iv)
shall be closed and balanced at the end of each Partnership
fiscal year. The fiscal year of the Partnership shall be the
calendar year.
13.4 Tax Returns. The Managing General Partners, at
the Partnership's expense, shall cause to be prepared any income
tax or information returns required to be made by the
Partnership and shall further cause such returns to be timely
filed with the appropriate authorities.
13.5 Filings with Regulatory Agencies. The Managing
General Partners, at the Partnership's expense, shall cause to be
prepared and timely filed with appropriate Federal and state
regulatory and administrative bodies, all reports required to be
filed with such entities under then current applicable laws,
rules and regulations.
13.6 Tax Matters and Notice Partner. The Managing
General Partners shall designate one or more General Partners as
the "Tax Matters Partner" and the "Notice Partner" of the
Partnership in accordance with Sections 6231(a)(7) and (8) of the
Tax Code, and each such Partner shall have no personal liability
arising out of his good faith performance of his duties in such
capacity. The "Tax Matters Partner" is authorized, at the
Partnership's sole cost and expense, to represent and to retain
legal counsel and accounting assistance to represent the
Partnership and each Limited Partner in connection with all
examinations of the Partnership affairs by tax authorities,
including any resulting administrative and judicial proceedings.
Each Limited Partner agrees to cooperate with the Managing
General Partners and to do or refrain from doing any and all
things reasonably required by the Managing General Partners to
conduct such proceeding. The Managing General Partners shall have
the right to settle any audits without the consent of the Limited
Partners.
14. AMENDMENTS OF PARTNERSHIP DOCUMENTS
14.1 Amendments in General. Except as otherwise
provided in this Partnership Agreement, the Partnership Agreement
may be amended only by the General Partners.
14.2 Amendments Without Consent of Limited Partners.
In addition to any amendments otherwise authorized herein and
except as otherwise provided, amendments may be made to this
Partnership Agreement from time to time by the General Partners
without the consent of any of the Limited Partners, including,
without limitation, amendments: (i) to reflect the retirement,
resignation, death or incompetency of a Managing General Partner;
(ii) to add to the duties or obligations of the General Partners,
or to surrender any right or power granted to the General
Partners herein, for the benefit of the Limited Partners; (iii)
to correct any false or erroneous statement, or to make a change
in any statement in order to make such statement accurately
represent the agreement among the General and Limited Partners;
(iv) to supply any omission or to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or (v) to
make such amendments as may be necessary to conform this
Partnership Agreement to the requirements of the Partnership
Act, the 1940 Act, the Tax Code or any other law or regulation
applicable to the Partnership, as now or hereafter in effect.
14.3 Amendments Needing Consent of Affected Partners.
Notwithstanding any other provision of this Partnership
Agreement, without the consent of the Partner or Partners to be
affected by any amendment to this Agreement, this Agreement may
not be amended to (i) convert a Limited Partner's interest into a
General Partner's interest, (ii) modify the limited liability of
a Limited Partner, (iii) alter the interest of a Partner in
income, gain, loss, deductions, credits, and distributions other
than by purchase or redemption of Shares, or (iv) increase, add
or alter any obligation of any Limited Partner.
14.4 Amendments to Certificate of Limited Partnership.
(a) The Managing General Partners shall cause to
be filed with the Secretary of State, within thirty (30) days
after the happening of any of the following events, an amendment
to the Certificate of Limited Partnership reflecting the
occurrence of any of the following events:
(i) A change in the name of the
Partnership.
(ii) A change in either of the following:
(A)The street address of the
Partnership's principal executive office.
(B)If the principal executive office is
not in California, the street address of an office in California.
(iii) A change in the address of or the
withdrawal of any of the General Partners, or a change in the
address of the agent for service of process, unless a corporate
agent is designated, or appointment of a new agent for service of
process.
(iv) The admission of a new General Partner
and that Partner's address.
(v) The discovery by the General Partner of
any false or erroneous material statement contained in the
Certificate of Limited Partnership.
(b) Any Certificate of Limited Partnership filed
or recorded in jurisdictions other than California shall be
amended as required by applicable law.
(c) The Certificate of Limited Partnership may
also be amended at any time in any other manner deemed
appropriate by the General Partner.
14.5 Amendments After Change of Law. This Agreement
and any other Partnership documents may be amended and refiled,
if necessary, by the Managing General Partners without the
consent of the Limited Partners if there occurs any change that
permits or requires an amendment of this Agreement under the Act
or of any other Partnership document under applicable law, so
long as no Partner is adversely affected (or consent is given by
such Partner).
15. MISCELLANEOUS PROVISIONS
15.1 Notices.
(a) Any written notice, offer, demand or
communication required or permitted to be given by any provision
of this Partnership Agreement, unless otherwise specified herein,
shall be deemed to have been sufficiently given for all purposes
if delivered personally to the party to whom the same is directed
or if sent by first class mail addressed (i) if to a General
Partner, to the principal place of business and office of the
Partnership specified in this Agreement and (ii) if to a Limited
Partner, to such Limited Partner's address as set forth in the
Partnership List; provided, however, that notice given by any
other means shall be deemed sufficient if actually received by
the party to whom it is directed.
(b) Any such notice that is sent by first class
mail shall be deemed to be given two (2) days after the date on
which the same is mailed.
(c) The Managing General Partners may change the
Partnership's address for purposes of this Partnership Agreement
by giving written notice of such change to the Limited Partners,
and any Limited Partner may change his address for purposes of
this Partnership Agreement by giving written notice of such
change to the Managing General Partners, in the manner herein
provided for the giving of notices.
15.2 Section Headings. The Section headings in this
Partnership Agreement are inserted for convenience and
identification only and are in no way intended to define or limit
the scope, extent or intent of this Partnership Agreement or any
of the provisions hereof.
15.3 Construction. Whenever the singular number is
used herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall include each other, as
applicable. If any language is stricken or deleted from this
Partnership Agreement, such language shall be deemed never to
have appeared herein and no other implication shall be drawn
therefrom. The language in all parts of this Partnership
Agreement shall be in all cases construed according to its fair
meaning and not strictly for or against the General Partners or
the Limited Partners.
15.4 Severability. If any covenant, condition, term or
provision of this Partnership Agreement is illegal, or if the
application thereof to any person or in any circumstance shall to
any extent be judicially determined to be invalid or
unenforceable, the remainder of this Partnership Agreement, or
the application of such covenant, condition, term or provision to
persons or in circumstances other than those to which it is held
invalid or unenforceable, shall not be affected thereby, and each
remaining covenant, condition, term and provision of this
Partnership Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15.5 Governing Law. This Partnership Agreement shall
be construed and enforced in accordance with, and governed by,
California law.
15.6 Counterparts. This Partnership Agreement may be
executed in one or more counterparts, each of which shall, for
all purposes, be deemed an original and all of such counterparts,
taken together, shall constitute one and the same Partnership
Agreement.
15.7 Entire Agreement. This Partnership Agreement and
the separate subscription agreements of each Limited Partner and
General Partner constitute the entire agreement of the parties as
to the subject matter hereof. All prior agreements among the
parties as to the subject matter hereof, whether written or oral,
are merged herein and shall be of no force or effect. This
Partnership Agreement cannot be changed, modified or discharged
orally but only by an agreement in writing. There are no
representations, warranties, or agreements other than those set
forth in this Partnership Agreement and such separate
subscription agreements, if any.
15.8 Cross-References. All cross-references in this
Partnership Agreement, unless specifically directed to another
agreement or document, refer to provisions in this Partnership
Agreement.
15.9 Power of Attorney to the General Partners.
(a) Each Partner hereby makes, constitutes and
appoints each Managing General Partner and any person designated
by the Managing General Partners, with full substitution, his
agent and attorney-in-fact in his name, place and stead, to take
any and all actions and to make, execute, swear to and
acknowledge, amend, file, record and deliver the following
documents and any other documents deemed by the Managing General
Partners necessary for the operations of the Partnership: (i) any
Certificate of Limited Partnership or Certificate of Amendment
thereto, required or permitted to be filed on behalf of the
Partnership, and any and all certificates as necessary to qualify
or continue the Partnership as a limited partnership or
partnership wherein the Limited Partners thereof have limited
liability in the states where the Partnership may be conducting
activities, and all instruments which effect a change or
modification of the Partnership in accordance with this
Partnership Agreement; (ii) this Partnership Agreement and any
amendments thereto in accordance with this Partnership Agreement;
(iii) any other instrument which is now or which may hereafter be
required or advisable to be filed for or on behalf of the
Partnership; (iv) any document which may be required to effect
the continuation of the Partnership, the admission of an
additional Limited Partner or Substituted Limited Partner, or the
dissolution and termination of the Partnership (provided such
continuation, admission or dissolution and termination is in
accordance with the terms of this Partnership Agreement), or to
reflect any reductions or additions in the amount of the
contributions of Partners, in each case having the power to
execute such instruments on his behalf, whether the undersigned
approved of such action or not; (v) any document containing any
investment representations and/or representations relating to
citizenship, residence and tax status required by any state or
Federal law or regulation in connection with an investment by the
Partnership; and (iv) any tax elections.
(b) This Power of Attorney is a special Power of
Attorney coupled with an interest, and shall not be revoked and
shall survive the transfer by any Limited Partner of all or part
of his interest in the Partnership and, being coupled with an
interest, shall survive the death or disability or cessation of
the existence as a legal entity of any Limited Partner; except
that where the successor in interest has been approved by said
attorney for admission to the Partnership as a Substituted
Limited Partner, this Power of Attorney shall survive the
transfer for the sole purpose of enabling said attorney to
execute, acknowledge and file any instrument necessary to
effectuate such substitution.
(c) Each Limited Partner hereby gives and grants
to his said attorney under this Power of Attorney full power and
authority to do and perform each and every act and thing
whatsoever requisite, necessary or appropriate to be done in or
in connection with this Power of Attorney as fully to all intents
and purposes as he might or could do if personally present,
hereby ratifying all that his said attorney shall lawfully do or
cause to be done by virtue of this Power of Attorney.
(d) The existence of this Power of Attorney shall
not preclude execution of any such instrument by the undersigned
individually on any such matter. A person dealing with the
Partnership may conclusively presume and rely on the fact that
any such instrument executed by such agent and attorney-in-fact
is authorized, regular and binding without further inquiry.
(e) The appointment of each Managing General
Partner and each designee of that General Partner as attorney-in-
fact pursuant to this power of attorney automatically shall
terminate as to such person at such time as he ceases to be a
General Partner and from such time shall be effective only as to
the substitute General Partner admitted in accordance with this
Partnership Agreement and his designees.
15.10 Further Assurances. The Limited Partners will
execute and deliver such further instruments and do such further
acts and things as may be required to carry out the intent and
purposes of this Partnership Agreement.
15.11 Successors and Assigns. Subject in all respects
to the limitations on transferability contained herein, this
Partnership Agreement shall be binding upon, and shall inure to
the benefit of, the heirs, administrators, personal
representatives, successors and assigns of the respective parties
hereto.
15.12 Waiver of Action for Partition. Each of the
parties hereto irrevocably waives during the term of the
Partnership and during the period of its liquidation following
any dissolution, any right that he may have to maintain any
action for partition with respect to any of the assets of the
Partnership.
15.13 Creditors. None of the provisions of this
Partnership Agreement shall be for the benefit of or enforceable
by any of the creditors of the Partnership or the Partners.
15.14 Remedies. The rights and remedies of the
Partners hereunder shall not be mutually exclusive, and the
exercise by any Partner of any right to which he is entitled
shall not preclude the exercise of any other right he may have.
15.15 Custodian. All assets of the Partnership shall
be held by a custodian meeting the requirements of the 1940 Act,
and may be registered in the name of the Partnership or such
custodian or nominee. The terms of the custodian agreement shall
be determined by the Managing General Partners.
15.16 Use of Name "Franklin. "Franklin Partners, Inc.,
as the initial Non-Managing General Partner, on behalf of its
parent, Franklin Resources, Inc., hereby consents to the use by
the Partnership of the name "Franklin" as part of the
Partnership's name; provided, however, that such consent shall be
conditioned upon the employment of Franklin Resources, Inc. or
one of its affiliates as an investment adviser of the
Partnership. The name "Franklin" or any variation thereof may be
used from time to time in other connections and for other
purposes by Franklin Resources, Inc. and its affiliates and other
investment companies that have obtained consent to use the name
"Franklin." Franklin Resources, Inc. and its affiliates shall
have the right to require the Partnership to cease using the name
"Franklin" as part of the Partnership's name if the Partnership
ceases, for any reason, to employ Franklin Resources, Inc. or one
of its affiliates as its investment adviser. Future names adopted
by the Partnership for itself, insofar as such names include
identifying words requiring the consent of Franklin Resources,
Inc. or one of its affiliates, shall be the property of Franklin
Resources, Inc. and its affiliates and shall be subject to the
same terms and conditions.
15.17 Authority. Each individual executing this
Agreement on behalf of a partnership, corporation, or other
entity warrants that he is authorized to do so and that this
agreement will constitute the legal binding obligation of the
entity which he represents.
15.18 Signatures. The signature of a Managing General
Partners or an Officer or agent of the Partnership duly appointed
by the Managing General Partners shall be sufficient to bind the
Partnership to any agreement or on any document, including, but
not limited to, documents drawn or agreements made in connection
with the acquisition or disposition of any assets.
15.19 Arbitration. The parties hereby submit all
controversies, claims and matters of difference to arbitration
before a single arbitrator in San Francisco, California,
according to the rules and practices of the American Arbitration
Association from time to time in force. This submission and
agreement to arbitrate shall be specifically enforceable. Without
limiting the generality of the foregoing, the following shall be
considered controversies for this purpose: (a) all questions
relating to the breach of any obligation, warranty, agreement or
condition hereunder; (b) failure of any party to deny or reject a
claim or demand of any other party; and (c) all questions as to
whether the right to arbitrate any question exists. Arbitration
may proceed in the absence of any party if written notice
(pursuant to the American Arbitration Association's rules and
regulations) of the proceedings has been given to such party. The
parties agree to abide by all awards rendered in such
proceedings. Such awards shall be final and binding on all
parties to the extent and in the manner provided by California
statute. All awards may be filed with the Clerk of the Superior
Court in San Francisco, California, as a basis of judgment and of
the issuance of execution for its collection and, at the election
of the party making such filing, with the clerk of one or more
other courts, state or Federal, having jurisdiction over the
party against whom such an award is rendered or his property.
The attached Agreement of Limited Partnership reflects the
amendments thereto duly adopted by the Managing General Partners
on April 23, 1991.
May 1, 1991
/s/ Charles B. Johnson
Charles B. Johnson, Managing
General Partner on behalf of
all Partners pursuant to Power
of Attorney
FRANKLIN TAX-ADVANTAGED
HIGH YIELD SECURITIES FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
Dated May 1, 1987
as amended April 28, 1988 and May 1, 1991
APPENDIX "B"
TABLE OF CONTENTS
1. GENERAL PROVISIONS
1.1 Formation
1.2 Name and Place of Business
1.3 Term
1.4 Agent for Service of Process
1.5 Certificate of Limited Partnership
1.6 Other Acts/Filings
2. DEFINITIONS
2.1 Affiliate
2.2 Capital Account
2.3 General Partner
2.4 Holder of Record or Holder of a Share
2.5 Limited Partner
2.6 Majority Vote
2.7 Managing General Partner
2.8 Net Asset Value (per Share)
2.9 Non-Managing General Partner
2.10 Officers
2.11 Persons
2.12 Partners
2.13 Partnership
2.14 Partnership Act
2.15 Partnership Group
2.16 Partnership List
2.17 Registration Statement
2.18 Secretary of State
2.19 Share (including fractional Shares)
2.20 Substituted Limited Partner
2.21 Tax Code
2.22 Transfer Agent
2.23 1940 Act
3. ACTIVITIES AND PURPOSE
3.1 Operating Policy
3.2 Investment Objectives
3.3 Investment and Operating Limitations
3.4 Other Authorized Activities
4. GENERAL PARTNERS
4.1 Identity and Number
4.2 Managing and Non-Managing General Partners
4.3 General Partners' Contributions
4.4 Management and Control
4.5 Action by the Managing General Partners
4.6 Limitations of the Authority of the Managing General
Partners
4.7 Right of General Partners to Become Limited Partners
4.8 Termination of a General Partner
4.9 Additional or Successor General Partners
4.10 Liability to Limited Partners
4.11 Assignment and Substitution
4.12 No Agency
4.13 Reimbursement and Compensation
4.14 Indemnification
5. LIMITED PARTNERS
5.1 Identity of Limited Partners
5.2 Admission of Limited Partners
5.3 Contributions of the Limited Partners
5.4 Additional Contributions of Limited Partners
5.5 Use of Contributions
5.6 Redemption by Limited Partners
5.7 Minimum Contribution and Mandatory Redemption
5.8 Limited Liability
5.9 No Power to Control Operations
5.10 Tax Responsibility
6. SHARES OF PARTNERSHIP INTEREST
7. PURCHASE AND EXCHANGE OF SHARES
7.1 Purchase of Shares
7.2 Net Asset Value
7.3 Exchange of Shares
8. REDEMPTION OR REPURCHASE OF SHARES
8.1 Redemption of Shares
8.2 Payment for Redeemed Shares
9. MATTERS AFFECTING THE PARTNERSHIP'S BASIC STRUCTURE
9.1 Rights of Limited Partners
9.2 Action of the Partners
9.3 Meeting
9.4 Notices
9.5 Validity of Vote for Certain Matters
9.6 Adjournment
9.7 Waiver of Notice and Consent to Meeting
9.8 Quorum
9.9 Required Vote
9.10 Action by Consent Without a Meeting
9.11 Record Date
9.12 Proxies
9.13 Number of Votes
10. DISTRIBUTIONS AND ALLOCATION OF PROFITS AND LOSSES
10.1 Fees of General Partners
10.2 Distributions of Income and Gains
10.3 Allocation of Income, Gains, Losses, Deductions and
Credits
10.4 Returns of Contributions
10.5 Capital Accounts
10.6 Allocations for Tax Purposes
11. ASSIGNMENT OF SHARES; SUCCESSOR IN INTEREST; SUBSTITUTION OF
PARTNERS
11.1 Prohibition on Assignment
11.2 Rights of the Holders of Shares as Collateral or Judgment
Creditor
11.3 Death, Incompetency, Bankruptcy or Termination of the
Existence of a Partner
11.4 Substituted Limited Partners
12. DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
12.1 Dissolution
12.2 Liquidation
12.3 Termination
13. BOOKS, RECORDS, ACCOUNTS AND REPORTS
13.1 Books and Records
13.2 Limited Partners' Rights to Records
13.3 Accounting Basis and Fiscal Year
13.4 Tax Returns
13.5 Filings with Regulatory Agencies
13.6 Tax Matters and Notice Partner
14. AMENDMENTS OF PARTNERSHIP DOCUMENTS
14.1 Amendments in General
14.2 Amendments Without Consent of Limited Partners
14.3 Amendments Needing Consent of Affected Partners
14.4 Amendments to Certificate of Limited Partnership
14.5 Amendments After Change of Law
15. MISCELLANEOUS PROVISIONS
15.1 Notices
15.2 Section Headings
15.3 Construction
15.4 Severability
15.5 Governing Law
15.6 Counterparts
15.7 Entire Agreement
15.8 Cross-References
15.9 Power of Attorney to the General Partners
15.10 Further Assurances
15.11 Successors and Assigns
15.12 Waiver of Action for Partition
15.13 Creditors
15.14 Remedies
15.15 Custodian
15.16 Use of Name "Franklin"
15.17 Authority
15.18 Signatures
15.19 Arbitration
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
(a California limited partnership)
This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
("Partnership Agreement") is entered into as of this 1st day of
May, 1987 by and among the undersigned individuals, as Managing
General Partners; FRANKLIN PARTNERS, INC., a California
corporation, as Non-Managing General Partner (collectively, the
"General Partners"); and each of the persons identified on the
Partnership List of the Partnership as limited partners (the
"Limited Partners").
This Partnership Agreement amends and restates in its
entirety the Agreement of Limited Partnership dated as of January
20, 1987.
1. GENERAL PROVISIONS
1.1 Formation. The parties hereby agree to continue
the limited partnership (the "Partnership") under the terms and
conditions set forth below pursuant to the California Revised
Limited Partnership Act (the "Partnership Act").
1.2 Name and Place of Business. The name of the
Partnership is Franklin Tax-Advantaged High Yield Securities Fund
(a California limited partnership), or such other name as shall
be selected from time to time by the Managing General Partners
upon notice to the Limited Partners. The principal place of
business of the Partnership shall be 777 Mariners Island
Boulevard, San Mateo, California 94404, or such other place or
places as the Managing General Partners may deem necessary or
desirable to the conduct of the Partnership's activities,
including places or the conduct of activities relating to its
investments, the location and holding of its assets, the
execution of its portfolio transactions and other operations.
1.3 Term. The term of the Partnership commenced upon
the filing of the Certificate of Limited Partnership with the
Secretary of State on January 27, 1987 and shall continue until
the 31st day of December, 2050, unless terminated earlier in
accordance with the provisions of this Partnership Agreement.
1.4 Agent for Service of Process. The agent for
service of process on the Partnership in California is Murray L.
Simpson, Esq. or such other eligible California resident
individual or corporation qualified to act as an agent for
service of process as the Managing General Partners shall
designate.
1.5 Certificate of Limited Partnership. The Managing
General Partners have caused a Certificate of Limited Partnership
to be filed with the Secretary of State in accordance with the
terms of the Partnership Act.
1.6 Other Acts/Filings. The Partners shall from time
to time execute or cause to be executed all such certificates,
fictitious business name statements, and other documents, and do
or cause to be done all such filings, recordings, publishings,
and other acts as the Managing General Partners may deem
necessary or appropriate to comply with the requirements of law
for the formation and operation of the Partnership in all
jurisdictions in which the Partnership shall desire to conduct
its activities.
2. DEFINITIONS
When used in this Partnership Agreement the following terms
shall have the meanings set forth below:
2.1 Affiliate. "Affiliate" shall mean: (i) any person
directly or indirectly controlling, controlled by or under common
control with another person; (ii) a person owning or controlling
10% or more of the outstanding securities of that other person;
(iii) any officer, director or partner of that other person; and
(iv) if that other person is an officer, director or partner, any
company for which that person acts in any such capacity (person
shall include any natural person, partnership, corporation,
association or other legal entity).
2.2 Capital Accounts. The accounts maintained for
each Partner in accordance with Section 10.5 hereof.
2.3 General Partner. Each of the initial General
Partners designated in the Preamble and any other person or
entity who shall hereafter become a General Partner.
2.4 Holder of Record or Holder of a Share.
(a) a General Partner;
(b) a Limited Partner if he or it has not
redeemed or transferred all of his (its) Shares of the
Partnership pursuant to Sections 8 or 11;
(c) a purchaser of a Share or Shares of the
Partnership who has made good payment to the Partnership and who
has not redeemed all his Shares; or
(d) the successor in interest of a Partner under
Section 11.
2.5 Limited Partner. The original Limited Partner and
all other persons who shall hereafter be admitted to the
Partnership as additional Limited Partners or Substituted Limited
Partners, except those persons who:
(a) have redeemed all Shares of the Partnership
owned by them and such redemption has been reflected in the
Partnership List; or
(b) have been replaced by a Substituted Limited
Partner to the extent of their entire Limited Partnership
Interest. Reference to a "Limited Partner" shall mean any one of
the Limited Partners.
2.6 Majority Vote. The affirmative vote of the lesser
of (i) 67% or more of the Shares represented at a meeting and
entitled to vote if more than 50% of the then outstanding shares
are present or represented by proxy, or (ii) more than 50% of the
then outstanding Shares entitled to vote.
2.7 Managing General Partner. Each General Partner
who is an individual.
2.8 Net Asset Value (per Share). The value (in U.S.
Dollars) of a Share as determined in accordance with Section 7.2
hereof.
2.9 Non-Managing General Partner. Each General
Partner that is not an individual (i.e., any General Partner that
is a corporation, association, partnership, joint venture or
trust).
2.10 Officers. Those persons designated by the
Managing General Partners to perform administrative and
operational functions on behalf of the Managing General Partners.
2.11 Person. An individual, partnership, joint
venture, association, corporation or trust.
2.12 Partners. Collectively, the General Partners and
the Limited Partners. "Partner" means any one of the Partners.
2.13 Partnership. The limited partnership created and
continued by this Partnership Agreement.
2.14 Partnership Act. The California Revised Limited
Partnership Act (Chapter 3 of Title 2 of the Corporations Code of
California) as such Act may be amended from time to time.
2.15 Partnership Group. All other limited partnerships
organized under the Partnership Act of which Franklin Resources,
Inc. or any parent, subsidiary or affiliate of Franklin
Resources, Inc. is a General Partner and which are registered
under the 1940 Act as open-end management investment companies.
2.16 Partnership List. A current list of all the
Partners containing the information specified in Section
13.1(a)(i) hereof.
2.17 Registration Statement. The Registration
Statement on Form N-1A, registering the Shares of the Partnership
under the Securities Act of 1933 and the 1940 Act, as such
Registration Statement may be amended from time to time.
2.18 Secretary of State. The Secretary of State of the
State of California.
2.19 Share (including fractional Shares). A
partnership interest in the Partnership. Reference to "Shares"
shall be to more than one Share.
2.20 Substituted Limited Partner. A successor in
interest of a Limited Partner who has complied with the
conditions set forth in Section 11.
2.21 Tax Code. The Internal Revenue Code of 1986 or
corresponding provisions of subsequent revenue laws, and all
regulations, rulings and other promulgations or judicial
decisions thereunder.
2.22 Transfer Agent. The person appointed by the
Managing General Partners to be primarily responsible for
maintaining the Partnership List and certain other records of the
Partnership.
2.23 1940 Act. The Investment Company Act of 1940, as
amended, or as it may hereafter be amended, and the Rules and
Regulations thereunder.
3. ACTIVITIES AND PURPOSE
3.1 Operating Policy. The Partnership will be
authorized and empowered to operate and will operate as an open-
end, diversified management investment company registered
pursuant to the 1940 Act.
3.2 Investment Objectives. Subject to the limitations
set forth in this Partnership Agreement, the investment objective
of the Partnership shall be to invest and reinvest its assets in
investment securities which shall consist primarily, but not
necessarily exclusively, of debt securities.
3.3 Investment and Operating Limitations. The
following additional fundamental policies and investment
restrictions have been adopted by the Partnership and cannot be
changed except by Majority Vote. These investment restrictions
provide that the Partnership may not:
(a) With respect to at least 75% of its total
assets, invest in the securities of any one issuer (other than
the U.S. Government and its agencies and instrumentalities), if
immediately after and as a result of such investment (i) more
than 5% of the total assets of the Partnership would be invested
in such issuer or (ii) more than 10% of the outstanding voting
securities of such issuer would be owned by the Partnership.
(b) Make loans to others, except through the
purchase of debt securities in accordance with its investment
objectives and policies or to the extent the entry into a
repurchase agreement is deemed to be a loan.
(c) (i) Borrow money, except temporarily from a
bank for extraordinary or emergency purposes and then not in
excess of 5% of its total assets (at the lower of cost or fair
market value). Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least
300% of all borrowings.
(ii) Mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowings.
(d) Purchase securities on margin, sell
securities short, participate on a joint or joint and several
basis in any securities trading account, or underwrite
securities.(Does not preclude the Partnership from obtaining such
short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.)
(e) Buy or sell interests in oil, gas or mineral
exploration or development programs, or real estate. (Does not
preclude investments in marketable securities of companies
engaged in such activities.)
(f) Purchase or hold securities of any issuer,
if, at the time of purchase or thereafter, any of the General
Partners or Officers of the Partnership or its investment
adviser(s) own beneficially more than of 1%, and such General
Partners or Officers holding more than of 1% together own
beneficially more than 5% of the issuer's securities.
(g) Invest more than 5% of the value of its total
assets in securities of any issuer which has not had a record,
together with predecessors, of at least three years of continuous
operation.
(h) Purchase or sell commodities or commodity
contracts or invest in puts, calls, straddles or spread options.
(Does not preclude authorized transactions in foreign
currencies.)
(i) Invest in securities of other investment
companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets.
(j) Invest more than 10% of its assets in
securities with legal or contractual restrictions or which are
not readily marketable (except for permissible transactions in
repurchase agreements).
(k) Invest in any issuer for purposes of
exercising control or management.
3.4 Other Authorized Activities. Subject to the
limitations set forth in this Partnership Agreement, the
Partnership shall have the power to purchase and sell securities,
issue evidences of indebtedness in connection with Partnership
business, to join or become a partner in limited or general
partnerships and to do any and all other things and acts, and to
exercise any and all of the powers that a natural person could do
or exercise and which now or hereafter may be lawfully done or
exercised by a limited partnership.
4. GENERAL PARTNERS
4.1 Identity and Number. The names of the General
Partners and their last known business or residence address shall
be set forth in the Certificate of Limited Partnership, as it may
be amended from time to time; this same information, together
with the amounts of the contributions of each General Partner and
their current Share ownership, shall be set forth in alphabetical
order in the Partnership List. The General Partners shall be
identified as such on the Partnership List and also shall be
identified separately as Managing General Partners or Non-
Managing General Partners. The Managing General Partners may from
time to time recommend to the Partners that additional persons be
admitted as General Partners; provided, however, that if at any
time following the effective date of the Partnership's
Registration Statement the number of Managing General Partners is
reduced to less than three, the remaining Managing General
Partners shall, within 120 days, call a meeting of Partners for
the purpose of electing an additional Managing General Partner or
Managing General Partners so as to restore the number of Managing
General Partners to at least three.
4.2 Managing and Non-Managing General Partners. Only
individuals may act as Managing General Partners, and all General
Partners who are individuals shall act as Managing General
Partners. Any General Partner that is a corporation, association,
partnership, joint venture or trust shall act as a Non-Managing
General Partner. Except as provided in Section 4.4 hereof, a Non-
Managing General Partner as such shall take no part in the
management, conduct or operation of the Partnership's activities
and shall have no authority to act on behalf of the Partnership
or to bind the Partnership. All General Partners, including
Managing and Non-Managing General Partners, shall be subject to
election and removal by the Partners as hereinafter provided.
4.3 General Partners' Contributions.
(a) Each General Partner, as such, shall make a
contribution of cash to the Partnership sufficient to purchase at
least one Share and shall continue to own unencumbered at least
one such Share at all times while serving as a General Partner.
The amount contributed by each General Partner shall be the
amount actually invested in Shares of the Partnership at their
Net Asset Value, which amount shall not include any sales
charges. The amount of such contributions and the number of
Shares owned by each General Partner shall be set forth in the
Partnership List.
(b) The Non-Managing General Partner shall, in
its capacity as such Non-Managing General Partner, be obligated
to contribute to the Partnership through the purchase of Shares
from time to time amounts sufficient to enable the General
Partners in the aggregate, to maintain in their capacities as
General Partners an interest in each material item of Partnership
income, gain, loss, deduction or credit equal to at least 1% of
each such item at all times during the existence of the
Partnership. If upon termination of the Partnership, the General
Partners have a negative balance in their Capital Accounts, they
shall in their capacity as General Partners be obligated to make
additional capital contributions in cash equal to the lesser of
(i) the negative balance in their Capital Accounts or (ii) the
amount, if any, by which 1.01% of the total capital contributions
of the Limited Partners exceeds the total capital contributions
of the General Partners prior to such termination. For as long
as the Non-Managing General Partner retains its status as such,
it shall not redeem or assign Shares held by it in its capacity
as the Non-Managing General Partner or otherwise accept
distributions in cash or property if such action would result in
the failure of the General Partners to maintain such an interest.
In the event that the Non-Managing General Partner is removed or
stands for re-election and is not re-elected by the Partners
pursuant to Section 9 hereof, the Non-Managing General Partner
may, upon not less than thirty (30) days' written notice, redeem
its Shares in the same manner as is provided in Section 8 hereof.
In the event that the Non-Managing General Partner voluntarily
withdraws or declines to stand for re-election, the Non-Managing
General Partner may, upon not less than thirty (30) days' written
notice following the occurrence of an event described in (i),
(ii) or (v) in Section 4.8(a), redeem its Shares in the same
manner as provided in Section 8. In the event that the Non-
Managing General Partner is removed, stands for re-election and
is not re-elected, voluntarily withdraws or declines to stand for
re-election, the Managing General Partners shall cause the
Certificate of Limited Partnership to be amended as provided in
Section 14.4 hereof to reflect such withdrawal.
4.4 Management and Control. Subject to the terms of
the Partnership Agreement and the 1940 Act, the Partnership will
be managed by the Managing General Partners, who will have
complete and exclusive control over the management, conduct and
operation of the Partnership's activities, and, except as
otherwise specifically provided in this Partnership Agreement,
the Managing General Partners shall have the rights, powers and
authority, on behalf of the Partnership and in its name, to
exercise all of the rights, powers and authority of partners of a
partnership without limited partners. The Managing General
Partners may contract on behalf of the Partnership in conformity
with the 1940 Act with one or more banks, trust companies or
investment advisers for the performance of such functions as the
Managing General Partners may determine, but subject always to
their continuing supervision, including, without limitation, the
investment and reinvestment of all or part of the Partnership's
assets and execution of portfolio transactions, the distribution
of Shares, and any or all administrative functions. The Managing
General Partners may appoint officers or agents to perform such
duties on behalf of the Partnership and the Managing General
Partners as the Managing General Partners deem desirable. Such
officers or agents need not be General or Limited Partners. The
Managing General Partners may also employ persons to perform
various duties on behalf of the Partnership as employees of the
Partnership. The Managing General Partners shall devote
themselves to the affairs of the Partnership to the extent they
may determine necessary for the efficient conduct thereof, which
need not, however, occupy their full time. The General Partners
may also engage in other activities or businesses, whether or not
similar in nature to the activities of the Partnership, subject
to the limitations of the 1940 Act.
In the event that no Managing General Partner shall
remain for the purpose of managing and conducting the operations
of the Partnership, the Non-Managing General Partner shall
promptly call a meeting of the Limited Partners to be held within
sixty (60) days of the date the last Managing General Partner
ceases to act in such capacity to elect new Managing General
Partners up to a maximum number of Managing General Partners
theretofore admitted to the Partnership (but no fewer than
three). For the period of time during which no Managing General
Partner shall remain, the Non-Managing General Partner, subject
to the terms and provisions of this Partnership Agreement, shall
be permitted to engage in the management, conduct and operation
of the activities of the Partnership.
4.5 Action by the Managing General Partners. Unless
otherwise required by the 1940 Act with respect to any particular
action, the Managing General Partners shall act only by the vote
of a majority of the Managing General Partners at a meeting duly
called at which a quorum of the Managing General Partners is
present or by unanimous written or telephonic consent of the
Managing General Partners without a meeting. At any meeting of
the General Partners, a majority of the Managing General Partners
shall constitute a quorum. If there shall be more than one
Managing General Partner, no single Managing General Partner
shall have authority to act on behalf of the Partnership or to
bind the Partnership. The Managing General Partners shall appoint
one of their number to be Chairman. Meetings of the Managing
General Partners may be called orally or in writing by the
Chairman or by any two Managing General Partners. Notice of the
time, date and place of all meetings of the Managing General
Partners shall be given by an Officer or by the party calling the
meeting to each Managing General Partner by telephone or telegram
sent to his home or business address at least twenty-four hours
in advance of the meeting or by written notice mailed to his home
or business address at least seventy-two hours in advance of the
meeting. Notice need not be given to any Managing General Partner
who attends the meeting without objecting to the lack of notice
or who executes a written waiver of notice with respect to the
meeting. The Chairman, if present, shall preside at all meeting
of Partners.
4.6 Limitations of the Authority of the Managing
General Partners. The Managing General Partners shall have no
authority without the vote or written consent or ratification of
the Limited Partners to:
(a) do any act in contravention of this
Partnership Agreement, as it may be amended from time to time;
(b) do any act which would make it impossible to
carry on the ordinary operations of the Partnership;
(c) confess a judgment against the Partnership;
(d) possess Partnership property, or assign their
rights in specific property, for other than a partnership
purpose;
(e) admit a person as a General Partner except in
accordance with Section 9 hereof; or
(f) admit a person as a Limited Partner, except
in accordance with Section 5 hereof.
4.7 Right of General Partners to Become Limited
Partners. A General Partner may also own Shares as a Limited
Partner without obtaining the consent of the Limited Partners and
thereby become entitled to all the rights of a Limited Partner to
the extent of the Limited Partnership interest so acquired. Such
event shall not, however, be deemed to reduce or otherwise affect
any of the General Partners' liability hereunder as a General
Partner. If a General Partner shall also become a Limited
Partner, the contributions and Share ownership of such General
Partner shall be separately designated in the Partnership List to
reflect his interest in each capacity.
4.8 Termination of a General Partner.
(a) The interest of a General Partner shall
terminate and such party shall have no further right or power to
act as a General Partner (except to execute any amendment to this
Partnership Agreement to evidence his termination):
(i) upon death of the General Partner;
(ii) upon an adjudication of incompetency of
the General Partner;
(iii) if such Partner is removed or stands
for re-election and is not re-elected by the Partners, as
provided in Section 9 below;
(iv) in the case of the Non-Managing General
Partner, upon the filing of a certificate of dissolution, or its
equivalent, or voluntary or involuntary petition in bankruptcy
for such Non-Managing General Partner; or
(v) if such Partner voluntarily retires
upon not less than ninety (90) days' written notice to the other
General Partners.
(b) Notwithstanding the foregoing, the Non-
Managing General Partner shall not voluntarily withdraw or
otherwise voluntarily terminate its status as the Non-Managing
General Partner until the earliest of (i) 180 days from the date
that the Non-Managing General Partner gives the other General
Partners its written notice of its intention to withdraw as a Non-
Managing General Partner, (ii) the date that a successor Non-
Managing General Partner, who has agreed to assume the
obligations of Section 4.3(b) hereof, is elected by the Partners
pursuant to Section 9 hereof, or (iii) the date that another
General Partner assumes the obligations imposed upon the Non-
Managing General Partner pursuant to Section 4.3(b) hereof. The
failure of the Non-Managing General Partner to seek re-election
at any meeting of the Partners called for such purpose shall be
deemed to constitute a voluntary withdrawal as of the date of
notice of such meeting and shall constitute written notice as at
the date of such meeting of its intention to withdraw as a Non-
Managing General Partner, unless it has delivered written notice
at an earlier date.
(c) In the event a General Partner ceases to be a
General Partner, the remaining General Partners shall have the
right to continue the operations of the Partnership.
(d) Termination of a person's status as a General
Partner shall not affect his status, if any, as a Limited
Partner. A General Partner may retain Shares owned in his
capacity as a Limited Partner provided such General Partner has
been or is admitted to Partnership as a Limited Partner in
accordance with Section 5.2.
(e) A person who ceases to be a General Partner
shall nevertheless be deemed to be acting as a General Partner
with respect to a third party doing business with the Partnership
until an amended Certificate of Limited Partnership is filed with
the Secretary of State.
4.9 Additional or Successor General Partners. A
person may be added or substituted as a General Partner only upon
his admission by the Partners at a meeting of Partners or by
written consent without a meeting as provided in Section 9
hereof. Each General Partner, by becoming a General Partner,
consents to the admission as an added or substituted General
Partner of any person elected by the Partners in accordance with
this Partnership Agreement. Any person who is elected to be
admitted as a General Partner at a meeting of the Partners or by
written consent in accordance with Section 9 hereof and who shall
not be serving as a General Partner at the time of such election,
shall be admitted to the Partnership as a General Partner
effective as of the date of such election. Any General Partner
who is not re-elected at any such meeting in the manner specified
in Section 9 shall be deemed to have withdrawn as of the date of
such meeting.
4.10 Liability to Limited Partners. The General
Partners shall not be personally liable for the repayment of any
amounts standing in the account of a Limited Partner or holder of
Shares including, but not limited to, contributions with respect
to such Shares, except by reason of their wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of their office. Any payment, other than
in the event of wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of
his office by a General Partner, which results in a personal
liability to Limited Partners or holders of Shares, shall be
solely from the Partnership's assets.
So long as the General Partners have acted in good
faith and in a manner reasonably believed to be in the best
interests of the Limited Partners, the General Partners shall not
have any personal liability to any holder of Shares or to any
Limited Partner by reason of (1) any failure to withhold income
tax under Federal or state tax laws with respect to income
allocated to Limited Partners or (2) any change in the Federal or
state tax laws or in interpretation thereof as they apply to the
Partnership, the holders of the Shares or the Limited Partners,
whether such change occurs through legislative, judicial or
administrative action.
4.11 Assignment and Substitution. Each Share held by a
General Partner in his capacity as a General Partner shall be
designated as such, and each such Share shall be nonassignable,
except to another person who already is a General Partner, and
then only with the consent of the Managing General Partners, and
shall be redeemable by the Partnership only in the event that (i)
the holder thereof has ceased to be a General Partner of the
Partnership or (ii) in the opinion of counsel for the Partnership
redemption of Shares held by a General Partner would not
jeopardize the status of the Partnership as a partnership for
Federal income tax purposes.
4.12 No Agency. Except as provided in Section 15.9
below, nothing in this Partnership Agreement shall be construed
as establishing any General Partner as an agent of any Limited
Partner.
4.13 Reimbursement and Compensation. Managing General
Partners may receive reasonable compensation for their services
as Managing General Partners and will be reimbursed for all
reasonable out-of-pocket expenses incurred in performing their
duties hereunder.
4.14 Indemnification.
(a) Subject to the exceptions and limitations
contained in Subsection (b) below:
(i) Every person who is, or has been, a
General Partner, an officer and/or Director of a corporate
General Partner or Officer of the Partnership (hereinafter
referred to as "Covered Person") shall be indemnified by the
Partnership to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by
him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of
his being or having been a General Partner, an officer and/or
Director of a Corporate General Partner or officer of the
Partnership and against amounts paid or incurred by him in the
settlement thereof;
(ii) the words "claim", "action", "suit", or
"proceeding" shall include, without limitation, any
administrative inquiry, audit, investigation or other form of
regulatory actions and shall apply to all claims, actions, suits
or proceedings (civil, criminal or other, including appeals),
actual or threatened while in office or thereafter, and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided
hereunder to a Covered Person who shall have been finally
adjudicated by a court or other body before which the proceeding
was brought (i) to be liable to the Partnership or its Partners
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office or (ii) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the
Partnership.
(c) In the event of a settlement, or other
disposition not involving a final adjudication as provided in
subsection (b), indemnification shall be provided unless there
has been a determination that such Covered Person did engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office,
(i) by the court or other body approving
the settlement or other disposition;
(ii) by vote of at least a majority of those
Managing General Partners who are neither interested persons (as
defined in the 1940 Act) of the Partnership nor are parties to
the matter based upon a review of readily available facts (as
opposed to a full trial-type inquiry); or
(iii) by written opinion of independent legal
counsel, based upon a review of readily available facts (as
opposed to a full trial-type inquiry); provided, however, that
any Partner may, by appropriate legal proceedings, challenge any
such determination by the Managing General Partners, or by
independent counsel.
(d) The rights of indemnification herein provided
may be insured against by policies maintained by the Partnership,
shall be severable, shall not be exclusive of or affect any other
rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be such
General Partner, officer and/or Director of a Corporate General
Partner or officer of the Partnership and shall inure to the
benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to
indemnification to which Partnership personnel, other than
Covered Persons, and other persons may be entitled by contract or
otherwise under law.
(e) Expenses incurred in connection with the
preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in subsection (a)
of this Section 4.14 shall be paid by the Partnership from time
to time in advance prior to final disposition thereof upon
receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the Partnership if
it is ultimately determined that he is not entitled to
indemnification under this Section 4.14; provided, however, that
either (i) such Covered Persons shall have provided appropriate
security for such undertaking, (ii) the Partnership is insured
against losses arising out of any such advance payments, or (iii)
either a majority of the Managing General Partners who are
neither interested persons (as defined in the 1940 Act) of the
Partnership nor are parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a
review of readily available facts (as opposed to a full trial-
type inquiry), that there is reason to believe that such Covered
Person will be found entitled to indemnification under this
Section 4.14.
5. LIMITED PARTNERS
5.1 Identity of Limited Partners. The names of the
Limited Partners and their last known business or residence
addresses, together with the amounts of their contributions and
their current Share ownership, shall be set forth in alphabetical
order in the Partnership List.
5.2 Admission of Limited Partners. The Managing
General Partners may admit a purchaser of Shares as a Limited
Partner, upon (i) the execution by such purchaser of such
subscription documents and other instruments as the Managing
General Partners may deem necessary or desirable to effectuate
such admission, which documents, if any shall be required, shall
be described in the Partnership's Registration Statement, (ii)
the purchaser's acceptance of all the terms and provisions of
this Partnership Agreement, including the power of attorney set
forth in Section 15.9 hereof, as the same may have been amended
in such manner as shall be specified by the Managing General
Partners, and (iii) the addition of such purchaser to the
Partnership List. The admission of a purchaser as a Limited
Partner shall be effective upon his addition to the Partnership
List provided good payment has been received by the Partnership
for the purchased Shares. The Managing General Partners shall
cause the Partnership List to be amended daily on each day that
its Transfer Agent is open for business to reflect the admission
of new Limited Partners. In no event shall the consent or
approval of any of the Limited Partners be required to effectuate
such admission. Each purchaser of a Share of the Partnership who
becomes a Limited Partner shall be bound by all the terms and
conditions of this Partnership Agreement including, without
limitation, the allocation of income, gains, losses, deductions
and credits as provided in Section 10.3. Notwithstanding anything
in this Partnership Agreement to the contrary, the Managing
General Partners reserve the right to refuse to admit any Person
as a Limited Partner who has not completed, signed and furnished
to the Partnership or its designated agent an account
application, a Certificate of Foreign Status on Form W-8 or such
other required documents as may be described in the Registration
Statement, and any other Person if, in their judgment, it would
not be in the Partnership's best interests to admit such Person.
5.3 Contributions of the Limited Partners. The amount
contributed by each Limited Partner to the Partnership shall be
the amount actually invested in Shares of the Partnership at
their Net Asset Value, which amount shall not include any sales
charges and which amount may be less than the offering price paid
by such Limited Partner for his Shares to the extent the offering
price includes any sales charges. All contributions shall be made
in U.S. dollars, which shall be invested in Shares of the
Partnership at Net Asset Value. The amount of such contributions
and the number of Shares owned by each Partner shall be set forth
in the Partnership List.
5.4 Additional Contributions of Limited Partners. No
Limited Partner shall be required to make any additional
contributions to (or investments in) or lend additional funds to
the Partnership, and no Limited Partner shall be liable for any
additional assessment therefor. A Limited Partner may make an
additional contribution (or investment), however, at his option
through the purchase of additional Shares subject to the same
terms and conditions as his initial contribution.
5.5 Use of Contributions. The aggregate of all
capital contributions shall be, and hereby are agreed to be,
available to the Partnership to carry out the objects and
purposes of the Partnership.
5.6 Redemption by Limited Partners. A Limited Partner
may redeem his Shares at any time in accordance with Section 8.
The Managing General Partners shall cause the Partnership List to
be amended daily on each day that its Transfer Agent is open for
business to reflect the redemption of Shares by any Limited
Partner and the withdrawal or return through such redemption, in
whole or in part, of the contribution of any Limited Partner.
Except as provided in Sections 8.1, 10.4 and 12.2 hereof, a
Limited Partner shall have no right to the return or withdrawal
of his contribution.
5.7 Minimum Contribution and Mandatory Redemption.
The Managing General Partners shall determine the minimum amounts
required for the initial or additional contributions of a Limited
Partner, which amounts may, from time to time, be changed by the
Managing General Partners. Additionally, the Managing General
Partners may, from time to time, establish a minimum total
investment for Limited Partners, and there is reserved to the
Partnership the right to redeem automatically the interest of any
Limited Partner the value of whose investment, due to
redemptions, is less than such minimum upon the giving of at
least 30 days' notice to such Limited Partner, provided that such
minimum total investment is not greater than the investment of
any Limited Partner at the time the new minimum total investment
becomes effective. The amounts which the Managing General
Partners shall fix from time to time for initial or additional
contributions and the amount of the minimum total investment
shall be stated in the Partnership's current Registration
Statement.
5.8 Limited Liability.
(a) No Limited Partner shall be liable for any
debts or obligations of the Partnership and each Limited Partner
shall be indemnified by the Partnership against any such
liability; provided, however, that contributions of a Limited
Partner and his share of any undistributed assets of the
Partnership shall be subject to the risks of the operations of
the Partnership and subject to the claims of the Partnership's
creditors, and provided further, that after any Limited Partner
has redeemed his Shares or otherwise received the return of any
part of his contribution or any distribution of assets of the
Partnership, he will be liable to the Partnership for:
(i) any money or other property wrongfully
distributed to him; and
(ii) any sum, not in excess of the amount of
such distribution, necessary to discharge any liabilities of the
Partnership to creditors who extended credit or whose claims
arose before such returns or distributions were made, but only to
the extent that the assets of the Partnership are not sufficient
to discharge such liabilities.
The obligation of a Limited Partner to return all
or any part of a distribution made to him shall be the sole
obligation of such Limited Partner and not of the General
Partners.
(b) If an action is brought against a Limited
Partner to satisfy an obligation of the Partnership, the
Partnership, upon notice from the Limited Partner about the
action, will either pay the claim itself or, if the Partnership
believes the claim to be without merit, will undertake the
defense of the claim itself.
(c) The General Partners shall not have any
personal liability to any Holder of Shares or to any Limited
Partner for the repayment of any amounts standing in the account
of a Limited Partner including, but not limited to, contributions
with respect to such Shares. Any such payment shall be solely
from the assets of the Partnership. The General Partners shall
not be liable to any Holder of Shares or to any Limited Partner
by reason of any change in the Federal income tax laws or any
State or local income or franchise tax laws as they apply to the
Partnership or the Limited Partners, whether such change occurs
through legislative, judicial or administrative action, so long
as the General Partners have acted in good faith and in a manner
reasonably believed to be in the best interests of the Limited
Partners.
5.9 No Power to Control Operations. A Limited Partner
shall have no right to and shall take no part in control of the
Partnership's operations or activities but may exercise the
rights and powers of a Limited Partner under this Partnership
Agreement, including without limitation, the voting rights and
the giving of consents and approvals provided for in Section 9
hereof. The exercise of such rights and powers are deemed to be
matters affecting the basic structure of the Partnership and not
the control of its operations or activities.
5.10 Tax Responsibility. Each Limited Partner shall
(a) provide the Managing General Partners with any tax
information which may be required under applicable law, (b) pay
any penalties imposed on such Limited Partner for any non-
compliance with applicable tax laws, and (c) be subject to
withholding of income tax by the Partnership to the extent
required by law.
6. SHARES OF PARTNERSHIP INTEREST
All interests in the Partnership, including
contributions by the General Partners, pursuant to Section 4.3
and by the Limited Partners, pursuant to Section 5.3, shall be
expressed in units of participation herein referred to as
"Shares" (which term includes fractional Shares). Each Share
shall represent an equal proportionate interest in the income and
assets of the Partnership with each other Share outstanding.
7. PURCHASE AND EXCHANGE OF SHARES
7.1 Purchase of Shares. The Partnership may offer
Shares on a continuing basis to investors. Except for the initial
purchase of Shares by the initial Limited Partner and the General
Partners, all Shares issued shall be issued and sold at the Net
Asset Value (plus such sales charge or other charge as may be
applicable to the purchase of the Shares) next computed after
receipt of a purchase order in accordance with the Partnership's
Registration Statement in effect at the time the order is
received. Only investors who agree to be admitted, and who are
eligible for admission, as Limited Partners pursuant to Section
5.2 shall be eligible to purchase Shares (unless such investor
has already been admitted as a Partner). Orders for the purchase
of Shares shall be accepted on any day that the Partnership's
Transfer Agent is open for business (which shall normally be
limited to those days when the New York Stock Exchange is open
for business). The form in which purchase orders may be presented
shall be as set forth in the Partnership's Registration Statement
in effect at the time the order is received. The Managing General
Partners on behalf of the Partnership reserve the right to reject
any specific order and to suspend the Partnership's offering of
new Shares at any time. Payment for all Shares must be made in
U.S. dollars.
7.2 Net Asset Value. The Net Asset Value per Share of
the Partnership shall be determined as of the close of the New
York Stock Exchange on each day the Exchange is open for trading
or as of such other time or times as the Managing General
Partners may determine in accordance with the provisions of the
1940 Act. The Net Asset Value per Share shall be expressed in
U.S. dollars and shall be computed by dividing the value of all
the assets of the Partnership, less its liabilities, by the
number of Shares outstanding (including Shares held by General
Partners). Portfolio securities will be valued at their fair
value using methods determined in good faith by the Managing
General Partners in accordance with the 1940 Act. The Partnership
may suspend the determination of the Net Asset Value during any
period when the New York Stock Exchange is closed, other than
customary weekend and holiday closings, during periods when
trading on the Exchange is restricted as determined by the
Securities and Exchange Commission (the "Commission") or during
any emergency as determined by the Commission which makes it
impracticable for the Partnership to dispose of its securities or
value its assets, or during any other period permitted by order
of the Commission for the protection of investors.
7.3 Exchange of Shares. Shares of the Partnership may
be exchanged for (i.e., redeemed and reinvested in) shares of
other investment companies as provided in the Partnership's
Registration Statement in effect at the time of the exchange.
8. REDEMPTION OR REPURCHASE OF SHARES
8.1 Redemption of Shares.
(a) The Partnership will redeem from any Partner
all or any portion of the Shares owned by him provided that the
Partner delivers to the Partnership or its designated agent
notice of such redemption, stating the number of Shares to be
redeemed, together with a properly endorsed Share certificate(s)
where certificate(s) have been issued, in good order for transfer
and in proper form as determined by the Managing General Partners
and the Partnership's Transfer Agent. The Partner shall be
entitled to payment in U.S. Dollars of the Net Asset Value of his
Shares (as set forth in Section 7.2 hereof). Any such redemption
shall be in accordance with Section 4 with respect to General
Partners or Section 5 with respect to Limited Partners. Any
distribution upon redemption pursuant to this Section 8.1 shall,
in accordance with Section 10.4 below, constitute a return in
full of the redeeming Partner's contribution attributable to the
Shares which are redeemed regardless of the amount distributed
with respect to such Shares. No consent of any of the Partners
shall be required for the withdrawal or return of a Limited
Partner's contribution. The Managing General Partners shall have
sole discretion to determine the amount of cash to be distributed
to a withdrawing Partner. All redemptions shall be recorded on
the Partnership List, which shall be amended daily on each day
that the Partnership's Transfer Agent is open for business.
(b) The Managing General Partners may suspend
redemptions and defer payment of the redemption price at any
time, subject to the Rules and Regulations of the Securities and
Exchange Commission. The Partnership may suspend or withhold
redemptions or repurchases of shares (including exchanges
pursuant to Section 7.3) or redeem shares for the purpose of
satisfying any tax withholding obligations under Federal or state
tax laws.
8.2 Payment for Redeemed Shares. Payments for Shares
redeemed or repurchased by the Partnership will be made in U.S.
Dollars within seven days after receipt by the Partnership's
Transfer Agent of a written redemption request in proper form as
specified in Section 8.1 above. If a redemption request is
received with respect to Shares for which the Partnership has not
yet received good payment, the Partnership may delay the mailing
of a redemption check until such time as it has assured itself
that good payment has been collected for the purchase of such
Shares.
9. MATTERS AFFECTING THE PARTNERSHIP'S BASIC STRUCTURE
9.1 Rights of Limited Partners.
(a) As provided in the Partnership Act, the
Limited Partners shall have the right to vote together with the
General Partners in accordance with the provisions of this
Section 9 only upon the following matters affecting the basic
structure of the Partnership, which include the voting, approval,
consent or similar rights required under the 1940 Act for voting
security holders:
(i) the right to remove General Partner(s);
(ii) the right to elect new General
Partner(s), except in the circumstance where the last remaining
or surviving General Partner has been removed;
(iii) the right to approve or terminate
investment advisory, underwriting and distribution contracts and
plans;
(iv) the right to ratify or reject the
appointment and to terminate the employment of the independent
public accountants of the Partnership;
(v) the right to approve or disapprove the
sale of all or substantially all of the assets of the
Partnership;
(vi) the right to approve the incurrence of
indebtedness by the Partnership other than in the ordinary course
of its operations;
(vii) the right to approve transactions in
which the General Partners have an actual or potential conflict
of interest with the Limited Partners or the Partnership;
(viii)the right to terminate the Partnership,
as provided in Section 12 hereof;
(ix) the right to elect to continue the
operations of the Partnership, except in circumstances where the
last remaining or surviving General Partner has been removed; and
(x) the right to amend this Partnership
Agreement, including, without limitation, the right to approve or
disapprove proposed changes in the investment and operating
limitations set forth in Section 3.3 and the right to approve or
disapprove proposed changes in the nature of the Partnership's
activities as such activities are described herein; provided,
however, that no such amendment shall conflict with the 1940 Act
so long as the Partnership intends to remain registered
thereunder, nor affect the liability of the General Partners
without their consent nor the limited liability of the Limited
Partners as provided under Section 5.8 above.
Notwithstanding the foregoing, the right of
Limited Partners to vote on matters affecting the basic structure
of the Partnership as designated herein shall not be construed as
a requirement that all such matters be submitted to the Limited
Partners for their approval or be so approved to the extent such
approval is not required by the Partnership Act, the 1940 Act or
this Partnership Agreement.
(b) Notwithstanding the foregoing, no vote,
approval or other consent shall be required of the Limited
Partners with respect to any matter not affecting the basic
structure of the Partnership, including, without limitation, the
following: (i) any change in the amount or character of the
contribution of any Limited Partner; (ii) any change in the
procedures for the purchase or redemption of Shares, (iii) the
substitution or deletion of a Limited Partner; (iv) the admission
of any additional Limited Partner; (v) the retirement,
resignation, death or incompetency of a Managing General Partner;
(vi) any addition to the duties or obligations of the General
Partners, or any reduction in the rights or powers granted to the
General Partners herein, for the benefit of the Limited Partners;
(vii) the correction of any false or erroneous statement, or
change in any statement in order to make such statement
accurately represent the agreement among the General and Limited
Partners, in this Partnership Agreement; (viii) the addition of
any omitted provision or amendment of any provision to cure,
correct or supplement any ambiguous, defective or inconsistent
provision hereof; or (ix) such amendments as may be necessary to
conform this Partnership Agreement to the requirements of the
Partnership Act, the 1940 Act, the Tax Code or any other law or
regulation applicable to the Partnership.
(c) The Limited Partners shall have no right or
power to cause the termination and dissolution of the Partnership
except as set forth in this Partnership Agreement. No Limited
Partner shall have the right to bring an action for partition
against the Partnership.
9.2 Action of the Partners. Actions which require the
vote of the Limited Partners under Section 9.1 of this
Partnership Agreement shall be taken at a meeting of both the
General and Limited Partners, or by consent without a meeting as
provided in Section 9.10. All Partners' meetings shall be held at
such place as the Managing General Partners shall designate. The
Partners may vote at any such meeting in person or by proxy.
9.3 Meetings. Meetings of the Partnership for the
purpose of taking any action which the Limited Partners are
permitted to take under this Partnership Agreement may be called
by a majority vote of the Managing General Partners or by Limited
Partners representing 10% or more of the outstanding Shares.
Written notice of such meeting shall be given in accordance with
Section 9.4.
9.4 Notices.
(a) Whenever Partners are required or permitted
to take any action at a meeting, a written notice of the meeting
shall be given not less than ten (10), nor more than sixty (60),
days before the date of the meeting to each Partner entitled to
vote at the meeting. The notice shall state the place, date, and
hour of the meeting and the general nature of the business to be
transacted, and no other business may be transacted.
(b) Notice of a Partners' meeting or any report
shall be given either personally or by mail or other means of
written communication, addressed to the Partner at the address of
the Partner appearing on the books of the Partnership or given by
the Partner to the Partnership for the purpose of notice, or, if
no address appears or is given, at the place where the principal
executive office of the Partnership is located or by publication
at least once in a newspaper of general circulation in the county
in which the principal executive office is located. The notice or
report shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other
means of written communication. An affidavit of mailing of any
notice or report in accordance with the provisions of this
subsection, executed by a General Partner, shall be prima facie
evidence of the giving of the notice or report.
If any notice or report addressed to the Partner at the
address of the Partner appearing on the books of the Partnership
is returned to the Partnership marked to indicate that the notice
or report to the Partner could not be delivered at such address,
all future notices or reports shall be deemed to have been duly
given without further mailing if they are available for the
Partner at the principal executive office of the Partnership for
a period of one year from the date of the giving of the notice or
report to all other Partners.
(c) Upon written request to the General Partners
by any person entitled to call a meeting of Partners, the General
Partners immediately shall cause notice to be given to the
Partners entitled to vote that a meeting will be held at a time
requested by the person calling the meeting, not less than ten
(10), 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 entitled to call the meeting
may give the notice.
9.5 Validity of Vote for Certain Matters. Any Partner
approval at a meeting, other than unanimous approval by those
entitled to vote, with respect to the matters set forth in
Section 9.1(a) shall be valid only if the general nature of the
proposal so approved was stated in the notice of meeting or in
any written waiver of notice.
9.6 Adjournment. When a Partners' meeting is
adjourned to another time or place, notice need not be given of
the adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the
adjourned meeting the Partnership may transact any business which
might have been transacted at the original meeting. If the
adjournment is for more than forty-five (45) days or if after the
adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each Partner
of record entitled to vote at the meeting in accordance with
Section 9.4.
9.7 Waiver of Notice and Consent to Meeting. The
transactions of any meeting of Partners, however called and
noticed, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote, not
present in person or by proxy, signs a written waiver of notice
or a consent to the holding of the meeting or an approval of the
minutes thereof. All waivers, consents, and approvals shall be
filed with the Partnership records or made a part of the minutes
of the meeting. Attendance of a person at a meeting shall
constitute a waiver of notice of the meeting, except when the
person objects, at the beginning 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 required to be included in the notice of
the meeting but not so included, if the objection is expressly
made at the meeting. Neither the business to be transacted at nor
the purpose of any meeting of Partners need be specified in any
written waiver of notice, except as provided in Section 9.6.
9.8 Quorum. The presence in person or by proxy of
more than forty percent (40%) of the outstanding Shares on the
record date for any meeting constitutes a quorum at such meeting.
The Partners present at a duly called or held meeting at which a
quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough Partners to
leave less than a quorum, if any action taken (other than
adjournment) is approved by Partners holding a majority of the
Shares then represented at such meeting (except as otherwise may
be required by the 1940 Act or the Partnership Act). In the
absence of a quorum, any meeting of Partners may be adjourned
from time to time by the vote of a majority in interest of the
Limited Partners represented either in person or by proxy, but no
other business may be transacted except as provided in this
Section 9.8. The Managing General Partners may adjourn such
meeting to such time or times as determined by the Managing
General Partners.
9.9 Required Vote. Any action which requires the vote
of the Limited Partners may be taken by the General Partners with
(i) the Majority Vote of the then outstanding Shares or (ii) if
at a meeting, with a majority vote of those Shares present if the
quorum requirements of Section 9.8 hereof have been satisfied
(except as otherwise may be required by the 1940 Act or the
Partnership Act); provided, however, that the admission of a
General Partner shall require the affirmative vote of at least a
majority of the then outstanding Shares, and provided further,
that the admission of a General Partner or an election to
continue the operations of the Partnership after a General
Partner ceases to be a General Partner (other than by removal)
when there is no remaining or surviving General Partner shall
require the affirmative vote of all the Limited Partners.
9.10 Action by Consent Without a Meeting. Any action
which may be taken at any meeting of the Partners may be taken
without a meeting if a consent in writing, setting forth the
action so taken, shall be signed by Partners having not less than
the minimum number of votes that would be necessary to authorize
or take that action at a meeting. In the event the Limited
Partners are requested to consent on a matter without a meeting,
each Partner shall be given notice of the matter to be approved
in the same manner as described in Section 9.4. In the event any
General Partner, or Limited Partners representing 10% or more of
the outstanding Shares request a meeting for the purpose of
discussing or voting on the matter, notice of such meeting shall
be given in accordance with Section 9.4 and no action shall be
taken until such meeting is held. Unless delayed in accordance
with the provisions of the preceding sentence, any action taken
without a meeting will be effective ten (10) days after the
required minimum number of voters have signed the consent;
however, the action will be effective immediately if the General
Partners and Limited Partners representing at least 90% of the
Shares of the Partners have signed the consent.
9.11 Record Date.
(a) In order that the Partnership may determine
the Partners of record entitled to notices of any meeting or to
vote, or entitled to receive any distribution or to exercise any
rights in respect of any other lawful action, the Managing
General Partners, or Limited Partners representing more than 10%
of the Shares then outstanding, may fix, in advance, a record
date which is not more than sixty (60) or less than ten (10) days
prior to the date of the meeting and not more than sixty (60)
days prior to any other action. If no record date is fixed, the
record date shall be determined as provided in the Partnership
Act.
(b) The determination of Partners of record
entitled to notice of or to vote at a meeting of Partners shall
apply to any adjournment of the meeting unless the Managing
General Partners, or the Limited Partners who called the meeting,
fix a new record date for the adjourned meeting, but the Managing
General Partners, or the Limited Partners who called the meeting,
shall fix a new record date if the meeting is adjourned for more
than forty-five (45) days from the date set for the original
meeting.
(c) Any Holder of a Share prior to the record
date for a meeting shall be entitled to vote at such meeting,
provided such person becomes a Partner prior to the date of the
meeting.
9.12 Proxies. A Partner may vote at any meeting of the
Partnership by a proxy executed in writing by the Partner. All
such proxies shall be filed with the Partnership before or at the
time of the meeting. The law of California pertaining to
corporate proxies will be deemed to govern all Partnership
proxies as if they were proxies with respect to shares of a
California corporation. A proxy may be revoked by the person
executing the proxy in a writing delivered to the Managing
General Partners at any time prior to its exercise.
Notwithstanding that a valid proxy is outstanding, powers of the
proxy holder will be suspended if the person executing the proxy
is present at the meeting and elects to vote in person.
9.13 Number of Votes. All Shares have equal voting
rights. Each Partner shall have the right to vote the number of
Shares standing of record in such Partner's name as of the record
date set forth in the notice of meeting.
10. DISTRIBUTIONS AND ALLOCATION OF PROFITS AND LOSSES
10.1 Fees of General Partners. As compensation for
services rendered to the Partnership, each Managing General
Partner may be paid a fee during each year, which fee shall be
fixed by the Managing General Partners. All the General Partners
shall be entitled to reimbursement of reasonable expenses
incurred by them in connection with their performance of their
duties as General Partners. Neither payment of compensation or
reimbursement of expenses to a General Partner hereunder nor
payment of fees to any Affiliate of a General Partner for the
performance of services to the Partnership shall be deemed a
distribution for purposes of Section 10.2, nor shall any such
payment affect such person's right to receive any distribution to
which he would otherwise be entitled as a Holder of Shares.
10.2 Distributions of Income and Gains. Subject to
the provisions of the Partnership Act and the terms of Section
10.4 hereof, the Managing General Partners in their sole
discretion shall determine the amounts, if any, to be distributed
to Holders of Shares, the record date for purposes of such
distributions and the time or times when such distributions shall
be made. Distributions of income may be in cash (U.S. Dollars) or
in additional full and fractional Shares of the Partnership, at
the option of the Holder of Shares, valued at the Net Asset Value
on the record date, which amount may be less than the offering
price to the extent it includes any sales charges. With respect
to capital gains, the Managing General Partners may determine at
least annually what portion, if any, of the Partnership's capital
gains will be distributed and any such distribution may be in
cash or in additional full and fractional Shares of the
Partnership at the Net Asset Value on the record date.
Notwithstanding the foregoing, the Managing General Partners
shall not be required to make any distribution of income or
capital gains for any taxable year. The Managing General Partners
may require that such distributions be reinvested in additional
shares of the Partnership, determine that no withdrawal should be
made from an account, or institute withholding of taxes pursuant
to Federal or state tax laws on distributions with respect to
shares held by any Person who has failed to complete, sign and
furnish to the Partnership or its designated agent an account
application, a Certificate of Foreign Status on Form W-8 or such
other required documents as may be described in the Registration
Statement.
10.3 Allocation of Income, Gains, Losses, Deductions
and Credits. The net income, gains, losses, deductions and
credits of the Partnership shall be allocated equally among the
outstanding Shares of the Partnership on a regular basis to be
determined by the Managing General Partners. The net income
earned by the Partnership shall consist of the interest accrued
on portfolio securities, less expenses, since the most recent
determination of income. Original issue discount will be
amortized as an income item. Market discount and premiums will be
treated as capital items except as otherwise required for Federal
income tax purposes. Expenses of the Partnership will be accrued
on a regular basis to be determined by the Managing General
Partners. A Holder of a Share shall be allocated the
proportionate part of such items actually realized by the
Partnership for each such full accrual period during which such
Share was owned by such Holder. A person shall be deemed to be a
Holder of a Share on a specific day if he is the record holder of
such Share on such day (regardless of whether or not such record
holder has yet been admitted as a Partner).
10.4 Returns of Contributions. Except upon dissolution
of the Partnership by expiration of its terms or otherwise
pursuant to Section 12 hereof (which shall be the time for return
to each Partner of the value of the Shares acquired by his
contributions, subject to the priorities therein), and except
upon redemption of Shares of the Partnership as provided in
Section 8, no Partner has the right to demand return of any part
of his contribution. The Managing General Partners may, however,
from time to time, elect to permit partial returns of the value
of the Shares acquired by his contributions to Holders of Shares,
provided that:
(a) all liabilities of the Partnership to persons
other than General and Limited Partners have been paid or, in the
good faith determination of the Managing General Partners, there
remains property of the Partnership sufficient to pay them; and
(b) the Managing General Partners cause the
Partnership List to be amended to reflect a reduction in
contributions.
In the event that the Managing General Partners
elect to make a partial return of the value of Shares acquired by
contributions to Holders of Shares, such distribution shall be
made pro rata to all of the Holders of Shares in accordance with
the number of Shares held by each. Each General and Limited
Partner, by becoming such, consents to any such pro rata
distribution therefore or thereafter duly authorized and made in
accordance with such provisions and to any distribution through
redemption of Shares pursuant to Section 8 above.
10.5 Capital Accounts. In addition to any capital
accounts required to be maintained for accounting purposes in
accordance with generally accepted accounting principles, the
Partnership shall maintain two Capital Accounts for each Partner,
one for book purposes and the other for tax purposes. Each such
Capital Account shall be maintained in accordance with the
requirements of Treasury Regulations Section 1.704-1(b). Each
such Capital Account shall be credited with the Partner's capital
contributions and share of profits, shall be charged with such
Partner's share of losses, distributions and withholding taxes
(if any) and shall otherwise appropriately reflect transactions
of the Partnership and the Partners. At the end of each day, the
book Capital Accounts of all Partners shall be adjusted to
reflect unrealized appreciation or depreciation in the value of
the Partnership's assets which accrued on that day. Further
adjustments shall then be made to reflect any purchases and
redemptions of Shares by the Partners. The intent of these
adjustments is to achieve consistency and equivalence between
book Capital Accounts and the Net Asset Value per Share used to
determine the value of the Shares purchased, redeemed or
liquidated in accordance with industry practice for investment
partnerships such as the Partnership. Adjustments to tax Capital
Accounts to take into account allocations of gains and losses
realized by the Partnership for tax purposes shall be made in the
manner described in Section 10.6. A Substituted Limited Partner
shall be deemed to succeed to the book and tax Capital Accounts
of the Partner whom such Substituted Limited Partner replaced.
10.6 Allocations for Tax Purposes.
(a) General. For each fiscal year, items of
income, deduction, loss or credit from normal operations (other
than from the disposition or deemed disposition of assets of the
Partnership) shall be allocated for income tax purposes among the
Partners in proportion to the amounts distributed to them during
such year pursuant to Sections 10.3 and 10.4 hereof. The
Partners' tax Capital Accounts shall be adjusted to reflect
allocations of such items of income, deduction, loss or credit.
(b) Special Allocations. Allocations of gains
and losses from the disposition or deemed disposition of assets
of the Partnership to Partners for tax purposes shall be made in
accordance with the following method which is intended to ensure
that allocations for tax purposes reflect the economic experience
of the Partners with respect to their interests in the
Partnership:
(i) With respect to each Partner, a daily
account of unrealized appreciation/depreciation and realized
gain/loss shall be maintained. Each day's net unrealized
appreciation/depreciation in the assets of the Partnership and
each day's net realized gains/losses of the Partnership shall be
allocated to the Partners in proportion to their book Capital
Account balances at the beginning of such day. Any entry of
realized gain or loss into any Partner's account for net realized
gains/losses shall result in an equal and offsetting adjustment
to the Partner's account for net unrealized appreciation/
depreciation for that day. Purchases of Shares and partial or
complete redemptions of Shares shall be regarded as occurring at
the end of each day, after entries and adjustments in the
Partners' accounts for net unrealized appreciation/depreciation
and net realized gains/losses have been made. The amounts for
each Partner's share of net unrealized appreciation/depreciation
and net realized gains/losses, together with adjustments made to
reflect purchases or redemptions of Shares, shall be combined to
arrive at each Partner's ending book Capital Account balance for
the day.
(ii) At the end of each year, the daily
amounts of net unrealized appreciation/depreciation and net
realized gains/losses shall be aggregated to arrive at a total
amount for net unrealized appreciation/depreciation and a total
amount for net realized gains/losses for each Partner for the
year. These two amounts shall be combined to arrive at each
Partner's "Investment Experience." Net gains realized by the
Partnership shall be allocated among the Partners whose
Investment Experience is positive, and each such Partner's
allocable share of such gains for tax purposes shall be equal to
a fraction the numerator of which is the Partner's Investment
Experience and the denominator of which is the total Investment
Experience of the Partners whose Investment Experience is
positive. Net losses realized by the Partnership shall be
allocated among the Partners whose Investment Experience is
negative, and each such Partner's allocable share of such losses
shall be computed in the manner described in the previous
sentence, except that the word "negative" shall be substituted
for the word "positive." Each Partner's tax Capital Account shall
then be adjusted to reflect such Partner's allocable share of
Partnership realized gains or losses for such year. The Partners'
accounts for unrealized appreciation/depreciation and net
realized gains/losses, adjusted appropriately to reflect the
allocation of the net gain realized or the net loss realized,
shall be carried over to the next year.
(iii) In the event of a partial or complete
redemption of Shares which results in a distribution in excess of
a Partner's tax Capital Account, the Partnership may make an
election to adjust the basis of Partnership assets under Section
754 of the Code, and the Partnership may increase the tax basis
of its Partnership assets in accordance with Section 743(b) and
755 of the Code by the difference between the amount of the
distribution made to the redeeming Partner in redemption of his
Shares and his tax Capital Account.
(c) Minimum Gain Chargeback. A Partner's share
of Minimum Gain shall be computed in accordance with Treasury
Department Regulations Section 1.704-1(b)(4)(iv)(f). In the event
that there is a net decrease in the Partnership's Minimum Gain
during any taxable year and any Partner has a negative book
Capital Account (after taking into account reductions for items
described in paragraphs (4), (5) and (6) of Treasury Department
Regulations Section 1.704-1(b)(2)(ii)(d)) and such negative
balance exceeds the sum of (i) the amount that such Partner is
obligated to restore upon liquidation of the Partnership and (ii)
such Partner's share of the Minimum Gain at the end of such
taxable year, such Partner shall be allocated Partnership profits
for such year (and, if necessary, subsequent years) in an amount
necessary to eliminate such excess negative balance as quickly as
possible. Allocations of profits to such Partners having such
excess negative book Capital Accounts shall be made in proportion
to the amounts of such excess negative book Capital Account
balances. The term "Minimum Gain" means the excess of the
outstanding balances of all nonrecourse indebtedness which is
secured by property of the Partnership over the adjusted basis of
such property for federal income tax purposes, as computed in
accordance with the provisions of Treasury Department Regulations
Section 1.704-1(b)(4)(iv)(c).
(d) Qualified Income Offset. Notwithstanding
anything in Sections 10.3 and 10.6 to the contrary, in the event
any Partner unexpectedly receives any adjustments, allocations or
distributions described in Treasury Department Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(d)(5) or 1.704-
1(b)(2)(ii)(d)(6), items of Partnership income (including gross
income) and gain shall be specially allocated to such Partner in
an amount and manner sufficient to eliminate the deficit balance
in his book Capital Account (in excess of (i) the amount he is
obligated to restore upon liquidation of the Partnership or upon
liquidation of his interest in the Partnership and (ii) his share
of the Minimum Gain) created by such adjustments, allocations or
distributions as quickly as possible.
11. ASSIGNMENT OF SHARES; SUCCESSOR IN INTEREST;
SUBSTITUTION OF PARTNERS
11.1 Prohibition on Assignment. Except for redemptions
as provided in Section 8, a Partner shall not have the right to
sell, transfer or assign his Shares to any other person, but may
pledge them as collateral.
11.2 Rights of the Holders of Shares as Collateral or
Judgment Creditor. In the event that any person who is holding
Shares as collateral or any judgment creditor becomes the owner
of such Shares due to foreclosure or otherwise, such person shall
not have the right to be substituted as a Limited Partner, but
shall only have the rights, upon the presentation of evidence
satisfactory to the Managing General Partners of his right to
succeed to the interests of the Limited Partner, set forth
immediately below:
(a) To redeem the Shares in accordance with the
provisions of Section 8 hereof; and
(b) To receive any subsequent distributions made
with respect to such Shares.
Upon receipt by the Partnership of evidence
satisfactory to the Managing General Partners of his ownership of
Shares, the owner shall become a Holder of Record of the subject
Shares and his name shall be recorded on the books of record of
the Partnership maintained for such purpose either by the
Partnership or its Transfer Agent. Such owner shall be liable to
return any excess distributions pursuant to Section 5.8(a).
However, although such owner shall own an equity interest in the
Partnership in the form of Shares, such owner shall have none of
the rights or obligations of a Substituted Limited Partner unless
and until he is admitted as such.
11.3 Death, Incompetency, Bankruptcy or Termination of
the Existence of a Partner. In the event of the death or an
adjudication of incompetency or bankruptcy of an individual
Partner (or, in the case of a Partner that is a corporation,
association, partnership, joint venture or trust, an adjudication
of bankruptcy, dissolution or other termination of the existence
of such Partner), the successor in interest of such Partner
(including without limitation the Partner's executor,
administrator, guardian, conservator, receiver or other legal
representative), upon the presentation of evidence satisfactory
to the Managing General Partners of his right to succeed to the
interests of the Partner, shall have the rights set forth below:
(a) to redeem the Shares of the Partner in
accordance with the provisions of Section 8 hereof;
(b) to receive any subsequent distributions made
with respect to such Shares; and
(c) to be substituted as a Limited Partner upon
compliance with the conditions of the admission of a Limited
Partner as provided in Sections 5 and 11 hereof.
Upon receipt by the Partnership of evidence
satisfactory to the Managing General Partners of his right to
succeed to the interests of the Partner, the successor in
interest shall become a Holder of Record of the subject Shares
and his name shall be recorded on the books of record of the
Partnership maintained for such purpose either by the Partnership
or its Transfer Agent.
11.4 Substituted Limited Partners.
(a) A person shall not become a Substituted
Limited Partner unless the Managing General Partners consent to
such substitution (which consent may be withheld in their
absolute discretion) and receive such instruments and documents
(including those specified in Section 5.2), and a reasonable
transfer fee as the Managing General Partners shall require.
(b) The original Limited Partner shall cease to
be a Limited Partner, and the person to be substituted shall
become a Substituted Limited Partner, as of the date on which the
person to be substituted has satisfied the requirements set forth
above and as of the date the Partnership List is amended to
reflect his admission as a Substituted Limited Partner. The
Managing General Partners agree to cause such amendments to the
Partnership List to be processed daily on each day that its
Transfer Agent shall be open for business. Thereafter the
original Limited Partner shall have no rights or obligations with
respect to the Partnership insofar as the Shares transferred to
the Substituted Limited Partner are concerned other than
liabilities which the original Limited Partner may have had to
the Partnership on the date of transfer, and the Substituted
Limited Partners shall be liable to return any excess
distributions pursuant to Section 5.8(a) hereof.
(c) Unless and until a person becomes a
Substituted Limited Partner, his status and rights shall be
limited to the rights of a Holder of Shares pursuant to Sections
11.3(a) and 11.3(b). A Holder of Shares who does not become a
Substituted Limited Partner shall have no right to inspect the
Partnership's books or to vote on any of the matters on which a
Limited Partner would be entitled to vote. A Holder of Shares who
has become a Substituted Limited Partner has all the rights and
powers, and is subject to the restrictions and liabilities of a
Limited Partner under this Agreement.
(d) Any person admitted to the Partnership as
Substituted Limited Partner shall be subject to and bound by the
provisions of this Partnership Agreement as if originally a party
to this Partnership Agreement.
12. DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
12.1 Dissolution. The Partnership shall be dissolved
and its affairs shall be wound up upon the happening of the first
to occur of the following:
(a) the stated term of the Partnership has
expired unless the Partners by a Majority Vote have previously
amended the Partnership Agreement to state a different term;
(b) the Partnership has disposed of all of its
assets;
(c) A General Partner has ceased to be a General
Partner and the remaining General Partners do not elect to
continue the operations of the Partnership;
(d) There is only one General Partner remaining
and such General Partner has ceased to be a General Partner as
set forth in Section 4.8; provided, however, that if the last
remaining or surviving General Partner ceases to be a General
Partner other than by removal, the Limited Partners may agree by
unanimous vote to continue the operations of the Partnership and
to admit one or more General Partners in accordance with the
Partnership Agreement;
(e) a decree of judicial dissolution has been
entered by a court of competent jurisdiction; or
(f) the Partners by a Majority Vote have voted to
dissolve the Partnership.
12.2 Liquidation.
(a) In the event of dissolution as provided in
Section 12.1, the assets of the Partnership shall be distributed
as follows:
(i) all of the Partnership's debts and
liabilities to persons (including Partners to the extent
permitted by law) shall be paid and discharged, and any reserve
deemed necessary by the Managing General Partners for the payment
of such debts shall be set aside; and
(ii) the balance of the assets of the
Partnership (and any reserves not eventually used to satisfy
debts of the Partnership) shall be liquidated and distributed pro
rata to the Partners in accordance with the number of Shares held
by each.
(b) Upon dissolution, each Partner shall look
solely to the assets of the Partnership for the return of his
capital contribution and shall be entitled to receive only a
distribution of a pro-rata share of Partnership property and
assets, as provided in Section 12.2(a). If the Partnership
property remaining after the payment or discharge of the debts
and liabilities of the Partnership is insufficient to return the
capital contribution of each Limited Partner, such Limited
Partner shall have no recourse against any General Partner, the
assets of any other partnership of which any General Partner is a
partner, or any other Limited Partner. The winding up of the
affairs of the Partnership and the distribution of its assets
shall be conducted exclusively by the Managing General Partners,
who are authorized to do any and all acts and things authorized
by law for these purposes. In the event of dissolution where
there is no remaining General Partner, and there is a failure to
appoint a new General Partner, the winding up of the affairs of
the Partnership and the distribution of its assets shall be
conducted by such person as may be selected by Majority Vote,
which person is hereby authorized to do any and all acts and
things authorized by law for these purposes.
12.3 Termination. Upon the completion of the
distribution of Partnership assets as provided in this Section
and the termination of the Partnership, the General Partner(s) or
other person acting as liquidator (or the Limited Partners, if
necessary) shall cause the Certificate of Limited Partnership of
the Partnership to be cancelled and shall take such other actions
as may be necessary to legally terminate the Partnership.
13. BOOKS, RECORDS, ACCOUNTS AND REPORTS
13.1 Books and Records.
(a) The Partnership shall continuously maintain
an office in the State of California, at which the following
books and records shall be kept:
(i) A Partnership List (or copy thereof)
which shall be a current list of the full name and last known
business or residence address of each Partner, set forth in
alphabetical order together with the contribution and the share
in profits and losses of each Partner, which list shall
separately identify the interests of General and Limited
Partners.
(ii) A copy of the Certificate of Limited
Partnership and all certificates of amendments thereto, together
with executed copies of any powers of attorney pursuant to which
any such certificate has been executed.
(iii) Copies of the Partnership's Federal,
state and local income tax or information returns and reports, if
any, for the six most recent taxable years.
(iv) Copies of this Partnership Agreement
and all amendments thereto.
(v) Financial statements of the Partnership
for the six most recent fiscal years.
(vi) The Partnership's books and records for
at least the current and past three fiscal years.
(b) The Partnership shall also maintain at its
principal office such additional books and records as are
necessary for the operation of the Partnership.
13.2 Limited Partners' Rights to Records.
(a) Upon the request of a Limited Partner, the
Managing General Partners shall promptly deliver to the Limited
Partner, at the Partnership's expense, a copy of the items set
forth in Section 13.1(a)(i), (ii) and (iv), provided, however,
that such books and records and the information contained therein
shall be treated as confidential and that such access shall be
for proper Partnership purposes only and not for the private or
commercial use of any Partner and further provided that the
Partnership may require a Partner to enter into an undertaking to
that effect.
(b) Each Limited Partner shall have the right
upon reasonable request to each of the following:
(i) To inspect and copy during normal
business hours, at the Limited Partner's expense (which shall
include, without limitation, all Partnership costs to comply with
such request, including any processing costs), any of the
Partnership's records required to be kept pursuant to the
Partnership Act.
(ii) To obtain from the Managing General
Partners promptly after becoming available, at the Limited
Partner's expense, a copy of any Federal, state and local income
tax or information returns required to be filed by the
Partnership for each year.
(c) The Managing General Partners shall promptly
furnish to a Limited Partner a copy of any amendment to this
Partnership Agreement executed by the Managing General Partners
pursuant to a power of attorney from the Limited Partner.
(d) The Managing General Partners shall send to
each Partner within ninety (90) days after the end of each
taxable year such information as is necessary to complete Federal
and state income tax or information returns or such information
as is required by the Tax Code.
(e) At any time that the Partnership shall have
more than 35 Limited Partners:
(i) The Managing General Partners shall
cause an annual report to be sent to each of the Partners not
later than 120 days after the close of the Partnership's fiscal
year. That report shall contain a balance sheet as of the end of
the fiscal year and an income statement and statement of changes
in financial position for the fiscal year.
(ii) Limited Partners representing at least
5% of the outstanding Shares of the Partnership may make a
written request to the Managing General Partners for an income
statement of the Partnership for the initial three-month, six-
month or nine-month period of the current fiscal year ended more
than thirty (30) days prior to the date of the request and a
balance sheet of the Partnership as of the end of that period.
The statement shall be delivered or mailed to the Limited
Partners within thirty (30) days thereafter.
(iii) The financial statements referred to in
this subsection shall be accompanied by the report thereon, if
any, of the independent accountants engaged by the Partnership
or, if there is no such report, the certificate of the Managing
General Partners that such financial statements were prepared
without audit from the books and records of the Partnership.
(f) The Managing General Partners shall cause to
be transmitted to each Partner such other reports and information
as shall be required by the 1940 Act, the Partnership Act or the
Tax Code.
13.3 Accounting Basis and Fiscal Year. The
Partnership's books and records (i) shall be kept on a basis
chosen by the Managing General Partners in accordance with the
accounting methods followed by the Partnership for Federal income
tax purposes and otherwise in accordance with generally accepted
accounting principles applied on a consistent basis, (ii) shall
reflect all Partnership transactions, (iii) shall be appropriate
and adequate for the Partnership's business and for the carrying
out of all provisions of this Partnership Agreement, and (iv)
shall be closed and balanced at the end of each Partnership
fiscal year. The fiscal year of the Partnership shall be the
calendar year.
13.4 Tax Returns. The Managing General Partners, at
the Partnership's expense, shall cause to be prepared any income
tax or information returns required to be made by the
Partnership and shall further cause such returns to be timely
filed, including extensions, with the appropriate authorities.
13.5 Filings with Regulatory Agencies. The Managing
General Partners, at the Partnership's expense, shall cause to be
prepared and timely filed, including extensions, with appropriate
Federal and state regulatory and administrative bodies, all
reports required to be filed with such entities under then
current applicable laws, rules and regulations.
13.6 Tax Matters and Notice Partner. The Managing
General Partners shall designate one or more General Partners as
the "Tax Matters Partner" and the "Notice Partner" of the
Partnership in accordance with Sections 6231(a)(7) and (8) of the
Tax Code, and each such Partner shall have no personal liability
arising out of his good faith performance of his duties in such
capacity. The "Tax Matters Partner" is authorized, at the
Partnership's sole cost and expense, to represent and to retain
legal counsel and accounting assistance to represent the
Partnership and each Limited Partner in connection with all
examinations of the Partnership affairs by tax authorities,
including any resulting administrative and judicial proceedings.
Each Limited Partner agrees to cooperate with the Managing
General Partners and to do or refrain from doing any and all
things reasonably required by the Managing General Partners to
conduct such proceeding. The Managing General Partners shall have
the right to settle any audits without the consent of the Limited
Partners.
14. AMENDMENTS OF PARTNERSHIP DOCUMENTS
14.1 Amendments in General. Except as otherwise
provided in this Partnership Agreement, the Partnership Agreement
may be amended only by the General Partners.
14.2 Amendments Without Consent of Limited Partners.
In addition to any amendments otherwise authorized herein and
except as otherwise provided, amendments may be made to this
Partnership Agreement from time to time by the General Partners
without the consent of any of the Limited Partners, including,
without limitation, amendments: (i) to reflect the retirement,
resignation, death or incompetency of a Managing General Partner;
(ii) to add to the duties or obligations of the General Partners,
or to surrender any right or power granted to the General
Partners herein, for the benefit of the Limited Partners; (iii)
to correct any false or erroneous statement, or to make a change
in any statement in order to make such statement accurately
represent the agreement among the General and Limited Partners;
(iv) to supply any omission or to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or (v) to
make such amendments as may be necessary to conform this
Partnership Agreement to the requirements of the Partnership Act,
the 1940 Act, the Tax Code or any other law or regulation
applicable to the Partnership, as now or hereafter in effect.
14.3 Amendments Needing Consent of Affected Partners.
Notwithstanding any other provision of this Partnership
Agreement, without the consent of the Partner or Partners to be
affected by any amendment to this Agreement, this Agreement may
not be amended to (i) convert a Limited Partner's interest into a
General Partner's interest, (ii) modify the limited liability of
a Limited Partner, (iii) alter the interest of a Partner in
income, gain, loss, deductions, credits, and distributions other
than by purchase or redemption of Shares, or (iv) increase, add
or alter any obligation of any Limited Partner.
14.4 Amendments to Certificate of Limited Partnership.
(a) The Managing General Partners shall cause to
be filed with the Secretary of State, within thirty (30) days
after the happening of any of the following events, an amendment
to the Certificate of Limited Partnership reflecting the
occurrence of any of the following events:
(i) A change in the name of the
Partnership.
(ii) A change in either of the following:
(A) The street address of the
Partnership's principal executive office.
(B) If the principal executive office
is not in California, the street address of an office in
California.
(iii) A change in the address of or the
withdrawal of any of the General Partners, or a change in the
address of the agent for service of process, unless a corporate
agent is designated, or appointment of a new agent for service of
process.
(iv) The admission of a new General Partner
and that Partner's address.
(v) The discovery by the General Partner of
any false or erroneous material statement contained in the
Certificate of Limited Partnership.
(b) Any Certificate of Limited Partnership filed
or recorded in jurisdictions other than California shall be
amended as required by applicable law.
(c) The Certificate of Limited Partnership may
also be amended at any time in any other manner deemed
appropriate by the General Partner.
14.5 Amendments After Change of Law. This Agreement
and any other Partnership documents may be amended and refiled,
if necessary, by the Managing General Partners without the
consent of the Limited Partners if there occurs any change that
permits or requires an amendment of this Agreement under the Act
or of any other Partnership document under applicable law, so
long as no Partner is adversely affected (or consent is given by
such Partner).
15. MISCELLANEOUS PROVISIONS
15.1 Notices.
(a) Any written notice, offer, demand or
communication required or permitted to be given by any provision
of this Partnership Agreement, unless otherwise specified herein,
shall be deemed to have been sufficiently given for all purposes
if delivered personally to the party to whom the same is directed
or if sent by first class mail addressed (i) if to a General
Partner, to the principal place of business and office of the
Partnership specified in this Agreement and (ii) if to a Limited
Partner, to such Limited Partner's address as set forth in the
Partnership List; provided, however, that notice given by any
other means shall be deemed sufficient if actually received by
the party to whom it is directed.
(b) Any such notice that is sent by first class
mail shall be deemed to be given two (2) days after the date on
which the same is mailed.
(c) The Managing General Partners may change the
Partnership's address for purposes of this Partnership Agreement
by giving written notice of such change to the Limited Partners,
and any Limited Partner may change his address for purposes of
this Partnership Agreement by giving written notice of such
change to the Managing General Partners, in the manner herein
provided for the giving of notices.
15.2 Section Headings. The Section headings in this
Partnership Agreement are inserted for convenience and
identification only and are in no way intended to define or limit
the scope, extent or intent of this Partnership Agreement or any
of the provisions hereof.
15.3 Construction. Whenever the singular number is
used herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall include each other, as
applicable. If any language is stricken or deleted from this
Partnership Agreement, such language shall be deemed never to
have appeared herein and no other implication shall be drawn
therefrom. The language in all parts of this Partnership
Agreement shall be in all cases construed according to its fair
meaning and not strictly for or against the General Partners or
the Limited Partners.
15.4 Severability. If any covenant, condition, term or
provision of this Partnership Agreement is illegal, or if the
application thereof to any person or in any circumstance shall to
any extent be judicially determined to be invalid or
unenforceable, the remainder of this Partnership Agreement, or
the application of such covenant, condition, term or provision to
persons or in circumstances other than those to which it is held
invalid or unenforceable, shall not be affected thereby, and each
remaining covenant, condition, term and provision of this
Partnership Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15.5 Governing Law. This Partnership Agreement shall
be construed and enforced in accordance with, and governed by,
California law.
15.6 Counterparts. This Partnership Agreement may be
executed in one or more counterparts, each of which shall, for
all purposes, be deemed an original and all of such counterparts,
taken together, shall constitute one and the same Partnership
Agreement.
15.7 Entire Agreement. This Partnership Agreement and
the separate subscription agreements of each Limited Partner and
General Partner constitute the entire agreement of the parties as
to the subject matter hereof. All prior agreements among the
parties as to the subject matter hereof, whether written or oral,
are merged herein and shall be of no force or effect. This
Partnership Agreement cannot be changed, modified or discharged
orally but only by an agreement in writing. There are no
representations, warranties, or agreements other than those set
forth in this Partnership Agreement and such separate
subscription agreements, if any.
15.8 Cross-References. All cross-references in this
Partnership Agreement, unless specifically directed to another
agreement or document, refer to provisions in this Partnership
Agreement.
15.9 Power of Attorney to the General Partners.
(a) Each Partner hereby makes, constitutes and
appoints each Managing General Partner and any person designated
by the Managing General Partners, with full substitution, his
agent and attorney-in-fact in his name, place and stead, to take
any and all actions and to make, execute, swear to and
acknowledge, amend, file, record and deliver the following
documents and any other documents deemed by the Managing General
Partners necessary for the operations of the Partnership: (i) any
Certificate of Limited Partnership or Certificate of Amendment
thereto, required or permitted to be filed on behalf of the
Partnership, and any and all certificates as necessary to qualify
or continue the Partnership as a limited partnership or
partnership wherein the Limited Partners thereof have limited
liability in the states where the Partnership may be conducting
activities, and all instruments which effect a change or
modification of the Partnership in accordance with this
Partnership Agreement; (ii) this Partnership Agreement and any
amendments thereto in accordance with this Partnership Agreement;
(iii) any other instrument which is now or which may hereafter be
required or advisable to be filed for or on behalf of the
Partnership; (iv) any document which may be required to effect
the continuation of the Partnership, the admission of an
additional Limited Partner or Substituted Limited Partner, or the
dissolution and termination of the Partnership (provided such
continuation, admission or dissolution and termination is in
accordance with the terms of this Partnership Agreement), or to
reflect any reductions or additions in the amount of the
contributions of Partners, in each case having the power to
execute such instruments on his behalf, whether the undersigned
approved of such action or not; (v) any document containing any
investment representations and/or representations relating to
citizenship, residence and tax status required by any state or
Federal law or regulation in connection with an investment by the
Partnership; and (iv) any tax elections.
(b) This Power of Attorney is a special Power of
Attorney coupled with an interest, and shall not be revoked and
shall survive the transfer by any Limited Partner of all or part
of his interest in the Partnership and, being coupled with an
interest, shall survive the death or disability or cessation of
the existence as a legal entity of any Limited Partner; except
that where the successor in interest has been approved by said
attorney for admission to the Partnership as a Substituted
Limited Partner, this Power of Attorney shall survive the
transfer for the sole purpose of enabling said attorney to
execute, acknowledge and file any instrument necessary to
effectuate such substitution.
(c) Each Limited Partner hereby gives and grants
to his said attorney under this Power of Attorney full power and
authority to do and perform each and every act and thing
whatsoever requisite, necessary or appropriate to be done in or
in connection with this Power of Attorney as fully to all intents
and purposes as he might or could do if personally present,
hereby ratifying all that his said attorney shall lawfully do or
cause to be done by virtue of this Power of Attorney.
(d) The existence of this Power of Attorney shall
not preclude execution of any such instrument by the undersigned
individually on any such matter. A person dealing with the
Partnership may conclusively presume and rely on the fact that
any such instrument executed by such agent and attorney-in-fact
is authorized, regular and binding without further inquiry.
(e) The appointment of each Managing General
Partner and each designee of that General Partner as attorney-in-
fact pursuant to this power of attorney automatically shall
terminate as to such person at such time as he ceases to be a
General Partner and from such time shall be effective only as to
the substitute General Partner admitted in accordance with this
Partnership Agreement and his designees.
15.10 Further Assurances. The Limited Partners will
execute and deliver such further instruments and do such further
acts and things as may be required to carry out the intent and
purposes of this Partnership Agreement.
15.11 Successors and Assigns. Subject in all respects
to the limitations on transferability contained herein, this
Partnership Agreement shall be binding upon, and shall inure to
the benefit of, the heirs, administrators, personal
representatives, successors and assigns of the respective parties
hereto.
15.12 Waiver of Action for Partition. Each of the
parties hereto irrevocably waives during the term of the
Partnership and during the period of its liquidation following
any dissolution, any right that he may have to maintain any
action for partition with respect to any of the assets of the
Partnership.
15.13 Creditors. None of the provisions of this
Partnership Agreement shall be for the benefit of or enforceable
by any of the creditors of the Partnership or the Partners.
15.14 Remedies. The rights and remedies of the
Partners hereunder shall not be mutually exclusive, and the
exercise by any Partner of any right to which he is entitled
shall not preclude the exercise of any other right he may have.
15.15 Custodian. All assets of the Partnership shall
be held by a custodian meeting the requirements of the 1940 Act,
and may be registered in the name of the Partnership or such
custodian or nominee. The terms of the custodian agreement shall
be determined by the Managing General Partners.
15.16 Use of Name "Franklin. "Franklin Partners, Inc.,
as the initial Non-Managing General Partner, on behalf of its
parent, Franklin Resources, Inc., hereby consents to the use by
the Partnership of the name "Franklin" as part of the
Partnership's name; provided, however, that such consent shall be
conditioned upon the employment of Franklin Resources, Inc. or
one of its affiliates as an investment adviser of the
Partnership. The name "Franklin" or any variation thereof may be
used from time to time in other connections and for other
purposes by Franklin Resources, Inc. and its affiliates and other
investment companies that have obtained consent to use the name
"Franklin." Franklin Resources, Inc. and its affiliates shall
have the right to require the Partnership to cease using the name
"Franklin" as part of the Partnership's name if the Partnership
ceases, for any reason, to employ Franklin Resources, Inc. or one
of its affiliates as its investment adviser. Future names adopted
by the Partnership for itself, insofar as such names include
identifying words requiring the consent of Franklin Resources,
Inc. or one of its affiliates, shall be the property of Franklin
Resources, Inc. and its affiliates and shall be subject to the
same terms and conditions.
15.17 Authority. Each individual executing this
Agreement on behalf of a partnership, corporation, or other
entity warrants that he is authorized to do so and that this
agreement will constitute the legal binding obligation of the
entity which he represents.
15.18 Signatures. The signature of a Managing General
Partners or an Officer or agent of the Partnership duly appointed
by the Managing General Partners shall be sufficient to bind the
Partnership to any agreement or on any document, including, but
not limited to, documents drawn or agreements made in connection
with the acquisition or disposition of any assets.
15.19 Arbitration. The parties hereby submit all
controversies, claims and matters of difference to arbitration
before a single arbitrator in San Francisco, California,
according to the rules and practices of the American Arbitration
Association from time to time in force. This submission and
agreement to arbitrate shall be specifically enforceable. Without
limiting the generality of the foregoing, the following shall be
considered controversies for this purpose: (a) all questions
relating to the breach of any obligation, warranty, agreement or
condition hereunder; (b) failure of any party to deny or reject a
claim or demand of any other party; and (c) all questions as to
whether the right to arbitrate any question exists. Arbitration
may proceed in the absence of any party if written notice
(pursuant to the American Arbitration Association's rules and
regulations) of the proceedings has been given to such party. The
parties agree to abide by all awards rendered in such
proceedings. Such awards shall be final and binding on all
parties to the extent and in the manner provided by California
All awards may be filed with the Clerk of the Superior Court in
San Francisco, California, as a basis of judgment and of the
issuance of execution for its collection and, at the election of
the party making such filing, with the clerk of one or more other
courts, state or Federal, having jurisdiction over the party
against whom such an award is rendered or his property.
The attached Agreement of Limited Partnership reflects the
amendments thereto duly adopted by the Managing General Partners
on April 23, 1991.
May 1, 1991
/s/ Charles B. Johnson
Charles B. Johnson, Managing
General Partner on behalf of
all Partners pursuant to Power
of Attorney
FRANKLIN TAX-ADVANTAGED
INTERNATIONAL BOND FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
AGREEMENT OF LIMITED PARTNERSHIP
as amended December 19, 1986, July 13, 1987,
June 19, 1990, May 1, 1991 and January 18, 1994
APPENDIX "C"
TABLE OF CONTENTS
1. GENERAL PROVISIONS
1.1 Formation
1.2 Name and Place of Business
1.3 Term
1.4 Agent for Service of Process
1.5 Certificate of Limited Partnership
1.6 Other Acts/Filings
2. DEFINITIONS
2.1 Affiliate
2.2 Capital Accounts
2.3 General Partner
2.4 Holder of Record or Holder of a Share
2.5 Limited Partner
2.6 Majority Vote
2.7 Managing General Partner
2.8 Net Asset Value (per Share)
2.9 Non-Managing General Partner
2.10 Officers
2.11 Person
2.12 Partners
2.13 Partnership
2.14 Partnership Act
2.15 Partnership Group
2.16 Partnership List
2.17 Registration Statement
2.18 Secretary of State
2.19 Share (including fractional Shares)
2.20 Substituted Limited Partner
2.21 Tax Code
2.22 Transfer Agent
2.23 1940 Act
3. ACTIVITIES AND PURPOSE
3.1 Operating Policy
3.2 Investment Objectives
3.3 Investment and Operating Limitations
3.4 Other Authorized Activities
4. GENERAL PARTNERS
4.1 Identity and Number
4.2 Managing and Non-Managing General Partners
4.3 General Partners' Contributions
4.4 Management and Control
4.5 Action by the Managing General Partners
4.6 Limitations of the Authority of the Managing General
Partners
4.7 Right of General Partners to Become Limited Partners
4.8 Termination of a General Partner
4.9 Additional or Successor General Partners
4.10 Liability to Limited Partners
4.11 Assignment and Substitution
4.12 No Agency
4.13 Reimbursement and Compensation
4.14 Indemnification
5. LIMITED PARTNERS
5.1 Identity of Limited Partners
5.2 Admission of Limited Partners
5.3 Contributions of the Limited Partners
5.4 Additional Contributions of Limited Partners
5.5 Use of Contributions
5.6 Redemption by Limited Partners
5.7 Minimum Contribution and Mandatory Redemption
5.8 Limited Liability
5.9 No Power to Control Operations
6. SHARES OF PARTNERSHIP INTEREST
7. PURCHASE AND EXCHANGE OF SHARES
7.1 Purchase of Shares
7.2 Net Asset Value
7.3 Exchange of Shares
8. REDEMPTION OR REPURCHASE OF SHARES
8.1 Redemption of Shares
8.2 Payment for Redeemed Shares
9. MATTERS AFFECTING THE PARTNERSHIP'S BASIC STRUCTURE
9.1 Rights of Limited Partners
9.2 Action of the Partners
9.3 Meeting
9.4 Notices
9.5 Validity of Vote for Certain Matters
9.6 Adjournment
9.7 Waiver of Notice and Consent to Meeting
9.8 Quorum
9.9 Required Vote
9.10 Action by Consent Without a Meeting
9.11 Record Date
9.12 Proxies
9.13 Number of Votes
10 DISTRIBUTIONS AND ALLOCATION OF PROFITS AND LOSSES
10.1 Fees of General Partners
10.2 Distributions of Income and Gains
10.3 Allocation of Income, Gains, Losses, Deductions and
Credits
10.4 Returns of Contributions
10.5 Capital Accounts
10.6 Allocations for Tax Purposes
11. ASSIGNMENT OF SHARES; SUCCESSOR IN INTEREST; SUBSTITUTION OF
PARTNERS
11.1 Prohibition on Assignment
11.2 Rights of the Holders of Shares as Collateral or
Judgment Creditor
11.3 Death, Incompetency, Bankruptcy or Termination of the
Existence of a Partner
11.4 Substituted Limited Partners
12. DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
12.1 Dissolution
12.2 Liquidation
12.3 Termination
13. BOOKS, RECORDS, ACCOUNTS AND REPORTS
13.1 Books and Records
13.2 Limited Partners' Rights to Records
13.3 Accounting Basis and Fiscal Year
13.4 Tax Returns
13.5 Filings with Regulatory Agencies
13.6 Tax Matters and Notice Partner
14. AMENDMENTS OF PARTNERSHIP DOCUMENTS
14.1 Amendments in General
14.2 Amendments Without Consent of Limited Partners
14.3 Amendments Needing Consent of Affected Partners
14.4 Amendments to Certificate of Limited Partnership
14.5 Amendments After Change of Law
15. MISCELLANEOUS PROVISIONS
15.1 Notices
15.2 Section Headings
15.3 Construction
15.4 Severability
15.5 Governing Law
15.6 Counterparts
15.7 Entire Agreement
15.8 Cross-References
15.9 Power of Attorney to the General Partners
15.10 Further Assurances
15.11 Successors and Assigns
15.12 Waiver of Action for Partition
15.13 Creditors
15.14 Remedies
15.15 Custodian
15.16 Use of Name "Franklin"
15.17 Authority
15.18 Signatures
15.19 Arbitration
FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
(a California limited partnership)
This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
("Partnership Agreement") is entered into as of the 19th day of
June, 1990 by and among the undersigned individuals, as Managing
General Partners; FRANKLIN PARTNERS, INC., a California
corporation, as Non-Managing General Partner (collectively, the
"General Partners"); and each of the persons identified on the
Partnership List of the Partnership as limited partners (the
"Limited Partners").
1. GENERAL PROVISIONS
1.1 Formation. The parties hereby agree to form a limited
partnership (the "Partnership") under the terms and conditions
set forth below pursuant to the California Revised Limited
Partnership Act (the "Partnership Act").
1.2 Name and Place of Business. The name of the Partnership
shall be Franklin Tax-Advantaged International Bond Fund (a
California limited partnership), or such other name as shall be
selected from time to time by the Managing General Partners upon
notice to the Limited Partners. The principal place of business
of the Partnership shall be 777 Mariners Island Boulevard, San
Mateo, California 94404, or such other place or places as the
Managing General Partners may deem necessary or desirable to the
conduct of the Partnership's activities, including places or the
conduct of activities relating to its investments, the location
and holding of its assets, the execution of its portfolio
transactions and other operations.
1.3 Term. The term of the Partnership shall commence upon
the filing of the Certificate of Limited Partnership with the
Secretary of State and shall continue until the 31st day of
December, 2036, unless terminated earlier in accordance with the
provisions of this Partnership Agreement.
1.4 Agent for Service of Process. The agent for service of
process on the Partnership in California shall be Harmon E.
Burns, Esq. or such other eligible California resident individual
or corporation qualified to act as an agent for service of
process as the Managing General Partners shall designate.
1.5 Certificate of Limited Partnership. The Managing
General Partners shall cause a Certificate of Limited Partnership
to be filed with the Secretary of State in accordance with the
terms of the Partnership Act.
1.6 Other Acts/Filings. The Partners shall from time to
time execute or cause to be executed all such certificates,
fictitious business name statements, and other documents, and do
or cause to be done all such filings, recordings, publishings,
and other acts as the Managing General Partners may deem
necessary or appropriate to comply with the requirements of law
for the formation and operation of the Partnership in all
jurisdictions in which the Partnership shall desire to conduct
its activities.
2. DEFINITIONS
When used in this Partnership Agreement the following terms
shall have the meanings set forth below:
2.1 Affiliate. "Affiliate" shall mean: (i) any person
directly or indirectly controlling, controlled by or under common
control with another person; (ii) a person owning or controlling
10% or more of the outstanding securities of that other person;
(iii) any officer, director or partner of that other person; and
(iv) if that other person is an officer, director or partner, any
company for which that person acts in any such capacity (person
shall include any natural person, partnership, corporation,
association or other legal entity).
2.2 Capital Accounts. The accounts maintained for each
Partner in accordance with Section 10.5 hereof.
2.3 General Partner. Each of the initial General Partners
designated in the Preamble and any other person or entity who
shall hereafter become a General Partner.
2.4 Holder of Record or Holder of a Share.
(a) a General Partner;
(b) a Limited Partner if he or it has not redeemed or
transferred all of his (its) Shares of the Partnership pursuant
to Sections 8 or 11;
(c) a purchaser of a Share or Shares of the
Partnership; or
(d) the successor in interest of a Partner under
Section 11.
2.5 Limited Partner. The original Limited Partner and all
other persons who shall hereafter be admitted to the Partnership
as additional Limited Partners or Substituted Limited Partners,
except those persons who:
(a) have redeemed all Shares of the Partnership owned
by them and such redemption has been reflected in the Partnership
List; or
(b) have been replaced by a Substituted Limited
Partner to the extent of their entire Limited Partnership
Interest. Reference to a "Limited Partner" shall mean any one of
the Limited Partners.
2.6 Majority Vote. The affirmative vote of the lesser of
(i) 67% or more of the Shares represented at a meeting and
entitled to vote if more than 50% of the then outstanding shares
are present or represented by proxy, or (ii) more than 50% of the
then outstanding Shares entitled to vote.
2.7 Managing General Partner. Each General Partner who is
an individual.
2.8 Net Asset Value (per Share).The value (in U.S. Dollars)
of a Share as determined in accordance with Section 7.2 hereof.
2.9 Non-Managing General Partner. Each General Partner that
is not an individual (i.e., any General Partner that is a
corporation, association, partnership, joint venture or trust).
2.10 Officers. Those persons designated by the Managing
General Partners to perform administrative and operational
functions on behalf of the Managing General Partners.
2.11 Person. An individual, partnership, joint venture,
association, corporation or trust.
2.12 Partners. Collectively, the General Partners and the
Limited Partners. "Partner" means any one of the Partners.
2.13 Partnership. The limited partnership created and
continued by this Partnership Agreement.
2.14 Partnership Act. The California Revised Limited
Partnership Act (Chapter 3 of Title 2 of the Corporations Code of
California).
2.15 Partnership Group. All other limited partnerships
organized under the Partnership Act of which Franklin Partners,
Inc. or any parent, subsidiary or affiliate of Franklin Partners,
Inc. is a General Partner and which are registered under the 1940
Act as open-end management investment companies.
2.16 Partnership List. A current list of all the Partners
containing the information specified in Section 13.1(a)(i)
hereof.
2.17 Registration Statement. The Registration Statement on
Form N-1A, registering the Shares of the Partnership under the
Securities Act of 1933 and the 1940 Act, as such Registration
Statement may be amended from time to time.
2.18 Secretary of State. The Secretary of State of the State
of California.
2.19 Share (including fractional Shares).A partnership
interest in the Partnership. Reference to "Shares" shall be to
more than one Share.
2.20 Substituted Limited Partner. A successor in interest of
a Limited Partner who has complied with the conditions set forth
in Section 11.
2.21 Tax Code. The Internal Revenue Code of 1986, as
amended, or corresponding provisions of subsequent revenue laws,
and all regulations, rulings and other promulgations or judicial
decisions thereunder.
2.22 Transfer Agent. The person appointed by the Managing
General Partners to be primarily responsible for maintaining the
Partnership List and certain other records of the Partnership.
2.23 1940 Act. The Investment Company Act of 1940, as
amended, or as it may hereafter be amended, and the Rules and
Regulations thereunder.
3. ACTIVITIES AND PURPOSE
3.1 Operating Policy. The Partnership will be authorized
and empowered to operate and will operate as an open-end,
diversified management investment company under the 1940 Act.
3.2 Investment Objectives. Subject to the limitations set
forth in this Partnership Agreement, the investment objectives of
the Partnership shall be to invest and reinvest its assets to
seek income, consistent with preservation of principal, by
investing principally in U.S. dollar denominated debt securities
of non-U.S. issuers and foreign currency denominated debt
securities of both U.S. and foreign issuers which are readily
marketable.
3.3 Investment and Operating Limitations. The following
additional fundamental policies and investment restrictions have
been adopted by the Partnership and (unless otherwise noted)
cannot be changed except by Majority Vote. These investment
restrictions provide that the Partnership may not:
(a) With respect to at least 75% of its total assets,
invest in the securities of any one issuer (other than the U.S.
Government and its agencies and instrumentalities), if
immediately after and as a result of such investment (i) more
than 5% of the total assets of the Partnership would be invested
in such issuer or (ii) more than 10% of the outstanding voting
securities of such issuer would be owned by the Partnership.
(b) Make loans to others, except through the purchase
of debt securities in accordance with its investment objectives
and policies or to the extent the entry into a repurchase
agreement is deemed to be a loan.
(c) (i) Borrow money, except temporarily for
extraordinary or emergency purposes from a bank and then not in
excess of 25% of its total assets (at the lower of cost or fair
market value). Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least
300% of all borrowings, and no additional investments may be made
while any such borrowings are in excess of 5% of total assets.
(ii) Mortgage, pledge or hypothecate any of its
assets except in connection with any such borrowings.
(d) Purchase securities on margin, sell securities
short, participate on a joint or joint and several basis in any
securities trading account, or underwrite securities. (Does not
preclude the Partnership from obtaining such short-term credit as
may be necessary for the clearance of purchases and sales of
portfolio securities, or from engaging in permissible foreign
currency hedging transactions.)
(e) Buy or sell interests in oil, gas or mineral
exploration or development programs, or real estate. (Does not
preclude investments in marketable securities of companies
engaged in such activities.)
(f) Purchase or hold securities of any issuer, if, at
the time of purchase or thereafter, any of the General Partners
or Officers of the Partnership or its investment adviser(s) own
beneficially more than 1/2 of 1%, and such General Partners or
Officers holding more than 1/2 of 1% together own beneficially
more than 5% of the issuer's securities.
(g) Invest more than 5% of the value of its total
assets in securities of any issuer which has not had a record,
together with predecessors, of at least three years of continuous
operation. This is not a fundamental policy and may be changed by
the Managing General Partners without prior approval by Majority
Vote.
(h) Purchase or sell commodities or commodity
contracts or invest in puts, calls, straddles or spread options.
(Does not preclude the purchase of or transactions in foreign
exchange for hedging purposes, including forward foreign exchange
transactions, the purchase or sale of foreign currency options,
foreign currency futures transactions and the purchase or sale of
options on foreign currency futures, or transactions in foreign
exchange in connection with the investment of cash balances held
outside of the United States.)
(i) Invest in securities of other investment
companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets. This is not a fundamental
policy and may be changed by the Managing General Partners
without prior approval by Majority Vote.
(j) Invest more than 10% of its assets in securities
with legal or contractual restrictions on resale, securities
which are not readily marketable, and repurchase agreements with
more than 7 days to maturity.
(k) Invest in any issuer for purposes of exercising
control or management.
(l) Concentrate more than 25% of the market value of
its assets in the securities of companies engaged in any one
industry. (Does not apply to investment in the securities of the
U.S. Government, its agencies or instrumentalities.)
(m) Issue senior securities, as defined in the 1940
Act, except that this restriction shall not be deemed to prohibit
the Partnership from (a) making any permitted borrowings,
mortgages or pledges, or (b) entering into repurchase
transactions. This is not a fundamental policy and may be changed
by the Managing General Partners without prior approval by
Majority Vote.
3.4 Other Authorized Activities. Subject to the limitations
set forth in this Partnership Agreement, the Partnership shall
have the power to purchase and sell securities, issue evidences
of indebtedness in connection with Partnership business, to join
or become a partner in limited or general partnerships and to do
any and all other things and acts, and to exercise any and all of
the powers that a natural person could do or exercise and which
now or hereafter may be lawfully done or exercised by a limited
partnership.
4. GENERAL PARTNERS
4.1 Identity and Number. The names of the General Partners
and their last known business or residence address shall be set
forth in the Certificate of Limited Partnership, as it may be
amended from time to time; this same information, together with
the amounts of the contributions of each General Partner and
their current Share ownership, shall be set forth in alphabetical
order in the Partnership List. The General Partners shall be
identified as such on the Partnership List and also shall be
identified separately as Managing General Partners or Non-
Managing General Partners. The Managing General Partners may from
time to time recommend to the Partners that additional persons be
admitted as General Partners; provided, however, that if at any
time following the effective date of the Partnership's
Registration Statement the number of Managing General Partners is
reduced to less than three, the remaining Managing General
Partners shall, within 120 days, call a meeting of Partners for
the purpose of electing an additional Managing General Partner or
Managing General Partners so as to restore the number of Managing
General Partners to at least three.
4.2 Managing and Non-Managing General Partners. Only
individuals may act as Managing General Partners, and all General
Partners who are individuals shall act as Managing General
Partners. Any General Partner that is a corporation, association,
partnership, joint venture or trust shall act as a Non-Managing
General Partner. Except as provided in Section 4.4 hereof, a Non-
Managing General Partner as such shall take no part in the
management, conduct or operation of the Partnership's business
and shall have no authority to act on behalf of the Partnership
or to bind the Partnership. All General Partners, including
Managing and Non-Managing General Partners, shall be subject to
election and removal by the Partners as hereinafter provided.
4.3 General Partners' Contributions.
(a) Each General Partner, as such, shall make a
contribution of cash to the Partnership sufficient to purchase at
least one Share (plus any applicable sales charge) and shall
continue to own unencumbered at least one such Share at all times
while serving as a General Partner. The amount contributed by
each General Partner shall be the amount actually invested in
Shares of the Partnership at their Net Asset Value, which amount
shall not include any sales charges and which amount may be less
than the offering price paid by such General Partner for his
shares to the extent the offering price includes any sales
charges. The amount of such contributions and the number of
Shares owned by each General Partner shall be set forth in the
Partnership List.
(b) The Non-Managing General Partner shall, in its
capacity as such Non-Managing General Partner, be obligated to
contribute to the Partnership through the purchase of Shares from
time to time amounts sufficient to enable the General Partners in
the aggregate, to maintain in their capacities as General
Partners an interest in each material item of Partnership income,
gain, loss, deduction or credit equal to at least 1% of each such
item at all times during the existence of the Partnership. If
upon termination of the Partnership, the General Partners have a
negative balance in their Capital Accounts, they shall in their
capacity as General Partners be obligated to make additional
capital contributions in cash equal to the lesser of (i) the
negative balance in their Capital Accounts or (ii) the amount, if
any, by which 1.01% of the total capital contributions of the
Limited Partners exceeds the total capital contributions of the
General Partners prior to such termination. For as long as the
Non-Managing General Partner retains its status as such, it shall
not redeem or assign Shares held by it in its capacity as the Non-
Managing General Partner or otherwise accept distributions in
cash or property if such action would result in the failure of
the General Partners to maintain such an interest. In the event
that the Non-Managing General Partner is removed or stands for re-
election and is not re-elected by the Partners pursuant to
Section 9 hereof, the Non-Managing General Partner may, upon not
less than thirty (30) days' written notice, redeem its Shares in
the same manner as is provided in Section 8 hereof. In the event
that the Non-Managing General Partner voluntarily withdraws or
declines to stand for re-election, the Non-Managing General
Partner may, upon not less than thirty (30) days' written notice
following the occurrence of an event described in (i), (ii) or
(v) in Section 4.8(a), redeem its Shares in the same manner as
provided in Section 8. In the event that the Non-Managing General
Partner is removed, stands for re-election and is not re-elected,
voluntarily withdraws or declines to stand for re-election, the
Managing General Partners shall cause the Certificate of Limited
Partnership to be amended as provided in Section 14.4 hereof to
reflect such withdrawal.
4.4 Management and Control. Subject to the terms of the
Partnership Agreement and the 1940 Act, the Partnership will be
managed by the Managing General Partners, who will have complete
and exclusive control over the management, conduct and operation
of the Partnership's business, and, except as otherwise
specifically provided in this Partnership Agreement, the Managing
General Partners shall have the rights, powers and authority, on
behalf of the Partnership and in its name, to exercise all of the
rights, powers and authority of partners of a partnership without
limited partners. The Managing General Partners may contract on
behalf of the Partnership with one or more banks, trust companies
or investment advisers for the performance of such functions as
the Managing General Partners may determine, but subject always
to their continuing supervision, including, without limitation,
the investment and reinvestment of all or part of the
Partnership's assets and execution of portfolio transactions, the
distribution of Shares, and any or all administrative functions.
The Managing General Partners may appoint officers or agents to
perform such duties on behalf of the Partnership and the Managing
General Partners as the Managing General Partners deem desirable.
Such officers or agents need not be General or Limited Partners.
The Managing General Partners may also employ persons to perform
various duties on behalf of the Partnership as employees of the
Partnership. The Managing General Partners shall devote
themselves to the Partnership's business to the extent they may
determine necessary for the efficient conduct thereof, which need
not, however, occupy their full time. The General Partners may
also engage in other businesses, whether or not similar in nature
to the business of the Partnership, subject to the limitations of
the 1940 Act.
In the event that no Managing General Partner shall remain
for the purpose of managing and conducting the business of the
Fund, the Non-Managing General Partner shall promptly call a
meeting of the Limited Partners to be held within sixty (60) days
of the date the last Managing General Partner ceases to act in
such capacity to elect new Managing General Partners up to a
maximum number of Managing General Partners theretofore admitted
to the Partnership (but no fewer than three). For the period of
time during which no Managing General Partner shall remain, the
Non-Managing General Partner, subject to the terms and provisions
of this Partnership Agreement, shall be permitted to engage in
the management, conduct and operation of the business of the
Partnership.
4.5 Action by the Managing General Partners. Unless
otherwise required by the 1940 Act with respect to any particular
action, the Managing General Partners shall act only by the vote
of a majority of the Managing General Partners at a meeting duly
called at which a quorum of the Managing General Partners is
present or by unanimous written or telephonic consent of the
Managing General Partners without a meeting. At any meeting of
the General Partners, a majority of the Managing General Partners
shall constitute a quorum. If there shall be more than one
Managing General Partner, no single Managing General Partner
shall have authority to act on behalf of the Partnership or to
bind the Partnership. The Managing General Partners shall appoint
one of their number to be Chairman. Meetings of the Managing
General Partners may be called orally or in writing by the
Chairman or by any two Managing General Partners. Notice of the
time, date and place of all meetings of the Managing General
Partners shall be given by the party calling the meeting to each
Managing General Partner by telephone or telegram sent to his
home or business address at least twenty-four hours in advance of
the meeting or by written notice mailed to his home or business
address at least seventy-two hours in advance of the meeting.
Notice need not be given to any Managing General Partner who
attends the meeting without objecting to the lack of notice or
who executes a written waiver of notice with respect to the
meeting. The Chairman, if present, shall preside at all meeting
of Partners.
4.6 Limitations of the Authority of the Managing General
Partners. The Managing General Partners shall have no authority
without the vote or written consent or ratification of the
Limited Partners to:
(a) do any act in contravention of this Partnership
Agreement, as it may be amended from time to time;
(b) do any act which would make it impossible to carry
on the ordinary business of the Partnership;
(c) confess a judgment against the Partnership;
(d) possess Partnership property, or assign their
rights in specific property, for other than a partnership
purpose;
(e) admit a person as a General Partner except in
accordance with Section 9 hereof; or
(f) admit a person as a Limited Partner, except in
accordance with Section 5 hereof.
4.7 Right of General Partners to Become Limited Partners. A
General Partner may also own Shares as a Limited Partner without
obtaining the consent of the Limited Partners and thereby become
entitled to all the rights of a Limited Partner to the extent of
the Limited Partnership interest so acquired. Such event shall
not, however, be deemed to reduce or otherwise affect any of the
General Partners' liability hereunder as a General Partner. If a
General Partner shall also become a Limited Partner, the
contributions and Share ownership of such General Partner shall
be separately designated in the Partnership List to reflect his
interest in each capacity.
4.8 Termination of a General Partner.
(a) The interest of a General Partner shall terminate
and such party shall have no further right or power to act as a
General Partner (except to execute any amendment to this
Partnership Agreement to evidence his termination):
(i) upon death of the General Partner;
(ii) upon an adjudication of incompetency of the
General Partner;
(iii) if such Partner is removed or stands for re-
election and is not re-elected by the Partners, as provided in
Section 9 below;
(iv) in the case of the Non-Managing General
Partner, upon the filing of a certificate of dissolution, or its
equivalent, or voluntary or involuntary petition in bankruptcy
for such Non-Managing General Partner; or
(v) if such Partner voluntarily retires upon not
less than ninety (90) days' written notice to the other General
Partners.
(b) Notwithstanding the foregoing, the Non-Managing
General Partner shall not voluntarily withdraw or otherwise
voluntarily terminate its status as the Non-Managing General
Partner until the earliest of (i) 180 days from the date that the
Non-Managing General Partner gives the other General Partners its
written notice of its intention to withdraw as a Non-Managing
General Partner, (ii) the date that a successor Non-Managing
General Partner, who has agreed to assume the obligations of
Section 4.3(b) hereof, is elected by the Partners pursuant to
Section 9 hereof, or (iii) the date that another General Partner
assumes the obligations imposed upon the Non-Managing General
Partner pursuant to Section 4.3(b) hereof. The failure of the Non-
Managing General Partner to seek re-election at any meeting of
the Partners called for such purpose shall be deemed to
constitute a voluntary withdrawal as of the date of such meeting
and shall constitute written notice as at the date of notice of
such meeting of its intention to withdraw as a Non-Managing
General Partner, unless it has delivered written notice at an
earlier date.
(c) In the event a General Partner ceases to be a
General Partner, the remaining General Partners shall have the
right to continue the operations of the Partnership.
(d) Termination of a person's status as a General
Partner shall not affect his status, if any, as a Limited
Partner. A General Partner may retain Shares owned in his
capacity as a Limited Partner provided such General Partner has
been or is admitted to Partnership as a Limited Partner in
accordance with Section 5.2.
(e) A person who ceases to be a General Partner shall
nevertheless be deemed to be acting as a General Partner with
respect to a third party doing business with the Partnership
until an amended Certificate of Limited Partnership is filed with
the Secretary of State.
4.9 Additional or Successor General Partners. A person may
be added or substituted as a General Partner only upon his
admission by the Partners at a meeting of Partners or by written
consent without a meeting as provided in Section 9 hereof. Each
General Partner, by becoming a General Partner, consents to the
admission as an added or substituted General Partner of any
person elected by the Partners in accordance with this
Partnership Agreement. Any person who is elected to be admitted
as a General Partner at a meeting of the Partners or by written
consent in accordance with Section 9 hereof and who shall not be
serving as a General Partner at the time of such election, shall
be admitted to the Partnership as a General Partner effective as
of the date of such election. Any General Partner who is not re-
elected at any such meeting in the manner specified in Section 9
shall be deemed to have withdrawn as of the date of such meeting.
4.10 Liability to Limited Partners. The General Partners
shall not be personally liable for the repayment of any amounts
standing in the account of a Limited Partner or holder of Shares
including, but not limited to, contributions with respect to such
Shares, except by reason of their wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of their office. Any payment, other than in the event
of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office by
a General Partner, which results in a personal liability to
Limited Partners or holders of Shares, shall be solely from the
Partnership's assets.
So long as the General Partners have acted in good faith and
in a manner reasonably believed to be in the best interests of
the Limited Partners, the General Partners shall not have any
personal liability to any holder of Shares or to any Limited
Partner by reason of (1) any failure to withhold income tax under
Federal or state tax laws with respect to income allocated to
Limited Partners or (2) any change in the Federal or state tax
laws or in interpretation thereof as they apply to the
Partnership, the holders of the Shares or the Limited Partners,
whether such change occurs through legislative, judicial or
administrative action.
4.11 Assignment and Substitution. Each Share held by a
General Partner in his capacity as a General Partner shall be
designated as such, and each such Share shall be non-assignable,
except to another person who already is a General Partner, and
then only with the consent of the Managing General Partners, and
shall be redeemable by the Partnership only in the event that (i)
the holder thereof has ceased to be a General Partner of the
Partnership or (ii) in the opinion of counsel for the Partnership
redemption of Shares held by a General Partner would not
jeopardize the status of the Partnership as a partnership for
Federal income tax purposes.
4.12 No Agency. Except as provided in Section 15.9 below,
nothing in this Partnership Agreement shall be construed as
establishing any General Partner as an agent of any Limited
Partner.
4.13 Reimbursement and Compensation. Managing General
Partners may receive reasonable compensation for their services
as Managing General Partners and will be reimbursed for all
reasonable out-of-pocket expenses incurred in performing their
duties hereunder.
4.14 Indemnification.
(a) Subject to the exceptions and limitations
contained in Subsection (b) below:
(i) Every person who is, or has been, a General
Partner, an officer and/or Director of a corporate General
Partner or Officer of the Partnership (hereinafter referred to as
"Covered Person") shall be indemnified by the Partnership to the
fullest extent permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having
been a General Partner, an officer and/or Director of a Corporate
General Partner or officer of the Partnership and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim", "action", "suit", or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal or other, including appeals), actual
or threatened while in office or thereafter, and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to
a Covered Person:
(i) who shall have been finally adjudicated by a
court or other body before which the proceeding was brought (A)
to be liable to the Partnership or its Partners by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office or
(B) not to have acted in good faith in the reasonable belief that
his action was in the best interest of the Partnership; or
(ii) in the event of a settlement, or other
disposition not involving a final adjudication as provided in
subsection (b)(i) unless there has been a determination that such
Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office,
(A) by the court or other body approving the
settlement or other disposition;
(B) by vote of at least a majority of those Managing
General Partners who are neither interested persons (as defined
in the 1940 Act) of the Partnership nor are parties to the matter
based upon a review of readily available facts (as opposed to a
full trial-type inquiry); or
(C) by written opinion of independent legal counsel,
based upon a review of readily available facts (as opposed to a
full trial-type inquiry); provided, however, that any Partner
may, by appropriate legal proceedings, challenge any such
determination by the Managing General Partners, or by independent
counsel.
(c) The rights of indemnification herein provided may
be insured against by policies maintained by the Partnership,
shall be severable, shall not be exclusive of or affect any other
rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be such
General Partner, officer and/or Director of a Corporate General
Partner or officer of the Partnership and shall inure to the
benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to
indemnification to which Partnership personnel, other than
Covered Persons, and other persons may be entitled by contract or
otherwise under law.
(d) Expenses incurred in connection with the
preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in subsection (a)
of this Section 4.14 shall be paid by the Partnership from time
to time in advance prior to final disposition thereof upon
receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the Partnership if
it is ultimately determined that he is not entitled to
indemnification under this Section 4.14; provided, however, that
either (i) such Covered Persons shall have provided appropriate
security for such undertaking, (ii) the Partnership is insured
against losses arising out of any such advance payments, or (iii)
either a majority of the Managing General Partners who are
neither interested persons (as defined in the 1940 Act) of the
Partnership nor are parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a
review of readily available facts (as opposed to a full trial-
type inquiry), that there is reason to believe that such Covered
Person will be found entitled to indemnification under this
Section 4.14.
5. LIMITED PARTNERS
5.1 Identity of Limited Partners. The names of the Limited
Partners and their last known business or residence addresses,
together with the amounts of their contributions and their
current Share ownership, shall be set forth in alphabetical order
in the Partnership List.
5.2 Admission of Limited Partners. The Managing General
Partners may admit a purchaser of Shares as a Limited Partner,
upon (i) the execution by such purchaser of such subscription
documents and other instruments as the Managing General Partners
may deem necessary or desirable to effectuate such admission,
which documents, if any shall be required, shall be described in
the Partnership's Registration Statement, (ii) the purchaser's
acceptance of all the terms and provisions of this Partnership
Agreement, including the power of attorney set forth in Section
15.9 hereof, in such manner as shall be specified by the Managing
General Partners, and (iii) the addition of such purchaser to the
Partnership List. The Managing General Partners shall cause the
Partnership List to be amended daily on each day that its
Transfer Agent is open for business to reflect the admission of
new Limited Partners. In no event shall the consent or approval
of any of the Limited Partners be required to effectuate such
admission. Each purchaser of a Share of the Partnership who
becomes a Limited Partner shall be bound by all the terms and
conditions of this Partnership Agreement including, without
limitation, the allocation of income, gains, losses, deductions
and credits as provided in Section 10.3. Notwithstanding anything
in this Partnership Agreement to the contrary, the Managing
General Partners reserve the right to refuse to admit any person
as a Limited Partner if, in their judgment, it would not be in
the Partnership's best interests to admit such person.
5.3 Contributions of the Limited Partners. The amount
contributed by each Limited Partner to the Partnership shall be
the amount actually invested in Shares of the Partnership at
their Net Asset Value, which amount shall not include any sales
charges and which amount may be less than the offering price paid
by such Limited Partner for his Shares to the extent the offering
price includes any sales charges. All contributions shall be made
in U.S. dollars, which shall be invested in Shares of the
Partnership at Net Asset Value. The amount of such contributions
and the number of Shares owned by each Partner shall be set forth
in the Partnership List.
5.4 Additional Contributions of Limited Partners. No
Limited Partner shall be required to make any additional
contributions to (or investments in) or lend additional funds to
the Partnership, and no Limited Partner shall be liable for any
additional assessment therefor. A Limited Partner may make an
additional contribution (or investment), however, at his option
through the purchase of additional Shares subject to the same
terms and conditions as his initial contribution.
5.5 Use of Contributions. The aggregate of all capital
contributions shall be, and hereby are agreed to be, available to
the Partnership to carry out the objects and purposes of the
Partnership.
5.6 Redemption by Limited Partners. A Limited Partner may
redeem his Shares at any time in accordance with Section 8. The
Managing General Partners shall cause the Partnership List to be
amended daily on each day that its Transfer Agent is open for
business to reflect the withdrawal of any Limited Partner or the
return, in whole or in part, of the contribution of any Limited
Partner.
5.7 Minimum Contribution and Mandatory Redemption. The
Managing General Partners shall determine the minimum amounts
required for the initial or additional contributions of a Limited
Partner, which amounts may, from time to time, be changed by the
Managing General Partners. Additionally, the Managing General
Partners may, from time to time, establish a minimum total
investment for Limited Partners, and there is reserved to the
Partnership the right to redeem automatically the interest of any
Limited Partner the value of whose investment is less than such
minimum upon the giving of at least 30 days' notice to such
Limited Partner, provided that such minimum total investment is
not greater than the investment of any Limited Partner at the
time the new minimum total investment becomes effective. The
amounts which the Managing General Partners shall fix from time
to time for initial or additional contributions and the amount of
the minimum total investment shall be stated in the Partnership's
current Registration Statement.
5.8 Limited Liability.
(a) No Limited Partner shall be liable for any debts
or obligations of the Partnership and each Limited Partner shall
be indemnified by the Partnership against any such liability;
provided, however, that contributions of a Limited Partner and
his share of any undistributed assets of the Partnership shall be
subject to the risks of the operations of the Partnership and
subject to the claims of the Partnership's creditors, and
provided further, that after any Limited Partner has received the
return of any part of his contribution or any distribution of
assets of the Partnership, he will be liable to the Partnership
for:
(i) any money or other property wrongfully
distributed to him; and
(ii) any sum, not in excess of the amount of such
distribution, necessary to discharge any liabilities of the
Partnership to creditors who extended credit or whose claims
arose before such returns or distributions were made, but only to
the extent that the assets of the Partnership are not sufficient
to discharge such liabilities.
The obligation of a Limited Partner to return all or
any part of a distribution made to him shall be the sole
obligation of such Limited Partner and not of the General
Partners.
(b) If an action is brought against a Limited Partner
to satisfy an obligation of the Partnership, the Partnership,
upon notice from the Limited Partner about the action, will
either pay the claim itself or, if the Partnership believes the
claim to be without merit, will undertake the defense of the
claim itself.
(c) The General Partners shall not have any personal
liability to any Holder of Shares or to any Limited Partner for
the repayment of any amounts standing in the account of a Limited
Partner including, but not limited to, contributions with respect
to such Shares. Any such payment shall be solely from the assets
of the Partnership. The General Partners shall not be liable to
any Holder of Shares or to any Limited Partner by reason of any
change in the Federal income tax laws as they apply to the
Partnership and the Limited Partners, whether such change occurs
through legislative, judicial or administrative action, so long
as the General Partners have acted in good faith and in a manner
reasonably believed to be in the best interests of the Limited
Partners.
5.9 No Power to Control Operations. A Limited Partner shall
have no right to and shall take no part in control of the
Partnership's operations or activities but may exercise the
rights and powers of a Limited Partner under this Partnership
Agreement, including without limitation, the voting rights and
the giving of consents and approvals provided for in Section 9
hereof. The exercise of such rights and powers are deemed to be
matters affecting the basic structure of the Partnership and not
the control of its business.
6. SHARES OF PARTNERSHIP INTEREST
All interests in the Partnership, including contributions by
the General Partners, pursuant to Section 4.3 and by the Limited
Partners, pursuant to Section 5.3, shall be expressed in units of
participation herein referred to as "Shares" (which term includes
fractional Shares). Each Share shall represent an equal
proportionate interest in the income and assets of the
Partnership with each other Share outstanding.
7. PURCHASE AND EXCHANGE OF SHARES
7.1 Purchase of Shares. The Partnership may offer Shares on
a continuing basis to investors. Except for the initial purchase
of Shares by the initial Limited Partner and the General
Partners, all Shares issued shall be issued and sold at the Net
Asset Value (plus such sales charge or other charge as may be
applicable to the purchase of the Shares) next computed after
receipt of a purchase order in accordance with the Partnership's
Registration Statement in effect at the time the order is
received. Only investors who agree to be admitted, and who are
eligible for admission, as Limited Partners pursuant to Section
5.2 shall be eligible to purchase Shares (unless such investor
has already been admitted as a Partner). Orders for the purchase
of Shares shall be accepted on any day that the Partnership's
Transfer Agent is open for business (which shall normally be
limited to those days when the New York Stock Exchange is open
for business). The form in which purchase orders may be presented
shall be as set forth in the Partnership's Registration Statement
in effect at the time the order is received. The Managing General
Partners on behalf of the Partnership reserve the right to reject
any specific order and to suspend the Partnership's offering of
new Shares at any time. Payment for all Shares must be made in
U.S. dollars.
7.2 Net Asset Value. The Net Asset Value per Share of the
Partnership shall be determined as of 4:15 p.m. New York City
time on each day the New York Stock Exchange is open for trading
or as of such other time or times as the Managing General
Partners may determine in accordance with the provisions of the
1940 Act. The Net Asset Value per Share shall be expressed in
U.S. dollars and shall be computed by dividing the value of all
the assets of the Partnership, less its liabilities, by the
number of Shares outstanding (including Shares held by General
Partners). Portfolio securities will be valued at their fair
value using methods determined in good faith by the Managing
General Partners in accordance with the 1940 Act. The Partnership
may suspend the determination of the Net Asset Value during any
period when the New York Stock Exchange is closed, other than
customary weekend and holiday closings, during periods when
trading on the Exchange is restricted as determined by the
Securities and Exchange Commission (the "Commission") or during
any emergency as determined by the Commission which makes it
impracticable for the Partnership to dispose of its securities or
value its assets, or during any other period permitted by order
of the Commission for the protection of investors.
7.3 Exchange of Shares. Shares of the Partnership may be
exchanged for (i.e., redeemed and reinvested in) shares of any
other partnership in the Partnership Group without incurring any
additional sales charge or other charge. Orders for exchanges
will be executed only on days that each partnership's Transfer
Agent is open for business (which shall normally be limited to
those days when the New York Stock Exchange is open for business)
and will be executed at the respective net asset value of the
partnerships involved next computed after receipt of an exchange
order in accordance with the Partnership's Registration Statement
in effect at the time the order is received.
8. REDEMPTION OR REPURCHASE OF SHARES
8.1 Redemption of Shares. The Partnership will redeem from
any Partner all or any portion of the Shares owned by him
provided that the Partner delivers to the Partnership or its
designated agent notice of such redemption, stating the number of
Shares to be redeemed, together with a properly endorsed Share
certificate(s) where certificate(s) have been issued, in good
order for transfer and in proper form as determined by the
Managing General Partners and the Partnership's Transfer Agent.
The Partner shall be entitled to payment in U.S. Dollars of the
Net Asset Value of his Shares (as set forth in Section 7.2
hereof). Any such redemption shall be in accordance with Section
4 with respect to General Partners or Section 5 with respect to
Limited Partners. Any distribution upon redemption pursuant to
this Section 8.1 shall, in accordance with Section 10.4 below,
constitute a return in full of the redeeming Partner's
contribution attributable to the Shares which are redeemed
regardless of the amount distributed with respect to such Shares.
No consent of any of the Partners shall be required for the
withdrawal or return of a Limited Partner's contribution. The
Managing General Partners shall have sole discretion to determine
the amount of cash to be distributed to a withdrawing Partner.
All redemptions shall be recorded on the Partnership List, which
shall be amended daily on each day that the Partnership's
Transfer Agent is open for business.
The Managing General Partners may suspend redemptions and
defer payment of the redemption price at any time, subject to the
Rules and Regulations of the Securities and Exchange Commission.
8.2 Payment for Redeemed Shares. Payments for Shares
redeemed or repurchased by the Partnership will be made in U.S.
Dollars within seven days after receipt by the Partnership's
Transfer Agent of a written redemption request in proper form as
specified in Section 8.1 above. If a redemption request is
received with respect to Shares for which the Partnership has not
yet received good payment, the Partnership may delay the mailing
of a redemption check until such time as it has assured itself
that good payment has been collected for the purchase of such
Shares.
9. MATTERS AFFECTING THE PARTNERSHIP'S BASIC STRUCTURE
9.1 Rights of Limited Partners.
(a) As provided in the Partnership Act, the Limited
Partners shall have the right to vote together with the General
Partners in accordance with the provisions of this Section 9 only
upon the following matters affecting the basic structure of the
Partnership, which include the voting, approval, consent or
similar rights required under the 1940 Act for voting security
holders:
(i) the right to remove General Partner(s);
(ii) the right to elect new General Partner(s),
except in the circumstance where the last remaining or surviving
General Partner has been removed;
(iii) the right to approve or terminate investment
advisory, underwriting and distribution contracts and plans;
(iv) the right to ratify or reject the
appointment and to terminate the employment of the independent
public accountants of the Partnership;
(v) the right to approve or disapprove the sale
of all or substantially all of the assets of the Partnership;
(vi) the right to approve the incurrence of
indebtedness by the Partnership other than in the ordinary course
of business;
(vii) the right to approve transactions in which
the General Partners have an actual or potential conflict of
interest with the Limited Partners or the Partnership;
(viii)the right to terminate the Partnership, as
provided in Section 12 hereof;
(ix) the right to elect to continue the
operations of the Partnership, except in circumstances where the
last remaining or surviving General Partner has been removed; and
(x) the right to amend this Partnership
Agreement, including, without limitation, the right to approve or
disapprove proposed changes in the investment and operating
limitations set forth in Section 3.3 and the right to approve or
disapprove proposed changes in the nature of the Partnership's
activities as such activities are described herein; provided,
however, that no such amendment shall conflict with the 1940 Act
so long as the Partnership intends to remain registered
thereunder, nor affect the liability of the General Partners
without their consent nor the limited liability of the Limited
Partners as provided under Section 5.8 above.
Notwithstanding the foregoing, the right of Limited
Partners to vote on matters affecting the basic structure of the
Partnership as designated herein shall not be construed as a
requirement that all such matters be submitted to the Limited
Partners for their approval or be so approved to the extent such
approval is not required by the Partnership Act, the 1940 Act or
this Partnership Agreement.
(b) Notwithstanding the foregoing, no vote, approval
or other consent shall be required of the Limited Partners with
respect to any matter not affecting the basic structure of the
Partnership, including, without limitation, the following: (i)
any change in the amount or character of the contribution of any
Limited Partner; (ii) any change in the procedures for the
purchase or redemption of Shares, (iii) the substitution or
deletion of a Limited Partner; (iv) the admission of any
additional Limited Partner; (v) the retirement, resignation,
death or incompetency of a Managing General Partner; (vi) any
addition to the duties or obligations of the General Partners, or
any reduction in the rights or powers granted to the General
Partners herein, for the benefit of the Limited Partners; (vii)
the correction of any false or erroneous statement, or change in
any statement in order to make such statement accurately
represent the agreement among the General and Limited Partners,
in this Partnership Agreement; (viii) the addition of any omitted
provision or amendment of any provision to cure, correct or
supplement any ambiguous, defective or inconsistent provision
hereof; or (ix) such amendments as may be necessary to conform
this Partnership Agreement to the requirements of the Partnership
Act, the 1940 Act, the Tax Code or any other law or regulation
applicable to the Partnership.
(c) The Limited Partners shall have no right or power
to cause the termination and dissolution of the Partnership
except as set forth in this Partnership Agreement. No Limited
Partner shall have the right to bring an action for partition
against the Partnership.
9.2 Action of the Partners. Actions which require the vote
of the Limited Partners under Section 9.1 of this Partnership
Agreement shall be taken at a meeting of both the General and
Limited Partners, or by consent without a meeting as provided in
Section 9.10. All Partners' meetings shall be held at such place
as the Managing General Partners shall designate. The Partners
may vote at any such meeting in person or by proxy.
9.3 Meetings. Meetings of the Partnership for the purpose
of taking any action which the Limited Partners are permitted to
take under this Partnership Agreement may be called by a majority
vote of the Managing General Partners or by Limited Partners
representing 10% or more of the outstanding Shares. Written
notice of such meeting shall be given in accordance with Section
9.4.
9.4 Notices.
(a) Whenever Partners are required or permitted to
take any action at a meeting, a written notice of the meeting
shall be given not less than ten (10), nor more than sixty (60),
days before the date of the meeting to each Partner entitled to
vote at the meeting. The notice shall state the place, date, and
hour of the meeting and the general nature of the business to be
transacted, and no other business may be transacted.
(b) Notice of a Partners' meeting or any report shall
be given either personally or by mail or other means of written
communication, addressed to the Partner at the address of the
Partner appearing on the books of the Partnership or given by the
Partner to the Partnership for the purpose of notice, or, if no
address appears or is given, at the place where the principal
executive office of the Partnership is located or by publication
at least once in a newspaper of general circulation in the county
in which the principal executive office is located. The notice or
report shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other
means of written communication. An affidavit of mailing of any
notice or report in accordance with the provisions of this
subsection, executed by a General Partner, shall be prima facie
evidence of the giving of the notice or report.
If any notice or report addressed to the Partner at the
address of the Partner appearing on the books of the Partnership
is returned to the Partnership marked to indicate that the notice
or report to the Partner could not be delivered at such address,
all future notices or reports shall be deemed to have been duly
given without further mailing if they are available for the
Partner at the principal executive office of the Partnership for
a period of one year from the date of the giving of the notice or
report to all other Partners.
(c) Upon written request to the General Partners by
any person entitled to call a meeting of Partners, the General
Partners immediately shall cause notice to be given to the
Partners entitled to vote that a meeting will be held at a time
requested by the person calling the meeting, not less than ten
(10), 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 entitled to call the meeting
may give the notice.
9.5 Validity of Vote for Certain Matters. Any Partner
approval at a meeting, other than unanimous approval by those
entitled to vote, with respect to the matters set forth in
Section 9.1(a) shall be valid only if the general nature of the
proposal so approved was stated in the notice of meeting or in
any written waiver of notice.
9.6 Adjournment. When a Partners' meeting is adjourned to
another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned
meeting the Partnership may transact any business which might
have been transacted at the original meeting. If the adjournment
is for more than forty-five (45) days or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each Partner of record
entitled to vote at the meeting in accordance with Section 9.4.
9.7 Waiver of Notice and Consent to Meeting. The
transactions of any meeting of Partners, however called and
noticed, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote, not
present in person or by proxy, signs a written waiver of notice
or a consent to the holding of the meeting or an approval of the
minutes thereof. All waivers, consents, and approvals shall be
filed with the Partnership records or made a part of the minutes
of the meeting. Attendance of a person at a meeting shall
constitute a waiver of notice of the meeting, except when the
person objects, at the beginning 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 required to be included in the notice of
the meeting but not so included, if the objection is expressly
made at the meeting. Neither the business to be transacted at nor
the purpose of any meeting of Partners need be specified in any
written waiver of notice, except as provided in Section 9.6.
9.8 Quorum. The presence in person or by proxy of more than
forty percent (40%) of the outstanding Shares on the record date
for any meeting constitutes a quorum at such meeting. The
Partners present at a duly called or held meeting at which a
quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough Partners to
leave less than a quorum, if any action taken (other than
adjournment) is approved by a majority vote of those Partners
present (except as otherwise may be required by the 1940 Act or
the Partnership Act). In the absence of a quorum, any meeting of
Partners may be adjourned from time to time by the vote of a
majority in interest of the Limited Partners represented either
in person or by proxy, but no other business may be transacted
except as provided in this Section 9.8. The Managing General
Partners may adjourn such meeting to such time or times as
determined by the Managing General Partners.
9.9 Required Vote. Any action which requires the vote of
the Limited Partners may be taken by the General Partners with
(i) the Majority Vote of the then outstanding Shares or (ii) if
at a meeting, with a majority vote of those Shares present if the
quorum requirements of Section 9.8 hereof have been satisfied
(except as otherwise may be required by the 1940 Act or the
Partnership Act); provided, however, that the admission of a
General Partner shall require the affirmative vote of at least a
majority of the then outstanding Shares, and provided further,
that the admission of a General Partner or an election to
continue the operations of the Partnership after a General
Partner ceases to be a General Partner (other than by removal)
when there is no remaining or surviving General Partner shall
require the affirmative vote of all the Limited Partners.
9.10 Action by Consent Without a Meeting. Any action which
may be taken at any meeting of the Partners may be taken without
a meeting if a consent in writing, setting forth the action so
taken, shall be signed by Partners having not less than the
minimum number of votes that would be necessary to authorize or
take that action at a meeting. In the event the Limited Partners
are requested to consent on a matter without a meeting, each
Partner shall be given notice of the matter to be voted upon in
the same manner as described in Section 9.4. In the event any
General Partner, or Limited Partners representing 10% or more of
the outstanding Shares request a meeting for the purpose of
discussing or voting on the matter, notice of such meeting shall
be given in accordance with Section 9.4 and no action shall be
taken until such meeting is held. Unless delayed in accordance
with the provisions of the preceding sentence, any action taken
without a meeting will be effective ten (10) days after the
required minimum number of voters have signed the consent;
however, the action will be effective immediately if the General
Partners and Limited Partners representing at least 90% of the
Shares of the Partners have signed the consent.
9.11 Record Date.
(a) In order that the Partnership may determine the
Partners of record entitled to notices of any meeting or to vote,
or entitled to receive any distribution or to exercise any rights
in respect of any other lawful action, the Managing General
Partners, or Limited Partners representing more than 10% of the
Shares then outstanding, may fix, in advance, a record date which
is not more than sixty (60) or less than ten (10) days prior to
the date of the meeting and not more than sixty (60) days prior
to any other action. If no record date is fixed:
(i) The record date for determining Partners
entitled to notice of or to vote at a meeting of Partners 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.
(ii) The record date for determining Partners
entitled to give consent to Partnership action in writing without
a meeting shall be the first day on which the first written
consent is given.
(iii) The record date for determining Partners for
any other purpose shall be at the close of business on the day on
which the Managing General Partners adopt it, or the sixtieth
(60th) day prior to the date of the other action, whichever is
later.
(b) The determination of Partners of record entitled
to notice of or to vote at a meeting of Partners shall apply to
any adjournment of the meeting unless the Managing General
Partners, or the Limited Partners who called the meeting, fix a
new record date for the adjourned meeting, but the Managing
General Partners, or the Limited Partners who called the meeting,
shall fix a new record date if the meeting is adjourned for more
than forty-five (45) days from the date set for the original
meeting.
(c) Any Holder of a Share prior to the record date for
a meeting shall be entitled to vote at such meeting, provided
such person becomes a Partner prior to the date of the meeting.
9.12 Proxies. A Partner may vote at any meeting of the
Partnership by a proxy executed in writing by the Partner. All
such proxies shall be filed with the Partnership before or at the
time of the meeting. The law of California pertaining to
corporate proxies will be deemed to govern all Partnership
proxies as if they were proxies with respect to shares of a
California corporation. A proxy may be revoked by the person
executing the proxy in a writing delivered to the Managing
General Partners at any time prior to its exercise.
Notwithstanding that a valid proxy is outstanding, powers of the
proxy holder will be suspended if the person executing the proxy
is present at the meeting and elects to vote in person.
9.13 Number of Votes. All Shares have equal voting rights.
Each Partner shall have the right to vote the number of Shares
standing of record in such Partner's name as of the record date
set forth in the notice of meeting.
10. DISTRIBUTIONS AND ALLOCATION OF PROFITS AND LOSSES
10.1 Fees of General Partners. As compensation for services
rendered to the Partnership, each Managing General Partner may be
paid a fee during each year, which fee shall be fixed by the
Managing General Partners. All the General Partners shall be
entitled to reimbursement of reasonable expenses incurred by them
in connection with their performance of their duties as General
Partners. Neither payment of compensation or reimbursement of
expenses to a General Partner hereunder nor payment of fees to
any Affiliate of a General Partner for the performance of
services to the Partnership shall be deemed a distribution for
purposes of Section 10.2, nor shall any such payment affect such
person's right to receive any distribution to which he would
otherwise be entitled as a Holder of Shares.
10.2 Distributions of Income and Gains. Subject to the
provisions of the Partnership Act and the terms of Section 10.4
hereof, the Managing General Partners in their sole discretion
shall determine the amounts, if any, to be distributed to Holders
of Shares, the record date for purposes of such distributions and
the time or times when such distributions shall be made.
Distributions of income may be in cash (U.S. Dollars) or in
additional full and fractional Shares of the Partnership valued
at the Net Asset Value on the record date. With respect to
capital gains, the Managing General Partners may determine at
least annually what portion, if any, of the Partnership's capital
gains will be distributed and any such distribution may be in
cash or in additional full and fractional Shares of the
Partnership at the Net Asset Value on the record date.
Notwithstanding the foregoing, the Managing General Partners
shall not be required to make any distribution of income or
capital gains for any taxable year.
10.3 Allocation of Income, Gains, Losses, Deductions and
Credits. The net income, gains, losses, deductions and credits of
the Partnership shall be allocated equally among the outstanding
Shares of the Partnership on a regular basis to be determined by
the Managing General Partners. The net income earned by the
Partnership shall consist of the interest accrued on portfolio
securities, less expenses, since the most recent determination of
income. Original issue discount will be treated as an income
item. Market discount and premiums will be treated as capital
items except as otherwise required for Federal income tax
purposes. Expenses of the Partnership will be accrued on a
regular basis to be determined by the Managing General Partners.
A Holder of a Share shall be allocated with the proportionate
part of such items actually realized by the Partnership for each
such full accrual period during which such Share was owned by
such Holder. A person shall be deemed to be a Holder of a Share
on a specific day if he is the record holder of such Share on
such day (regardless of whether or not such record holder has yet
been admitted as a Partner).
10.4 Returns of Contributions. Except upon dissolution of
the Partnership by expiration of its terms or otherwise pursuant
to Section 12 hereof (which shall be the time for return to each
Partner of his contributions, subject to the priorities therein),
and except upon redemption of Shares of the Partnership as
provided in Section 8, no Partner has the right to demand return
of any part of his contribution. The Managing General Partners
may, however, from time to time, elect to permit partial returns
of contributions to Holders of Shares, provided that:
(a) all liabilities of the Partnership to persons
other than General and Limited Partners have been paid or, in the
good faith determination of the Managing General Partners, there
remains property of the Partnership sufficient to pay them; and
(b) the Managing General Partners cause the
Partnership List to be amended to reflect a reduction in
contributions.
In the event that the Managing General Partners elect
to make a partial return of contributions to Holders of Shares,
such distribution shall be made pro rata to all of the Holders of
Shares in accordance with the number of Shares held by each. Each
General and Limited Partner, by becoming such, consents to any
such pro rata distribution therefore or thereafter duly
authorized and made in accordance with such provisions and to any
distribution through redemption of Shares pursuant to Section 8
above.
10.5 Capital Accounts. In addition to any capital accounts
required to be maintained for accounting purposes in accordance
with generally accepted accounting principles, the Partnership
shall maintain two Capital Accounts for each Partner, one for
book purposes and the other for tax purposes. Each such Capital
Account shall be maintained in accordance with the requirements
of Treasury Regulations Section 1.704-1(b). Each such Capital
Account shall be credited with the Partner's capital
contributions and share of profits, shall be charged with such
Partner's share of losses, distributions and withholding taxes
(if any) and shall otherwise appropriately reflect transactions
of the Partnership and the Partners. At the end of each day, the
book Capital Accounts of all Partners shall be adjusted to
reflect unrealized appreciation or depreciation in the value of
the Partnership's assets which accrued on that day. Further
adjustments shall then be made to reflect any purchases and
redemptions of Shares by the Partners. The intent of these
adjustments is to achieve consistency and equivalence between
book Capital Accounts and the Net Asset Value per Share used to
determine the value of the Shares purchased, redeemed or
liquidated in accordance with industry practice for investment
partnerships such as the Partnership. Adjustments to tax Capital
Accounts to take into account allocations of gains and losses
realized by the Partnership for tax purposes shall be made in the
manner described in Section 10.6. A Substituted Limited Partner
shall be deemed to succeed to the book and tax Capital Accounts
of the Partner whom such Substituted Limited Partner replaced.
10.6 Allocations for Tax Purposes.
(a) General. For each fiscal year, items of income,
deduction, loss or credit from normal operations (other than from
the disposition or deemed disposition of assets of the
Partnership) shall be allocated for income tax purposes among the
Partners in proportion to the amounts distributed to them during
such year pursuant to Sections 10.3 and 10.4 hereof. The
Partners' tax Capital Accounts shall be adjusted to reflect
allocations of such items of income, deduction, loss or credit.
(b) Special Allocations. Allocations of gains and
losses from the disposition or deemed disposition of assets of
the Partnership to Partners for tax purposes shall be made in
accordance with the following method which is intended to ensure
that allocations for tax purposes reflect the economic experience
of the Partners with respect to their interests in the
Partnership:
(i) With respect to each Partner, a daily
account of unrealized appreciation/depreciation and realized
gain/loss shall be maintained. Each day's net unrealized
appreciation/depreciation in the assets of the Partnership and
each day's net realized gains/losses of the Partnership shall be
allocated to the Partners in proportion to their book Capital
Account balances at the beginning of such day. Any entry of
realized gain or loss into any Partner's account for net realized
gains/losses shall result in an equal and offsetting adjustment
to the Partner's account for net unrealized appreciation/
depreciation for that day. Purchases of Shares and partial or
complete redemptions of Shares shall be regarded as occurring at
the end of each day, after entries and adjustments in the
Partners' accounts for net unrealized appreciation/depreciation
and net realized gains/losses have been made. The amounts for
each Partner's share of net unrealized appreciation/depreciation
and net realized gains/losses, together with adjustments made to
reflect purchases or redemptions of Shares, shall be combined to
arrive at each Partner's ending book Capital Account balance for
the day.
(ii) At the end of each year, the daily amounts
of net unrealized appreciation/depreciation and net realized
gains/losses shall be aggregated to arrive at a total amount for
net unrealized appreciation/depreciation and a total amount for
net realized gains/losses for each Partner for the year. These
two amounts shall be combined to arrive at each Partner's
"Investment Experience." Net gains realized by the Partnership
shall be allocated among the Partners whose Investment Experience
is positive, and each such Partner's allocable share of such
gains for tax purposes shall be equal to a fraction the numerator
of which is the Partner's Investment Experience and the
denominator of which is the total Investment Experience of the
Partners whose Investment Experience is positive. Net losses
realized by the Partnership shall be allocated among the Partners
whose Investment Experience is negative, and each such Partner's
allocable share of such losses shall be computed in the manner
described in the previous sentence, except that the word
"negative" shall be substituted for the word "positive." Each
Partner's tax Capital Account shall then be adjusted to reflect
such Partner's allocable share of Partnership realized gains or
losses for such year. The Partners' accounts for unrealized
appreciation/depreciation and net realized gains/losses, adjusted
appropriately to reflect the allocation of the net gain realized
or the net loss realized, shall be carried over to the next year.
(iii) In the event of a partial or complete
redemption of Shares which results in a distribution in excess of
a Partner's tax Capital Account, the Partnership may make an
election to adjust the basis of Partnership assets under Section
754 of the Code, and the Partnership may increase the tax basis
of its Partnership assets in accordance with Section 743(b) and
755 of the Code by the difference between the amount of the
distribution made to the redeeming Partner in redemption of his
Shares and his tax Capital Account.
(c) Minimum Gain Chargeback. In the event that there
is a net decrease in the Partnership's Minimum Gain during any
taxable year and any Partner has a negative book Capital Account
(after taking into account reductions for items described in
paragraphs (4), (5) and (6) of Treasury Department Regulations
Section 1.704-1(b)(2)(ii)(d)) and such negative balance exceeds
the sum of (i) the amount that such Partner is obligated to
restore upon liquidation of the Partnership and (ii) such
Partner's share of the Minimum Gain at the end of such taxable
year, such Partner shall be allocated Partnership profits for
such year (and, if necessary, subsequent years) in an amount
necessary to eliminate such excess negative balance as quickly as
possible. Allocations of profits to such Partners having such
excess negative book Capital Accounts shall be made in proportion
to the amounts of such excess negative book Capital Account
balances. The term "Minimum Gain" means the excess of the
outstanding balances of all nonrecourse indebtedness which is
secured by property of the Partnership over the adjusted basis of
such property for federal income tax purposes, as computed in
accordance with the provisions of Treasury Department Regulations
Section 1.704-1(b)(4)(iv)(c). A Partner's share of Minimum Gain
shall be computed in accordance with Treasury Department
Regulations Section 1.704-1(b)(4)(iv)(f).
(d) Qualified Income Offset. Notwithstanding anything
in Sections 10.3 and 10.6 to the contrary, in the event any
Partner unexpectedly receives any adjustments, allocations or
distributions described in Treasury Department Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(d)(5) or 1.704-
1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be
specially allocated to such Partner in an amount and manner
sufficient to eliminate the deficit balance in his book Capital
Account (in excess of (i) the amount he is obligated to restore
upon liquidation of the Partnership or upon liquidation of his
interest in the Partnership and his share of the Minimum Gain)
created by such adjustments, allocations or distributions as
quickly as possible.
11. ASSIGNMENT OF SHARES; SUCCESSOR IN INTEREST; SUBSTITUTION OF
PARTNERS
11.1 Prohibition on Assignment. Except for redemptions as
provided in Section 8, a Partner shall not have the right to
sell, transfer or assign his Shares to any other person, but may
pledge them as collateral.
11.2 Rights of the Holders of Shares as Collateral or
Judgment Creditor. In the event that any person who is holding
Shares as collateral or any judgment creditor becomes the owner
of such Shares due to foreclosure or otherwise, such person shall
not have the right to be substituted as a Limited Partner, but
shall only have the rights, upon the presentation of evidence
satisfactory to the Managing General Partners of his right to
succeed to the interests of the Limited Partner, set forth
immediately below:
(a) To redeem the Shares in accordance with the
provisions of Section 8 hereof; and
(b) To receive any distributions made with respect to
such Shares.
Upon receipt by the Partnership of evidence
satisfactory to the Managing General Partners of his ownership of
Shares, the owner shall become a Holder of Record of the subject
Shares and his name shall be recorded on the books of record of
the Partnership maintained for such purpose either by the
Partnership or its Transfer Agent. Such owner shall be liable to
return any excess distributions pursuant to Section 5.8(a).
However, such owner shall have none of the rights or obligations
of a Substituted Limited Partner unless and until he is admitted
as such.
11.3 Death, Incompetency, Bankruptcy or Termination of the
Existence of a Partner. In the event of the death or an
adjudication of incompetency or bankruptcy of an individual
Partner (or, in the case of a Partner that is a corporation,
association, partnership, joint venture or trust, an adjudication
of bankruptcy, dissolution or other termination of the existence
of such Partner), the successor in interest of such Partner
(including without limitation the Partner's executor,
administrator, guardian, conservator, receiver or other legal
representative), upon the presentation of evidence satisfactory
to the Managing General Partners of his right to succeed to the
interests of the Partner, shall have the rights set forth below:
(a) to redeem the Shares of the Partner in accordance
with the provisions of Section 8 hereof;
(b) to receive any distributions made with respect to
such Shares; and
(c) to be substituted as a Limited Partner upon
compliance with the conditions of the admission of a Limited
Partner as provided in Sections 5 and 11 hereof.
Upon receipt by the Partnership of evidence
satisfactory to the Managing General Partners of his right to
succeed to the interests of the Partner, the successor in
interest shall become a Holder of Record of the subject Shares
and his name shall be recorded on the books of record of the
Partnership maintained for such purpose either by the Partnership
or its Transfer Agent.
11.4 Substituted Limited Partners.
(a) A person shall not become a Substituted Limited
Partner unless the Managing General Partners consent to such
substitution (which consent may be withheld in their absolute
discretion) and receive such instruments and documents (including
those specified in Section 5.2), and a reasonable transfer fee as
the Managing General Partners shall require.
(b) The original Limited Partner shall cease to be a
Limited Partner, and the person to be substituted shall become a
Substituted Limited Partner, as of the date on which the person
to be substituted has satisfied the requirements set forth above
and as of the date the Partnership List is amended to reflect his
admission as a Substituted Limited Partner. The Managing General
Partners agree to cause such amendments to the Partnership List
to be processed daily on each day that its Transfer Agent shall
be open for business. Thereafter the original Limited Partner
shall have no rights or obligations with respect to the
Partnership insofar as the Shares transferred to the Substituted
Limited Partner are concerned.
(c) Unless and until a person becomes a Substituted
Limited Partner, his status and rights shall be limited to the
rights of a Holder of Shares pursuant to Sections 11.3(a) and
11.3(b). A Holder of Shares who does not become a Substituted
Limited Partner shall have no right to inspect the Partnership's
books or to vote on any of the matters on which a Limited Partner
would be entitled to vote. A Holder of Shares who has become a
Substituted Limited Partner has all the rights and powers, and is
subject to the restrictions and liabilities of a Limited Partner
under this Agreement.
(d) Any person admitted to the Partnership as a
Substituted Limited Partner shall be subject to and bound by the
provisions of this Partnership Agreement as if originally a party
to this Partnership Agreement.
12. DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
12.1 Dissolution. The Partnership shall be dissolved and its
affairs shall be wound up upon the happening of the first to
occur of the following:
(a) the stated term of the Partnership has expired
unless the Partners by a Majority Vote have previously amended
the Partnership Agreement to state a different term;
(b) the Partnership has disposed of all of its assets;
(c) A General Partner has ceased to be a General
Partner and the remaining General Partners do not elect to
continue the operations of the Partnership;
(d) There is only one General Partner remaining and
such General Partner has ceased to be a General Partner as set
forth in Section 4.8; provided, however, that if the last
remaining or surviving General Partner ceases to be a General
Partner other than by removal, the Limited Partners may agree by
unanimous vote to continue the operations of the Partnership and
to admit one or more General Partners in accordance with the
Partnership Agreement;
(e) a decree of judicial dissolution has been entered
by a court of competent jurisdiction; or
(f) the Partners by a Majority Vote have voted to
dissolve the Partnership.
12.2 Liquidation.
(a) In the event of dissolution as provided in Section
12.1, the assets of the Partnership shall be distributed as
follows:
(i) all of the Partnership's debts and
liabilities to persons (including Partners to the extent
permitted by law) shall be paid and discharged, and any reserve
deemed necessary by the Managing General Partners for the payment
of such debts shall be set aside; and
(ii) the balance of the assets of the Partnership
(and any reserves not eventually used to satisfy debts of the
Partnership) shall be distributed pro rata to the Partners in
accordance with the number of Shares held by each.
(b) Upon dissolution, each Partner shall look solely
to the assets of the Partnership for the return of his capital
contribution and shall be entitled only to a distribution of
Partnership property and assets in return thereof. If the
Partnership property remaining after the payment or discharge of
the debts and liabilities of the Partnership is insufficient to
return the capital contribution of each Limited Partner, such
Limited Partner shall have no recourse against any General
Partner, the assets of any other partnership of which any General
Partner is a partner, or any other Limited Partner. The winding
up of the affairs of the Partnership and the distribution of its
assets shall be conducted exclusively by the Managing General
Partners, who are authorized to do any and all acts and things
authorized by law for these purposes. In the event of dissolution
where there is no remaining General Partner, and there is a
failure to appoint a new General Partner, the winding up of the
affairs of the Partnership and the distribution of its assets
shall be conducted by such person as may be selected by Majority
Vote, which person is hereby authorized to do any and all acts
and things authorized by law for these purposes.
12.3 Termination. Upon the completion of the distribution of
Partnership assets as provided in this Section and the
termination of the Partnership, the General Partner(s) or other
person acting as liquidator (or the Limited Partners, if
necessary) shall cause the Certificate of Limited Partnership of
the Partnership to be cancelled and shall take such other actions
as may be necessary to legally terminate the Partnership.
13. BOOKS, RECORDS, ACCOUNTS AND REPORTS
13.1 Books and Records.
(a) The Partnership shall continuously maintain an
office in the State of California, at which the following books
and records shall be kept:
(i) A Partnership List (or copy thereof) which
shall be a current list of the full name and last known business
or residence address of each Partner, set forth in alphabetical
order together with the contribution and the share in profits and
losses of each Partner, which list shall separately identify the
interests of General and Limited Partners.
(ii) A copy of the Certificate of Limited
Partnership and all certificates of amendments thereto, together
with executed copies of any powers of attorney pursuant to which
any such certificate has been executed.
(iii) Copies of the Partnership's Federal, state
and local income tax or information returns and reports, if any,
for the six most recent taxable years.
(iv) Copies of this Partnership Agreement and all
amendments thereto.
(v) Financial statements of the Partnership for
the six most recent fiscal years.
(vi) The Partnership's books and records for at
least the current and past three fiscal years.
(b) The Partnership shall also maintain at its
principal office such additional books and records as are
necessary for the operation of the Partnership.
13.2 Limited Partners' Rights to Records.
(a) Upon the request of a Limited Partner, the
Managing General Partners shall promptly deliver to the Limited
Partner, at the Partnership's expense, a copy of the items set
forth in Section 13.1(a)(i), (ii) and (iv).
(b) Each Limited Partner shall have the right upon
reasonable request to each of the following:
(i) To inspect and copy during normal business
hours, at the Limited Partner's expense, any of the Partnership's
records required to be kept pursuant to the Partnership Act.
(ii) To obtain from the Managing General Partners
promptly after becoming available, at the Limited Partner's
expense, a copy of any Federal, state and local income tax or
information returns required to be filed by the Partnership for
each year.
(c) The Managing General Partners shall promptly
furnish to a Limited Partner a copy of any amendment to this
Partnership Agreement executed by the Managing General Partners
pursuant to a power of attorney from the Limited Partner.
(d) The Managing General Partners shall send to each
Partner within ninety (90) days after the end of each taxable
year such information as is necessary to complete Federal and
state income tax or information returns or such information as is
required by the Tax Code.
(e) At any time that the Partnership shall have more
than 35 Limited Partners:
(i) The Managing General Partners shall cause an
annual report to be sent to each of the Partners not later than
120 days after the close of the Partnership's fiscal year. That
report shall contain a balance sheet as of the end of the fiscal
year and an income statement and statement of changes in
financial position for the fiscal year.
(ii) Limited Partners representing at least 5% of
the outstanding Shares of the Partnership may make a written
request to the Managing General Partners for an income statement
of the Partnership for the initial three-month, six-month or nine-
month period of the current fiscal year ended more than thirty
(30) days prior to the date of the request and a balance sheet of
the Partnership as of the end of that period. The statement shall
be delivered or mailed to the Limited Partners within thirty (30)
days thereafter.
(iii) The financial statements referred to in this
subsection shall be accompanied by the report thereon, if any, of
the independent accountants engaged by the Partnership or, if
there is no such report, the certificate of the Managing General
Partners that such financial statements were prepared without
audit from the books and records of the Partnership.
(f) The Managing General Partners shall cause to be
transmitted to each Partner such other reports and information as
shall be required by the 1940 Act, the Partnership Act or the Tax
Code.
13.3 Accounting Basis and Fiscal Year. The Partnership's
books and records (i) shall be kept on a basis chosen by the
Managing General Partners in accordance with the accounting
methods followed by the Partnership for Federal income tax
purposes and otherwise in accordance with generally accepted
accounting principles applied in a consistent manner, (ii) shall
reflect all Partnership transactions, (iii) shall be appropriate
and adequate for the Partnership's business and for the carrying
out of all provisions of this Partnership Agreement, and (iv)
shall be closed and balanced at the end of each Partnership
fiscal year. The fiscal year of the Partnership shall be the
calendar year.
13.4 Tax Returns. The Managing General Partners, at the
Partnership's expense, shall cause to be prepared any income tax
or information returns required to be made by the Partnership and
shall further cause such returns to be timely filed with the
appropriate authorities.
13.5 Filings with Regulatory Agencies. The Managing General
Partners, at the Partnership's expense, shall cause to be
prepared and timely filed with appropriate Federal and state
regulatory and administrative bodies, all reports required to be
filed with such entities under then current applicable laws,
rules and regulations.
13.6 Tax Matters and Notice Partner. The Managing General
Partners shall designate one or more General Partners as the "Tax
Matters Partner" and the "Notice Partner" of the Partnership in
accordance with Sections 6231(a)(7) and (8) of the Tax Code, and
each such Partner shall have no personal liability arising out of
his good faith performance of his duties in such capacity. The
"Tax Matters Partner" is authorized, at the Partnership's sole
cost and expense, to represent the Partnership and each Limited
Partner in connection with all examinations of the Partnership
affairs by tax authorities, including any resulting
administrative and judicial proceedings. Each Limited Partner
agrees to cooperate with the Managing General Partners and to do
or refrain from doing any and all things reasonably required by
the Managing General Partners to conduct such proceeding. The
Managing General Partners shall have the right to settle any
audits without the consent of the Limited Partners.
14. AMENDMENTS OF PARTNERSHIP DOCUMENTS
14.1 Amendments in General. Except as otherwise provided in
this Partnership Agreement, the Partnership Agreement may be
amended only by the General Partners.
14.2 Amendments Without Consent of Limited Partners. In
addition to any amendments otherwise authorized herein and except
as otherwise provided, amendments may be made to this Partnership
Agreement from time to time by the General Partners without the
consent of any of the Limited Partners, including, without
limitation, amendments: (i) to reflect the retirement,
resignation, death or incompetency of a Managing General Partner;
(ii) to add to the duties or obligations of the General Partners,
or to surrender any right or power granted to the General
Partners herein, for the benefit of the Limited Partners; (iii)
to correct any false or erroneous statement, or to make a change
in any statement in order to make such statement accurately
represent the agreement among the General and Limited Partners;
(iv) to supply any omission or to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or (v) to
make such amendments as may be necessary to conform this
Partnership Agreement to the requirements of the Partnership Act,
the 1940 Act, the Tax Code or any other law or regulation
applicable to the Partnership, as now or hereafter in effect.
14.3 Amendments Needing Consent of Affected Partners.
Notwithstanding any other provision of this Partnership
Agreement, without the consent of the Partner or Partners to be
affected by any amendment to this Agreement, this Agreement may
not be amended to (i) convert a Limited Partner's interest into a
General Partner's interest, (ii) modify the limited liability of
a Limited Partner, (iii) alter the interest of a Partner in
income, gain, loss, deductions, credits, and distributions, or
(iv) increase, add or alter any obligation of any Limited
Partner.
14.4 Amendments to Certificate of Limited Partnership.
(a) The Managing General Partners shall cause to be
filed with the Secretary of State, within thirty (30) days after
the happening of any of the following events, an amendment to the
Certificate of Limited Partnership reflecting the occurrence of
any of the following events:
(i) A change in the name of the Partnership.
(ii) A change in either of the following:
(A) The street address of the Partnership's
principal executive office.
(B) If the principal executive office is
not in California, the street address of an office in California.
(iii) A change in the address of or the withdrawal
of any of the General Partners, or a change in the address of the
agent for service of process, unless a corporate agent is
designated, or appointment of a new agent for service of process.
(iv) The admission of a new General Partner and
that Partner's address.
(v) The discovery by the General Partner of any
false or erroneous material statement contained in the
Certificate of Limited Partnership.
(b) Any Certificate of Limited Partnership filed or
recorded in jurisdictions other than California shall be amended
as required by applicable law.
(c) The Certificate of Limited Partnership may also be
amended at any time in any other manner deemed appropriate by the
General Partner.
14.5 Amendments After Change of Law. This Agreement and any
other Partnership documents may be amended and refiled, if
necessary, by the Managing General Partners without the consent
of the Limited Partners if there occurs any change that permits
or requires an amendment of this Agreement under the Act or of
any other Partnership document under applicable law, so long as
no Partner is adversely affected (or consent is given by such
Partner).
15. MISCELLANEOUS PROVISIONS
15.1 Notices.
(a) Any written notice, offer, demand or communication
required or permitted to be given by any provision of this
Partnership Agreement, unless otherwise specified herein, shall
be deemed to have been sufficiently given for all purposes if
delivered personally to the party to whom the same is directed or
if sent by first class mail addressed (i) if to a General
Partner, to the principal place of business and office of the
Partnership specified in this Agreement and (ii) if to a Limited
Partner, to such Limited Partner's address as set forth in the
Partnership List; provided, however, that notice given by any
other means shall be deemed sufficient if actually received by
the party to whom it is directed.
(b) Any such notice that is sent by first class mail
shall be deemed to be given two (2) days after the date on which
the same is mailed.
(c) The Managing General Partners may change the
Partnership's address for purposes of this Partnership Agreement
by giving written notice of such change to the Limited Partners,
and any Limited Partner may change his address for purposes of
this Partnership Agreement by giving written notice of such
change to the Managing General Partners, in the manner herein
provided for the giving of notices.
15.2 Section Headings. The Section headings in this
Partnership Agreement are inserted for convenience and
identification only and are in no way intended to define or limit
the scope, extent or intent of this Partnership Agreement or any
of the provisions hereof.
15.3 Construction. Whenever the singular number is used
herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall include each other, as
applicable. If any language is stricken or deleted from this
Partnership Agreement, such language shall be deemed never to
have appeared herein and no other implication shall be drawn
therefrom. The language in all parts of this Partnership
Agreement shall be in all cases construed according to its fair
meaning and not strictly for or against the General Partners or
the Limited Partners.
15.4 Severability. If any covenant, condition, term or
provision of this Partnership Agreement is illegal, or if the
application thereof to any person or in any circumstance shall to
any extent be judicially determined to be invalid or
unenforceable, the remainder of this Partnership Agreement, or
the application of such covenant, condition, term or provision to
persons or in circumstances other than those to which it is held
invalid or unenforceable, shall not be affected thereby, and each
remaining covenant, condition, term and provision of this
Partnership Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15.5 Governing Law. This Partnership Agreement shall be
construed and enforced in accordance with, and governed by,
California law.
15.6 Counterparts. This Partnership Agreement may be
executed in one or more counterparts, each of which shall, for
all purposes, be deemed an original and all of such counterparts,
taken together, shall constitute one and the same Partnership
Agreement.
15.7 Entire Agreement. This Partnership Agreement and the
separate subscription agreements of each Limited Partner and
General Partner constitute the entire agreement of the parties as
to the subject matter hereof. All prior agreements among the
parties as to the subject matter hereof, whether written or oral,
are merged herein and shall be of no force or effect. This
Partnership Agreement cannot be changed, modified or discharged
orally but only by an agreement in writing. There are no
representations, warranties, or agreements other than those set
forth in this Partnership Agreement and such separate
subscription agreements, if any.
15.8 Cross-References. All cross-references in this
Partnership Agreement, unless specifically directed to another
agreement or document, refer to provisions in this Partnership
Agreement.
15.9 Power of Attorney to the General Partners.
(a) Each Partner hereby makes, constitutes and
appoints each Managing General Partner and any person designated
by the Managing General Partners, with full substitution, his
agent and attorney-in-fact in his name, place and stead, to take
any and all actions and to make, execute, swear to and
acknowledge, amend, file, record and deliver the following
documents and any other documents deemed by the Managing General
Partners necessary for the operations of the Partnership: (i) any
Certificate of Limited Partnership or Certificate of Amendment
thereto, required or permitted to be filed on behalf of the
Partnership, and any and all certificates as necessary to qualify
or continue the Partnership as a limited partnership or
partnership wherein the Limited Partners thereof have limited
liability in the states where the Partnership may be conducting
activities, and all instruments which effect a change or
modification of the Partnership in accordance with this
Partnership Agreement; (ii) this Partnership Agreement and any
amendments thereto in accordance with this Partnership Agreement;
(iii) any other instrument which is now or which may hereafter be
required or advisable to be filed for or on behalf of the
Partnership; (iv) any document which may be required to effect
the continuation of the Partnership, the admission of an
additional Limited Partner or Substituted Limited Partner, or the
dissolution and termination of the Partnership (provided such
continuation, admission or dissolution and termination is in
accordance with the terms of this Partnership Agreement), or to
reflect any reductions or additions in the amount of the
contributions of Partners, in each case having the power to
execute such instruments on his behalf, whether the undersigned
approved of such action or not; and (v) any document containing
any investment representations and/or representations relating to
the citizenship, residence and tax status required by any state
or Federal law or regulation.
(b) This Power of Attorney is a special Power of
Attorney coupled with an interest, and shall not be revoked and
shall survive the transfer by any Limited Partner of all or part
of his interest in the Partnership and, being coupled with an
interest, shall survive the death or disability or cessation of
the existence as a legal entity of any Limited Partner; except
that where the successor in interest has been approved by said
attorney for admission to the Partnership as a Substituted
Limited Partner, this Power of Attorney shall survive the
transfer for the sole purpose of enabling said attorney to
execute, acknowledge and file any instrument necessary to
effectuate such substitution.
(c) Each Limited Partner hereby gives and grants to
his said attorney under this Power of Attorney full power and
authority to do and perform each and every act and thing
whatsoever requisite, necessary or appropriate to be done in or
in connection with this Power of Attorney as fully to all intents
and purposes as he might or could do if personally present,
hereby ratifying all that his said attorney shall lawfully do or
cause to be done by virtue of this Power of Attorney.
(d) The existence of this Power of Attorney shall not
preclude execution of any such instrument by the undersigned
individually on any such matter. A person dealing with the
Partnership may conclusively presume and rely on the fact that
any such instrument executed by such agent and attorney-in-fact
is authorized, regular and binding without further inquiry.
(e) The appointment of each Managing General Partner
and each designee of that General Partner as attorney-in-fact
pursuant to this power of attorney automatically shall terminate
as to such person at such time as he ceases to be a General
Partner and from such time shall be effective only as to the
substitute General Partner admitted in accordance with this
Partnership Agreement and his designees.
15.10 Further Assurances. The Limited Partners will execute
and deliver such further instruments and do such further acts and
things as may be required to carry out the intent and purposes of
this Partnership Agreement.
15.11 Successors and Assigns. Subject in all respects to the
limitations on transferability contained herein, this Partnership
Agreement shall be binding upon, and shall inure to the benefit
of, the heirs, administrators, personal representatives,
successors and assigns of the respective parties hereto.
15.12 Waiver of Action for Partition. Each of the parties
hereto irrevocably waives during the term of the Partnership and
during the period of its liquidation following any dissolution,
any right that he may have to maintain any action for partition
with respect to any of the assets of the Partnership.
15.13 Creditors. None of the provisions of this Partnership
Agreement shall be for the benefit of or enforceable by any of
the creditors of the Partnership or the Partners.
15.14 Remedies. The rights and remedies of the Partners
hereunder shall not be mutually exclusive, and the exercise by
any Partner of any right to which he is entitled shall not
preclude the exercise of any other right he may have.
15.15 Custodian. All assets of the Partnership shall be held
by a custodian meeting the requirements of the 1940 Act, and may
be registered in the name of the Partnership or such custodian or
nominee. The terms of the custodian agreement shall be determined
by the Managing General Partners.
15.16 Use of Name "Franklin. "Franklin Partners, Inc., as
the Partnership's Non-Managing General Partner, hereby consents
to the use by the Partnership of the name "Franklin" as part of
the Partnership's name; provided, however, that such consent
shall be conditioned upon the employment of Franklin Advisers or
one of its affiliates (collectively "Franklin") as an investment
adviser of the Partnership. The name "Franklin" or any variation
thereof may be used from time to time in other connections and
for other purposes by Franklin and other investment companies
that have obtained consent to use the name "Franklin." Franklin
shall have the right to require the Partnership to cease using
the name "Franklin" as part of the Partnership's name if the
Partnership ceases, for any reason, to employ Franklin as its
investment adviser. Future names adopted by the Partnership for
itself, insofar as such names include identifying words requiring
the consent of Franklin, shall be the property of Franklin and
shall be subject to the same terms and conditions.
15.17 Authority. Each individual executing this Agreement on
behalf of a partnership, corporation, or other entity warrants
that he is authorized to do so and that this agreement will
constitute the legal binding obligation of the entity which he
represents.
15.18 Signatures. The signature of a Managing General
Partners or an Officer or agent of the Partnership duly appointed
by the Managing General Partners shall be sufficient to bind the
Partnership to any agreement or on any document, including, but
not limited to, documents drawn or agreements made in connection
with the acquisition or disposition of any assets.
15.19 Arbitration. The parties hereby submit all
controversies, claims and matters of difference to arbitration
before a single arbitrator in Los Angeles, California, according
to the rules and practices of the American Arbitration
Association from time to time in force. This submission and
agreement to arbitrate shall be specifically enforceable. Without
limiting the generality of the foregoing, the following shall be
considered controversies for this purpose: (a) all questions
relating to the breach of any obligation, warranty, agreement or
condition hereunder; (b) failure of any party to deny or reject a
claim or demand of any other party; and (c) all questions as to
whether the right to arbitrate any question exists. Arbitration
may proceed in the absence of any party if written notice
(pursuant to the American Arbitration Association's rules and
regulations) of the proceedings has been given to such party. The
parties agree to abide by all awards rendered in such
proceedings. Such awards shall be final and binding on all
parties to the extent and in the manner provided by California
statute. All awards may be filed with the Clerk of the Superior
Court in Los Angeles, California, as a basis of judgment and of
the issuance of execution for its collection and, at the election
of the party making such filing, with the clerk of one or more
other courts, state or Federal, having jurisdiction over the
party against whom such an award is rendered or his property.
The attached Agreement of Limited Partnership reflects the
amendments thereto duly adopted by the Managing General Partners
on April 23, 1991.
May 1, 1991
/s/ Charles B. Johnson
Charles B. Johnson, Managing
General Partner on behalf of
all Partners pursuant to Power
of Attorney
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
File Nos. 33-11962
811-5008
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, 1994 as filed on February 27, 1995
(i) Report of Independent Auditors - February 1, 1995
(ii) Statement of Investments in Securities and Net Assets -
December 31, 1994
(iii)Statements of Assets and Liabilities - December 31,
1994
(iv) Statements of Operations - for the year ended December
31, 1994
(v) Statements of Changes in Net Assets - for the years
ended December 31, 1994 and 1993
(vi) Notes to Financial Statements
b) Exhibits:
(1) copies of the charter as now in effect;
(i) Amended and Restated Agreement of Limited
Partnership dated May 1, 1987, as amended April
28, 1988 and May 1, 1991 - filed in Part B
(2) copies of the existing By-Laws or instruments
corresponding thereto;
(i) Operating Procedures
(ii) Amendment to By-Laws dated April 26, 1988
(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 4, 1987
(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) Distribution Agreement between Registrant and
Franklin Distributors, Inc. dated May 4, 1987
(ii) Amendment to Distribution Agreement between
Registrant and Franklin/Templeton Distributors,
Inc. dated July 1, 1993
(iii)Forms of Dealer Agreements between
Franklin/Templeton Distributors, Inc. and dealers
are Incorporated by reference to:
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54 to
Registration on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(7) copies of all bonus, profit sharing, pension or other
similar contracts or arrangements 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 remuneration;
(i) Custodian Agreement between Registrant and Bank of
America NT & SA dated January 24, 1994
(ii) Amendment to Custodian Agreement between
Registrant and Bank of America NT & SA dated
December 1, 1994 Incorporated by reference to:
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54 to
Registration on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(iii)Copy of Custodian Agreements 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 Incorporated by reference
to:
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54 to
Registration on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(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;
N/A
(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;
(i) Opinion and Consent of Counsel dated April 21,
1987
(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) Tax Opinion and Consent dated July 7, 1994
(ii) Consent of Independent Auditors dated February 27,
1995
(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 Incorporated by
reference to:
Registrant: AGE High Income Fund, Inc.
Filing: Post-Effective Amendment No. 26 to
Registration 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 dated July 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 of 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
Item 25 Persons Controlled by or under Common Control with
Registrant
None
Item 26 Number of Holders of Securities
As of December 31, 1994 the number of record holders of the
only class of securities of the Registrant was as follows:
Title of Class Number of Record Holders
Shares of Partnership 1,263
Interest
Item 27 Indemnification
Please see Section 14 of Agreement of Limited Partnership
(Exhibit 1)
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to general partners,
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 general partner, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion if its counsel the matter has been
settled by controlling precedent, submit to a court of
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
Certain of the officers and directors of the Registrant's
investment adviser also serve as officers and/or directors or
trustees for (1) the adviser's corporate parent, Franklin
Resources, Inc., (2) the Registrant's corporate Non-Managing
General Partner, Franklin Partners, Inc., and/or (3) other
investment companies in the Franklin Group of Funds and the
Templeton Group of Funds. In addition, Mr. Charles B. Johnson
is director of General Host Corporation. For additional
information, please see Part B.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc., ("Distributors")
also acts as principal underwriter of shares of AGE High Income
Fund, Inc., Franklin Premier Return Fund, Franklin Custodian
Funds, Inc., Franklin Gold Fund, Franklin Equity Fund, Franklin
California Tax-Free Income Fund, Inc., Franklin New York Tax-
Free Income Fund, Inc., Franklin Municipal Securities Trust,
Franklin Federal Tax-Free Income Fund, Franklin Investors
Securities Trust, Franklin Tax-Advantaged International Bond
Fund, Franklin Tax-Advantaged U.S. Government Securities Fund,
Franklin California Tax-Free Trust, Franklin Tax-Free Trust,
Franklin New York Tax-Free Trust, Franklin Strategic Series,
Franklin International Trust, Franklin Managed Trust, Franklin
Balance Sheet Investment Fund, Franklin Strategic Mortgage
Portfolio, Institutional Fiduciary Trust, Franklin Money Fund,
Franklin Federal Money Fund, Franklin Tax Exempt Money Fund,
Franklin Real Estate Securities Trust, Franklin Templeton
Global Trust, Templeton Variable Products Series Fund,
Templeton Real Estate Securities Fund, Templeton Growth Fund,
Inc., Templeton Funds, Inc., Templeton Smaller Companies Growth
Fund, Inc., Templeton Income Trust, Templeton Global
Opportunities Trust, Templeton Institutional Funds, Inc.,
Templeton American Trust, Inc., Templeton Capital Accumulator
Fund, Inc., Templeton Developing Markets Trust, Templeton
Global Investment Trust, Templeton Variable Annuity Fund,
Franklin Templeton Japan 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)
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 Registrant or its shareholder services agent,
Franklin/Templeton Investor Services, Inc., both of whose
address is 777 Mariners Island Blvd., San Mateo, CA 94404.
Item 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 27th
day of February 1995.
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
(A California Limited Partnership)
By: Rupert H. Johnson, Jr.*
Rupert H. Johnson, Jr
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:
Rupert H. Johnson, Jr.* Managing General Partner and
Rupert H. Johnson, Jr. Principal Executive Officer
Dated: February 27, 1995
Frank H. Abbott, III* Managing General Partner
Frank H. Abbott, III Dated: February 27, 1995
Harris J. Ashton* Managing General Partner
Harris J. Ashton Dated: February 27, 1995
Kenneth V. Domingues* Managing General Partner,
Kenneth V. Domingues Tax-Matters Partner
Dated: February 27, 1995
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: February 27, 1995
S. Joseph Fortunato* Managing General Partner
S. Joseph Fortunato Dated: February 27, 1995
David W. Garbellano* Managing General Partner
David W. Garbellano Dated: February 27, 1995
Charles B. Johnson* Managing General Partner
Charles B. Johnson Dated: February 27, 1995
Charles E. Johnson* Managing General Partner
Charles E. Johnson Dated: February 27, 1995
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: February 27, 1995
Gordon S. Macklin* Managing General Partner
Gordon S. Macklin Dated: February 27, 1995
*By
Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Amended and Restated Agreement Attached
of Limited Partnership dated
May 1, 1987, as amended April
28, 1988 and May 1, 1991
EX-99.B2(i) Operating Procedures Attached
EX-99.B2(ii) Amendment to By-Laws dated Attached
April 26, 1988
EX-99.B5(i) Management Agreement dated May Attached
4, 1987
EX-99.B6(i) Distribution Agreement dated Attached
May 4, 1987
EX-99.B6(ii) Amendment to Distribution Attached
Agreement dated July 1, 1993
EX-99.B6(iii) Forms of Dealer Agreements *
EX-99.B8(i) Custodian Agreement dated Attached
January 24, 1994
EX-99.B8(ii) Amendment to Custodian *
Agreement dated December 1,
1994
EX-99.B8(iii) Copy of Custodian Agreements *
between Registrant and
Citibank Delaware
EX-99.B10(i) Opinion and Consent of Counsel Attached
dated April 21, 1987
EX-99.B11(i) Tax Opinion and Consent dated Attached
July 7, 1994
EX-99.B11(ii) Consent of Independent Attached
Auditors dated February 27,
1995
EX-99.B14(i) Copy of Model Retirement Plan **
EX-99.B15(i) Distribution Plan dated July Attached
1, 1994
EX-99.B16(i) Schedule for Computation of Attached
Performance Quotation
EX-99.B17(i) Power of Attorney dated Attached
February 16, 1995
EX-99.B17(ii) Certificate of Secretary dated Attached
February 16, 1995
EX-99.B27(i) Financial Data Schedule Attached
*Incorporated by Reference to: Franklin Premier Return Fund
**Incorporated by Reference to: Age High Income Fund, Inc.
OPERATING PROCEDURES
for the regulation and management, except as
otherwise provided by statute or
the Agreement of Limited Partnership.
of the
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
(a California limited partnership)
TABLE OF CONTENTS
ARTICLE I Committees
1. Committees of Managing General Partners
2. Meetings and Action of Committees
ARTICLE II Officers
1. Officers
2. Election of Officers
3. Subordinate Officers
4. Removal and Resignation of Officers
5. Vacancies in Offices
6. Chairman
7. President
8. Vice Presidents
9. Secretary
10. Principal Financial Officer
11. Principal Accounting Officer
ARTICLE III Indemnification of Employees and Other Agents;
Insurance
1. Agents, Proceedings and Expenses
2. Actions Other than by Trust
3. Actions by the Trust
4. Exclusion of Indemnification
5. Successful Defense by Agent
6. Required Approval
7. Authorization of Indemnification
8. Advance of Expenses
9. Other Contractual Rights
10. Limitations
11. Insurance
12. Fiduciaries of Employee Benefit Plan
ARTICLE IV Records and Reports
1. Maintenance and Inspection of By-Laws
2. Maintenance and Inspection of Other Records
3. Inspection by Managing General Partners
ARTICLE V General Matters
1. Checks, Drafts, Evidence of Indebtedness
2. Contracts and Instruments; How Executed
3. Representation of Shares of Other Entities
4. Amendment of Operating Procedures
OPERATING PROCEDURES
OF THE
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
(a California limited partnership)
ARTICLE I
COMMITTEES
Section 1. COMMITTEES OF MANAGING GENERAL PARTNERS. The
Managing General Partners may by resolution adopted by a majority
of the authorized number of Managing General Partners designate
one (1) or more committees, each consisting of two (2) or more
Managing General Partners, to serve at the pleasure of the
Managing General Partners. The Managing General Partners may
designate one or more Managing General Partners 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 Managing General Partners, shall have the
authority of the Managing General Partners, except with respect
to:
(a) the approval of any action which under applicable law
or under the Agreement of Limited Partnership also
requires approval of the partners as a whole or
approval of the outstanding shares, or requires
approval by a majority of all the Managing General
Partners or certain members of the Managing General
Partners;
(b) the filling of vacancies on any committee;
(c) the fixing of compensation of the Managing General
Partners for serving as Managing General Partners or on
any committee;
(d) the amendment or repeal of the Agreement of Limited
Partnership or of the Operating Procedures or the
adoption of new Operating Procedures;
(e) the amendment or repeal of any resolution of the
Managing General Partners which by its express terms is
not so amendable or repealable; or
(f) the appointment of any other committees of the Managing
General Partners or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and
action of committees shall be governed by, held and taken in
accordance with the provisions of the Agreement of Limited
Partnership as if such meetings were meetings of the Managing
General Partners, with such changes in the context thereof as are
necessary to substitute the committee and its members for the
Managing General Partners, except that the time of regular
meetings of committees may be determined either by resolution of
the Managing General Partners or by resolution of the committee.
Special meetings of committees may also be called by resolution
of the Managing General Partners. Alternate members shall be
given notice of meetings of committees and shall have the right
to attend all meetings of committees. The Managing General
Partners may adopt rules for the government of any committee not
inconsistent with the provisions of these Operating Procedures or
the Agreement of Limited Partnership.
ARTICLE II
OFFICERS
Section 1. OFFICERS. The officers of the Partnership shall
be a president, a secretary, a principal financial officer and a
principal accounting officer. The Partnership may also have, at
the discretion of the Managing General Partners, a chairman, one
or more vice presidents, one or more assistant secretaries, one
or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this
Article. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the
Partnership, except such officers as may be appointed in
accordance with the provisions of Section 3 or Section 5 of this
Article, shall be chosen by the Managing General Partners, and
each shall serve at the pleasure of the Managing General
Partners, subject to the rights, if any, of an officer under any
contract of employment.
Section 3. SUBORDINATE OFFICERS. The Managing General
Partners may appoint and may empower the president to appoint
such other officers as the business of the Partnership may
require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in these
Operating Procedures or as the Managing General Partners 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 Managing General Partners at any regular or special
meeting of the Managing General Partners or by the president or
by such other officer upon whom such power of removal may be
conferred by the Managing General Partners.
Any officer may resign at any time by giving written notice
to the Partnership. 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 Partnership 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 Operating
Procedures for regular appointment to that office. The president
may make temporary appointments to a vacant office pending action
by the Managing General Partners.
Section 6. CHAIRMAN. The chairman, if such an officer is
elected, shall be elected from among the Managing General
Partners and shall, if present, preside at meetings of the
Managing General Partners and exercise and perform such other
powers and duties as may be from time to time assigned to her by
the Managing General Partners or prescribed by the Operating
Procedures.
Section 7. PRESIDENT. Subject to such supervisory powers, if
any, as may be given by the Managing General Partners to the
chairman, if there be such an officer, the president shall be the
president of the Partnership and shall, subject to the control of
the Managing General Partners, have general supervision,
direction and control of the business and the officers of the
Partnership. He shall preside at all meetings of the shareholders
and in the absence of the chairman or if there be none, at all
meetings of the Managing General Partners. 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 Managing General
Partners or these Operating Procedures.
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 Managing General Partners or if not ranked,
any vice president 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 Managing
General Partners or the president or the chairman or by these
Operating Procedures.
Section 9. SECRETARY. The secretary shall keep or cause to
be kept at the principal executive office of the Partnership or
such other place as the Managing General Partners may direct a
book of minutes of all meetings and actions of Managing General
Partners, committees of Managing General Partners 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 Managing General Partners' meetings or
committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings.
The secretary shall keep or cause to be kept at the
principal executive office of the Partnership in California a
Partnership List, which may be in the form of a share register or
a duplicate share register, showing in alphabetical order the
names of all shareholders and their last known addresses, their
capital contribution and share in the profits and losses of the
Partnership and the number and classes of shares held by each.
The General Partners shall be identified as such on such
Partnership List. A similar or duplicate record may also be kept
at the office of the Partnership's transfer agent or registrar.
The secretary shall also keep or cause to be kept at the
principal executive office of the Partnership in California such
other books and records as are required to be kept there by the
Agreement of Limited Partnership.
The secretary shall give or cause to be given notice of all
meetings of the shareholders and of the Managing General Partners
and of committees of the Managing General Partners required to be
given by the Agreement of Limited Partnership, these Operating
Procedures or by applicable law and shall have such other powers
and perform such other duties as may be prescribed by the
Managing General Partners or by these Operating Procedures.
Section 10. PRINCIPAL FINANCIAL OFFICER. The principal
financial officer or treasurer shall be the chief financial
officer of the Partnership and shall deposit all monies and other
valuables in the name and to the credit of the Partnership with
such depositaries as may be designated by the Managing General
Partners. He shall disburse the funds of the Partnership as may
be ordered by the Managing General Partners, shall render to the
president and Managing General Partners, whenever they request
it, an account of all of his transactions as principal financial
officer and of the financial condition of the Partnership and
shall have other powers and perform such other duties as may be
prescribed by the Managing General Partners or these Operating
Procedures.
Section 11. PRINCIPAL ACCOUNTING OFFICER. The principal
accounting 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 Partnership,
including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, shares,
and records of the book and tax capital accounts of all partners.
The books of account shall at all reasonable times be open to
inspection by any Managing General Partner and, to the extent
provided in the Agreement of Limited Partnership, by any partner.
He shall render to the president and the Managing General
Partners, whenever they request it, an accounting of the
Partnership and shall have other powers and perform such other
duties as may be prescribed by the Managing General Partners or
these Operating Procedures.
ARTICLE III
INDEMNIFICATION OF EMPLOYEES AND OTHER AGENTS; INSURANCE
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose
of this Article, "agent" means any person who is or was an
employee or other agent of this Partnership; "proceeding" means
any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative; and
"expenses" includes without limitation attorney's fees and any
expenses of establishing a right to indemnification under this
Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Partnership
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 Partnership) by reason of the fact that such
person is or was an agent of this Partnership, against expenses,
judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding, if it is
determined that person acted in good faith and reasonably
believed: (a) in the case of conduct in his official capacity as
a Partnership of the Partnership, that his conduct was in the
Partnership's best interests and (b) in all other cases, that his
conduct was at least not opposed to the Partnership's best
interests and (c) in the case of a criminal proceeding, that he
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
Partnership or that the person had reasonable cause to believe
that the person's conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Partnership 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 Partnership to procure a judgment in its
favor by reason of the fact that that person is or was an agent
of this Partnership, 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
Partnership and with such care, including reasonable inquiry, as
an ordinarily prudent person in a like position would use under
similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any
provision to the contrary contained herein, there shall be no
right to indemnification for any liability arising by reason of
willful misfeasance, bad faith, gross negligence, or the reckless
disregard of the duties involved in the conduct of the agent's
office with this Partnership.
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 on
the basis that personal benefit was improperly received
by him, whether or not the benefit resulted from an
action taken in the person's official capacity; or
(b) 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
Partnership, 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
(c) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court
approval, or of expenses incurred in defending a
threatened or pending action which is settled or
otherwise disposed of without court approval, unless
the required approval set forth in Section 6 of this
Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that
an agent of this Partnership 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 Managing General Partners, including a majority
who are disinterested, non-party Managing General Partners, 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 Partnership 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 Managing
General Partners who are not parties to the proceeding
and are not interested persons of the Partnership (as
defined in the Investment Company Act of 1940); or
(b) A written opinion by an independent legal counsel.
Section 7. AUTHORIZATION OF INDEMNIFICATION AND
DETERMINATION OF REASONABLENESS. An authorization of
indemnification and determination as to reasonableness of
expenses must be made in the same manner as set forth in
Section 6 of this Article for the determination that
indemnification is permissible, except that if the determination
that indemnification is permissible is made by independent legal
counsel, authorization of indemnification and determination as to
reasonableness of expenses must be made by a majority vote of a
quorum consisting of Managing General Partners who, at the time
of the vote, are not named defendants or respondents in the
proceeding; or if such a quorum cannot be obtained, by a majority
vote of a committee of the Managing General Partners, designated
to act in the matter by a majority vote of all Managing General
Partners, consisting solely of two or more Managing General
Partners who, at the time of the vote, are not named defendants
or respondents in the proceeding.
Section 8. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by this Partnership
before the final disposition of the proceeding (a) receipt of a
written affirmation by the Managing General Partner of his good
faith belief that he has met the standard of conduct necessary
for indemnification under this Article and a written undertaking
by or on behalf of the agent, such undertaking being an unlimited
general obligation to repay the amount of the advance if it is
ultimately determined that he has not met those requirements, and
(b) a determination that the facts then known to those making the
determination would not preclude indemnification under this
Article. Determinations and authorizations of payments under this
Section must be made in the manner specified in Section 6 of this
Article for determining that the indemnification is permissible.
Section 9. OTHER CONTRACTUAL RIGHTS. Nothing contained in
this Article shall affect any right to indemnification to which
persons other than Managing General Partners and officers of this
Partnership may be entitled by contract or otherwise.
Section 10. LIMITATIONS. No indemnification or advance shall
be made under this Article, except as provided in Sections 5 or 6
in any circumstances where it appears:
(a) That it would be inconsistent with a provision of the
Agreement of Limited Partnership, 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 11. INSURANCE. Upon and in the event of a
determination by the Managing General Partners of this
Partnership to purchase such insurance, this Partnership shall
purchase and maintain insurance on behalf of any Managing General
Partner, officer or agent of this Partnership against any
liability asserted against or incurred by such person in such
capacity or arising out of such person's status as such, but only
to the extent that this Partnership would have the power to
indemnify such person against that liability under the provisions
of the Agreement of Limited Partnership or this Article.
Section 12. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any Managing
General Partner, investment manager or other fiduciary of an
employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Partnership as
defined in Section 1 of this Article. Nothing contained in this
Article shall limit any right to indemnification to which such a
Managing General Partner, 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 IV
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF BY-LAWS. The
Partnership shall keep at its principal executive office in
California the original or a copy of these Operating Procedures
as amended to date, which shall be open to inspection by the
partners at all reasonable times during office hours.
Section 2. MAINTENANCE AND INSPECTION OF OTHER RECORDS.
Except the books and records required to be maintained by the
Agreement of Limited Partnership and applicable law at the
Partnership's principal executive offices in California, the
books and records and minutes of proceedings of the shareholders
and the Managing General Partners and any committees of the
Managing General Partners shall be kept at such place or places
designated by the Managing General Partners or in the absence of
such designation, at the principal executive office of the
Partnership in California. 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 books and records shall be open to inspection
by partners as set forth in the Agreement of Limited
Partnership. The inspection may be made in person or by an agent
or attorney and shall include the right to copy and make
extracts.
Section 3. INSPECTION BY MANAGING GENERAL PARTNERS. Every
Managing General Partner 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 Partnership. This
inspection by a Managing General Partner may be made in person or
by an agent or attorney and the right of inspection includes the
right to copy and make extracts of documents.
ARTICLE V
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All
checks, drafts, or other orders for payment of money, notes or
other evidences of indebtedness issued in the name of or payable
to the Partnership shall be signed or endorsed in such manner and
by such person or persons as shall be designated from time to
time in accordance with the resolution of the Managing General
Partners.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Managing General Partners, except as otherwise provided in these
Operating Procedures, 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 Partnership and
this authority may be general or confined to specific instances;
and unless so authorized or ratified by the Managing General
Partners or within the agency power of an officer, no officer,
agent, or employee shall have any power or authority to bind the
Partnership by any contract or engagement or to pledge its credit
or to render it liable for any purpose or for any amount.
Section 3. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD
BY TRUST. The chairman, the president or any vice president or
any other person authorized by resolution of the Managing General
Partners or by any of the foregoing designated officers, is
authorized to vote or represent on behalf of the Partnership any
and all shares of any corporation, partnership, trusts, or other
entities, foreign or domestic, standing in the name of the
Partnership. The authority granted may be exercised in person or
by a proxy duly executed by such designated person.
Section 4. AMENDMENT OF OPERATING PROCEDURES. These
Operating Procedures may be amended or repealed by the
affirmative vote or written consent of a majority of the Managing
General Partners, except as otherwise provided by applicable law
or by the Agreement of Limited Partnership.
The attached Agreement of Limited Partnership reflects the
amendments thereto duly adopted by the Managing General Partners
on April 23, 1991.
May 1, 1991
/s/ Charles B. Johnson
Charles B. Johnson, Managing
General Partner on behalf of
all Partners pursuant to Power
of Attorney
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, Secretary of Franklin Tax-Advantaged
High Yield Securities Fund (the "Fund"), a limited partnership
organized under the laws of the State of California, do hereby
certify that the following resolution was adopted by a majority
of the managing general partners present at a meeting held at the
offices of the Fund at 777 Mariners Island Boulevard, San Mateo,
California, on April 26, 1988.
RESOLVED, that Article III, Section 6 of the By-Laws of the
Fund be amended to read:
Section 6. ANNUAL MEETING. The Board of Directors shall
hold a regular meeting on the month following the
fiscal year end of the Fund, for the purpose of
organization, any desired election of officers and the
transaction of other business. Notice of this meeting
shall not be required.
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: 08/02/88 Deborah R. Gatzek
Secretary
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN TAX-
ADVANTAGED HIGH YIELD SECURITIES FUND, a California limited
partnership, hereinafter called the "Fund", and FRANKLIN
ADVISERS, INC., a California corporation, hereinafter called the
"Manager."
WHEREAS, the Fund has been organized and intends to operate
as an investment company registered under the Investment Company
Act of 1940 (the "Act") for the purpose of investing and
reinvesting its assets in securities as set forth in its
Agreement of Limited Partnership, its Operating Procedures, and
its Registration Statement under the Act and the Securities Act
of 1933, all as may be 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 various management, statistical,
research, investment advisory and other services for the Fund;
and,
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisers 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 mutually 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
and control of the Managing General Partners 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. Administrative Services. 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 affairs and conducting the business of the Fund,
including 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.
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 or its affiliates.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets
subject to and in accordance with the respective investment
objectives and policies of the Fund and any directions which the
Fund's Managing General Partners may issue from time to time. In
respect 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 its investment securities,
and shall take such steps as may be necessary to implement the
same. Such determinations and services shall include determining
the manner in which any voting rights, rights to consent to
corporate action and any other rights pertaining to the Fund's
investment securities shall be exercised. The Manager shall
render regular reports to the Fund, at regular meetings of its
Managing General Partners and at such other times as may be
reasonably requested by the Fund's Managing General Partners, of
(i) the decisions which it has made with respect to the
investment of the Fund's assets and the purchase and sale of its
investment securities, (ii) the reasons for such decisions and
(iii) the extent to which those decisions have been implemented.
(b) The Manager, subject to and in accordance with
any directions which the Fund's Managing General Partners may
issue from time to time, shall place, in the name of the Fund,
orders for the execution of the Fund's securities transactions.
When placing such orders the 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
Managing General Partners determine 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 transactions
from among:
(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations
necessary to determine the Fund's net assets,
in such amount of total brokerage as may
reasonably be required in light of such
services; and
(ii) Those brokers and dealers who supply
research, statistical and other data to the
Manager or its affiliates which the Manager
or its affiliates may lawfully and
appropriately use in their investment
advisory capacities, which relate directly to
securities, actual or potential, of the Fund,
or which place the Manager in a better
position to make decisions in connection with
the management of the Fund's assets and
securities, whether or not such data may also
be useful to the Manager and its affiliates
in managing other portfolios or advising
other clients, in such amount of total
brokerage as may reasonably be required.
(c) 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 permissible for the Manager to do so, and act in such
capacity under the Federal securities laws and rules thereunder
and the rules of any securities exchange or association of which
Distributors may be a member. 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. 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 and/or Distributors to reimburse them for all such
expenses connected with attempting to collect such fees,
including legal fees and expenses and that portion of the
compensation due to their employees which is attributable to the
time involved in attempting to collect such fees.
(d) The 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 categories referred to above and the
manner in which the allocation has been accomplished.
(e) 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 Fund in the preparation of registration
statements, reports and other documents required by Federal,
state and foreign securities laws and tax laws and with such
information as the Fund may reasonably request for use in the
preparation of such documents or of other materials necessary or
helpful for the offering of the Fund's shares.
D. Other Obligations and Services. The Manager shall
make its officers and employees available to the Managing General
Partners and officers of the Fund for consultation and
discussions regarding the administration and management of the
Fund and its investment activities.
3. Expenses of the Funds. It is understood that the Fund
will pay all of its own expenses other than those 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 recordkeeping services,
including the expenses of issue, repurchase or redemption of
shares;
D. Expenses of obtaining quotations for calculating the
value of the Fund's net assets;
E. Salaries and other compensations of officers of the
Fund who are not officers, directors, stockholders or employees
of the Manager or its affiliates;
F. Taxes levied against the Fund (to the extent such
obligations are not the obligations of the Fund's shareholders);
G. Brokerage fees and commissions in connection with
the purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to meetings of Managing General
Partners and shareholders of the Fund, reports to the Fund's
shareholders, the filing of reports with regulatory bodies and
the maintenance of the Fund's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for
sale:
K. Fees and expenses of the Managing General Partners
who are not directors, officers, employees or stockholders of the
Manager or any of its affiliates;
L. Costs and expense of registering and maintaining the
registration of the Fund and its shares under the applicable
Federal, state and foreign securities laws; including the
printing and mailing of prospectuses to its shareholders;
M. Trade association dues; and
N. The Fund's pro rata portion of fidelity bond
insurance premiums.
4. Compensation of the Manager. The Fund shall pay a
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, as compensation for the services rendered and obligations
assumed by the Manager, payable at the request of the Manager.
A. For purposes of calculating such fee, the value of
the net assets of the Fund shall be 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 its
shares, all as set forth more fully in the Fund's current
prospectus and statement of additional information.
B. The rate of the management fee payable by the Fund
shall be as follows, based on the value of the Fund's net assets
as of the close of business on the last business day of each
month:
5/96 of 1% of the value of the Fund's net assets
up to and including $100,000,000;
1/24 of 1% of the value of the Fund's net assets
over $100,000,000 up to and including
$250,000,000; and
9/240 of 1% of the value of the Fund's net assets
in excess of $250,000,000.
C. The management fee payable by the Fund shall be
reduced or eliminated (i) to the extent that Distributors have
actually received cash payments of tender offer solicitation fees
less certain costs and expenses incurred in connection therewith
as set forth in paragraph 2(B)(c) of this Agreement, or (ii) to
the extent required by applicable state law or regulation in any
state where shares of the Fund are qualified for sale.
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
Agreement of Limited Partnership and Operating Procedures of the
Fund and Section 10(a) of the Act, it is understood that Managing
General Partners, officers, agents and shareholders of the Fund
are or may be interested in the Manager or its affiliates as
directors, officers, agents or stockholders; that directors,
officers, agents or stockholders of the Manager or its affiliates
are or may be interested in the Fund as Managing General
Partners, officers, agents, shareholders or otherwise; that the
Manager or its affiliates may be interested in the Fund as Non-
Managing General Partners, shareholders, or otherwise; and that
the effect of any such interests shall be governed by said
Agreement of Limited Partnership, Operating Procedures 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 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
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 Managing General Partners, the conduct of factual
investigations, any legal or administrative proceedings
(including any applications for rulings, exemptions or
determinations by the Internal Revenue Service or 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 stockholders where the
action or inaction necessitating such expenditures (i) is
directly or indirectly related to any transactions or proposed
transaction in the stock or control of the 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
Managing General Partners; or, (ii) is within the control of the
Manager or any of its affiliates or any of their officers,
directors, employees or stockholders. The Manager shall not be
obligated pursuant to the provisions of this Subparagraph 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 shareholder of the Fund seeking to recover all
or a portion of the proceeds derived by any stockholder 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 Subparagraph 6(B) within 30 days after a
bill or statement has been received by the Manager therefor.
This provision shall not be deemed to be the 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 Managing General Partner or officer of the Fund, or
director or officer of the Manager, from liability in violation
of Sections 17(h) and (i) of the Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect for a period of two
(2) years unless sooner terminated as provided below. The
Agreement is renewable annually thereafter for successive periods
not to exceed one (1) year (i) by a vote of a majority of the
outstanding voting securities of the Fund or by a vote of the
Managing General Partners of the Fund, and (ii) by a vote of a
majority of the Managing General Partners of the Fund who are not
parties to the Agreement (other than as Managing General Partners
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 Managing General
Partners 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 Paragraph and other Paragraphs of
this Agreement 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 Act.
D. Any notice under this Agreement shall be given in
writing addressed and delivered or mailed post-paid, to the other
party at any office of such party.
8. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby.
9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
10. Limitation of Liability. The Fund's obligations
hereunder shall be limited to the Fund and the assets of the Fund
and no party shall seek satisfaction of any such obligation from
any limited partner, officer, employee or agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and effective on the 4th day of May,
1987.
FRANKLIN TAX-ADVANTAGED
HIGH YIELD SECURITIES FUND
/s/ Charles B. Johnson, Jr.
FRANKLIN ADVISERS, INC.
/s/ Rupert H. Johnson
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
(A California Limited Partnership)
777 Mariners Island Blvd.
San Mateo, California 94402
Franklin Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94402
Re: Distribution Agreement
Gentlemen:
We are a California limited partnership operating as an open-end
management investment company. As such, our partnership
(referred to herein as the "Fund") is registered under the
Investment Company Act of 1940, (the "1940 Act"), and its shares
of partnership interest (the "Shares") are registered under the
Securities Act of 1933 (the "1933 Act"). We desire to begin
issuing our authorized but unissued Shares to authorized persons
in accordance with applicable Federal and State securities laws.
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. ("NASD"). 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 Agreement to you by a resolution of our Managing
General Partners passed at a meeting at which a majority of our
Managing General Partners, 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 (except for sales made directly by the Fund without
sales charge) 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.
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 accept
orders for the purchase or repurchase of Shares as our agent.
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. You may
allow such sub-agents or dealers such commissions or discounts
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.
3. Offering Price. The Shares of the Fund shall be offered for
sale at a price equivalent to their respective net asset value
plus a variable percentage of the public offering price as sales
commission. 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 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.
4. Sales Commission. You shall be entitled to charge a sales
commission on the sale of our Shares in the amount set forth in
our then effective prospectus. Such commission (subject to any
quantity or other discounts or eliminations of commission as set
forth in our then current effective prospectus) shall be an
amount mutually agreed upon between us and equal to the
difference between the net asset value and the public offering
price of such Shares.
5. Terms and Conditions of Sales. Shares of the Fund 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 Managing General Partners may
from time to time determine to be eligible to purchase such
Shares, and subject to the terms and requirements as set forth in
our current prospectus.
6. Payment of Shares. At or prior to the time of delivery of any
of our Shares you will pay or cause to be paid to our Custodian
or its successor, for our account, an amount in cash equal to the
net asset value of such Shares. In the event that you pay for
Shares sold by you prior to your receipt of payment from
purchasers you are authorized to reimburse yourself for the net
asset value of such Shares from the offering price of such Shares
when received by you.
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"), 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 the Fund 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 of
printing all Amendments or supplements filed with the Securities
and Exchange Commission including the copies of the prospectuses
and statements of additional information included in the
Amendments and the first 10 copies of the definitive prospectuses
and statements of additional information 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 the Shares
of the Fund.
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 which 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 the Fund and its 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, 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 and statement of additional information, 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 NASD.
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
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 one (1) year. 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 Managing General Partners of the Fund,
and (ii) by a vote of a majority of the Managing General Partners
of the Fund who are not parties to the Agreement or interested
persons of any parties to the Agreement (other than as Managing
General Partners of the Fund), 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
without the payment of any penalty, (i) either by vote of the
Managing General Partners of the Fund or by vote of a majority of
the outstanding voting securities of the Fund, on ninety (90)
days' written notice to you; or (ii) by you on ninety days'
written notice to the Fund; and shall immediately terminate 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 the Shares of the Fund
upon two (2) days' written notice to you.
16. Distribution Plan.
A. The provisions set forth in this paragraph 16
(hereinafter referred to as the "Plan") have been adopted
pursuant to Rule 12b-1 under the 1940 Act by the Fund, having
been approved by a majority of the Managing General Partners 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 Managing General Partners"), cast in person at a
meeting called for the purpose of voting on such Plan. The
Managing General Partners concluded that the compensation to be
paid to the Manager of the Fund was fair and not excessive, and
that due solely to the uncertainty that may exist from time to
time with respect to whether payments to be made by the Fund or
the Manager to other firms may be deemed to constitute
distribution expenses, it was determined that adoption of the
Plan would be prudent and in the best interests of the Fund and
its shareholders. The Managing General Partners' 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. The Plan has also been approved by a vote
of at least a majority of the Fund's outstanding voting
securities.
B. No additional payments are to be made by the Fund as a
result of the Plan other than the compensation the Fund is
otherwise obligated to make (i) to the Manager pursuant to
paragraph 4 of the Management Agreement between the Fund and
Franklin Advisers, Inc. and (ii) to its Shareholder Servicing
Agent pursuant to their respective Agreements as in effect at any
time, including any reimbursement for costs the Fund is obligated
to make under said agreements. Notwithstanding subparagraphs (i)
and (ii) above, the Plan recognizes that the Fund may also make
payments in the ordinary course of its business and to the extent
any such payments by the Fund or to or by the Manager, the Fund's
Shareholder Servicing Agent or other parties on behalf of the
Fund, the Manager or the Shareholder Servicing Agent are deemed
(e.g. by a court of law) to be payments 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
1940 Act, then such payments shall be deemed to be made pursuant
to the Plan as set forth herein. Such costs, the payment of which
are intended to be within the scope of the Plan, but only to the
extent they are deemed to be payments for an activity primarily
intended to result in the sale of Shares issued by the Fund, may
include, but not necessarily be limited to, the following:
(a) the costs of the preparation, printing and mailing of
all required reports and notices to shareholders;
(b) the costs of the preparation, printing and mailing or
other dissemination of all prospectuses (including
statements of additional information);
(c) the costs of the preparation, printing and mailing of
any proxy statements and proxies;
(d) all legal and accounting fees relating to the
preparation of any such reports, prospectuses,
statements of additional information, proxies and proxy
statements;
(e) all fees and expenses relating to the qualification of
the Fund and/or its Shares under the securities or
"Blue Sky" laws of any jurisdiction;
(f) all fees under the 1933 Act and the 1940 Act, including
fees in connection with any application for exemption
relating to or directed toward the sale of the Shares
of the Fund;
(g) all fees and assessments of the Investment Company
Institute or other trade or any successor organization,
irrespective of whether some of its activities are
designed to provide sales assistance;
(h) all costs of the preparation and mailing of
confirmations of Shares sold or redeemed, and reports
of Share balances;
(i) all costs of responding to telephone or mail inquiries
of investors or prospective investors; and
(j) payments to dealers, financial institutions, advisers,
or other firms, any one of whom may receive monies in
respect of the Shares of the Fund owned by shareholders
for whom such firm is the dealer of record or holder of
record in any capacity, or with whom such firm has a
servicing, agency or distribution relationship.
Servicing may include, among other things: (i)
answering client inquiries regarding the Fund; (ii)
assisting clients in changing distribution options,
account designations and addresses; (iii) performing
sub-accounting; (iv) establishing and maintaining
shareholder accounts and records; (v) processing
purchases and redemption transactions; (vi) automatic
investment in Fund Shares of client cash account
balances; (vii) providing periodic statements showing a
client's account balance and integrating such
statements with those of other transactions and
balances in the client's other accounts serviced by
such firm; (viii) arranging for bank transfers; and
(ix) such other services as the Fund may request, to
the extent such firms are permitted by applicable
statute, rule or redemption to render such services.
C. Notwithstanding any of the foregoing, while the Plan is in
effect, the following terms and provisions will apply:
(a) You shall report in writing to the Managing General
Partners of the Fund at least quarterly on the amounts and
purpose of payments for any of the activities in subparagraph B
of this paragraph 16 and shall furnish the Managing General
Partners with such other information as the Managing General
Partners may reasonably request in connection with such payments
in order to enable the Managing General Partners to make an
informed determination of whether the Plan should be continued.
(b) The Plan shall continue in effect for a period of more
than one year from the date written below only so long as such
continuance is specifically approved at least annually by the
Fund's Managing General Partners, including the non-interested
Managing General Partners, cast in person at a meeting called for
the purpose of voting on the Plan.
(c) The Plan may be terminated at any time by vote of a
majority of the non-interested Managing General Partners or by
vote of a majority of the Fund's outstanding voting securities on
not more than sixty (60) days' written notice to any other party
to the Plan, and shall terminate automatically in the event of
any act that constitutes an assignment of this Distribution
Agreement or the Management Agreement.
(d) The Plan may not be amended to increase materially the
amount deemed to be spent for distribution without approval by
the Fund's shareholders, and all material amendments to the Plan
shall be approved by the non-interested Managing General Partners
cast in person. at a meeting called for the purpose of voting on
such amendment.
(e) So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Managing General Partners
shall be committed to the discretion of such non-interested
Managing General Partners.
17. 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. As used herein the terms "Net Asset Value",
"Offering Price", "Investment Company", "Open-End Investment
Company", "Assignment", "Principal Underwriter", "Interested
Person", "Parents", "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 wilful 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 TAX-ADVANTAGED HIGH YIELD
SECURITIES FUND
(A California Limited Partnership)
/s/ Charles B. Johnson
Managing General Partner
Accepted:
FRANKLIN DISTRIBUTORS, INC.
/s/ Rupert H. Johnson, Jr.
Senior Vice President
DATED: May 4, 1987
Franklin Tax-Advantaged High Yield Securities Fund
Amendment to Distribution Agreement
WHEREAS, a majority of the Managing General Partners of
Franklin Tax-Advantaged High Yield Securities Fund (the "Fund"),
including a majority of those Managing General Partners who are
not interested persons of the Fund and who are not interested
persons of the Fund's investment adviser or its related
organizations, have approved certain amendments to the
Distribution Agreement between the Fund and Franklin
Distributors, Inc. (now known as Franklin/Templeton Distributors,
Inc.") ("Distributors");
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1) Section 16B of the Distribution Agreement is hereby
amended to read as follows:
In addition to the payments which the Fund is otherwise
obligated to make (i) to the Manager pursuant to paragraph 4
of the Management Agreement between the Fund and Franklin
Advisers, Inc. and (ii) to its Shareholder Servicing Agent
pursuant to their respective Agreements as in effect at any
time, including any reimbursement for costs the Fund is
obligated to make under said agreements, to the extent that
you, the fund, the Manager, or other parties on your behalf
or on behalf of the Fund, or the Manager make payments that
are deemed to be payments 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. The costs and activities, the payment
of which are intended to be within the scope of the plan,
but only to the extent they are deemed to be payments for
activities primarily intended to result in the sale of
shares issued by the Fund, shall include, but not
necessarily be limited to, the following;
(a) the incremental costs of the printing and mailing
or other dissemination of all prospectuses (including
statements of additional information), annual reports and
other periodic reports for distribution to persons who are
not shareholders of the Fund;
(b) the costs of preparing and distributing any other
supplemental sales literature;
(c) the costs of radio, television, newspaper and other
advertising;
(d) telecommunications expenses, including the costs of
telephones, telephone lines and other communications
equipment used in the sale of Fund shares
(e) all costs of preparing and mailing confirmations of
shares sold or redeemed, and reports of share balances;
(f) all costs of responding to telephone or mail
inquiries of investors or prospective investors;
(g) payments to dealers, financial institutions,
advisers, or other firms, any one of whom may receive monies
in respect to the fund's shares owned by shareholders for
whom such firm is the dealer of record or holder of record
in any capacity, or with whom such firm has a servicing,
agency, or distribution relationship. Servicing may include,
among other things: (i) answering client inquiries regarding
the Fund; (ii) assisting clients in changing account
designations and addresses; (iii) performing subaccounting;
(iv) establishing and maintaining shareholder accounts and
records; (v) processing purchase and redemption
transactions; (vi) providing periodic statements showing a
client's account balance and integrating such statements
with those of other transactions and balances in the
client's other accounts serviced by such firm; (vii)
arranging for bank wire transfers; and (viii) such other
services as the Fund may require, to the extent such firms
are permitted by applicable statute, rule or regulation to
render such services; and
(h) a prorated portion of your overhead expenses
attributable to the distribution of the Fund's shares,
including leases, communications, salaries, training,
supplies, photocopying, and any other category of your
expenses attributable to the distribution of the Fund's
shares.
In no event shall the aggregate asset-based sales
charges which include payments made under the Plan, plus any
other payments 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).
2) Section 16c. (c) is hereby amended to read as
follows:
(c) The Plan may be terminated at any time without
penalty by vote of a majority of the non-interested General
Partners or by a vote of A majority of the Fund's
outstanding voting securities on not more than sixty (60)
days' written notice to any other party to the Plan, and
shall terminate automatically in the event of any act that
constitutes an assignment of this Distribution Agreement or
the Management Agreement.
3) Section 16C. (d) is hereby amended to read as
follows:
(d) All material amendments to the Plan shall be
approved by vote of the non-interested Managing General
Partners cast in person at a meeting called for the purpose
of voting on such amendment.
4) All references to Franklin Distributors, Inc. are
hereby changed to "Franklin/Templeton Distributors, Inc."
IN WITNESS WHEREOF, the parties hereto have set their
hands as of the 1st day of July, 1993.
FRANKLIN TAX-ADVANTAGED HIGH YIELD
SECURITIES FUND (a California Limited
Partnership)
/s/ Rupert H. Johnson, Jr.
Managing General Partner
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
/s/ Harmon E. Burns
Executive Vice President
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT ("Agreement") is made and entered
into as of January 24, 1994, by and between Franklin Tax-
Advantaged High Yield Securities Fund, a California Limited
Partnership (the "Fund"), and Bank of America National Trust and
Savings Association, 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 "Investment
Company Act"), that invests and reinvests, on behalf of its
various series, in domestic and foreign securities.
B. The Fund and the Custodian desire to provide for the
retention of the Custodian as the custodian of the assets of the
Fund, 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 l. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
1.1 Appointment of Custodian. The Fund hereby appoints
and designates the Custodian as the 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 ore
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.
1.2 Delivery of Assets. The Fund agrees to deliver to
the Custodian securities and cash owned by the Fund, and 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 cash consideration received by it for such shares
of beneficial interest ("Shares"), 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.
1.3 Subcustodians. Upon receipt of Proper Instructions
(as defined in Section 4 hereof) and a certified copy of a
resolution of the Managing General Partners of the Fund (the
"Managing General Partners") or of the Executive Committee of the
Managing General Partners (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, including "foreign custodians" (as defined in
Subsection 3.1 hereof), to hold assets of the Fund.
1.4 No Duty to Manage. The Custodian shall have no
duty or responsibility to manage or recommend investments of the
assets of the Fund held by it as custodian hereunder or to
initiate any purchase, sale or other investment transaction in
the absence of Proper Instructions or except as otherwise
specifically provided herein.
Section 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS
OF THE FUND HELD BY THE CUSTODIAN
2.1 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 2.8 hereof, are held through a registered
clearing agency, a registered securities depository or in the
Federal Reserve's book-entry securities system (referred to
herein, individually, as a "Securities System"), or in a "foreign
securities depository" (as defined in Section 3.1 hereof).
2.2 Delivery of Securities. The Custodian shall
release and deliver securities owned by the Fund and held by the
Custodian only upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties,
and only in the following cases:
(a) except as otherwise provided herein, upon sale of
such securities for the account of the Fund and receipt
by the Custodian or a subcustodian or agent appointed
by the Custodian of payment therefor;
(b) upon the receipt of payment by the Custodian or a
subcustodian or agent appointed by the 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 2.8 hereof;
(d) to a tender agent or other authorized agent in
connection with a tender or other similar offer for
securities owned by the Fund;
(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 or a subcustodian or agent appointed by the
Custodian hereunder;
(f) to the issuer thereof, or its agent, for transfer
into the name of the Fund, the nominee name of the
Fund, a nominee name of the Custodian, the name or
nominee name of any agent appointed pursuant to
Subsection 2.7 or the name or nominee name of any
subcustodian appointed pursuant to Section 1 hereof; 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 or a subcustodian or agent
appointed by the Custodian hereunder;
(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 or agent appointed by the Custodian
hereunder;
(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 or a
subcustodian or agent appointed by the Custodian
hereunder;
(j) for delivery in connection with any loans of
securities made by the Fund, but only against receipt
by the Custodian or a subcustodian or agent appointed
by the Custodian hereunder of adequate collateral as
determined by the Fund (and identified in the 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 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 or
a subcustodian or agent appointed by the Custodian
hereunder of amounts borrowed;
(l) for delivery in accordance with the provisions of
any agreement among the Fund, the 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 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 ("Transfer Agent") for the Fund, for delivery to
such 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 Managing General Partners 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.
2.3 Registration of Securities. Domestic securities
held by the Custodian (other than bearer securities) shall be
registered in the name of the Fund, in the name of any nominee of
the Fund, in the name of any nominee of the Custodian or in the
name or nominee name of any agent appointed pursuant to
Subsection 2.7 or in the name or nominee name of any subcustodian
appointed by the Custodian pursuant to the terms hereof. The
Fund agrees to hold the Custodian any such agent, nominee or
subcustodian harmless from any liability as a holder of record of
such securities.
2.4 Bank Accounts. The Custodian shall open and
maintain a separate bank account or accounts in the name of 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 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 l7f-3 under the Investment Company
Act. Funds held by the Custodian for the Fund may be deposited
by it to its credit as Custodian in the banking department of the
Custodian or, upon receipt of Proper Instructions, in other banks
or trust companies: provided, however, that every such bank or
trust company shall be qualified to act as a custodian of the
assets of the Fund under the Investment Company Act. It is
understood and agreed by the Custodian and the Fund that the rate
of interest 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.
2.5 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) 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) 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 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 accurate instructions.
(d) The Custodian shall credit the account of the Fund
with interest income payable on interest bearing
foreign securities on 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. Interest income on any other securities
and dividends and other amounts payable' with respect
to securities shall be credited to the account of the
Fund when received by the Custodian or a foreign
custodian. The Custodian shall not be required,
however, 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 2.2(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 2.2(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.
2.6 Payment of Fund Monies. Upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, the Custodian shall pay out monies of
the Fund in the following cases only:
(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 or agent
appointed by the Custodian hereunder registered
pursuant to Subsection 2.3 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 2.8 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~r agent appointed by the Custodian
hereunder 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 2.2 hereof;
(c) for the redemption or repurchase of Shares issued
by the Fund as set forth in Subsection 2.2 hereof;
(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;
(e) for the payment of any dividends declared by the
Board of Directors; and
(f) for any other proper purpose, but only upon
receipt of Proper Instructions and a certified copy of
a resolution of the Managing General Partners or of the
Executive Committee certified by its Secretary or an
Assistant Secretary, specifying the amount of such
payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to
whom such payment is to be made.
2.7 Appointment of Agents. The Custodian may at any
time in its discretion appoint (and may at any time remove) any
other bank or trust company which is itself qualified under the
Investment Company Act to act as a custodian, as its agent to
carry out such of the provisions of this Section 2 as the
Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of
its responsibilities or liabilities hereunder.
2.8 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 a 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
securities belonging to the Fund;
(c) the Custodian shall pay for domestic securities
purchased for the account of the Fund upon Ii) 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.
2.9 Segregated Account. The Custodian shall upon
receipt of Proper Instructions establish end 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 2.8 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 segregation cash or government 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 Managing General Partners 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.
2.10 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.
2.11 Proxies. The Custodian shall, with respect to the
domestic securities held hereunder, use its best reasonable
efforts, consistent with applicable law, to cause to be promptly
executed by the registered holder of such securities, if the
securities are registered otherwise than in the name of the Fund
or a nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly
deliver to the Fund such proxies, all proxy soliciting materials
and all notices relating to such securities.
2.12 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 domestic 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 the domestic 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
domestic securities whose tender or exchange is sought and from
the party (or his 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.
2.13 Reports by Custodian. The Custodian shall supply
to the Fund daily, weekly and monthly reports as well as any
other reports which the Custodian and the Fund may agree upon
from time to time.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS
OF THE FUND HELD OUTSIDE OF THE UNITED STATES
3.1 Custody Outside of 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 Managing General Partners have approved in
advance the use of each such Custodian branch, 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 Managing General Partners 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 3, custody of foreign securities and assets held outside
the United States shall be governed by Section 2 hereof.
3.2 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) (l) of Rule l7f-5 under the Investment Company 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.
3.3 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.
3.4 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 subcustodian.
3.5 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 banking
institution'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.
3.6 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.
3.7 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 2.2. 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 2.6. Notwithstanding anything herein to
the contrary, settlement and payment for securities received for
the account of the Fund and delivery of 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. Securities maintained
in the custody of a foreign custodian may be maintained in the
name of such entity's nominee to the same extent as set forth in
Section 2.3 of this Agreement and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of
such securities.
3.8 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.
3.9 Monitoring Responsibilities. 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 U.S. $200 million (in each case computed in
accordance with generally accepted United States accounting
principles), 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 U.S. $100 million or that its shareholders' equity
has declined below U.S. $100 million (in each case computed in
accordance with generally accepted United States accounting
principles).
Section 4. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper Instructions"
means instructions of the Fund received by the Custodian, via
telephone, telex, facsimile transmission, bank wire or other
teleprocess or electronic instruction system acceptable to the
Custodian 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 writing by an Authorized
Person (which confirmation may bear the facsimile signature of
such 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
cancelled 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
pat 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 Managing
General Partners 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.
Section 5. 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
directed by the Managing General Partners of the Fund.
Section 6. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any
instructions (in Writing or oral), 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 Managing General Partners
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 Managing General Partners 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
to the contrary.
Section 7. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary
information in its possession to the entity or entities appointed
by the Managing General Partners 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 8. 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 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 9. 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 10. 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
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 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 but shall be indemnified by, and shall be without
liability to, the Fund for any action taken or omitted by the
Custodian in good faith without negligence. 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 far 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 2 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
Managing General Partners 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 11. 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 Agreement and Declaration of Fund. 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 Partner, officer, employee, or agent of the
Fund.
Section 12. 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 Managing General
Partners, 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 & certified copy of & resolution of the Managing
General Partners 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
Managing General Partners 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 13. MISCELLANEOUS
13.1 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 Trust
or the Fund of investment banking, securities dealing or
brokerages services or any other banking or financial services.
13.2 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.
13.3 Attorneys' Fees. If any lawsuit or other action
or proceeding relating to this Agreement is brought by a party
hereto or by any Associate of a party hereto against the other
party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition
to any other relief to which the prevailing party may be
entitled),
13.4 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 ouch other address as the intended recipient shall
have specified in a written notice given to the other parties
hereto):
if to the Fund:
Franklin Tax-Advantaged High Yield
Securities Fund
c/o Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Fund Manager
if to the Custodian:
Bank of America NT&SA
1455 Market Street
16th Floor, Dept. 5014
San Francisco, CA 94104
13.5 Headings. The underlined headings that are
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.
13.6 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.
13.7 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).
13.8 Force Majeure. 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 an 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.
13.9 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.
13.10 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.
13.11 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.
13.12 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.
13.13 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.
13.14 Entire Agreement. This Agreement sets forth the
entire understanding of the parties hereto and supersedes all
prior agreements and understandings between the parties hereto
relating to the subject matter hereof. The parties acknowledge
and agree that this Agreement relates only to the custody of the
assets of the Fund and not to the custody of the assets of any
other series or portfolio of the Fund.
13.15 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.
13.16 "Writing". The term "Writing" shall mean
written communication, telex, facsimile or any other commonly
used electronic message transmission facility.
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 NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Thomas E. Vinson
Thomas E. Vinson
Its Vice President
"Fund": FRANKLIN TAX-ADVANTAGED
HIGH YIELD SECURITIES FUND
By: Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
Its President
GASTON SNOW & ELY BARTLETT
C0UNSELLORS
ONE FEDERAL STREET
BOSTON, MASSACHUSETTS O211O
617/426-46OO
April 21, 1987
Limited Partners
Franklin Tax-Advantaged High
Yield Securities Fund
(a California limited partnership)
Franklin Tax-Advantaged U.S.
Government Securities Fund
(a California limited partnership)
777 Mariners Island Boulevard
San Mateo, CA 94404
Ladies and Gentlemen:
The general partners of the Franklin Tax-Advantaged High
Yield Securities Fund (a California limited partnership) and the
Franklin Tax-Advantaged U.S. Government Securities Fund (a
California limited partnership) (the "Partnerships," or the
"Funds," each of which will be referred to herein as a
"Partnership" or a "Fund") have requested on your behalf our
opinion on the questions of (i) whether a nonresident alien
individual or a foreign corporation which makes a limited
partnership investment in either of the Partnerships will be
considered, solely by virtue of such investment, to be "engaged
in trade or business within the United States" for United States
("U.S.") federal income tax purposes under Sections 864(b),
871(b), and 882 of the Internal Revenue Code of 1986, as amended
(the "Code") and (ii) whether amounts distributed to such
nonresident alien individuals and foreign corporations will be
subject to U.S. withholding tax at the rate of 20% under Section
1446 of the Code, as enacted by the Tax Reform Act of 1986.
In rendering this opinion, we have examined the Agreements
of Limited Partnership of each Partnership, each dated
January 27, 1987 (the "Partnership Agreements"), and a copy of
the Registration Statement of each Partnership filed with the
Securities and Exchange Commission (the "SEC") on Form N-1A under
the Securities Act of 1933 as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act") on
February 13, 1987. The Partnerships have applied for a ruling
from the Internal Revenue Service (the "Service") to the effect
that each Partnership is properly classified as a partnership for
U.S. federal income tax purposes, and we assume this to be the
case in rendering this opinion. We also assume, in rendering
this opinion, that each Partnership's activities will be
conducted in all respects in accordance with the specific facts
and representations which appear below.
We further assume that the nonresident alien individual or
foreign corporation which invests as a limited partner in a
Partnership is not already otherwise engaged or deemed to be
engaged in a U.S. trade or business and is not already otherwise
engaged in activities which, when taken together with its
investment in a Partnership, would be deemed to constitute a U.S.
trade or business for federal income tax purposes.
Our opinion is formulated on the basis of the Code, the
Treasury regulations, judicial decisions and rulings of the
Service which are in effect on the date of this opinion and does
not take into account legislative, administrative or judicial
developments which may occur after such date. No opinion is
expressed herein regarding U.S. state and local tax consequences
of an investment in a Partnership or the taxation of such an
investment in any country other than the U.S.
FACTS
The Partnerships are known collectively as the Franklin
Partners Funds (trademark). Each Partnership was organized on
January 27, 1987 under the California Revised Limited Partnership
Act (Sections 15611 through 15723 of the California Corporations
Code, as amended by Chapter 171 of the Statutes of 1985) and is
registered as a diversified management investment company with
the SEC under the 1940 Act. The principal office of each
Partnership is located in San Mateo, California. The federal
income tax returns of each Partnership will be filed with the
Service Center in Fresno, California and will be subject to the
audit jurisdiction of the District Director of Internal Revenue
in San Francisco, California. The Partnerships have applied for
but not yet received their respective employer identification
numbers. Each Partnership will employ the accrual method of
accounting and have a taxable year ending December 31.
Each Partnership is designed primarily to generate income
which will not be subject to U.S. federal income tax (including
withholding tax) when realized by qualified non-U.S. investors.
Interests in both Partnerships will be offered to (i) individuals
and entities which are neither U.S. citizens or residents nor
U.S. domestic corporations, partnerships, estates or trusts and
(ii) U.S. persons.
The principal investment objective of the Franklin Tax-
Advantaged High Yield Securities Fund is to earn a high level of
current income. As a secondary objective, the Fund seeks capital
appreciation to the maximum extent possible, consistent with the
principal objective. The Fund will invest in fixed-income debt
securities of various classes and types issued by U.S. and non-
U.S. companies and providing the highest yield available without
excessive risk at the time of purchase. To produce income that
is not subject to U.S. tax or withholding with respect to non-
U.S. persons, this Fund will generally limit its investments in
U.S. companies to publicly-offered debt securities issued after
July 18, 1984 in registered form and will generally limit its
investments in non-U.S. companies to securities of companies
which are not engaged in a trade or business in the United
States. Interest income derived from the obligations of U.S.
companies described in the immediately preceding sentence
qualifies for the portfolio interest exemption contained in
Sections 871(h) and 881(c) of the Code and is therefore not
subject to 30% U.S. withholding tax under Sections 1441 and 1442
of the Code when realized by qualified non-U.S. persons.
Interest income derived from obligations of the non-U.S.
companies described in the second preceding sentence qualifies as
non-U.S. source income and therefore also is not subject to U.S.
withholding tax when realized by qualified non-U.S. persons.
The investment objective of the Franklin Tax-Advantaged U.S.
Government Securities Fund is to generate income by investing in
obligations of the U.S. Government or its agencies or
instrumentalities. This Fund will also limit its investments
generally to publicly-offered U.S. Government obligations issued
after July 18, 1984 in registered form in order to generate
interest income which qualifies for the portfolio interest
exemption.
It is the policy of each Fund to purchase securities for
long-term investment and principally derive interest income
rather than to engage in purchasing and selling securities for
trading purposes. It is therefore expected that the annual
portfolio turnover rate of each Fund will not exceed 100%. For
defensive purposes, each Fund is permitted to invest temporarily
in short-term fixed income securities or cash equivalents and in
repurchase agreements. Each Fund is permitted to borrow money
only for temporary or emergency purposes, subject to certain
additional restrictions. Each Fund's investment activities are
further limited in extent and in nature in accordance with
certain representations made to us by the General Partners for
purposes of this opinion.
Each Fund has a single class of partnership interests, and a
unit of partnership interest in each Fund is referred to as a
share. Each share of a Fund represents an equal proportionate
interest in the income and assets of the Fund with each other
share outstanding, and income, gains and losses are allocated to
outstanding shares of a Fund or a pro rata basis. For tax
purposes, items of income, deduction, credit or loss are
allocated in accordance with the partners' respective interests
in each Fund in order to comport with the requirements of Section
704(b) of the Code and the Treasury regulations thereunder.
The net asset value per share of each Fund is calculated on
a daily basis, and shares are sold to investors at their net
asset value plus a sales charge. The principal underwriter and
distributor of each Fund's shares is Franklin Distributors, Inc.
(the "Distributor"). Shares of each Fund are available through
securities dealers who have sales agreements with the Distributor
or directly by application to the Fund. Purchases of shares may
be made on any day on which the New York Stock Exchange is open
for business. Purchases are required to be made in U.S. dollars.
It is the policy of each Fund to declare distributions of
its net investment income to shareholders daily and to distribute
such net investment income monthly, Each Fund intends to retain
and not distribute its net realized capital gains. Undistributed
income, if any, and gains (as well as losses), whether or not
realized, are reflected in the net asset value per share of each
Fund. Partners of each Fund have the right to redeem all or a
portion of their outstanding Fund shares at their net asset value
on any day on which the New York Stock Exchange is open for
business. Distributions upon redemptions of shares are made
solely in cash in the form of U.S. dollars.
The term of each Fund will extend to December 31, 2050
unless terminated earlier upon the occurrence of one of the
following events: (a) the Fund has disposed of all of its assets;
(b) a General Partner has ceased to be a General Partner and the
remaining General Partners do not elect to continue the
operations of the Fund; (c) the last remaining General Partner
has ceased to be a General Partner and the Limited Partners have
not elected to continue the operations of the Fund; (d) a court
of competent jurisdiction has entered a decree of judicial
dissolution; or (e) the partners have voted to dissolve the Fund.
In the event of a dissolution, the assets of the Fund are to be
used. first, to discharge debts, and liabilities of the Fund and
create any necessary reserve for such debts, and then to make
final distributions to the partners on a pro rata basis in
accordance with their positive capital accounts.
OPINION
The opinion expressed below Is based not on legal precedent
but on reasoning from legal principles employed in cases
involving different facts and accordingly represents our best
judgment as to the probable outcome. In addition, our opinion is
based on specific facts and representations concerning the
operations of the Partnerships, and deviations from these
contemplated operations could necessitate a different conclusion.
Moreover, our opinion is in no way binding on the Service or any
court, and it is possible that the Service or a court could, when
presented with these facts and representations or some variation
thereon, reach a different conclusion.
On the basis of the foregoing facts, the specific
representations made to us by the General Partners concerning the
intended operation of the Partnerships, and our analysis of the
provisions of the Code and the relevant case law, Treasury
Regulations and revenue rulings and other promulgations of the
Service which were in effect as of the date of this opinion, and
subject to the discussion in the immediately preceding paragraph,
it is our opinion that the Partnerships, and therefore any
nonresident alien individuals and non-U.S. corporations which
make limited partnership investments in the Partnerships, should
not be deemed to be engaged in a U.S. trade or business within
the meaning of Sections 864(b), 871(b) and 882 of the Code. Since
income, gain and loss of the Partnerships should not be deemed to
be effectively connected with the conduct of a U.S. trade or
business, distributions made by the Partnerships to nonresident
alien individuals and foreign corporations that are limited
partners should not be subject to the 20% withholding tax under
Section 1446 of the Code.
The effect of the Foreign Investment in Real Property Tax
Act ("FIRPTA"), which enacted Sections 897 and 6039C of the Code,
on our opinion should also be noted. Under Section 897, gain or
loss derived by a nonresident alien individual or a foreign
corporation from the sale or other disposition of a U.S. real
property interest is subject to U.S. federal income taxation as
though effectively connected with the conduct of a trade or
business within the U.S. even if, as a factual matter, the
activities of the seller do not amount to the conduct of a U.S.
trade or business. Moreover, withholding of tax at the rate of
10 percent is generally required upon dispositions of U.S. real
property interests by foreign persons. See Section 1445 of the
Code. Debt obligations are generally not treated as U.S. real
property interests, and the Partnerships will invest only in debt
obligations without equity features, i.e., obligations which are
properly treated as debt and not equity for tax purposes and
which do not allow participation to any extent in appreciation in
U.S. real property. Furthermore, debt obligations secured by
U.S. real property (such as GNMA certificates) do not constitute
US. real property interests. Treas. Reg. 1.897-1(d)(2)(ii)(C)
Therefore, none of the Partnerships will hold United States real
property interests, and FIRPTA will not apply to investments of
or in the Partnerships.
Since a determination of whether the Funds (and therefore
their non-U.S. partners) will be deemed to be engaged in a trade
or business in the United States is to be made on an annual
basis, the General Partners have agreed to provide us with an
annual certificate of compliance with the representations
supporting this opinion.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statements of the Funds on Form N-1A
under the 1933 Act and the 1940 Act.
Very truly yours,
/s/ Gaston Snow & Ely Bartlett
THELEN, MARRIN, JOHNSON & BRIDGES
ATTORNEYS AT LAW
TW0 EMBARCADERO CENTER
SAN FRANCISCO, CA 94111-3995
(415) 421-1068
July 7, 1994
Limited Partners
Franklin Tax-Advantaged High
Yield Securities Fund
(a California limited partnership)
Franklin Tax-Advantaged U.S.
Government Securities Fund
(a California limited partnership)
777 Mariners Island Boulevard
San Mateo, CA 94404
Ladies and Gentlemen:
The general partners of the Franklin Tax-Advantaged
High Yield Securities Fund (a California limited partnership)
(the "High Yield Fund") and the Franklin Tax-Advantaged U.S.
Government Securities Fund (a California limited partnership)(the
"Government Fund") have requested on your behalf our opinion on
the questions of (i) whether a nonresident alien individual or a
foreign corporation which makes a limited partnership investment
in either of the partnerships will be considered, solely by
virtue of such investment, to be "engaged in trade or business
within the United States" for United States ("U.S.") federal
income tax purposes under sections 864 (b), 871 (b), and 882 of
the Internal Revenue Code of 1986, as amended (the "Code") and
(ii) whether amounts allocated or distributed to such nonresident
alien individuals and foreign corporations will be subject to
U.S. withholding tax under section 1446 of the Code. In this
letter, the partnerships named above will be referred to
interchangeably as "Partnerships" or "Funds."
In rendering this opinion, we have examined the
Agreements of Limited Partnership of each Partnership (the
"Partnership Agreements"), and a copy of the latest Amendment to
the Registration Statement of each Partnership filed with the
Securities and Exchange Commission (the "SEC") on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act"). The
Partnerships have received rulings from the Internal Revenue
Service (the "Service") to the effect that each Partnership is
properly classified as a partnership for U.S. federal income tax
purposes. We assume, in rendering this opinion, that each
Partnership's activities have been and will be conducted in all
respects in accordance with the representations made to the
Service in connection with the rulings on partnership
classification and in accordance with the specific facts and
representations described below.
We further assume that the nonresident alien individual
or foreign corporation which invests as a limited partner in a
Partnership is not already otherwise engaged or deemed to be
engaged in a U.S. trade or business and is not already otherwise
engaged in activities which, when taken together with its
investment in a Partnership, would be deemed to constitute a U.S.
trade or business for federal income tax purposes.
Our opinion is formulated on the basis of the Code, the
Treasury regulations, judicial decisions and rulings of the
Service which are in effect as of the date of this opinion and
does not take into account legislative, administrative or
judicial developments which may occur after such date. No opinion
is expressed herein regarding U.S. state and local tax
consequences of an investment in a Partnership or the taxation of
such an investment in any country other than the U.S.
FACTS
The Partnerships are known collectively as the Franklin
Partners Funds. Each Partnership was organized under the
California Revised Limited Partnership Act (Sections 15611
through 15723 of the California Corporations Code, as amended by
Chapter 171 of the Statutes of 1985) and is registered as a
diversified management investment company with the SEC under the
1940 Act. The principal office of each Partnership is located in
San Mateo, California. The federal income tax returns of each
Partnership will be filed with the Service Center in Fresno,
California and will be subject to the audit jurisdiction of the
District Director of Internal Revenue in San Francisco,
California. Each Partnership employs the accrual method of
accounting and has a taxable year ending December 31.
Each Partnership is designed primarily to generate
income which will not be subject to U.S. federal income tax
(including withholding tax) when realized by qualified non-U.S.
investors. Interests in each Partnership will be offered to (i)
individuals and entities which are neither U.S. citizens or
residents nor U.S. domestic corporations, partnerships, estates
or trusts and (ii) U.S. persons.
The principal investment objective of the High Yield
Fund is to earn a high level of current income. As a secondary
objective, the Fund seeks capital appreciation to the maximum
extent possible, consistent with the principal objective. The
Fund invests in fixed-income debt securities of various classes
and types issued by U.S. and non-U.S. companies and providing the
highest yield available without excessive risk at the time of
purchase. To produce income that is not subject to U.S. tax or
withholding with respect to non-U.S. persons, this Fund generally
limits its investments in U.S. companies to publicly-offered debt
securities issued after July 18, 1984 in registered form and
generally limits its investments in non-U.S. companies to
securities of companies which are not engaged in a trade or
business in the United States. Interest income derived from the
obligations of U.S. companies described in the immediately
preceding sentence qualifies for the portfolio interest exemption
contained in sections 871(h) and 881(c) of the Code and is
therefore not subject to 30% U.S. withholding tax under sections
1441 and 1442 of the Code when realized by qualified non-U.S.
persons. Interest income derived from obligations of the non-U.S.
companies described in the second preceding sentence qualifies as
non-U.S. source income and therefore also is not subject to U.S.
withholding tax when realized by qualified non-U.S. persons.
The investment objective of the Government Fund is to
generate income by investing in obligations of the U.S.
Government or its agencies or instrumentalities. This Fund also
limits its investments generally to publicly-offered U.S.
Government obligations issued after July 18, 1984 in registered
form in order to generate interest income which qualifies for the
portfolio interest exemption.
It is the policy of each Fund to purchase securities
for long-term investment and principally derive interest income
rather than to engage in purchasing and selling securities for
trading purposes. It is therefore expected that the annual
portfolio turnover rate of each Fund will not exceed 100%. For
defensive purposes, each Fund is permitted to invest temporarily
in short-term fixed income securities or cash equivalents and in
repurchase agreements. Each Fund is permitted to borrow money
only for temporary or emergency purposes, subject to certain
additional restrictions. Each Fund's investment activities are
further limited in extent and in nature in accordance with
certain representations made to us by the General Partners for
purposes of this opinion.
Each Fund has a single class of partnership interests,
and a unit of partnership interest in each Fund is referred to as
a share. Each share of a Fund represents an equal proportionate
interest in the income and assets of the Fund with each other
share outstanding, and income, gains and losses are allocated to
outstanding shares of a Fund on a pro rata basis. For tax
purposes, items of income, deduction, credit or loss are
allocated in accordance with the partners' respective interests
in each Fund in order to comport with the requirements of section
704(b) of the Code and the Treasury regulations thereunder. Net
capital gains or losses realized by the partnership are allocated
for tax purposes under a formula designed generally to allocate
realized gains to partners to whom net unrealized gains have been
previously credited and to allocate realized losses to partners
to whom net unrealized losses have been previously debited.
The net asset value per share of each Fund is
calculated on a daily basis, and shares are sold to investors at
their net asset value plus a sales charge. The principal
underwriter and distributor of each Fund's shares is Franklin
Distributors, Inc.
(the "Distributor"). Shares of each Fund are available
through securities dealers who have sales agreements with the
Distributor or directly by application to the Fund. Purchases of
shares may be made on any day on which the New York Stock
Exchange is open for business. Purchases are required to be made
in U.S. dollars.
It is the policy of each Fund to declare distributions
of its net investment income to shareholders daily and to
distribute such net investment income monthly. Each Fund intends
to retain and not distribute its net realized capital gains.
Undistributed income, if any, and gains (as well as losses),
whether or not realized, are reflected in the net asset value per
share of each Fund. Partners of each Fund have the right to
redeem all or a portion of their outstanding Fund shares at their
net asset value on any day on which the New York Stock Exchange
is open for business. Distributions upon redemptions of shares
are made solely in cash in the form of U.S. dollars.
The term of each Fund will extend to December 31, 2050
unless terminated earlier upon the occurrence of one of the
following events: (a) the Fund has disposed of all of its assets;
(b) a General Partner has ceased to be a General Partner and the
remaining General Partners do not elect to continue the
operations of the Fund; (c) the last remaining General Partner
has ceased to be a General Partner and the Limited Partners have
not elected to continue the operations of the Fund; (d) a court
of competent jurisdiction has entered a decree of judicial
dissolution; or (e) the partners have voted to dissolve the Fund.
In the event of a dissolution, the assets of the Fund are to be
used, first, to discharge debts and liabilities of the Fund and
create any necessary reserve for such debts, and then to make
final distributions to the partners on a pro rata basis.
OPINION
The opinion expressed below is based not on legal
precedent but on reasoning from legal principles employed in
cases involving different facts and accordingly represents our
best judgment as to the probable outcome. In addition, our
opinion is based on specific facts and representations concerning
the operations of the Partnerships, and deviations from these
contemplated operations could necessitate a different conclusion.
Moreover, our opinion is in no way binding on the Service or any
court, and it is possible that the Service or a court could, when
presented with these facts and representations or some variation
thereon, reach a different conclusion.
On the basis of the foregoing facts and assumptions,
the specific representations made to us by the General Partners
concerning the operation of the Partnerships, and our analysis of
the provisions of the Code and the relevant case law, Treasury
Regulations and revenue rulings and other promulgations of the
Service which were in effect as of the date of this opinion, and
subject to the discussion in the immediately preceding paragraph,
it is our opinion that the Partnerships, and therefore any
nonresident alien individuals and non-U.S. corporations which
make limited partnership investments in the Partnerships, should
not be deemed to be engaged in a U.S. trade or business within
the meaning of sections 864(b), 871(b) and 882 of the Code. Since
income, gain and loss of the Partnerships should not be deemed to
be effectively connected with the conduct of a U.S. trade or
business, allocations and distributions made by the Partnerships
to nonresident alien individuals and foreign corporations that
are limited partners should not be subject to withholding tax
under section 1446 of the Code.
The effect of the Foreign Investment in Real Property
Tax Act ("FIRPTA"), which enacted sections 897 and 6039C of the
Code, on our opinion should also be noted. Under section 897,
gain or loss derived by a nonresident alien individual or a
foreign corporation from the sale or other disposition of a U.S.
real property interest is subject to U.S. federal income taxation
as though effectively connected with the conduct of a trade or
business within the U.S., even if, as a factual matter, the
activities of the seller do not amount to the conduct of a U.S.
trade or business. Moreover, withholding of tax at the rate of 10
percent is generally required upon dispositions of U.S. real
property interests by foreign persons. See section 1445 of the
Code. Debt obligations are generally not treated as U.S. real
property interests, and the Partnerships will invest only in debt
obligations without equity features, i.e., obligations which are
properly treated as debt and not equity for tax purposes and
which do not allow participation to any extent in appreciation in
U.S. real property. Furthermore, debt obligations secured by U.S.
real property (such as GNMA certificates) do not constitute U.S.
real property interests. Treas. Reg. 1.897-1(d)(2)(ii)(C).
Therefore, none of the Partnerships will hold United States real
property interests, and FIRPTA will not apply to investments of
or in the Partnerships.
Since a determination of whether the Funds (and
therefore their non-U.S. partners) will be deemed to be engaged
in a trade or business in the United States is to be made on an
annual basis, the General Partners have agreed to provide us with
an annual certificate of compliance with the representations
supporting this opinion. This opinion is given with respect to
the period beginning May 1, 1994 and ending April 30, 1995.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statements of the Funds on Form N-1A
under the 1933 Act and the 1940 Act.
Very truly yours,
/s/ Thelen, Marrin, Johnson & Bridges
CONSENT OF INDEPENDENT AUDITORS
To the Managing General Partners of
Franklin Tax-Advantaged High Yield Securities Fund:
We consent to the incorporation by reference in Post-Effective
Amendment No. 8 to the Registration Statement of Franklin Tax-
Advantaged High Yield Securities Fund on Form N-1A (File No. 33-
11962) of our report dated February 1, 1995 on our audit of the
financial statements and financial highlights of the Franklin Tax-
Advantaged High Yield Securities Fund, which report is included
in the Annual Report to Shareholders for the year ended December
31, 1994, which is incorporated by reference in the Registration
Statement.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 27, 1995
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES 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 Tax-Advantaged High Yield
Securities Fund (the "Fund"), which Plan shall take effect on the
1st day of July, 1994 (the "Effective Date of the Plan"). The
Plan has been approved by a majority of the Board of Managing
General Partners of the Fund (the "Board of Managing General
Partners"), including a majority of the managing general partners
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 managing general partners"), cast in person at a
meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Managing General
Partners 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 Managing General Partners
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 Managing
General Partners 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 Managing General
Partners 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 managing general partners, including the non-
interested managing general partners.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.15% 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 Managing General
Partners, 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 Managing General Partners
with such other information as the Board of Managing General
Partners may reasonably request in connection with the payments
made under the Plan in order to enable the Board of Managing
General Partners 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 Managing
General Partners, including the non-interested managing general
partners, 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 Shares of the Fund or by vote of a
majority of the non-interested managing general partners, 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 Shares.
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 managing general partners 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 managing general partners
shall be committed to the discretion of such non-interested
managing general partners.
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 TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
/s/ Deborah R. Gatzek
By: Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
/s/ Harmon E. Burns
By: Harmon E. Burns
Fund Name: Franklin Tax-Advantaged High Yield Securities Fund
Period Ending: 12/31/94 12/31/94
MAX OFF NAV
1 Yr T.Return: -6.58% -2.41%
5 Yr T.Return: 61.27% 68.47%
10 Yr T.Return: NA NA
From Inception: 85.09% 93.24%
Inception Date: 05/04/87 05/04/87
SEC STANDARD TOTAL RETURN
Franklin Tax-Advantaged High Yield AS OF: 12/31/94
Securities
MAX OFFER NAV
ONE YEAR -6.58% -2.41%
P= 1000.00 1000.00
T= -0.0658 -0.0241
n= 1 1
ERV= 934.20 975.90
FIVE YEAR 10.03% 11.00%
P= 1000.00 1000.00
T= 0.1003 0.1100
n= 5 5
ERV= 1612.71 1685.06
TEN YEAR 0.00% 0.00%
P= 1000.00 1000.00
T= 0.0000 0.0000
n= 10 10
ERV= 1000.00 1000.00
FROM INCEPTION 05/04/87 8.36% 8.97%
P= 1000.00 1000.00
T= 0.0836 0.0897
n= 7.6685 7.6685
ERV= 1850.94 1932.36
AGGREGATE TOTAL RETURN
1 YEAR -6.58% -2.41%
5 YEAR 61.27% 68.47%
10 YEAR NA NA
FROM INCEPTION 85.09% 93.24%
30-DAY SEC YIELD 10.15%
30-DAY SEC YIELD W/O NA
WAIVER
FISCAL YEAR-END 9.52%
DISTRIBUTION RATE (ON MAX
OFFERING)
FISCAL YEAR-END 9.93%
DISTRIBUTION RATE (ON
NAV)
FUND #156
FTA - High Yield Securities Fund
For the year ended 12/31/94
SEC - YIELD CALCULATION
a = interest/dividends earned 751,960
b = expenses accrued 58,736
c = avg # of shares o/s 10,026,685
d = maximum offering price 8.344
CALIFORNIA TAX FREE INCOME FUND
15-Feb-95
a - b 6
SEC Yield= 2[(---------------------------------- + 1) -1]
cd
751,960 - 58,736 6
= 2[(----------------------------------- + 1) -1]
10,026,685 * 8.344
693,224 6
= 2[(------------------------- + 1) -1]
83,662,660
6
= 2[( 1.00828594265330 ) -1]
= 2( 1.05075695727946 - 1)
= 0.1015139146
= 10.15%
POWER OF ATTORNEY
The undersigned officers and managing general partners of
Franklin Tax-Advantaged High Yield Securities 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 managing general partners hereby
execute this Power of Attorney as of this 16th day of February
1995.
/s/ Rupert H. Johnson, Jr. /s/ Charles B. Johnson
Rupert H. Johnson, Jr., Charles B. Johnson,
Principal Executive Officer Managing General Partner
and Managing General Partner
/s/ Frank H. Abbott, III /s/ Harris J. Ashton
Frank H. Abbott, III, Harris J. Ashton,
Managing General Partner Managing General Partner
/s/ Kenneth V. Domingues /s/ S. Joseph Fortunato
Kenneth V. Domingues, S. Joseph Fortunato,
Managing General Partner Managing General Partner
/s/ David W. Garbellano /s/ Charles E. Johnson
David W. Garbellano, Charles E. Johnson,
Managing General Partner Managing General Partner
/s/ Gordon S. Macklin /s/ Diomedes Loo-Tam
Gordon S. Macklin, Diomedes Loo-Tam,
Managing General Partner Principal Accounting Officer
/s/ Martin L. Flanagan
Martin L. Flanagan,
Principal Financial Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of Franklin Tax-
Advantaged High Yield Securities Fund (the "Fund").
As Secretary of the Fund, I further certify that the following
resolution was adopted by a majority of the Managing General
Partners of the Fund present at a meeting held at 777 Mariners
Island Boulevard, San Mateo, California, on February 16, 1995.
RESOLVED, that a Power of Attorney, substantially in
the form of the Power of Attorney presented to this
Board, appointing Harmon E. Burns, Deborah R. Gatzek,
Karen L. Skidmore, Larry L. Greene and Mark H. Plafker
as attorneys-in-fact for the purpose of filing
documents with the Securities and Exchange Commission,
be executed by each Managing General Partner 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
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE
FRANKLIN PARTNERS FUNDS - FRANKLIN TAX-ADVANTAGED HIGH YIELD
SECURITIES
FUND DECEMBER 31, 1994 ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 83,612,975
<INVESTMENTS-AT-VALUE> 77,723,974
<RECEIVABLES> 3,147,752
<ASSETS-OTHER> 340,524
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 81,212,250
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,517
<TOTAL-LIABILITIES> 61,517
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 90,617,523
<SHARES-COMMON-STOCK> 10,153,969
<SHARES-COMMON-PRIOR> 7,756,335
<ACCUMULATED-NII-CURRENT> 145,950
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,722,779)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,889,961)
<NET-ASSETS> 81,150,733
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,779,908
<OTHER-INCOME> 0
<EXPENSES-NET> (620,153)
<NET-INVESTMENT-INCOME> 7,159,755
<REALIZED-GAINS-CURRENT> 410,528
<APPREC-INCREASE-CURRENT> (9,329,425)
<NET-CHANGE-FROM-OPS> (1,759,142)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,005,950)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,299,297
<NUMBER-OF-SHARES-REDEEMED> (2,452,405)
<SHARES-REINVESTED> 550,742
<NET-CHANGE-IN-ASSETS> (1,759,142)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,141,162)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (481,741)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (620,153)
<AVERAGE-NET-ASSETS> 76,512,801
<PER-SHARE-NAV-BEGIN> 8.970
<PER-SHARE-NII> .770
<PER-SHARE-GAIN-APPREC> (.990)
<PER-SHARE-DIVIDEND> (.760)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 7.990
<EXPENSE-RATIO> (.810)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
