As filed with the Securities and Exchange Commission on March 1, 1996.
33-11963
811-5007
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. 9 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 11 (X)
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT 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) 321-2000
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) to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[x] on May 1, 1996 pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The 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 27, 1996.
Calculation of Registration Fee Under the Securities Act of 1933
Title of Proposed Amount
Securities Amount Maximum Proposed of
Being Being Offering Price Aggregate Offering
Registered Registered* Per Share Price* Fee*
- ----------------------------------------------------------------
Partnership 9,401,621 $11.15 $290,000 $100
Interest shares
*Registrant elects to calculate the maximum aggregate offering price pursuant
to Rule 24e-2. 14,331,556 shares were redeemed during the fiscal year ended
December 31, 1995. 4,955,944 shares were used for reductions pursuant to
Paragraph (d) of Rule 24f-2 during the current year. 9,375,612 shares is the
amount of redeemed shares used for reduction in this amendment. Pursuant to
457(d) under the Securities Act of 1933, the maximum public offering price of
$11.15 per share on February 21, 1996, is the price used as the basis for
these calculations. The maximum public offering price per share varies and,
thus, may be higher or lower than $11.15 in the future. While no fee is
required for the 9,375,612 shares, the registrant has elected to register,
for $100, an additional $290,000 of shares (approximately 26,009 shares at
$11.15 per share).
As part of its initial registration statement, the registrant has elected to
register an indefinite number of shares pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended, and hereby continues such
election. The registrant filed the notice required by Rule 24f-2 for its most
recent fiscal year on February 27, 1996.
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT 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 - How Have
Information the Funds Performed?"; "How Do the
Funds Measure Performance?"
4. General Description of "What Is the Franklin Partners
Registrant Funds?"; "How Does Each Fund Invest
Its Assets?"; "What are the Funds'
Potential Risks?"; "General
Information"
5. Management of the Fund "Who Manages the Funds?"; "Who
Runs the Funds?"
5A. Management's Discussion Contained in Registrant's Annual
of Fund Performance Report to Shareholders
6. Capital Stock and Other "What Is the Franklin Partners
Securities Funds?"; "What Distributions Might
I Receive from the Funds?"; "How
Taxation Affects You and the
Funds"; "How Do I Get More
Information About My Investment?";
"General Information"; "Summary of
Partnership Agreements"
7. Purchase of Securities "How Do I Buy Shares?"; "What
Being Offered Programs and Privileges are
Available to Me as a
Shareholder?"; "What If My
Investment Outlook Changes? -
Exchange Privilege"; "Telephone
Transactions"; "How Are Each
Fund's Shares Valued?"; "General
Information"
8. Redemption or Repurchase "How Do I Sell Shares?";
"Telephone Transactions"
9. Pending Legal Proceedings Not Applicable
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT 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 and "General Information" (See also
History the Prospectus "What Is the
Franklin Partners Funds"; "General
Information")
13. Investment Objectives and "Investment Restrictions"
Policies (See also the Prospectus
"How Does Each Fund Invest Its
Assets?")
14. Management of the "Officers and Managing General
Registrant Partners"
15. Control Persons and "Officers and Managing General
Principal Holders of Partners"; "General Information"
Securities
16. Investment Advisory and "Investment Advisory and Other
Other Services Services"; "The Funds'
Underwriter" (See also the
Prospectus "Who Manages the
Funds?"; "Who Runs the Funds?")
17. Brokerage Allocation "How Do the Funds Purchase
Securities for their Portfolios?"
18. Capital Stock and Other "How Do I Buy and Sell Shares?";
Securities "General Information" (See also
the Prospectus "How Do I Buy
Shares?"; "How Do I Sell Shares?";
"General Information")
19. Purchase, Redemption and "How Do I Buy and Sell Shares?"
Pricing of Securities (See also the Prospectus "How Do I
Being Offered Buy Shares?"; "How Do I Sell
Shares?"; "How Are Each Fund's
Shares Valued?"; "Telephone
Transactions")
20. Tax Status "Additional Information Regarding
Taxation" (See also the Prospectus
"How Taxation Affects You and the
Fund")
21. Underwriters "The Funds' Underwriter"
22. Calculation of "General Information"
Performance Data
23. Financial Statements "Financial Statements"
FRANKLIN
PARTNERS FUNDS(R)
FRANKLIN TAX-ADVANTAGED
U.S. GOVERNMENT SECURITIES FUND
FRANKLIN TAX-ADVANTAGED
HIGH YIELD SECURITIES FUND
FRANKLIN TAX-ADVANTAGED
INTERNATIONAL BOND FUND
PROSPECTUS MAY 1, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777
1-800/DIAL BEN
The Franklin Partners Funds(R) (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-U.S. shareholders
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 ("GNMAs" or "Ginnie Maes") of the Government National Mortgage
Association ("Association").
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 non-investment
grade bonds, 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.
The High Yield Fund and the International Bond Fund may invest in domestic and
foreign securities as described under "How Does Each Fund Invest Its Assets?"
THE HIGH YIELD FUND MAY INVEST UP TO 100% OF ITS PORTFOLIO IN NON-INVESTMENT
GRADE BONDS ISSUED BY BOTH U.S. AND FOREIGN ISSUERS, COMMONLY KNOWN AS "JUNK
BONDS," WHICH ENTAIL DEFAULT AND OTHER RISKS GREATER THAN THOSE ASSOCIATED
WITH HIGHER RATED SECURITIES. YOU SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THE FUND IN LIGHT OF THE SECURITIES IN WHICH
THE FUND INVESTS. SEE "WHAT ARE THE FUNDS' POTENTIAL RISKS? - HIGH YIELDING,
FIXED-INCOME SECURITIES."
This Prospectus is intended to set forth in a clear and concise manner
information about the Funds that you should know before investing. After reading
the Prospectus, you should retain it for future reference; it contains
information about the purchase and sale of shares and other items which you will
find useful.
An SAI concerning the Funds, dated May 1, 1996 as may be amended from time to
time, provides a further discussion of certain areas in this Prospectus and
other matters which may be of interest to you. It has been filed with the SEC
and is incorporated herein by reference. A copy is available without charge from
the Funds or from Distributors, at the address or telephone number shown above.
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 FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE 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 - How Have the Funds Performed?
What Is the Franklin Partners Funds?
How Does Each Fund Invest Its Assets?
What Are the Funds' Potential Risks?
How You Participate in the Results of the Funds' Activities
Who Manages the Funds?
What Distributions Might I Receive from the Funds?
How Taxation Affects You and the Funds
How Do I Buy Shares?
What Programs and Privileges Are Available to Me as a Shareholder?
What If My Investment Outlook Changes? - Exchange Privilege
How Do I Sell Shares?
Telephone Transactions
How Are Each Fund's Shares Valued?
How Do I Get More Information About My Investment?
How Do the Funds Measure Performance?
General Information
Registering Your Account
Important Notice Regarding Taxpayer IRS Certifications
Who Runs Each Fund?
Useful Terms and Definitions
Summary of Partnership Agreements
Appendix
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Funds. These figures are based on the aggregate operating
expenses of the Fund before any fee waivers and expense reductions, for the
fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
GOVERNMENT HIGH YIELD INTERNATIONAL
SHAREHOLDER TRANSACTION EXPENSES FUND FUND BOND FUND
Maximum Sales Charge Imposed on Purchases
<S> <C> <C> <C>
(as a percentage of offering price)........4.25% 4.25% 4.25%
Deferred Sales Charge........................None+ None+ None+
Exchange Fee (per transaction)..............$5.00* $5.00* $5.00*
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees..............................0.51% 0.62% 0.63%**
Rule 12b-1 Fees...........................0.07%*** 0.10%*** 0.09***
Other Expenses...............................0.06% 0.10% 0.28%
-------------------------
Total Fund Operating Expenses................0.64% 0.82% 1.00%***
============================
</TABLE>
+Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is generally imposed on
certain redemptions within a "contingency period" of 12 months of the calendar
month of such investments. See "How Do I Sell Shares? Contingent Deferred Sales
Charge."
*$5.00 fee imposed only on Market Timers as described under "What If My
Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee.
**The Manager has agreed in advance to waive a portion of its management fee for
the International Bond Fund. With this waiver, management fees and total
operating expenses represented 0.04% and 0.41%, respectively, of the average net
assets of the Fund.
***The maximum amount of Rule 12b-1 fees allowed pursuant to each Fund's
distribution plan is 0.15%. See "Who Manages the Fund? - Plans of Distribution."
Consistent with National Association of Securities Dealers, Inc.'s rules, it is
possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.
You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Funds. Rather,
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the
expenses, including the maximum front-end investments of $1 million or more
are not subject to a front-end sales charge; however, a contingent deferred
sales charge of 1% is generally imposed on certain redemptions within a
"contingency period" of 12 months of the calendar month of such investments.
See "How Do I Sell Shares? - Contingent Deferred Sales Charge."
.................................Government High Yield International
.......................................Fund Fund Bond Fund
1 Year.................................$ 49 $ 51 $ 52
3 Years..................................62 68 73
5 Years..................................77 88 95
10 Years................................119 143 160
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, BEFORE THE FEE
WAIVER FOR THE INTERNATIONAL FUND SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE
SHOWN. The operating expenses are borne by the Fund and only indirectly by you
as a result of your investment in the Fund. In addition, federal securities
regulations require the example to assume an annual return of 5%, but the Fund's
actual return may be more or less than 5%.
FINANCIAL HIGHLIGHTS - HOW HAVE THE FUNDS PERFORMED?
Set forth below is a table containing the financial highlights for a share of
each Fund. The information for each of the five fiscal years in the period ended
December 31, 1995 has been audited by Coopers & Lybrand, L.L.P., independent
auditors, whose audit report appears in the financial statements in each Fund's
Annual Report to Shareholders for the fiscal year ended December 31, 1995. The
remaining figures, which are also audited, are not covered by the auditors'
current report. See "Reports to Shareholders" under "General Information" in
this Prospectus.
<TABLE>
<CAPTION>
Net Asset Net Realized Dividends Net Ratio of Ratio of
Year Value Net & Unrealized Total From From Net Net Asset Assets at Expenses Net Income Portfolio
Ended Beginning Investment Gain (Loss) Investment Investment Value at Total End of Year to Average to Average Turnover
Dec. 31 of Year Income on Securities Operations Income End of Year Return++ (in 000's) Net Assets Net Assets Rate
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19871 $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 0.263 9.62 6.80
1989 9.89 0.965 0.280 1.245 (0.965) 10.17 12.75 67,864 0.463 9.55 7.07
1990 10.17 0.922 0.060 0.982 (0.922) 10.23 9.82 86,967 0.603 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) (0.446) (0.704) 9.76 (4.26) 456,421 0.61 6.92 10.20
1995 9.76 0.706 1.040 1.746 (0.706) 10.80 18.38 403,565 0.64 6.82 3.50
High Yield Fund
19871 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 0.183 10.88 2.64
1989 9.26 1.173 (0.740) 0.433 (1.173) 8.52 4.10 34,722 0.253 13.08 4.95
1990 8.52 1.132 (2.430) (1.298) (1.132) 6.09 (16.89) 27,155 0.553 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
1995 7.99 0.770 0.734 1.504 (0.784) 8.71 19.46 160,080 0.82 8.87 18.47
International Bond Fund
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
19902 11.20 1.133 0.819 1.952 (1.202) 11.95 15.46* 4,236 0.954 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 0.134 9.71 15.26
1993 10.85 0.808 0.505 1.313 (0.823) 11.34 12.13 19,606 0.254 7.31 6.80
1994 11.34 0.794 (0.560) 0.234 (0.794) 10.78 2.06 22,725 0.294 7.69 6.46
1995 10.78 0.938 1.180 2.118 (0.938) 11.96 20.41 28,352 0.414 7.85 4.90
</TABLE>
*For the period June 9, 1990 (transfer of management) to December 31, 1990.
1For the period May 4, 1987 (effective date) to December 31, 1987.
2On June 9, 1990, the investment manager changed from Pilgrim Management
Corporation to Advisers.
3Without a fee reduction by Advisers, the ratio of 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.
4Without a fee reduction by Advisers, the ratio of expenses to average net
assets for the fiscal years ended December 31, 1990, 1991, 1992, 1993,1994 and
1995 would have been 1.42%, .89%, .92%, .97%, 1.06%, and 1.00%, respectively.
+Annualized
++Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or any applicable deferred contingent sales charge and assumes
reinvestment of income distributions at net asset value. Prior to May 1, 1994,
distributions from net investment income were reinvested at the maximum offering
price.
WHAT IS 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. shareholders, 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.
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
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 "How Taxation
Affects You and the Funds.")
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 "How Taxation Affects You and the Funds" 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.
HOW DOES EACH FUND INVEST ITS ASSETS?
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. Other than investments in short-term U.S.
Treasury securities or assets held in cash pending investment, the assets of the
Fund are currently invested solely in GNMAs.
Obligations of the U.S. government, its agencies and instrumentalities may also
include, 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. GNMAs differ from other bonds in that principal may be paid back
on an unscheduled basis rather than returned in a lump sum at maturity. The Fund
will purchase GNMAs for which principal and interest are guaranteed. The Fund
also purchases "adjustable rate" GNMAs and other types of securities which may
be issued with the Association's guarantee.
THE ASSOCIATION'S GUARANTEE OF PAYMENT OF PRINCIPAL AND INTEREST ON GNMAS IS
BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES GOVERNMENT. THE
ASSOCIATION MAY BORROW U.S. TREASURY FUNDS TO THE EXTENT NEEDED TO MAKE PAYMENTS
UNDER ITS GUARANTEE. OF COURSE, THIS GUARANTEE DOES NOT EXTEND TO THE MARKET
VALUE OR YIELD OF THE GNMAS OR THE NET ASSET VALUE OR PERFORMANCE OF THE FUND,
WHICH WILL FLUCTUATE DAILY WITH MARKET CONDITIONS.
Payments to holders of GNMAs consist of the monthly distributions of interest
and principal less the Association's and issuers' fees. The portion of the
monthly payment which represents a return of principal will be reinvested by the
Fund in securities which may bear interest at a rate higher or lower than the
obligation from which the principal payment was received.
When mortgages in the pool underlying a GNMA are prepaid by borrowers or as a
result of foreclosure, such principal payments are passed through to the GNMA
holders, such as the Fund. Accordingly, a GNMA's life is likely to be
substantially shorter than the stated maturity of the mortgages in the
underlying pool. Because of such variation in prepayment rates, it is not
possible to accurately predict the life of a particular GNMA.
GNMA yields (interest income as a percentage of price) have historically
exceeded the current yields on other types of U.S. government securities with
comparable maturities. The effects of interest rate fluctuations and
unpredictable prepayments of principal, however, can greatly change realized
yields. As with most bonds, in a period of rising interest rates, the value of a
GNMA will generally decline. In a period of declining interest rates, however,
it is more likely that mortgages contained in GNMA pools will be prepaid, thus
reducing the effective yield. This potential for prepayment during periods of
declining interest rates may reduce the general upward price increases of GNMAs
as compared to the increases experienced by noncallable debt securities over the
same periods. Moreover, any premium paid on the purchase of a GNMA will be lost
if the obligation is prepaid. Of course, price changes of GNMAs and other
securities held by the Fund will have a direct impact on the net asset value per
share of the Fund.
The Fund's investments are continually monitored and changes are made as market
conditions warrant. However, the Fund does not engage in the trading of
securities for the purpose of realizing short-term profits.
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 nationally recognized
statistical rating organizations ["NRSROs"]). 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 NRSROs 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,
however, does not intend to 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.
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. Transactions in options and futures are generally considered
"derivative securities." 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 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.
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 "WHAT ARE THE FUNDS'
POTENTION RISKS? - 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 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 a Fund by a custodian approved by such
Fund's Board 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, or at any time, more
than 10% of the value of the total net assets of the Fund in which they are
held.
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 "How Taxation
Affect You and the Funds.")
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.
WHAT ARE SOME OF THE FUNDS' POTENTIAL RISKS?
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 than are more
highly rated securities, which react primarily to movements in the general level
of interest rates. The investment manager will consider both credit risk and
market 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. 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.
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.
The high yield securities market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recession that began in 1990
disrupted the market for high yielding securities and adversely affected the
value of outstanding securities and the ability of issuers of such securities to
meet their obligations. Although the economy has improved considerably and high
yielding securities have performed more consistently since that time, there is
no assurance that the adverse effects previously experienced will not reoccur.
For example, the highly publicized defaults of some high yield issuers during
1989 and 1990 and concerns regarding a sluggish economy which continued into
1993, depressed the prices for many of these securities. While market prices may
be temporarily depressed due to these factors, the ultimate price of any
security will generally reflect the true operating results of the issuer.
Factors adversely impacting the market value of high yielding securities will
adversely impact the Fund's net asset value. In addition, the 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 Fund will
rely on the Manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the 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 "How Taxation Affects You and the Funds."
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
ASSET COMPOSITION TABLE. A credit rating by an NRSRO evaluates only the safety
of principal and interest of a bond, and does not consider the market value risk
associated with an investment in such a bond. The table below shows the
percentage of the High Yield Fund's assets invested in fixed income securities
rated in each of the specific rating categories shown and those that are not
rated by the NRSRO but deemed by the Manager to be of comparable credit quality.
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, 1995. The Appendix to this Prospectus includes a
description of each rating category.
AVERAGE AVERAGE WEIGHTED
WEIGHTED PERCENTAGE
MOODY'S RATING PERCENTAGE S&P RATING OF ASSETS
OF ASSETS
Aaa AAA
Aa AA
A A
Baa .53 BBB 1.93
Ba 16.17 BB 30.12
B 69.92 B 50.15
Caa 2.90 CCC 2.32
Ca .18 CC
D .09
Unrated Unrated 1.84
HOW YOU PARTICIPATE IN THE RESULTS OF THE FUNDS' ACTIVITIES
The assets of each Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
you own will increase. If the securities owned by the Fund decrease in value,
the value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, you may anticipate that the value of Fund
shares will fluctuate with movements in the broader equity and bond markets. 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, and these may
reoccur unpredictably in the future.
WHO MANAGES THE FUNDS?
The Managing General Partners of each Fund establish the Fund's policies and
supervise and review the operations and management of the Fund pursuant to the
Partnership Agreements, the provisions of which 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
Managing General Partners are responsible for electing the officers of each Fund
who are responsible for administering its day-to-day operations
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 Resources, a publicly owned holding company, the principal shareholders of
which are Charles B. Johnson and Rupert H. Johnson, Jr., who own approximately
20% and 16%, respectively, of Resources' outstanding shares. Resources is
engaged in various aspects of the financial services industry through its
subsidiaries.
Advisers, a wholly-owned subsidiary of Resources, serves as each Fund's
investment manager. Advisers acts as investment manager or administrator to 36
U.S. registered investment companies (118 separate series) with aggregate assets
of over $80 billion.
Pursuant to a management agreement, the Manager supervises and implements each
Fund's investment policies and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those taken
by the Manager on behalf of other funds. Neither the Manager (including its
affiliates) nor its officers, directors or employees nor the officers and
managing general partners of the Funds are prohibited from investing in
securities held by the Funds or other funds which are managed or administered by
the Manager to the extent such transactions comply with the Funds' Code of
Ethics. Please see "Investment Advisory and Other Services" and "General
Information" in the SAI for further information on securities transactions and a
summary of the Funds' Code of Ethics.
During the fiscal year ended December 31, 1995, the Government Fund and the High
Yield Fund paid management fees representing 0.51% and %0.62%, respectively, of
the average net assets of the Fund. Management fees, before any advance waiver
for the International Bond Fund, totaled 0.63% of its average monthly net
assets. Pursuant to an agreement by Advisers to limit its fees, the Fund paid
management fees totaling 0.04% of the average monthly net assets. This
arrangement may be terminated by the Manager at any time upon notice to the
Managing General Partners.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "How Do
the Funds Purchase Securities For Their Portfolio?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services, in its capacity as transfer agent and
income-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
During the fiscal year ended December 31, 1995 expenses borne by the Funds,
including fees paid to Advisers and to Investor Services, totaled 0.64%, 0.82%,
and 0.41% of the average monthly net assets of the Government Fund, High Yield
Fund, and International Bond Fund, respectively. The 0.41% for the International
Bond Fund represents the ratio after advance fee waiver by the Manager. Had such
action not been taken, total expenses would have represented 1.00% of the
International Bond Fund's average net assets.
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. 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. TICI will
be paid a fee from the investment advisory fees received by Advisers. Please see
"Investment Advisory and Other Services" in the SAI.
PLANS OF DISTRIBUTION
A plan of distribution has been approved and adopted for each Fund (the
"Plan(s)") 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 the Fund, Distributors or its affiliates.
The maximum amount which each Fund may reimburse to Distributors or others for
such distribution expenses is 0.15% per annum of its average daily net assets,
payable on a quarterly basis. All expenses of distribution in excess of 0.15%
per annum will be borne by Distributors, or others who have incurred them,
without reimbursement from the Fund.
The Plans also cover any payments to or by the Funds, Advisers, Distributors,
or other parties on behalf of the Funds, 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 each Plan are included in the maximum
operating expenses which may be borne by the Fund. For more information,
including a discussion of the policies established by the Managing General
Partners with regard to the amount of Plan fees, please see "The Funds'
Underwriter" in the SAI.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUNDS?
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 allocation of net investment income will begin
on the day after the Fund receives your money or settlement of a wire order
trade and will continue to accrue through the day of receipt of your redemption
request or the settlement of a wire order trade.
Increases and decreases in the value of a Fund's portfolio securities are
reflected in the value of your 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.
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.
After each calendar year, each Fund is required to send you (regardless of
whether you are or are not a U.S. taxpayer) a U.S. Federal and State of
California tax form (Form K-1) which identifies your 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.
DISTRIBUTION OPTIONS
You may choose to receive your distributions of income from the Funds in any of
these ways:
1. PURCHASE ADDITIONAL SHARES OF THE FUND - You may purchase additional shares
of the Fund (without a sales charge or imposition of a contingent deferred sales
charge) distributions of income. This is a convenient way to accumulate
additional shares and maintain or increase your earnings base.
2. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions of income to purchase the same class of shares of another Franklin
Templeton Fund (without a sales charge or imposition of a contingent deferred
sales charge). Many shareholders find this a convenient way to diversify their
investments.
3. RECEIVE DISTRIBUTIONS OF INCOME IN CASH -You may have the money sent directly
to you, to another person, or to a checking account. If you choose to send the
money to a checking account, please see "Electronic Fund Transfers" under "What
Programs and Privileges Are Available to Me as a Shareholder?"
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
INVESTMENT APPLICATION AND SUBSCRIPTION AGREEMENT INCLUDED WITH THIS PROSPECTUS
OR TELL YOUR INVESTMENT REPRESENTATIVE WHICH OPTION YOU PREFER. IF NO OPTION IS
SELECTED, YOUR DISTRIBUTIONS OF INCOME WILL BE AUTOMATICALLY REINVESTED IN THE
FUND. You may change the distribution option selected at any time by notifying
the Fund by mail or by telephone. Please allow at least seven days prior to the
reinvestment date for a Fund to process the new option.
HOW TAXATION AFFECTS YOU AND THE FUNDS
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. Prior to the change in tax treatment, the Managing General Partners
will recommend to shareholders steps which will allow non-U.S. investors to
receive income free of U.S. taxation. All shareholders will be advised of the
recommendation of the Managing General Partners, will be provided with
information concerning the choices available, and will have an opportunity to
make suitable investment choices at that time. Among the alternatives presently
under consideration by the Managing General Partners is a proposal which,
subject to compliance with applicable laws, would permit each non-U.S. investor
to transfer that investor's assets to selected funds in the Templeton Global
Strategy Funds organized under the laws of Luxembourg to form a SICAV (Societe
d'Investissements a Capital Variable). Non-U.S. investors in a SICAV are not
subject to U.S. taxation.
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. SHAREHOLDER. A non-U.S. Shareholder (i.e., a
shareholder 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(R) 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.
You may also be subject to taxation on income and gain earned from your
investment in the Fund imposed by state and local jurisdictions or by your
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 you reside for tax purposes.
The foregoing discussion also assumes you are 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 you 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
should consult a tax adviser in this circumstance.
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 DO I BUY SHARES?
You may buy shares to open a Fund account with a minimum of $2,500 and make
additional investments at any time with as little as $100. Minimums may be
waived for the Government Fund when shares are purchased by retirement plans. To
open your account, contact your investment representative or complete and sign
the enclosed Investment Application and Subscription Agreement and return it to
the Fund with your check. All orders must be paid for in U.S.
dollars.
PURCHASE PRICE OF FUND SHARES
You may buy shares at the public offering price, unless you qualify to purchase
shares at a discount or without a sales charge as discussed below. The offering
price will be calculated to two decimal places using standard rounding criteria.
QUANTITY DISCOUNTS IN SALES CHARGES
The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the table below.
TOTAL SALES CHARGE
AS A PERCENTAGE OF
AMOUNT ALLOWED TO
DEALER AS A
SIZE OF TRANSACTION NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE OFFERING PRICE INVESTED OFFERING PRICE*
Under $100,000 4.25% 4.44% 4.00%
$100,000 but less than 3.50% 3.63% 3.25%
$250,000
$250,000 but less than 2.75% 2.83% 2.50%
$500,000
$500,000 but less than 2.15% 2.20% 2.00%
$1,000,000
$1,000,000 or more None** None None***
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times reallow
the entire sales charge to the securities dealer. A securities dealer who
receives 90% or more of the sales commission may be deemed an underwriter under
the Securities Act of 1933, as amended.
**A contingent deferred sales charge of 1% may be imposed on certain redemptions
of all or a part of an investment of $1 million or more. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of payments Distributors may make to securities dealers out of its
own resources.
RIGHTS OF ACCUMULATION. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Funds, as well as those of your
spouse, children under the age of 21 and grandchildren under the age of 21, to
the amount of your current purchase. To receive the reduction, you or your
investment representative must notify Distributors that your investment
qualifies for a discount.
LETTER OF INTENT. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. You or your investment representative must inform us that the Letter is in
effect each time you purchase shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your name.
You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem
any or all of these reserved shares to pay any unpaid sales charge if you do
not fulfill the terms of the Letter.
We will include the reserved shares in the total shares you own as reflected
on your periodic statements.
You will receive income distributions on the reserved shares; we will pay or
reinvest these distributions as you direct.
Although you may exchange your shares, you may not liquidate reserved shares
until you complete the Letter or pay the higher sales charge.
Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.
GROUP PURCHASES. If you are a member of a qualified group, you may purchase Fund
shares at the reduced sales charge applicable to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase. For example, if group
members previously invested and still hold $80,000 of Fund shares and invest
$25,000, the sales charge will be 3.5%
We define a qualified group as one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount
and (iii) satisfies uniform criteria which enable Distributors to realize
economies of scale in its costs of distributing shares.
In addition, a qualified group must have more than 10 members, and be available
to arrange for meetings between our representatives and group members. It must
also agree to include sales and other materials related to the Franklin
Templeton Funds in publications and mailings to its members at reduced or no
cost to Distributors, and arrange for payroll deduction or other bulk
transmission of investments to the Fund.
If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue further
investments. Due to the varying procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time the money reaches the Fund. We invest your purchase at the applicable
offering price per share determined on the day that the Fund receives both the
check and the payroll deduction data in required form.
PURCHASES AT NET ASSET VALUE
You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:
(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its payment
date. You may reinvest Class II distributions in either Class I or Class II
shares, but Class I distributions may only be invested in Class I shares under
this privilege. For more information, see "Distribution Options" under "What
Distributions Might I Receive from the Fund?" or call Shareholder Services at
1-800/632-2301;
(ii) a redemption from a mutual fund with investment objectives similar to those
of the Fund, if (a) your investment in that fund was subject to either a
front-end or contingent deferred sales charge at the time of purchase, (b) the
fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days;
* (iii) a distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including the Franklin Templeton Profit Sharing 401(k)
plan), up to the total amount of the distribution. The distribution must be
returned to the Fund within 365 days of the distribution date; or
*(iv) a redemption from Templeton Institutional Funds, Inc., if you then
reinvest the redemption proceeds under an employee benefit plan qualified under
Section 401 of the Code, in shares of the Fund].
*Applicable only to the Government Fund.
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the reinvestment
of the money within 365 days of the redemption date. You may reinvest up to the
total amount of the redemption proceeds under this privilege. IF A DIFFERENT
CLASS OF SHARES IS PURCHASED, THE FULL FRONT-END SALES CHARGE MUST BE PAID AT
THE TIME OF PURCHASE OF THE NEW SHARES. While you will receive credit for any
contingent deferred sales charge paid on the shares redeemed, a new contingency
period will begin. Shares that were no longer subject to a contingent deferred
sales charge will be reinvested at net asset value and will not be subject to a
new contingent deferred sales charge. Shares exchanged into other Franklin
Templeton Funds are not considered "redeemed" for this privilege (see "What If
My Investment Outlook Changes? - Exchange Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.
Certain categories of investors also qualify to purchase shares of the Fund at
net asset value regardless of the source of the investment proceeds. If you or
your account is included in one of the categories below, none of the shares of
the Fund you purchase will be subject to front-end or contingent deferred sales
charges:
(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(ii) accounts managed by the Franklin Templeton Group;
(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;
(iv) registered securities dealers and their affiliates, for their
investment accounts only;
(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;
(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or registered investment advisors affiliated with such
broker-dealers, on behalf of their clients who are participating in a
comprehensive fee program (sometimes known as a wrap fee program);
(vii) any state, county, or city, or any instrumentality, department, authority
or agency thereof which has determined that the Fund is a legally permissible
investment and which is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered management investment company ("an eligible governmental authority").
IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or the Manager on arbitrage rebate
calculations. If you are a securities dealer who has executed a dealer agreement
with Distributors and, through your services, an eligible governmental authority
invests in the Fund at net asset value, Distributors or one of its affiliates
may make a payment, out of its own resources, to you in an amount not to exceed
0.25% of the amount invested. Please contact the Franklin Templeton
Institutional Services Department for additional information;
(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members.
Although you may pay sales charges on investments in accounts opened after your
association with us has ended, you may continue to invest in accounts opened
while you were with us without paying sales charges;
(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1 million
in Franklin Templeton Funds over a 13 month period. We will accept orders for
such accounts by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order;
(x) group annuity separate accounts offered to retirement plans;
*(xi) trustees or other fiduciaries purchasing securities for certain retirement
plans of organizations with collective retirement plan assets of $1 million or
more, without regard to where such assets are currently invested; or
*xii) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of the Fund under this privilege if they meet the
requirements described under "Group Purchases," above.
*Applicable only to the Government Fund.
IF YOU QUALIFY TO BUY SHARES AT NET ASSET VALUE AS DISCUSSED IN THIS SECTION,
PLEASE SPECIFY IN WRITING THE PRIVILEGE THAT APPLIES TO YOUR PURCHASE AND
INCLUDE THAT WRITTEN STATEMENT WITH YOUR PURCHASE ORDER. WE WILL NOT BE
RESPONSIBLE FOR PURCHASES THAT ARE NOT MADE AT NET ASSET VALUE IF THIS WRITTEN
STATEMENT IS NOT INCLUDED WITH YOUR ORDER.
If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.
HOW DO I BUY SHARES IN CONNECTION WITH TAX-DEFERRED RETIREMENT PLANS? -
GOVERNMENT FUND ONLY
Your individual or employer-sponsored tax-deferred retirement plans may invest
in the Fund. You may use the Fund for an existing retirement plan, or, because
Trust Company can serve as custodian or trustee for retirement plans, you may
ask Trust Company to provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.
Brochures for Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution requirements.
Please note that you must use an application other than the one contained in
this Prospectus to establish a retirement plan account with Trust Company. To
obtain a retirement plan brochure or application, please call 1-800/DIAL BEN
(1-800/342-5236).
Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to receive
distributions from Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition, if you
are a retirement plan investor, you should consider consulting your investment
representatives or advisors about investment decisions within your plans.
GENERAL
The Funds continuously offer their shares through securities dealers who have an
agreement with Distributors. The Funds and Distributors may refuse any order for
the purchase of shares.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
OTHER PAYMENTS TO SECURITIES DEALERS. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 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 breakpoints are reset every 12 months for
purposes of additional purchases.]
Distributors or one of its affiliates may also pay up to 1% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by any of the entities described in paragraphs (ix), (xi) or
(xii) under "Purchases at Net Asset Value" above and up to 0.75% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by Non-Designated Retirement Plan. These payments may not be
made to securities dealers or others in connection with the sale of Fund shares
if the payments might be used to offset administration or recordkeeping costs
for retirement plans or circumstances suggest that plan sponsors or
administrators might use or otherwise allow the use of Rule 12b-1 fees to offset
such costs. Please see "How Do I Buy and Sell Shares?" in the SAI for the
breakpoints applicable to these purchases.
Either Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with the
sale of shares of the Franklin Templeton Funds. In some cases, this compensation
may be available only to securities dealers whose representatives have sold or
are expected to sell significant amounts of shares of the Franklin Templeton
Funds. Compensation may include financial assistance and payments made in
connection with conferences, sales or training programs for employees of the
securities dealer, seminars for the public, advertising, sales campaigns and/or
shareholder services, programs regarding one or more of the Franklin Templeton
Funds and other programs or events sponsored by securities dealers, and payment
for travel expenses of invited registered representatives and their families,
including lodging, in connection with business meetings or seminars located
within or outside the U.S. Securities dealers may not use sales of the Fund's
shares to qualify for this compensation if prohibited by the laws of any state
or self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of this compensation is paid for by the Fund or its
shareholders.
For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and Managing General Partners of the Fund who are affiliated with
Distributors. See "Officers and Directors Managing General Partners."
WHAT PROGRAMS AND PRIVILEGES
ARE AVAILABLE TO ME AS A SHAREHOLDER?
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND IF YOUR SHARES ARE HELD, OF RECORD, BY A
FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED ACCOUNT THROUGH
THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE "REGISTERING YOUR
ACCOUNT" 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 confirmation statement will be sent to you quarterly to reflect the
distributions reinvested during the period and after each other transaction
which affects your account. This statement will also show the total number of
shares you own.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan offers a convenient way to invest in the Funds.
Under the plan, you can arrange to have money transferred automatically from
your checking account to a Fund each month to buy additional shares. If you are
interested in this program, please refer to the Automatic Investment Plan
Application at the back of this Prospectus for the requirements of the program
or contact your investment representative. Of course, the market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may terminate the program at
any time by notifying Investor Services by mail or by phone.
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply.
If you would like to establish a Systematic Withdrawal Plan, please complete the
Systematic Withdrawal Plan section of the Shareholder Application included with
this Prospectus and indicate how you would like to receive your payments. You
may choose to receive your payments in any of the following ways:
1. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. RECEIVE PAYMENTS IN CASH - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the plan
will be made from the redemption of an equivalent amount of shares in your
account, generally on the first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Redemptions under a
Systematic Withdrawal Plan are considered a sale for federal income tax
purposes. Because the amount withdrawn under the plan may be more than your
actual yield or distribution from income, part of the payment may be a return of
your investment.
You should ordinarily not make additional investments in the Fund of less than
$5,000 or three times the amount of annual withdrawals under the plan because of
the sales charge on additional purchases. Shares redeemed under the plan may
also be subject to a contingent deferred sales charge. Please see "Contingent
Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn or if the Fund
receives notification of the shareholder's death or incapacity.
ELECTRONIC FUND TRANSFERS
You may choose to have income distributions from the Funds or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.
INSTITUTIONAL ACCOUNTS
THERE MAY BE ADDITIONAL METHODS OF BUYING, SELLING OR EXCHANGING SHARES OF
THE FUND AVAILABLE TO INSTITUTIONAL ACCOUNTS. FOR FURTHER INFORMATION,
CONTACT THE FRANKLIN TEMPLETON INSTITUTIONAL SERVICES DEPARTMENT
WHAT IF MY INVESTMENT OUTLOOK CHANGES? - EXCHANGE PRIVILEGE
NON-U.S. SHAREHOLDERS SHOULD NOTE THAT INCOME FROM OTHER FUNDS IN THE
FRANKLIN TEMPLETON FUNDS 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 and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, shares of a Fund may be exchanged
for the same class of shares of another Franklin Templeton Fund eligible for
sale in your state or country of residence and in conformity with that fund's
stated eligibility requirements and investment minimums.
No exchanges between different classes of shares will be allowed. You may choose
to sell your shares of the Fund and buy Class II shares of another Franklin
Templeton Fund but such purchase will be subject to that fund's Class II
front-end and contingent deferred sales charges. Although there are no exchanges
between different classes of shares, Class II shareholders of a Franklin
Templeton Fund may elect to direct their income distributions to the Fund at net
asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will be imposed.
Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
BY MAIL
Send written instructions signed by all account owners. The transaction will be
effective upon receipt of the written instructions.
BY TELEPHONE
You or your investment representative of record, if any, may exchange shares of
the Fund by calling Investor Services at 1-800/632-2301 or the automated
TeleFACTS(R) system (day or night) at 1-800/247-1753. IF YOU DO NOT WISH THIS
PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, YOU SHOULD NOTIFY THE FUND OR
INVESTOR SERVICES.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The Fund and Investor Services will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Please see "Telephone Transactions - Verification
Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.
THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above. A
securities dealer may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
NON-U.S. INVESTORS MAY BE SUBJECT TO WITHHOLDING ON EXCHANGES UNLESS A FORM
W-8 (OR SUBSTITUTE) IS ON FILE.
Exchanges are made on the basis of the net asset value 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 original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I Buy
Shares?" Exchanges of shares of the Fund which were purchased with a lower sales
charge into a fund which has a higher sales charge will be charged the
difference, unless the shares were held in the Fund for at least six months
prior to executing the exchange.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.
If you request the exchange of the total value of your account, accrued but
unpaid income distributions will be reinvested in the Fund at the 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, you may
realize a gain or loss for federal income tax purposes if you are otherwise
subject to U.S. tax. Backup withholding and information reporting may also
apply. Information regarding the possible tax consequences of such an exchange
is included in the tax section in this Prospectus and under "Additional
Information Regarding Taxation" in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments unless it is felt that attractive investment opportunities
consistent with the Fund's investment 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.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
RETIREMENT PLAN ACCOUNTS - GOVERNMENT FUND
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange
shares directly. Certain restrictions may apply, however, to other types of
retirement plans. See "Restricted Accounts" under "Telephone Transactions."
MARKET TIMERS
Market Timers will be charged a $5.00 administrative service fee for each
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Market Timers.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Market Timer, group or
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, (ii) makes more than two exchanges out of the Fund per calendar
quarter, or (iii) exchanges shares equal in value to at least $5 million, or
more than 1% of the Fund's net assets. Accounts under common ownership or
control, including accounts administered by Market Timers, will be aggregated
for purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Market Timer, person, or group if, in the Manager's judgment, the
Funds would be unable to invest effectively in accordance with their investment
objectives and policies, or would otherwise potentially be adversely affected.
The purchase side of an exchange may be restricted or refused if the Funds
receive or anticipate simultaneous orders affecting significant portions of the
Funds' assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Funds and therefore may be
refused.
The Funds and Distributors, as indicated in "How Do I Buy Shares?", reserve the
right to refuse any order for the purchase of shares.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time and receive from the Funds the
value of the shares. You may sell shares in any of the following ways:
BY MAIL
Send a written request signed by all registered owners to Investor Services, at
the address shown on the back cover of this Prospectus. You will then receive
from the Fund the value of the shares redeemed based upon the net asset value
per share (less a contingent deferred sales charge, if applicable) next computed
after the written request in proper form is received by Investor Services.
Redemption requests received after the time at which the net asset value is
calculated will receive the price calculated on the following business day. The
net asset value per share is determined as of the scheduled close of the
Exchange (generally 1:00 p.m. Pacific time) each day that the Exchange is open
for trading. You are requested to provide a telephone number where you may be
reached during business hours, or in the evening if preferred. Investor
Services' ability to contact you promptly when necessary will speed the
processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURES 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 owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions, including,
for example, when (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an agent,
not the actual registered owner, (e) the Fund determines that joint owners who
are married to each other are separated or may be the subject of divorce
proceedings, or (f) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
that are members of a national securities exchange or a clearing agency or that
have minimum net capital of $100,000; or (4) institutions that participate in
the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officers of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustees and (2)
a copy of the pertinent pages of the trust document listing the trustees or a
Certification for Trust if the trustees are not listed on the account
registration.
Custodial (other than a retirement account - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and applicable state
law since these accounts have varying requirements, depending upon the state of
residence.
Payment for redeemed shares will be sent to you within seven days after receipt
of the request in proper form.
BY TELEPHONE
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts". You may obtain
additional information about telephone redemptions by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ reasonable procedures
to confirm that instructions given by telephone are genuine. You, however, bear
the risk of loss in certain cases as described under "Telephone Transactions -
Verification Procedures."
If your account has a completed Agreement on file, redemptions of shares may be
made for up to $50,000 per day per Fund account. Telephone redemption requests
received before the scheduled close of the Exchange (generally 1:00 p.m. Pacific
time) on any business day will be processed that same day. The redemption check
will be sent within seven days, made payable to all the registered owners on the
account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, qualified retirement plans and
government entities that qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) that wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from the Franklin Templeton Institutional Services Department by
calling 1-800/321-8563.
THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under "By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
letter should reference the Fund, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of your redemption will be sent will begin when
the Fund receives all documents required to complete ("settle") the repurchase
in proper form. Your dealer may charge a fee for handling the order. See "How Do
I Buy and Sell Shares?" in the SAI for more information on the redemption of
shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of such investment will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested income distributions) or the net asset value at the time of purchase
of such shares, and is retained by Distributors. The contingent deferred sales
charge is waived in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested income distributions; and (iii)
other shares held longer than the contingency period. Shares subject to a
contingent deferred sales charge will then be redeemed on a "first-in,
first-out" basis. For tax purposes, a contingent deferred sales charge is
treated as either a reduction in redemption proceeds or an adjustment to the
cost basis of the shares redeemed.
The contingent deferred sales charge is waived, as applicable, for: specified
net asset value purchases discussed under "How Do I Buy Shares? - Purchases at
Net Asset Value"; exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions initiated by
the Fund due to an account falling below the minimum specified account size;
redemptions following the death of the shareholder or beneficial owner; and
redemptions through a Systematic Withdrawal Plan set up for shares prior to
February 1, 1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value (3% quarterly,
6% semiannually or 12% annually). For example, if an account maintained an
annual balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge. Any amount over that
$120,000 would be assessed a 1% contingent deferred sales charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Unless otherwise specified, requests for redemptions of a SPECIFIED DOLLAR
amount will result in additional shares being redeemed to cover any applicable
contingent deferred sales charge, while requests for redemption of a SPECIFIC
NUMBER of shares will result in the applicable contingent deferred sales charge
being deducted from the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption.
The right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it, by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount you invested, depending on
fluctuations in the market value of securities owned by the Fund.
RETIREMENT PLAN ACCOUNTS - GOVERNMENT FUND ONLY
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 59 1/2, unless the distribution meets one of the
exceptions set forth in the Code.
OTHER INFORMATION
Distribution or redemption checks sent to you do not earn interest or any other
income during the time such checks remain uncashed and neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
distribution option see "Restricted Accounts" below), (iii) transfer Fund shares
in one account to another identically registered account in the Fund, and (v)
exchange Fund shares as described in this Prospectus by telephone. In addition,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to you caused by an unauthorized transaction. The Fund and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.
RESTRICTED ACCOUNTS - GOVERNMENT FUND ONLY
Telephone redemptions and income distribution option changes may not be accepted
on Franklin Templeton retirement accounts. To assure compliance with all
applicable regulations, special forms are required for any redemption or
distribution payment changes. While the telephone exchange privilege is extended
to Franklin Templeton IRA and 403(b) retirement accounts, certain restrictions
may apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In these situations, you may wish to contact your investment
representative for assistance or send written instructions to the Fund as
detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from your inability to execute a telephone transaction.
HOW ARE FUND SHARES VALUED?
The net asset value per share of each Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price).
The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in the Fund's portfolio are valued as described under "How Are Fund
Shares Valued?" in the SAI.
HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this Prospectus.
From a touch-tone phone, you may access TeleFACTS(R). By calling the TeleFACTS
system (day or night) at 1-800/247-1753 (in the U.S. only), you may obtain
account information, current price and, if available, yield or other performance
information specific to the Fund or any Franklin Templeton Fund. In addition,
you may process an exchange, within the same class, into an identically
registered Franklin account and request duplicate confirmation or year-end
statements and deposit slips.
The Fund code, which will be needed to access system information, is 154 for the
International Bond Fund, 155 for the Government Fund and 156 for the High Yield
Fund. The system's automated operator will prompt you with easy to follow
step-by-step instructions from the main menu. Other features may be added in the
future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided.
HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
IN ORDER TO ENSURE THAT THE HIGHEST QUALITY OF SERVICE IS BEING PROVIDED,
TELEPHONE CALLS PLACED TO OR BY REPRESENTATIVES IN FRANKLIN'S SERVICE
DEPARTMENTS MAY BE ACCESSED, RECORDED AND MONITORED. THESE CALLS CAN BE
DETERMINED BY THE PRESENCE OF A REGULAR BEEPING TONE.
HOW DO THE FUNDS MEASURE PERFORMANCE?
Advertisements, sales literature and communications to you may contain several
measures of each Fund's performance, including current yield, various
expressions of total return and current distribution rate. They may also
occasionally cite statistics to reflect the Fund's volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price for one-, five- and ten-year periods, or portion thereof,
to the extent applicable, through the end of the most recent calendar quarter,
assuming reinvestment of all distributions. The Fund may also furnish total
return quotations for other periods or based on investments at various sales
charge levels or at net asset value. For such purposes, total return equals the
total of all income and capital gain paid to shareholders, assuming reinvestment
of all distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments. It is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result.
Current yield for the Fund, which is calculated according to a formula
prescribed by the SEC (see "General Information" in the SAI), is not indicative
of the distributions which were or will be paid to the Fund's shareholders.
Income distributions paid to shareholders of the Fund are reflected in the
current distribution rate, which may be quoted to you. The current distribution
rate is computed by dividing the total amount of the income distribution per
share paid by the Fund during the past 12 months by a current maximum offering
price. Under certain circumstances, such as when there has been a change in the
amount of distribution payout or a fundamental change in investment policies, it
might be appropriate to annualize the income 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 gain, and is calculated over a
different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of a Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
a Fund's performance may be in any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
Each Fund's fiscal year ends 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. To reduce the volume of mail sent to each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Funds 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 to Shareholders and under "General Information" in the SAI.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem your shares, at net asset value, if your
account has been an existence for at least 12 months, value of less than $2,000
but only where the value of your account has been reduced by the prior voluntary
redemption of shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided you are given
advance notice. For more information, see "How Do I Buy and Sell Shares?" in the
SAI.
OTHER INFORMATION
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.
REGISTERING YOUR ACCOUNT
An account registration should reflect your intentions as to ownership. Where
there are two co-owners on the account, the account will be registered as "Owner
1" AND "Owner 2"; the "or" designation is not used EXCEPT for money market fund
accounts. If co-owners wish to have the ability to redeem or convert on the
signature of only one owner, a limited power of attorney may be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares registered as joint tenants or "Jt Ten" shall mean "as joint tenants with
rights of survivorship" and not "as tenants in common."
Except as indicated, you may transfer an account in the Fund carried in "street"
or "nominee" name by your securities dealer to a comparably registered Fund
account maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements on file with
Distributors. Unless a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and will so inform your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers 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 your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you will
be deemed to have authorized the use of electronic instructions on the account,
including, without limitation, those initiated through the services of the NSCC,
to have adopted as instruction and signature any such electronic instructions
received by the Fund and Investor Services, and to have authorized them to
execute the instructions without further inquiry. At the present time, such
services which are available include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment or by calling Franklin's Fund
Information Department.
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 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.
WHO RUNS THE FUNDS?
The team responsible for the day-to-day management of each Fund's portfolio is:
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
Thomas Latta
BIOGRAPHICAL INFORMATION
Roger Bayston
Portfolio Manager
of Advisers
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. He has
been with Advisers or an affiliate since earning his MBA degree in 1991.
Anthony Coffey
Portfolio Manager
of Advisers
Mr. Coffey is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of California at Los Angeles. He
earned a Bachelor of Arts degree in applied mathematics and economics from
Harvard University. Mr. Coffey has been with Advisers or an affiliate since
1989. He is a member of several securities industry-related associations.
Neil S. Devlin
Portfolio Manager
of TICI
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
of TICI
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 Templeton in 1994. He started managing the International Bond Fund
since January 1995.
Betsy Hofman-Schwab
Portfolio Manager
of Advisers
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.
Thomas Latta
Vice President Templeton
Global Bond Managers and
Portfolio Manager of TICI
Mr. Latta attended the University of Missouri and New York University. Mr.
Latta has been in the securities industry since 1981 and with Templeton since
1991. Prior to joining Templeton, Mr. Latta worked as a portfolio manager
with Forester and Hairston, a global fixed-income investment management firm,
and prior thereto, he worked as an investment adviser with Merrill Lynch. He
has managed the International Bond Fund since 1995.
Jack Lemein
Senior Vice President
of Advisers
Mr. Lemein holds a Bachelor of Science degree in finance from the University of
Illinois. He has been in the securities industry since 1967 and with Advisers or
an affiliate since 1984. He is a member of several securities industry-related
associations Mr. Lemein has managed the Government Fund since its inception.
Chris Molumphy
Portfolio Manager
of Advisers
Mr. Molumphy is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of Chicago. He earned his Bachelor
of Arts degree in economics from Stanford University. He has been with
Advisers or an affiliate since 1988. Mr. Molumphy is a member of several
securities industry-related associations. He has managed the High Yield Fund
since joining Franklin in 1988.
R. Martin Wiskemann
Senior Vice President
of Advisers
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.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended.
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager.
CLASS I AND CLASS II - "Classes" of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes, as determined by the Board. Certain funds in the
Franklin Templeton Funds currently offer their shares in two classes, designated
"Class I" and "Class II." Because the Funds' sales charge structure and plan of
distribution are similar to those of Class I shares, shares of the Funds may be
considered Class I shares for redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Funds' principal
underwriter.
EXCHANGE - New York Stock Exchange.
FRANKLIN FUNDS - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
FRANKLIN TEMPLETON FUNDS - the Franklin Funds and the Templeton Funds.
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc.
LETTER - Letter of Intent.
LIMITED PARTNERS - Purchasers of shares of limited partnership interests of a
Fund.
MANAGER - Franklin Advisers, Inc., the Fund's investment manager.
MANAGING GENERAL PARTNERS - The individuals authorized under the Agreement of
Limited Partnership to oversee the management, conduct and operation of each
Fund.
MARKET TIMER(S) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
NET ASSET VALUE (NAV) - the value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding. When you buy, sell or exchange shares, we will use
the NAV per share next calculated after we receive your request in proper form.
OFFERING PRICE - The public offering price is equal to the net asset value per
share plus the 4.25% sales charge.
PARTNERSHIP AGREEMENT - Agreement of Limited Partnership of the Funds, each
organized as a California Limited Partnership.
PROPER FORM (PURCHASES) - generally, the Funds must receive a completed
Shareholder Application accompanied by a negotiable check.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information.
SEC - Securities and Exchange Commission.
SECURITIES DEALER - financial institutions which, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SHAREHOLDERS - Limited partners.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system.
TEMPLETON FUNDS - the U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund.
U.S. - United States.
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be 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, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered medium grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
BA - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in 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.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
FRANKLIN
PARTNERS
FUNDS(R)
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, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777
1-800/DIAL BEN
CONTENTS PAGE
What Are the Funds' Potential Risks?
Investment Restrictions
Officers and Managing General Partners
Investment Advisory and Other Services
How Do the Funds Purchase Securities
For Their Portfolios?
How Do I Buy and Sell Shares?
How Are Fund Shares Valued?
Additional Information Regarding Taxation
The Funds' Underwriter
General Information
Financial Statements
Appendix A
Appendix B
Appendix C
The Franklin Partners Funds(R) (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. Each Fund is a separate and
distinct management investment company. 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.
A Prospectus for the Funds, dated May 1, 1996, as may be amended from time to
time, provides the basic information you should know before investing in the
Funds and may be obtained without charge from the Funds or the Funds'
principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown 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 YOU WITH ADDITIONAL INFORMATION
REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUNDS, AND SHOULD BE READ IN
CONJUNCTION WITH THE FUNDS' PROSPECTUS.
WHAT ARE THE FUNDS' POTENTIAL RISKS?
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. Transactions in
forward contracts, options and futures are generally considered "derivative
securities." 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 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 Fund may not be
able to close an option or futures position, or that the Fund could lose its
margin deposit or collateral in the event of bankruptcy of the broker with
whom it 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, not to invest more than
10% of its assets in securities with legal or contractual restrictions or
which are not readily marketable, and repurchase agreements with more than
seven days to maturity.
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.
INVESTMENT RESTRICTIONS
The Funds have adopted the following restrictions as fundamental policies,
which means that they may not be changed without the approval of a majority
of the outstanding voting securities of the applicable Fund. Under the
Investment Company Act of 1940, as amended (the "1940 Act"), a "vote of a
majority of the outstanding voting securities" of the applicable Fund means
the affirmative vote of the lesser of (i) more than 50% of the outstanding
shares of the Fund or (ii) 67% or more of the shares of the Fund present at a
shareholder meeting if more than 50% of the outstanding shares of the Fund
are represented at the meeting in person or by proxy.
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. 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 continuous operations.
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.
14. Invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets.
15. 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).
In addition to the Government Fund and the High Yield Fund's fundamental
policies, it is their present policy not to 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.
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.
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 day-to-day
operations of the Fund. 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
(*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Managing General Partner
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of
the investment companies in the Franklin Group of Funds.
Harris J. Ashton (63)
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 56 of the investment companies in the
Franklin Templeton Group of Funds.
*Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards 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 37 of the investment
companies in the Franklin Group of Funds.
S. Joseph Fortunato (63)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
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 58 of the investment companies in the Franklin Templeton Group of
Funds.
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
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 30 of the investment
companies in the Franklin Group of Funds.
*Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and 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 57 of the investment companies in the Franklin
Templeton Group of Funds.
*Charles E. Johnson (39)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
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 26 of the investment companies in the Franklin Templeton Group of
Funds.
*Rupert H. Johnson, Jr. (55)
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 43 of the
investment companies in the Franklin Templeton Group of Funds.
Gordon S. Macklin (67)
8212 Burning Tree Road
Bethesda, MD 20817
Managing General Partner
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin 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 53 of the investment companies in the Franklin
Templeton Group of Funds; and formerly held the following positions:
Chairman, Hambrecht and Quist Group; Director, H & Q Healthcare Investors;
and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; officer and/or director, as the
case may be, of other subsidiaries of Franklin Resources, Inc.; and officer
and/or director or trustee of 43 of the investment companies in the Franklin
Templeton Group of Funds.
Martin L. Flanagan (35)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; officer of most other subsidiaries of Franklin Resources,
Inc.; and officer of 61 of the investment companies in the Franklin Templeton
Group of Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; Vice President, Franklin Advisers, Inc. and
officer of 37 of the investment companies in the Franklin Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 32 of the investment companies in the
Franklin Group of Funds.
R. Martin Wiskemann (69)
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 20 of the investment companies in the Franklin Group of Funds.
The preceding table indicates those officers and managing general partners
who are also affiliated persons of Distributors and the investment manager.
Managing general partners of the Government Fund and the High Yield Fund not
affiliated with the investment manager ("nonaffiliated managing general
partners") are currently paid fees of $150 per quarter plus $150 per meeting
attended by each Fund. As indicated above, certain of the Funds'
nonaffiliated managing general partners also serve as directors, trustees or
managing general partners of other investment companies in the Franklin Group
of Funds(R) and the Templeton Group of Funds (the "Franklin Templeton Group of
Funds") from which they may receive fees for their services. The following
table indicates the total fees paid to nonaffiliated managing general
partners by the Funds and by other funds in the Franklin Templeton Group of
Funds. 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.
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL FEES NUMBER OF BOARDS
COMPENSATION COMPENSATIONRECEIVED FROM THE IN THE FRANKLIN TEMPLETON
FROM FROM FRANKLIN TEMPLETONGROUP OF FUNDS ON
NAME GOVERNMENT FUND* HIGH YIELD FUND*GROUP OF FUNDS**WHICH EACH SERVES***
<S> <C> <C> <C> <C>
Frank H. Abbott, III ......$900 $1,200 $162,420 31
Harris J. Ashton...........900 1,200 327,925 56
S. Joseph Fortunato....... 900 1,200 344,745 58
David W. Garbellano....... 900 1,200 146,100 30
Gordon S. Macklin......... 900 1,200 321,525 53
</TABLE>
*For the fiscal year ended December 31, 1995
**For the calendar year ended December 31, 1995.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
managing general partners are responsible. The Franklin Templeton Group of
Funds currently includes 61 registered investment companies, consisting of
approximately 162 U.S. based funds or series.
Nonaffiliated managing general partners are reimbursed for expenses incurred
in connection with attending board meetings, paid pro rata by each fund in
the Franklin Templeton Group of Funds for which they serve as director,
trustee or managing general partner. No officer or managing general partners
received any other compensation directly from the Funds. Certain officers or
managing general partners who are shareholders of Franklin Resources, Inc.
("Resources") may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its subsidiaries.
As of February 12, 1996, the managing general partners and officers, as a
group, together with Franklin Partners, Inc. as the Non-Managing General
Partner, owned 637,907 or 1.7% of the total outstanding shares of the
Government Fund, 174,488 or 0.8% of the outstanding shares of the High Yield
Fund and 37,712 or 1.4% of the total outstanding shares of the International
Bond Fund. Officers and managing general partners, as a group, owned of
record and beneficially approximately 114 shares of the High Yield Fund, 88
shares of the International Bond Fund and 31 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 and the father and uncle,
respectively, of Charles E. Johnson.
From time to time, the number of Fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding. To the best knowledge of the Fund, no other person holds
beneficially or of record more than 5% of the Fund's outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of each Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Resources, a publicly
owned holding company whose shares are listed on the New York Stock Exchange
(the "Exchange"). Resources owns several other subsidiaries that are involved
in investment management and shareholder services.
Pursuant to the management agreement, the Manager provides investment
research and portfolio management services, including the selection of
securities for each Fund to purchase, hold or sell and the selection of
brokers through whom the Fund's portfolio transactions are executed. The
Manager's activities are subject to the review and supervision of each Fund's
managing general partners to whom the Manager renders periodic reports of the
Fund's investment activities. Under the terms of the management agreement,
the Manager provides office space and office furnishings, facilities and
equipment required for managing the business affairs of 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. Please see the Statement of
Operations in the financial statements included in the Funds' Annual Report
to Shareholders dated December 31, 1995.
The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The
Manager may give advice and take action with respect to any of the other
funds it manages, or for its own account, which may differ from action taken
by the Manager on behalf of the Funds. Similarly, with respect to each Fund,
the Manager is not obligated to recommend, purchase or sell, or to refrain
from recommending, purchasing or selling any security that the Manager and
access persons, as defined by the 1940 Act, may purchase or sell for its or
their own account or for the accounts of any other fund. Furthermore, the
Manager is not obligated to refrain from investing in securities held by each
Fund or other funds which it manages or administers. Of course, any
transactions for the accounts of the Manager and other access persons will be
made in compliance with the Funds' Code of Ethics.
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.
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 its 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 2.5% of the first $30 million of
average net assets of each Fund, 2.0% of the next $70 million of average net
assets of each Fund and 1.5% of average net assets of each Fund in excess of
$100 million. Expense reductions have not been necessary based on state
requirements.
The Manager has agreed in advance to waive a portion of its management fees
for the International Bond Fund and to make certain payments to reduce
expenses. For the fiscal years ended December 31, 1993, 1994 and 1995,
management fees, before any advance waiver, were $100,033, $141,108 and
$151,345, respectively. There were no management fees paid by the
International Bond Fund for the fiscal years ended December 31, 1993 and
1994. The management fee paid by the International Bond Fund for the fiscal
year ended December 31, 1995, was $10,234.
For fiscal years ended December 31, 1993, 1994 and 1995, the High Yield Fund
paid $340,356, $481,741 and $$678,079 in management fees and the Government
Fund paid $2,331,382, $2,608,074 and $2,173,657 for the respective years.
The management agreements are in effect until April 30, 1997. Thereafter,
they may continue in effect for successive annual periods providing such
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 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 managing general partners or by a vote of the holders of a
majority of each Fund's outstanding voting securities, 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 New York, Mutual Funds Division, 90 Washington Street, New York, New
York, 10286, acts as custodian of the securities and other assets of each
Fund. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in
connection with the purchase of Fund shares. Citibank Delaware, One Penn's
Way, New Castle, Delaware 19720, acts as custodian in connection with
transfer services through bank automated clearing houses. The custodians do
not participate in decisions relating to the purchase and sale of portfolio
securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the independent auditors for each Fund. During the fiscal year ended
December 31, 1995, their auditing services consisted of rendering an opinion
on the financial statements included in the Funds' Annual Report.
HOW DO THE FUNDS PURCHASE SECURITIES FOR THEIR PORTFOLIOS?
Under the current management agreements, 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 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 that 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 interest, the Manager may place portfolio transactions with brokers who
provide the types of services described below, even if it means the Fund will
pay a higher commission than if no weight were given to the broker's
furnishing of these services. This will be done only if, in the opinion of
the Manager, the amount of any additional commission is reasonable in
relation to the value of the services. Higher commissions will be paid only
when the brokerage and research services received are bona fide and produce a
direct benefit to the Fund or assist the Manager in carrying out its
responsibilities to the Fund, or when it is otherwise in the best interest of
the Fund to do so, whether or not such services may also be useful to the
Manager in advising other clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to 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 the Manager from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services permits the Manager to supplement its
own research and analysis activities and to receive the views and information
of individuals and research staff of other securities firms. As long as it is
lawful and appropriate to do so, the Manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
Provided that 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 cases 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, 1994 and 1995, the Funds
paid no brokerage commissions. As of December 31, 1995, the Funds did not own
securities of their regular broker-dealers.
HOW DO I BUY AND SELL SHARES?
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of each Fund must be denominated in U.S. dollars. The Funds
reserves the right, in their sole discretion, to either (a) reject any order
for the purchase or sale of shares denominated in any other currency, or (b)
to honor the transaction or make adjustments to your account for the
transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of a Fund to
complete an exchange will be effected at the close of business on the day the
request for exchange is received in proper form at the net asset value then
effective. Please see "What If My Investment Outlook Changes? - Exchange
Privilege" in the Prospectus.
Dividend checks returned to a Fund marked "unable to forward" by the postal
service will be deemed to be a request to change your dividend option to
reinvest all distributions and the proceeds will be reinvested in additional
shares at net asset value until new instructions are received.
Each Fund may deduct from your account the costs of its efforts to locate you
if mail is returned as undeliverable or the Fund is otherwise unable to
locate you or verify your current mailing address. These costs may include a
percentage of the account when a search company charges a percentage fee in
exchange for its location services.
Under agreements with certain banks in Taiwan, Republic of China, the 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 one of its affiliates 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 U.S. DOLLARS CHARGE
- ---------------------------------------
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
the scheduled close of the Exchange (generally 1:00 p.m. Pacific time) any
business day that the Exchange is open for trading and promptly transmitted
to the Fund will be based upon the public offering price determined that day.
Purchase orders received by securities dealers or other financial
institutions after the scheduled close of the Exchange will be effected at
each Fund's public offering price on the day it is next calculated. The use
of the term "securities dealer" herein shall include other financial
institutions which, either directly or through affiliates, have an agreement
with Distributors to handle customer orders and accounts with the Fund. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity.
Orders for the redemption of shares are effected at net asset
value subject to the same conditions concerning time of receipt in proper
form. It is the securities dealer's responsibility to transmit the order in a
timely fashion and any loss to you resulting from the failure to do so must
be settled between you and the securities dealer.
OTHER PAYMENTS TO SECURITIES DEALERS
As discussed in the Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for
purchases made at net asset value by certain trust companies and trust
departments of banks as described below. Distributors may make these payments
in the form of contingent advance payments, which may be recovered from the
securities dealer or set off against other payments due to the securities
dealer in the event shares are redeemed within 12 months of the calendar
month of purchase. Other conditions may apply. All terms and conditions may
be imposed by an agreement between Distributors, or one of its affiliates,
and the securities dealer.
Either Distributors or one of its affiliates may pay the following amounts,
out of its own resources, to securities dealers who initiate and are
responsible for purchases made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers): 1% on sales of $1 million
but less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus
0.25% on sales of $50 million but less than $100 million, plus 0.15% on sales
of $100 million or more; and for purchases made at net asset value by certain
non-designated retirement plans: 0.75% on sales of $1 million but less than
$2 million, plus 0.60% on sales of $2 million but less than $3 million, plus
0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales
of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. These payment breakpoints are reset every 12 months for
purposes of additional purchases. With respect to purchases made at net asset
value by certain trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of
$10 million or more, either Distributors or one of its affiliates, out of its
own resources, may pay up to 1% of the amount invested.
LETTER OF INTENT
You may qualify for a reduced sales charge on the purchase of shares of a
Fund, as described in the Prospectus. At any time within 90 days after the
first investment which you want to qualify for a reduced sales charge, you
may file with the Fund a signed Shareholder Application with the Letter of
Intent (the "Letter") section completed. After the Letter 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. Your holdings in the Franklin Templeton Funds,
including Class II shares, acquired more than 90 days before the Letter is
filed, will be counted towards completion of the Letter but will not be
entitled to a retroactive downward adjustment in the sales charge. Any
redemptions you make, unless by a designated retirement plan, during the
13-month period will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter have been completed.
If the Letter 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 retirement plans. If you execute a Letter prior to a
change in the sales charge structure for the Fund, you will be entitled to
complete the Letter at the lower of the new sales charge structure or the
sales charge structure in effect at the time the Letter was filed.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in your
name. This policy of reserving shares does not apply to a designated
retirement plan. If the total purchases, less redemptions, equal the amount
specified under the Letter, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the total
purchases, less redemptions, exceed the amount specified under the Letter 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 (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, you will remit to Distributors an amount equal to
the difference in the dollar amount of sales charge actually paid and the
amount of sales charge that would have applied to the aggregate purchases if
the total of such purchases had been made at a single time. Upon such
remittance, the reserved shares held for your account will be deposited to an
account in your name or delivered to you or as you direct. If within 20 days
after written request the difference in sales charge is not paid, the
redemption of an appropriate number of reserved shares to realize the
difference will be made. In the event of a total redemption of the account
prior to fulfillment of the Letter, the additional sales charge due will be
deducted from the proceeds of the redemption, and the balance will be
forwarded to you.
If a Letter is executed on behalf of a designated retirement plan, the level
and any reduction in sales charge for these plans will be based on actual
plan participation and the projected investments in the Franklin Templeton
Funds under the Letter. These plans are not subject to the requirement to
reserve 5% of the total intended purchase, or to any penalty as a result of
the early termination of a plan, nor are these plans entitled to receive
retroactive adjustments in price for investments made before executing the
Letter.
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 the Fund's
net assets at the beginning of the 90-day period. This commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission ("SEC"). In the case of redemption requests in excess of these
amounts, the managing general partners reserve the right to make payments in
whole or in part in securities or other assets of the Fund, in case of an
emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In such circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the
securities to cash. The Funds do not intend to redeem illiquid securities in
kind. Should it happen, however, you may not be able to recover your
investment in a timely manner.
REDEMPTIONS BY THE FUNDS
Due to the relatively high cost of handling small investments, each Fund
reserves the right to involuntarily redeem your shares at net asset value if
your 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 your account has been reduced
by the prior voluntary redemption of shares and there has been no investment
(other than the reinvestment of any distributions) made within the six months
preceding notice of the Fund's intention to take this action. In any event,
before the Fund redeems your shares and sends you the proceeds, it will
notify you that the value of the shares in your account is less than the
minimum amount and allow you six months to make an additional investment in
an amount which will increase the value of your account to the minimum amount.
REPORTS TO SHAREHOLDERS
The Fund sends annual and semiannual reports regarding its performance and
portfolio holdings to shareholders. If you would like to receive an interim
quarterly report, you may phone Fund Information at 1-800/DIAL BEN.
HOW ARE FUND SHARES VALUED?
As noted in the Prospectus, each Fund calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading. As of the date of this SAI, the 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.
For the purpose of determining the aggregate net assets of each Fund, cash
and receivables are valued at their realizable amounts. Interest is recorded
as accrued and dividends are recorded on the ex-dividend date. Portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System for which market quotations are readily available are valued at the
last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and ask prices.
Over-the-counter portfolio securities are valued within the range of the most
recent quoted bid and ask prices. Portfolio securities which are traded both
in the over-the-counter market and on a stock exchange are valued according
to the broadest and most representative market as determined by the Manager.
Portfolio securities underlying actively traded call options are valued at
their market price as determined above. The current market value of any
option held by a Fund is its last sale price on the relevant exchange prior
to the time when assets are valued. Lacking any sales that day or if the last
sale price is outside the bid and ask prices, the options are valued within
the range of the current closing bid and ask prices if such valuation is
believed to fairly reflect the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business of the Exchange on each day on which the Exchange is open. Trading
in European or Far Eastern securities generally, or in a particular country
or countries, may not take place on every Exchange business day. Furthermore,
trading takes place in various foreign markets on days that are not business
days for the Exchange and on which the Fund's net asset value is not
calculated. The International Bond Fund calculates net asset value per share,
and therefore effects sales and redemptions of its shares, as of the
scheduled close of the Exchange each day that the Exchange is open for
trading. This calculation does not take place contemporaneously with the
determination of the prices of many of the portfolio securities used in the
calculation and, if events occur which materially affect the values of these
foreign securities, they will be valued at fair value as determined by
management and approved in good faith by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior
to the scheduled close of the Exchange. The value of these securities used in
computing the net asset value of a Fund's shares is determined as of such
times. Occasionally, events affecting the values of such securities may occur
between the times at which they are determined and the scheduled close of the
Exchange which will not be reflected in the computation of the Fund's net
asset value. If events materially affecting the values of these securities
occur during such period, then the securities will be valued at their fair
value as determined in good faith by the Board.
Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the Board. With the approval of
managing general partners, the Funds may utilize a pricing service, bank or
securities dealer to perform any of the above described functions.
ADDITIONAL INFORMATION REGARDING TAXATION
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 in the Funds' Annual Report).
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.
THE FUNDS' UNDERWRITER
Pursuant to underwriting agreements in effect until April 30, 1997,
Distributors acts as principal underwriter in a continuous public offering
for shares of each Fund. 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 the each Fund's
outstanding voting securities, and in either event by a majority vote of the
managing general partners who are not parties to the underwriting agreement
or interested persons of any such party (other than as managing general
partners of each Fund), 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.
Distributors pays the expenses of the 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.
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
is at net asset value.
In connection with the offering of the High Yield Fund's shares, aggregate
underwriting commissions for the fiscal years ended 1993, 1994 and 1995 were
$691,683, $400,528 and $550,638, respectively. After allowances to dealers,
Distributors retained $32,168, $24,102 and $22,287 in net underwriting
discounts and commissions and there were no fees received on redemptions or
repurchases of shares for the respective years. In connection with the
offering of the Government Fund's shares, aggregate underwriting commissions
for the fiscal years ended 1993, 1994 and 1995 were $6,282,489, $2,067,833
and $632,871, respectively. After allowances to dealers, Distributors
retained $190,128, $150,068 and $40,752 in net underwriting discounts and
there were no fees received on redemptions or repurchases of shares for the
respective years. For fiscal years ended December 31, 1993, 1994 and 1995,
underwriting commissions for the International Bond Fund were $303,473,
$219,143 and $102,938, respectively. After allowances to dealers,
Distributors retained $12,255, $12,763 and $5,763 in net underwriting
discounts and commissions and there were no fees received on redemptions or
repurchases of shares for the respective years. Distributors may be entitled
to reimbursement under each Fund's distribution plan, as discussed below.
Except as noted, Distributors received no other compensation from the Funds
for acting as underwriter.
DISTRIBUTION PLANS
The Funds have adopted 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, payable quarterly, for expenses
incurred in the promotion and distribution of its shares.
In implementing each Plan, the managing general partners have determined that
the annual fees payable under the Plans 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
May 1, 1994, 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 May 1, 1994
("Old Assets"). Such fees will be paid to the current securities dealer of
record on the 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 12b-1 expenses at the same rate. The initial
rate will be at least 0.07% (0.05% plus 0.02%) of the average daily net
assets and, as Fund shares are sold on or after May 1, 1994, will increase
over time. Thus, as the proportion of Fund shares purchased on or after the
May 1, 1994, increases in relation to outstanding Fund shares, 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 calculation for 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 calculation of 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 you are a customer of a bank that is prohibited from
providing such services, you would be permitted to remain a shareholder of
the Fund, and alternate means for continuing the servicing would be sought.
In such an event, changes in the services provided might occur and you might
no longer be able to avail yourself of any automatic investment or other
services then being provided by the bank. It is not expected that you would
suffer any adverse financial consequences as a result of any of these changes.
The Plans have been approved in accordance with the provisions of Rule 12b-1.
The Plans are effective through June 30, 1996, 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, 1995, the total amount paid by the
Government Fund, High Yield Fund and the International Bond Fund pursuant to
the Plans were $323,634, $114,863 and $21,362, which were used for the
following purposes.
DOLLAR
GOVERNMENT FUND AMOUNT
Advertising $15,500
Printing and mailing of prospectuses
to other than current shareholders $44,339
Payments to underwriters $17,355
Payments to brokers or dealers $246,439
DOLLAR
HIGH YIELD FUND AMOUNT
Advertising $2,676
Printing and mailing of prospectuses
to other than current shareholders $15,300
Payments to underwriters $4,418
Payments to brokers or dealers $92,469
DOLLAR
INTERNATIONAL BOND FUND AMOUNT
Advertising $911
Printing and mailing of prospectuses
to other than current shareholders $2,856
Payments to underwriters $1,013
Payments to brokers or dealers $16,582
For the fiscal year ended December 31, 1995, the total amount paid by the
Government Fund, High Yield Fund and the International Bond Fund pursuant to
the Plans were $310,266, $114,863 and $21,777, which were used for the
following purposes.
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.
PERFORMANCE
As noted in the Prospectus, each Fund may from time to time quote various
performance figures to illustrate the Fund's past performance and may
occasionally cite statistics to reflect its volatility or risk. Performance
quotations by investment companies are subject to rules adopted by the SEC.
These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by
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 front-end sales charge is deducted from the initial $1,000 purchase
order and income distributions and capital gains are reinvested at net asset
value. The quotation assumes the account was completely redeemed at the end
of each one-, five- and ten-year period and the deduction of all applicable
charges and fees. If a change is made on the sales charge structure,
historical performance information will be restated to reflect the maximum
front-end sales charge currently in effect.
In considering the quotations of total return by the Funds, you should
remember that the maximum front-end sales charge reflected in each quotation
is a one-time fee (charged on all direct purchases) which will have its
greatest impact during the early stages of your investment in a Fund. This
charge will affect actual performance less the longer you retain your
investment in the Fund. The average annual compounded rates of return for the
one- and five-year period ended on December 31, 1995, and for the period from
inception to December 31, 1995, were as follows:
ONE-YEAR FIVE-YEAR FROM
PERIOD PERIOD INCEPTION
Government Fund 13.39% 7.70% 8.88%*
High Yield Fund 14.44% 18.17% 9.59%*
International Bond
Fund 15.27% 7.65% 9.69%**
*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. These quotations are computed in
the same manner as each Fund's average annual compounded rate, except that
they 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 Funds total rates of return for the one- and
five-year period ended on December 31, 1995, and for the period from
inception to December 31, 1995, were as follows:
ONE-YEAR FIVE-YEAR FROM
PERIOD PERIOD INCEPTION
Government Fund 13.39% 44.88% 109.07%*
High Yield Fund 14.44% 130.42% 121.10%*
International Bond Fund 15.27% 44.55% 67.34%**
*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 and is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for
the period include any fees charged to all shareholders during the base
period. The yield for each Fund for the 30-day period ended December 31,
1995, were as follows:
Government Fund........... 6.29%
High Yield Fund............... 8.14%
International Bond Fund....... 6.33%
These figures were obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
CURRENT DISTRIBUTION RATE
Current 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
shareholders of the Funds. 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 premium income from option writing and
short-term capital gain, and is calculated over a different period of time.
The current distribution rate for the Funds for the fiscal year ended
December 31, 1995, was as follows:
Government Fund............. 6.18%
High Yield Fund............. 7.59%
International Bond Fund..... 6.79%
VOLATILITY
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare Fund net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities
in which the fund invests. A beta of more than 1.00 indicates volatility
greater than the market and a beta of less than 1.00 indicates volatility
less than the market. Another measure of volatility or risk is standard
deviation. Standard deviation is used to measure variability of net asset
value or total return around an average over a specified period of time. The
idea is that greater volatility means greater risk undertaken in achieving
performance.
OTHER PERFORMANCE QUOTATIONS
For investors who are permitted to purchase shares of a Fund at net asset
value, sales literature pertaining to the Fund may quote a current
distribution rate, yield, total return, average annual total return and other
measures of performance as described elsewhere in this SAI with the
substitution of net asset value for the public offering price.
Sales literature referring to the use of the Fund as a potential investment
for Individual Retirement Accounts (IRAs), Business Retirement Plans, and
other tax-advantaged retirement plans may quote a total return based upon
compounding of dividends on which it is presumed no federal income tax
applies.
Regardless of the method used, past performance is not necessarily indicative
of future results, but is an indication of the return to shareholders only
for the limited historical period used.
The 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
advisors and underwriter of both the Franklin Group of Funds and Templeton
Group of Funds.
COMPARISONS
To help you better evaluate how an investment in a Fund may satisfy your
investment objective, advertisements and other materials regarding the Funds
may discuss certain 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 and 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) 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.
f) 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.
g) Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
h) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch,
Lehman Brothers and Bloomberg L.P.
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 ReportAE - Industry
averages for seven-day annualized and compounded yields of taxable, tax-free,
and government money funds.
l) Bond Buyer's 20-Bond Index - an index of municipal bond yields based upon
yields of 20 general obligation bonds maturing in 20 years.
m) Bond Buyer's 30-Bond Index - an index of municipal bond yields based upon
yields of 20 revenue bonds maturing in 30 years.
n) Financial publications: The Wall Street Journal, Business Week, Financial
World, Forbes, Fortune, and Money magazines- provide performance statistics
over specified time periods.
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 highlights or summarizes 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 the Funds is not insured by any federal, state
or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and that the items included in the calculations of the 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 you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college cost
and/or other long-term goals. The Franklin College Costs Planner may assist
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 you 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 of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years
and now services more than 2.5 million shareholder accounts. In 1992,
Franklin, a leader in managing fixed-income mutual funds and an innovator in
creating domestic equity funds, joined forces with Templeton Worldwide, Inc.,
a pioneer in international investing. Together, the Franklin Templeton Group
has over $135 billion in assets under management for more than 3.9 million
U.S. based mutual fund shareholder and other accounts. The Franklin Group of
Funds and the Templeton Group of Funds offer to the public 114 U.S. based
mutual funds. Each Fund may identify itself by its NASDAQ symbol or CUSIP
number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past seven years.
As of February 12, 1996, the principal shareholders of the Funds, beneficial
or of record 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
Employees of Resources or its subsidiaries who are access persons under the
1940 Act are permitted to engage in personal securities transactions subject
to the following general restrictions and procedures: (i) the trade must
receive advance clearance from a compliance officer and must be completed
within 24 hours after clearance; (ii) copies of all brokerage confirmations
must be sent to a 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; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and
inform the compliance officer (or other designated personnel) if they own a
security that is being considered for a fund or other client transaction or
if they are recommending a security in which they have an ownership interest
for purchase or sale by a fund or other client.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or authority
to control your account, 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 audited financial statements contained in the Annual Report to
Shareholders of the Fund, dated December 31, 1995, including the auditors'
report, are incorporated herein by reference.
Appendix A
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
Appendix B
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
Appendix C
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 U.S. GOVERNMENT SECURITIES FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
File Nos. 33-11963
811-5007
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated December 31, 1995 as
filed with the SEC electronically on Form Type N-30D on February 28, 1996
(i) Report of Independent Auditors
(ii) Statement of Investments in Securities and Net Assets - December
31, 1995
(iii)Statement of Assets and Liabilities - December 31, 1995
(iv) Statement of Operations - for the year ended December 31, 1995
(v) Statements of Changes in Net Assets - for the years ended
December 31, 1995 and 1994
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits are attached herewith, except for exhibits 6(iv),
8(iii), and 14(i), which are incorporated by reference:
(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 August 2, 1988
(3) copies of any voting trust agreement with respect to more than
five percent of any class of equity securities of the Registrant;
Not Applicable
(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;
Not Applicable
(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)Amended and Restated Disttribution Agreement between
Registrant and Franklin/Templeton Distributors, Inc., dated
April 23, 1995
(iv) 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;
Not Applicable
(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 April 10, 1987
(ii) Amendment to Custodian Agreement between Registrant and Bank
of America NT & SA dated April 12, 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
(iv) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
(v) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
(9) copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part
at or after the date of filing the Registration Statement;
Not Applicable
(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 February 23, 1996
(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 dated May 1, 1995
(ii) Consent of Independent Auditors dated February 27, 1996
(12) all financial statements omitted from Item 23;
Not Applicable
(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;
Not Applicable
(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 is 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 for Computation of Performance Quotation
(17) Power of Attorney
(i) Power of Attorney dated February 16, 1995
(ii) Certificate of Secretary dated February 16, 1995
(27) Financial Data Schedule for the Registrant
(i) Financial Data Schedule
Item 25 Persons Controlled by or under Common Control with Registrant
None
Item 26 Number of Holders of Securities
As of December 31, 1995 the number of record holders of the only class of
securities of the Registrant was as follows:
Title of Class Number of Record Holders
Shares of Partnership 6591
Interest
Item 27 Indemnification
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 and
Schedules A and D of Form ADV of the Funds' Investment Manager (SEC File
801-26292), incorporated herein by reference, which sets forth the officers
and directors of the Investment Manager and information as to any business,
profession, vocation or employment of a substantial nature engaged in by
those officers and directors during the past two years.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of Franklin Gold Fund, Franklin Premier
Return Fund, Franklin Equity Fund, AGE High Income Fund, Inc., Franklin
Custodian Funds, Inc., Franklin Money Fund, Franklin California Tax-Free
Income Fund, Inc., Franklin Federal Money Fund, Franklin Tax-Exempt Money
Fund, Franklin New York Tax-Free Income Fund, Inc., Franklin Federal
Tax-Free Income Fund, Franklin Tax-Free Trust, Franklin California
Tax-Free Trust, Franklin New York Tax-Free Trust, Franklin Investors
Securities Trust, Institutional Fiduciary Trust, Franklin Value Investors
Trust, Franklin Tax-Advantaged International Bond Fund, Franklin
Tax-Advantaged High Yield Securities Fund, Franklin Municipal Securities
Trust, Franklin Managed Trust, Franklin Strategic Series, Franklin
International Trust, Franklin Real Estate Securities Trust, Franklin
Templeton Global Trust, Franklin Templeton Money Fund Trust, Franklin
Templeton Japan Fund, Templeton American Trust, Inc., Templeton Capital
Accumulator Fund, Inc., Templeton Developing Markets Trust, Templeton
Funds, Inc., Templeton Global Investment Trust, Templeton Global
Opportunities Trust, Templeton Growth Fund, Inc., Templeton Income Trust,
Templeton Institutional Funds, Inc., Templeton Real Estate Securities
Fund, Templeton Smaller Companies Growth Fund, Inc., and Templeton
Variable Products Series Fund.
(b) The information required by this Item 29 with respect to each
director and officer of Distributors is incorporated by reference to Part
B of this N-1A and Schedule A of Form BD filed by Distributors with the
Securities and Exchange Commission pursuant to the Securities Act of 1934
(SEC File No. 8-5889)
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 28th day of February 1996.
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT 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 28, 1996
Frank H. Abbott, III* Managing General Partner
Frank H. Abbott, III Dated: February 28, 1996
Harris J. Ashton* Managing General Partner
Harris J. Ashton Dated: February 28, 1996
Kenneth V. Domingues* Managing General Partner,
Kenneth V. Domingues Tax-Matters Partner
Dated: February 28, 1996
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: February 28, 1996
S. Joseph Fortunato* Managing General Partner
S. Joseph Fortunato Dated: February 28, 1996
David W. Garbellano* Managing General Partner
David W. Garbellano Dated: February 28, 1996
Charles B. Johnson* Managing General Partner
Charles B. Johnson Dated: February 28, 1996
Charles E. Johnson* Managing General Partner
Charles E. Johnson Dated: February 28, 1996
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: February 28, 1996
Gordon S. Macklin* Managing General Partner
Gordon S. Macklin Dated: February 28, 1996
*By
Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Amended and Restated Agreement of Attached
Limited Partnership dated May 1, filed in
1987, as amended April 28, 1988 and part B
May 1, 1991
EX-99.B2(i) Operating Procedures Attached
EX-99.B2(ii) Amendment to By-Laws dated August 2, Attached
1988
EX-99.B5(i) Management Agreement dated May 4, Attached
1987
EX-99.B6(i) Distribution Agreement dated May 4, Attached
1987
EX-99.B6(ii) Amendment to Distribution Agreement Attached
dated July 1, 1993
EX-99.B6(iii) Amended and Restated Distribution Attached
Agreement between Registrant and
Franklin Templeton Distributors, Inc.
dated April 23, 1995
EX-99.B6(iv) Forms of Dealer Agreements *
EX-99.B8(i) Custodian Agreement dated April 10, Attached
1987
EX-99.B8(ii) Amendment to Custodian Agreement Attached
between Registrant and Bank of
America NT & SA dated April 12, 1995
EX-99.B8(iii) Copy of Custodian Agreements between *
Registrant and Citibank Delaware
EX-99.B8(iv) Master Custody Agreement between Attached
Registrant and Bank of New York dated
February 16, 1996
EX-99.B8(v) Terminal Link Agreement between Attached
Registrant and Bank of New York dated
February 16, 1996
EX-99.B10(i) Opinion and Consent of Counsel dated Attached
February 23, 1996
EX-99.B11(i) Tax Opinion and Consent dated May 1, Attached
1995
EX-99.B11(ii) Consent of Independent Auditors dated Attached
February 27, 1996
EX-99.B14(i) Copy of Model Retirement Plan *
EX-99.B15(i) Distribution Plan dated July 1, 1994 Attached
EX-99.B16(i) Schedule for Computation of Attached
Performance Quotation
EX-99.B17(i) Power of Attorney dated February 16, Attached
1995
EX-99.B17(ii) Certificate of Secretary dated Attached
February 16, 1995
EX-27.B1 Financial Data Schedule Attached
*Incorporated by Reference
OPERATING PROCEDURES
for the regulation and management, except as
otherwise provided by statute or
the Agreement of Limited Partnership.
of the
FRANKLIN TAX-ADVANTAGED U S. GOVERNMENT 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 U.S. GOVERNMENT 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 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 U.S. Government
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 U.S. GOVERNMENT SECURITIES FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN TAX-ADVANTAGED U.S.
GOVERNMENT 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;
(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 the 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 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
U.S. GOVERNMENT SECURITIES FUND
/s/ Charles B. Johnson
Charles B. Johnson
FRANKLIN ADVISERS, INC.
/s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT 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 us.
13. Other Activities. Your services pursuant to this Agreement shall not be
deemed to be exclusive, and you may render similar services and act as an
underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. Term of Agreement. This Agreement shall become effective on the date of its
execution, and shall remain in effect for a period of 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 U.S. GOVERNMENT
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 U.S. Government Securities Fund
Amendment to Distribution Agreement
WHEREAS, a majority of the Managing General Partners of Franklin
Tax-Advantaged U.S. Government 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 U S. GOVERNMENT 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
FRANKLIN TAX-ADVANTAGE U.S. GOVERNMENT
SECURITIES FUND
(A California Limited Partnership)
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
Gentlemen:
We (the "Fund") are a California limited partnership operating as an open-end
management investment company or "mutual fund", which is registered under the
Investment Company Act of 1940 (the "1940 Act") and whose shares are registered
under the Securities Act of 1933 (the "1933 Act"). We desire to issue one or
more series or classes of our authorized but unissued shares of capital stock or
beneficial interest (the "Shares") to authorized persons in accordance with
applicable Federal and State securities laws. The Fund's Shares may be made
available in one or more separate series, each of which may have one or more
classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company is a
member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this Distribution
Agreement ("Agreement") to you by a resolution of our Managing General Partners
("Board") passed at a meeting at which a majority of Board members, including a
majority who are not otherwise interested persons of the Fund and who are not
interested persons of our investment adviser, its related organizations or with
you or your related organizations, were present and voted in favor of the said
resolution approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this Agreement and in
consideration of the agreements on your part herein expressed and upon the terms
and conditions set forth herein, we hereby appoint you as the exclusive sales
agent for our Shares and agree that we will deliver such Shares as you may sell.
You agree to use your best efforts to promote the sale of Shares, but are not
obligated to sell any specific number of Shares.
However, the Fund and each series retain the right to make direct sales of
its Shares without sales charges consistent with the terms of the then current
prospectus and applicable law, and to engage in other legally authorized
transactions in its Shares which do not involve the sale of Shares to the
general public. Such other transactions may include, without limitation,
transactions between the Fund or any series or class and its shareholders only,
transactions involving the reorganization of the Fund or any series, and
transactions involving the merger or combination of the Fund or any series with
another corporation or trust.
2. Independent Contractor. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to promote the sale of Shares. You may appoint
sub-agents or distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase on our behalf or
otherwise act as our agent for any purpose.
3. Offering Price. Shares shall be offered for sale at a price equivalent
to the net asset value per share of that series and class plus any applicable
percentage of the public offering price as sales commission or as otherwise set
forth in our then current prospectus. On each business day on which the New York
Stock Exchange is open for business, we will furnish you with the net asset
value of the Shares of each available series and class which shall be determined
in accordance with our then effective prospectus. All Shares will be sold in the
manner set forth in our then effective prospectus and statement of additional
information, and in compliance with applicable law.
4. Compensation.
A. Sales Commission. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and class
of each Fund's Shares in the amount of any initial, deferred or contingent
deferred sales charge as set forth in our then effective prospectus. You may
allow any sub-agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable, so long as any
such commissions or discounts are set forth in our current prospectus to the
extent required by the applicable Federal and State securities laws. You may
also make payments to sub-agents or dealers from your own resources, subject to
the following conditions: (a) any such payments shall not create any obligation
for or recourse against the Fund or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our prospectus
or statement of additional information to the extent such laws may require.
B. Distribution Plans. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted as
to any series and class of any Fund's Shares pursuant to Rule 12b-1 under the
1940 Act.
5. Terms and Conditions of Sales. Shares shall be offered for sale only in
those jurisdictions where they have been properly registered or are exempt from
registration, and only to those groups of people which the Board may from time
to time determine to be eligible to purchase such shares.
6. Orders and Payment for Shares. Orders for Shares shall be directed to
the Fund's shareholder services agent, for acceptance on behalf of the Fund. At
or prior to the time of delivery of any of our Shares you will pay or cause to
be paid to the custodian of the Fund's assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of Shares shall be
deemed to be made when and where accepted by the Fund's shareholder services
agent. The Fund's custodian and shareholder services agent shall be identified
in its prospectus.
7. Purchases for Your Own Account. You shall not purchase our Shares for
your own account for purposes of resale to the public, but you may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.
8. Sale of Shares to Affiliates. You may sell our Shares at net asset
value to certain of your and our affiliated persons pursuant to the applicable
provisions of the federal securities statutes and rules or regulations
thereunder (the "Rules and Regulations"), including Rule 22d-1 under the 1940
Act, as amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and certified financial
statements of our company to be included in any Post-Effective
Amendments ("Amendments") to our Registration Statement under the
1933 Act or 1940 Act, including the prospectus and statement of
additional information included therein;
(b) Of the preparation, including legal fees, and printing of all
Amendments or supplements filed with the Securities and Exchange
Commission, including the copies of the prospectuses included in
the Amendments and the first 10 copies of the definitive
prospectuses or supplements thereto, other than those
necessitated by your (including your "Parent's") activities or
Rules and Regulations related to your activities where such
Amendments or supplements result in expenses which we would not
otherwise have incurred;
(c) Of the preparation, printing and distribution of any reports or
communications which we send to our existing shareholders; and
(d) Of filing and other fees to Federal and State securities
regulatory authorities necessary to continue offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any supplements
thereto and statements of additional information which are
necessary to continue to offer our Shares;
(b) Of the preparation, excluding legal fees, and printing of all
Amendments and supplements to our prospectuses and statements of
additional information if the Amendment or supplement arises from
your (including your "Parent's") activities or Rules and
Regulations related to your activities and those expenses would
not otherwise have been incurred by us;
(c) Of printing additional copies, for use by you as sales
literature, of reports or other communications which we have
prepared for distribution to our existing shareholders; and
(d) Incurred by you in advertising, promoting and selling our Shares.
10. Furnishing of Information. We will furnish to you such information
with respect to each series and class of Shares, in such form and signed by such
of our officers as you may reasonably request, and we warrant that the
statements therein contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our Shares for sale to the public under
the Blue Sky Laws of jurisdictions in which you may wish to offer them. We will
furnish you with annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual financial
statements prepared by us, with registration statements and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.
11. Conduct of Business. Other than our currently effective prospectus,
you will not issue any sales material or statements except literature or
advertising which conforms to the requirements of Federal and State securities
laws and regulations and which have been filed, where necessary, with the
appropriate regulatory authorities. You will furnish us with copies of all such
materials prior to their use and no such material shall be published if we shall
reasonably and promptly object.
You shall comply with the applicable Federal and State laws and
regulations where our Shares are offered for sale and conduct your affairs with
us and with dealers, brokers or investors in accordance with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares are tendered to
us for redemption or repurchase by us within seven business days after your
acceptance of the original purchase order for such Shares, you will immediately
refund to us the full sales commission (net of allowances to dealers or brokers)
allowed to you on the original sale, and will promptly, upon receipt thereof,
pay to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender for redemption
within 10 days of the day on which notice of such tender for redemption is
received by us.
13. Other Activities. Your services pursuant to this Agreement shall not be
deemed to be exclusive, and you may render similar services and act as an
underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. Term of Agreement. This Agreement shall become effective on the date
of its execution, and shall remain in effect for a period of two (2) years. The
Agreement is renewable annually thereafter, with respect to the Fund or, if the
Fund has more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of the
outstanding voting securities of the Fund or, if the Fund has more than one
series, of each series, or (b) by a vote of the Board, and (ii) by a vote of a
majority of the members of the Board who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of voting on the
Agreement.
This Agreement may at any time be terminated by the Fund or by any
series without the payment of any penalty, (i) either by vote of the Board or by
vote of a majority of the outstanding voting securities of the Fund or any
series on 90 days' written notice to you; or (ii) by you on 90 days' written
notice to the Fund; and shall immediately terminate with respect to the Fund and
each series in the event of its assignment.
15. Suspension of Sales. We reserve the right at all times to suspend or
limit the public offering of Shares upon two days' written notice to you.
16. Miscellaneous. This Agreement shall be subject to the laws of the
State of California and shall be interpreted and construed to further promote
the operation of the Fund as an open-end investment company. This Agreement
shall supersede all Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset Value," "Offering
Price," "Investment Company," "Open-End Investment Company," "Assignment,"
"Principal Underwriter," "Interested Person," "Parent," "Affiliated Person," and
"Majority of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or to
our securities holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties hereunder, or by reason of your reckless disregard of your obligations
and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
(A California Limited Partnership)
By: /s/ Deborah R. Gatzek
Accepted:
Franklin/Templeton Distributors, Inc.
By: /s/ Gregory E. Johnson
DATED: April 23, 1995
CUSTODIAN AGREEMENT
AGREEMENT, made as of April 10, 1987, between Franklin Tax-Advantaged U.
S. Government Securities Fund, a California Limited Partnership (hereinafter
called the "Fund"), and Bank of America NT & SA, a national banking association
(hereinafter called the "Custodian").
WITNESSETH:
WHEREAS, the Fund is registered as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified,
open-end management company which will make shares of partnership interest (the
"Shares") available for purchase and desires that its securities and cash shall
be held and administered by the Custodian pursuant to the terms of this
Agreement; and
WHEREAS, the Custodian has an aggregate capital, surplus, and undivided
profits in excess of Two Million Dollars ($2,000,000) and has its functions and
physical facilities supervised by federal authority and is ready and willing to
serve pursuant to and subject to the terms of this Agreement:
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and Custodian agree as follows:
Sec. 1. Definitions:
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages and other obligations and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase, or subscribe for the same, or evidencing or representing any other
rights or interests therein, or in any property or assets.
The term "proper instructions" shall mean a request or direction by
telephone or any other communication device from an authorized Fund designee to
be followed by a certification in writing signed in the name of the Fund by any
two of the following persons: the President, a Vice-President, the Secretary and
Treasurer of the Fund, or any other persons duly authorized to sign by the
Managing General Partners of the Fund and for whom authorization has been
communicated in writing to the Custodian. The term "proper officers" shall mean
the officers authorized above to give proper instructions.
Sec. 2. Names, Titles and Signatures of Authorized Signers:
An officer or Managing General Partner of the Fund will certify to
Custodian the names and signatures of those persons authorized to sign in
accordance with Sec. 1 hereof, and on a timely basis, of any changes which
thereafter may occur.
Sec. 3. Receipt and Disbursement of Money:
Custodian shall open and maintain a separate account or accounts in the
name of the Fund, subject only to draft or order by Custodian acting pursuant to
the terms of this Agreement, ("Direct Demand Deposit Account"). Custodian shall
hold in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the accounts of the Fund. This shall include, without
limitation, the proceeds from the sale of Shares of the Fund which shall be
received along with proper instructions from the Fund. All such payments
received by Custodian shall be converted to Federal Funds no later than the day
after receipt and deposited to such Direct Demand Deposit Account.
Custodian shall make payments of cash to, or for the account of, the Fund
from such cash or Direct Demand Deposit Account only (a) for the purchase of
securities for the portfolio of the Fund upon the delivery of such securities to
Custodian registered in the name of the Custodian or of the nominee or nominees
thereof, in the proper form for transfer, (b) for the redemption of Shares of
the Fund, (c) for the payment of interest, dividends, taxes, management or
supervisory fees or any operating expenses (including, without limitations
thereto, insurance premiums, fees for legal, accounting and auditing services),
(d) for payments in connection with the conversion, exchange or surrender of
securities owned or subscribed to by the Fund held by or to be delivered to
Custodian; or (e) for other proper Fund purposes. Before making any such payment
Custodian shall receive and may rely upon, proper instructions requesting such
payment and setting forth the purposes of such payment.
Custodian is hereby authorized to endorse and collect for the account of
the Fund all checks, drafts or other orders for the payment of money received by
Custodian for the account of the Fund.
Sec. 4. Holding of Securities:
Custodian shall hold all securities received by it for the account of the
Fund, pursuant to the provisions hereof, in accordance with the provisions of
Section 17(f) of the Investment Company Act of 1940 and the regulations
thereunder. All such securities are to be held or disposed of by the Custodian
for, and subject at all times to the proper instructions of, the Fund, pursuant
to the terms of this Agreement. The Custodian shall have no power of authority
to assign, hypothecate, pledge or otherwise dispose of any such securities and
investments, except pursuant to the proper instructions of the Fund and only for
the account of the Fund as set forth in Sec. 5 of this Agreement.
Sec. 5. Transfer, Exchange or Delivery, of Securities:
Custodian shall have sole power to release or to deliver any securities of
the Fund held by it pursuant to this Agreement. Custodian agrees to transfer,
exchange, or deliver securities held by it hereunder only (a) for the sales of
such securities for the account of the Fund upon receipt by Custodian of payment
therefor, (b) when such securities are called, redeemed or retired or otherwise
become payable, (c) for examination by any broker selling any such securities in
accordance with "street delivery" custom, (d) in exchange for or upon conversion
into other securities alone or other securities and cash whether pursuant to any
plan or merger, consolidation, reorganization, recapitalization or readjustment,
or otherwise, (e) on conversion of such securities pursuant to their terms into
other securities, (f) upon exercise of subscription, purchase or other similar
rights represented by such securities, (g) for the purpose of exchanging interim
receipts or temporary securities for definitive securities, (h) for the purpose
of redeeming in kind Shares of the Fund upon delivery thereof to Custodian, or
(i) for other proper Fund purposes. Any securities or cash receivable in
exchange for such deliveries made by Custodian, shall be deliverable to
Custodian. Before making any such transfer, exchange or delivery, the Custodian
shall receive, and may rely upon, proper instructions authorizing such transfer,
exchange or delivery and setting forth the purpose thereof.
Sec. 6. Other Actions of Custodians:
(a) The Custodian shall collect, receive and deposit income dividends,
interest and other payments or distribution of cash or property of whatever kind
with respect to the securities held hereunder; receive and collect securities
received as a distribution upon portfolio securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, consolidation,
merger, readjustment, distribution of rights and other items of like nature, or
otherwise, and execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with the collection of coupons upon
corporate securities, setting forth in any such certificate or affidavit the
name of the Fund as owner of such securities; and do all other things necessary
or proper in connection with the collection, receipt and deposit of such income
and securities, including without limiting the generality of the foregoing,
presenting for payment all coupons and other income items requiring presentation
and presenting for payment all securities which may be called, redeemed, retired
or otherwise become payable. Amounts to be collected hereunder shall be credited
to the account of the Fund according to the following formula:
(1) Periodic interest payments and final payments on maturities of
Federal instruments such as U.S. Treasury bills, bonds and notes; interest
payments and final payments on maturities of other money market instruments
including tax-exempt money market instruments payable in federal or depository
funds; and payments on final maturities of GNMA instruments, shall be credited
to the account of the Fund on payable or maturity date.
(2) Dividends on equity securities and interest payments, and
payments on final maturities of municipal bonds (except called bonds) shall be
credited to the account of the Fund on payable or maturity date plus one.
(3) Payments for the redemption of called bonds, including called
municipal bonds shall be credited to the account of the Fund on the payable date
except that called municipal bonds paid in other than Federal or depository
funds shall be credited on payable date plus one.
(4) Periodic payments of interest and/or of partial principal on
GNMA instruments (other than payments on final maturity) shall be credited to
the account of the Fund on payable date plus three.
(5) Proceeds of insurance in lieu of any payments on municipal
securities in default shall be credited to the account of the Fund on date of
receipt.
(6) Should the Custodian fail to credit the account of the Fund on
the date specified in paragraphs (1) - (5) above, the Fund may at its option,
require compensation from the Custodian of foregone interest (at the rate of
prime plus one) and for damages, if any.
(b) Payments to be received or to be paid in connection with purchase and
sale transactions shall be debited or credited to the account of the Fund on the
contract settlement date with the exception of "when-issued" municipal bonds.
Payments to be made for purchase by the Fund of when-issued municipal bonds
shall be debited to the account of the Fund on actual settlement date.
(1) In the event a payment is wrongfully debited to the account of
the Fund due to an error by the Custodian, the Custodian will promptly credit
such amount to the Fund, plus interest (prime plus one) and damages, if any.
(2) In the event a payment is credited to the account of the Fund
and the Custodian is unable to deliver securities being sold due to an error on
the part of the Fund, such payment shall be debited to the account of the Fund,
and an appropriate charge for costs of the transaction may be sent by the
Custodian to the Fund.
Sec. 7. Reports by Custodian:
Custodian shall each business day furnish the Fund with a statement
summarizing all transactions and entries for the account of the Fund for the
preceding day. At the end of every month Custodian shall furnish the Fund with a
list of the portfolio securities showing the quantity of each issue owned, the
cost of each issue and the market value of each issue at the end of each month.
Such monthly report shall also contain separate listings of (a) unsettled trades
and (b) when-issued securities. Custodian shall furnish such other reports as
may be mutually agreed upon from time to time.
Sec. 8. Compensation:
Custodian shall be paid as compensation for its services pursuant to this
Agreement such compensation as may from time to time be agreed upon in writing
between the two parties.
Sec. 9. Liabilities and Indemnifications:
(a) Custodian shall not be liable for any action taken in good faith upon
any proper instructions herein described or pursuant to a certified copy of any
resolution of the Managing General Partners of the Fund, and may rely on the
genuineness of any such document which it may in good faith believe to have been
validly executed.
(b) The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assigned against it or its nominee in
connection with the performance of this Agreement, except such as may arise from
negligent action, negligent failure to act or willful misconduct of Custodian or
its nominee.
Sec. 10. Records:
The Custodian hereby acknowledges that all of the records it shall prepare
and maintain pursuant to this Agreement shall be the property of the Fund and,
if and to the extent applicable, of the principal underwriter of the Shares of
the Fund, and that upon proper instructions of the Fund or such principal
underwriter, if any, or both, it shall:
(a) Deliver said records to the Fund, principal underwriter or a successor
custodian, as appropriate:
(b) Provide the auditors of the Fund or principal underwriter or any
securities regulatory agency with a copy of such records without charge; and
provide the Fund and successor custodian with a reasonable number of reports and
copies of such records at a mutually agreed upon charge appropriate to the
circumstances.
(c) Permit any securities regulatory agency to inspect or copy during
normal business hours of the Custodian any such records.
Sec. 11. Appointment of Agents:
(a) The Custodian shall have the authority, in its discretion, to appoint
an agent or agents to do and perform any acts or things for and on behalf of the
Custodian, pursuant at all times to its instructions, as the Custodian is
permitted to do under this Agreement.
(b) Any agent or agents appointed to have physical custody of securities
held under this Agreement or any part thereof must be: (1) a bank or banks, as
that term is defined in Section 2(a)(5) of the 1940 Act, having an aggregate,
surplus and individual profits of not less than $2,000,000 (or such greater sum
as may then be required by applicable laws), or (2) a securities depository,
(the "Depository") as that term is defined in Rule 17f-4 under the 1940 Act,
upon proper instructions from the Fund and subject to any applicable
regulations, or (3) the book-entry system of the U.S. Treasury Department and
Federal Reserve Board, (the "System") upon proper instructions and subject to
any applicable regulations.
(c) With respect to portfolio securities deposited or held in the System
or the Depository Custodian shall:
1) hold such securities in a nonproprietary account which shall
not include securities owned by Custodian;
2) on each day on which there is a transfer to or from the Fund
in such portfolio securities, send a written confirmation to
the Fund;
3) upon receipt by Custodian, send promptly to the Fund (i) a
copy of any reports Custodian receives from the System or
the Depository concerning internal accounting controls, and
(ii) a copy of such reports on Custodian's systems of
internal accounting controls as the Fund may reasonably
request.
(d) The delegation of any responsibilities or activities by the Custodian
to any agent or agents shall not relieve the Custodian from any liability which
would exist if there were no such delegation.
Sec. 12. Assignment and Termination:
(a) This Agreement may not be assigned by the Fund or the Custodian
without written consent of the other party.
(b) Either the Custodian or the Fund may terminate this Agreement without
payment of any penalty, at any time upon one hundred twenty (120) days written
notice thereof delivered by the one to the other, and upon the expiration of
said one hundred twenty (120) days, this Agreement shall terminate; provided,
however, that this Agreement shall continue thereafter for such period as may be
necessary for the complete divestiture of all assets held hereinunder, as next
herein provided. In the event of such termination, the Custodian will
immediately upon the receipt or transmittal of such notice, as the case may be,
commence and prosecute diligently to completion the transfer of a11 cash and the
delivery of all portfolio securities, duly endorsed, to the successor of the
Custodian when appointed by the Fund. The Fund shall select such successor
custodian within sixty (60) days after the giving of such notice of termination,
and the obligation of the Custodian named herein to deliver and transfer over
said assets directly to such successor custodian shall commence as soon as such
successor is appointed and shall continue until completed, as aforesaid. At any
time after termination hereof the Fund may have access to the records of the
administration of this custodianship whenever the same may be necessary.
(c) If, after termination of the services of the Custodian, no successor
custodian has been appointed within the period above provided, the Custodian may
deliver the cash and securities owned by the Fund to a bank or trust company of
its own selection having an aggregate capital, surplus and undivided profits of
not less than Two Million Dollars ($2000,000) (or such greater sum as may then
be required by the laws and regulations governing the conduct by the Fund of its
business as an investment company) and having its functions and physical
facilities supervised by federal or state authority, to be held as the property
of the Fund under the terms similar to those on which they were held by the
retiring Custodian, whereupon such bank or trust company so selected by the
Custodian shall become the successor custodian with the same effect as though
selected by the Managing General Partners of the Fund.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
Franklin Tax-Advantaged U.S.
Government Securities Fund
(A California Limited Partnership)
/s/ Charles B. Johnson
By Charles B. Johnson
Managing General Partner
Bank of America, NT & SA
/s/ illegible
(Franklin logo)
FRANKLIN
RESOURCES, INC.
777 Mariners Island Blvd.
San Mateo, CA 94404
415/312-5818
FAX 415/312-3528
Martin L. Flanagan CPA, CFA
Senior Vice President
Chief Financial Officer
April 12, 1995
Mr. Stephen H. Kilbuck
Vice President Corporate Banking
Bank of America, NT & SA
555 California Street, 41st Floor
San Francisco, CA 94104
Dear Steve:
Various Franklin Funds/Portfolios (the "Funds") and Bank of America,
National Trust and Savings Association ("Bank") are parties to custody
agreements (the "Agreements") as well as separate cash management and deposit
services arrangements.
By this Letter Agreement, each of the Funds and Bank desire to establish
the cash compensation to be paid by each Fund for services rendered to it by
Bank.
Effective April 1, 1995, commencing with the first statement prepared
thereafter each Fund will pay to Bank a monthly fee in cash equal to an annual
rate of 87.5/100 ths. (.875) basis points of the net asset value of each such
Funds domestic portfolios held in custody by Bank and nine and three-tenths
(9.3) basis points of the net asset value of each such Funds international
portfolios held in custody by Bank or held by foreign sub-custodians calculated
as of the last business day of the month. For purposes of calculating the
monthly fee, 000007291 will be used as the monthly factor for the domestic
portfolio and .0000775 will be used as the monthly factor for the international
portfolio. The obligation of each Fund is separate from the obligation of any
other Fund.
The purpose of this Letter of Agreement is to provide for a fair level of
compensation to Bank for its service. The fee is based on the assumption that
each Fund will continue to use services of a type and volume comparable to the
services currently used. The parties agree that any party may initiate
discussions concerning revisions to the terms of this Letter Agreement at any
time it believes the level of compensation to be inappropriate. The parties
further agree that any party may, upon at least sixty (60) days' written notice,
terminate this Letter Agreement with respect to that party. Upon its
termination, if the parties have not agreed to a substitute fee arrangement, any
party may also terminate all or some of the service provided by Bank upon
additional sixty (60) days' written notice.
On an ongoing basis, Bank will continue to prepare the monthly corporate
account analysis statements on behalf of each Fund, which estimates all revenues
and expenses for the parties' relationship. From time to time, Bank and any
Fund(s) may renegotiate the estimated "prices" used in the account analysis
process. The account analysis statement will provide a basis for any
negotiations between the parties on the appropriateness of the fee agreement as
embodied in this Letter Agreement. However, no payment of any kind shall be due
on account of any shortfall on the account analysis statement.
Sincerely,
Authorized Officer for Each Trust/Franklin
Fund Portfolio (List Attached)
By /s/ Martin L. Flanagan
Martin L. Flanagan
Executive Financial Officer
ACCEPTED AND AGREED TO BY:
BANK OF AMERICA, NT & SA
By /s/ Stephen H. Kilbuck
Title: Vice President
FRANKLIN GROUP OF FUNDS
FUND # FUND INIT NAME OF FUND
022 FUT FRANKLIN UNIVERSAL TRUST - (closed-end)
033 FPMT FRANKLIN PRINCIPAL MATURITY TRUST - (closed-end)
024 FMIT FRANKLIN MULTI-INCOME TRUST - (closed-end)
101 FGF FRANKLIN GOLD FUND
102 FPRF FRANKLIN PREMIER RETURN FUND
(Franklin Option Fund until April 30, 1991)
103 FEF FRANKLIN EQUITY FUND
105 AGE AGE HIGH INCOME FUND, INC.
FCF FRANKLIN CUSTODIAN FUNDS, INC.
106 GROWTH SERIES
107 UTILITIES SERIES
108 DYNATECH SERIES
109 INCOME SERIES
110 U.S. GOVERNMENT SECURITIES SERIES
111* FMF FRANKLIN MONEY FUND (MMP feeder as of 8/1/94)
112 FCTFIF FRANKLIN CALIFORNIA TAX-FREE INCOME FUND, INC.
113* FFMF FRANKLIN FEDERAL MONEY FUND (USGSMMP feeder as of 8/1/94)
114 FTEMF FRANKLIN TAX-EXEMPT MONEY FUND
115 FNYTFIF FRANKLIN NEW YORK TAX-FREE INCOME FUND, INC.
116 FFTFIF FRANKLIN FEDERAL TAX-FREE INCOME FUND
FTFT FRANKLIN TAX-FREE TRUST
118 FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
119 FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
120 FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
121 FRANKLIN INSURED TAX-FREE INCOME FUND
122 FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
123 FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
126 FRANKLIN ARIZONA TAX-FREE INCOME FUND
127 FRANKLIN COLORADO TAX-FREE INCOME FUND
128 FRANKLIN GEORGIA TAX-FREE INCOME FUND
129 FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
130 FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
160 FRANKLIN MISSOURI TAX-FREE INCOME FUND
161 FRANKLIN OREGON TAX-FREE INCOME FUND
162 FRANKLIN TEXAS TAX-FREE INCOME FUND
163 FRANKLIN VIRGINIA TAX-FREE INCOME FUND
164 FRANKLIN ALABAMA TAX-FREE INCOME FUND
165 FRANKLIN FLORIDA TAX-FREE INCOME FUND
166 FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
167 FRANKLIN INDIANA TAX-FREE INCOME FUND
168 FRANKLIN LOUISIANA TAX-FREE INCOME FUND
169 FRANKLIN MARYLAND TAX-FREE INCOME FUND
170 FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
171 FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
172 FRANKLIN KENTUCKY TAX-FREE INCOME FUND
174 FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
177 FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
178 FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
FCTFT FRANKLIN CALIFORNIA TAX-FREE TRUST
124 FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
125 FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND
152 FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME
FUND
FNYTFT FRANKLIN NEW YORK TAX-FREE TRUST
(Franklin New York-Tax Exempt Money Fund until 1/91)
131 FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
153 FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
181 FRANKLIN NEW YORK INSURED TAX-FREE INCOME FUND
FIST FRANKLIN INVESTORS SECURITIES TRUST
135 FRANKLIN GLOBAL GOVERNMENT INCOME FUND
(formerly Franklin Global Opportunity Income Fund)
136 FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT
SECURITIES FUND
137 FRANKLIN CONVERTIBLE SECURITIES FUND
138* FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
(formerly Franklin Adjustable Rate Mortgage Fund)
(USGARMP feeder)
139 FRANKLIN EQUITY INCOME FUND
(Franklin Special Equity Income Fund until 8/17/93)
151* FRANKLIN ADJUSTABLE RATE SECURITIES FUND
(ARSP retail feeder)
IFT INSTITUTIONAL FIDUCIARY TRUST
140* MONEY MARKET PORTFOLIO (MMP feeder)
141* FRANKLIN LATE DAY MONEY MARKET PORTFOLIO
(Franklin Government Investors Money Market
Portfolio until 6/15/93)
142* FRANKLIN U.S. GOVERNMENT SECURITIES MONEY MARKET
PORTFOLIO (USGSMMP feeder)
143* FRANKLIN U.S. TREASURY MONEY MARKET PORTFOLIO
144* FRANKLIN INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT
SECURITIES FUND (USGARMP feeder)
145* FRANKLIN INSTITUTIONAL ADJUSTABLE RATE SECURITIES FUND
(ARSP feeder)
146* FRANKLIN U.S. GOVERNMENT AGENCY MONEY MARKET FUND
147* AEA CASH MANAGEMENT FUND (MMP feeder)
(formerly Franklin Star MOney Market Portfolio)
149* FRANKLIN CASH RESERVES FUND (MMP feeder)
150 FBSIF FRANKLIN BALANCE SHEET INVESTMENT FUND
154 FTAIBF FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
155 FTAUSGSF FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
156 FTAHYSF FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
FMT FRANKLIN MANAGED TRUST
117 FRANKLIN CORPORATE QUALIFIED DIVIDEND FUND
(Franklin Corporate Cash Portfolio until 5/31/91)
158 FRANKLIN RISING DIVIDENDS FUND
159 FRANKLIN INVESTMENT GRADE INCOME FUND
- ---- FRANKLIN INSTITUTIONAL RISING DIVIDENDS FUND (PT feeder)
(not yet filed)
157 FSMP FRANKLIN STRATEGIC MORTGAGE PORTFOLIO (effective 2/1/93)
FMST FRANKLIN MUNICIPAL SECURITIES TRUST
173 FRANKLIN HAWAII MUNICIPAL BOND FUND
175 FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
176 FRANKLIN WASHINGTON MUNICIPAL BOND FUND
220 FRANKLIN TENNESSEE MUNICIPAL BOND FUND
221 FRANKLIN ARKANSAS MUNICIPAL BOND FUND
FSS FRANKLIN STRATEGIC SERIES (changed from Cal 250)
194 FRANKLIN STRATEGIC INCOME FUND
195 FRANKLIN MIDCAP GROWTH FUND (filed - not yet being sold)
196 FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
(formerly FISCO MidCap Growth Fund)
197 FRANKLIN GLOBAL UTILITIES FUND
198 FRANKLIN SMALL CAP GROWTH FUND
199 FRANKLIN GLOBAL HEALTH CARE FUND
ARSP ADJUSTABLE RATE SECURITIES PORTFOLIOS (THE PARENT)
182 U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
(master fund)
183 ADJUSTABLE RATE SECURITIES PORTFOLIO (filed under 1940
Act Only) (master fund)
MMP THE MONEY MARKET PORTFOLIOS (master fund parent)
(filed under 1940 Act only)
184* THE MONEY MARKET PORTFOLIO (master fund)
186* THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
(master fund)
187 MGP MIDCAP GROWTH PORTFOLIO (master fund) (1940 Act filing only
- not yet being sold)
PT THE PORTFOLIOS TRUST (master fund parent) (1940 Act filing
only - not yet being sold)
188 THE RISING DIVIDENDS PORTFOLIO (master fund)
FIT FRANKLIN INTERNATIONAL TRUST
190 FRANKLIN PACIFIC GROWTH FUND
191 FRANKLIN INTERNATIONAL EQUITY FUND
FREST FRANKLIN REAL ESTATE SECURITIES TRUST
192 FRANKLIN REAL ESTATE SECURITIES FUND
FTGT FRANKLIN TEMPLETON GLOBAL TRUST (formerly Huntington Funds)
210* FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND
211* FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
212* FRANKLIN TEMPLETON HARD CURRENCY FUND
213* FRANKLIN TEMPLETON HIGH INCOME CURRENCY FUND
FVF FRANKLIN VALUEMARK FUNDS (ALLIANZ)
821 MONEY MARKET FUND
822 EQUITY GROWTH FUND
823 PRECIOUS METALS FUND
824 REAL ESTATE SECURITIES FUND
825 UTILITY EQUITY FUND
826 HIGH INCOME FUND
827 GLOBAL INCOME FUND
828 INVESTMENT GRADE INTERMEDIATE BOND FUND
829 INCOME SECURITIES FUND
830 U.S. GOVERNMENT SECURITIES FUND
831 ZERO COUPON FUND - 1995
832 ZERO COUPON FUND - 2000
833 ZERO COUPON FUND - 2005
834 ZERO COUPON FUND - 2010
835 ADJUSTABLE U.S. GOVERNMENT FUND
836 RISING DIVIDENDS FUND
837 TEMPLETON PACIFIC GROWTH FUND (Pacific Growth Fund
until 10/15/93)
838 TEMPLETON INTERNATIONAL EQUITY FUND (International
Equity Fund until 10/15/93)
839 TEMPLETON DEVELOPING MARKETS EQUITY FUND
840 TEMPLETON GLOBAL GROWTH FUND
841 TEMPLETON WORLDWIDE ASSET ALLOCATION FUND
(not yet effective)
891 FGST FRANKLIN GOVERNMENT SECURITIES TRUST (AETNA)
193 FRANKLIN STABLE VALUE FUND
511 FRANKLIN TEMPLETON MONEY FUND II (expected effective
date: 05/01/95)
MASTER CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into as of
February 16, 1996, by and between each Investment Company listed on Exhibit A,
for itself and for each of its Series listed on Exhibit A, and BANK OF NEW YORK,
a New York corporation authorized to do a banking business (the "Custodian").
RECITALS
A. Each Investment Company is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act")
that invests and reinvests, for itself or on behalf of its Series, in Domestic
Securities and Foreign Securities.
B. The Custodian is, and has represented to each Investment Company
that the Custodian is, a "bank" as that term is defined in Section 2(a)(5) of
the Investment Company Act of 1940, as amended, and is eligible to receive and
maintain custody of investment company assets pursuant to Section 17(f) and Rule
17f-2 thereunder.
C. The Custodian and each Investment Company, for itself and for
each of its Series, desire to provide for the retention of the Custodian as a
custodian of the assets of each Investment Company and each Series, on the terms
and subject to the provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
Section 1.0 FORM OF AGREEMENT
Although the parties have executed this Agreement in the form of a
Master Custody Agreement for administrative convenience, this Agreement shall
create a separate custody agreement for each Investment Company and for each
Series designated on Exhibit A, as though each Investment Company had separately
executed an identical custody agreement for itself and for each of its Series.
No rights, responsibilities or liabilities of any Investment Company or Series
shall be attributed to any other Investment Company or Series.
Section 1.1 DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board" shall mean the Board of Trustees, Directors or Managing
General Partners, as applicable, of an Investment Company.
"Business Day" with respect to any Domestic Security means any day,
other than a Saturday or Sunday, that is not a day on which banking institutions
are authorized or required by law to be closed in The City of New York and, with
respect to Foreign Securities, a London Business Day. "London Business Day"
shall mean any day on which dealings and deposits in U.S. dollars are transacted
in the London interbank market.
"Custodian" shall mean Bank of New York.
"Domestic Securities" shall have the meaning provided in Subsection
2.1 hereof.
"Executive Committee" shall mean the executive committee of a Board.
"Foreign Custodian" shall have the meaning provided in Section 4.1
hereof.
"Foreign Securities" shall have the meaning provided in Section 2.1
hereof.
"Foreign Securities Depository" shall have the meaning provided in
Section 4.1 hereof.
"Fund" shall mean an entity identified on Exhibit A as an Investment
Company, if the Investment Company has no series, or a Series.
"Investment Company" shall mean an entity identified on Exhibit A
under the heading "Investment Company."
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Securities" shall have the meaning provided in Section 2.1 hereof.
"Securities System" shall have the meaning provided in Section 3.1
hereof.
"Securities System Account" shall have the meaning provided in
Subsection 3.8(a) hereof.
"Series" shall mean a series of an Investment Company which is
identified as such on Exhibit A.
"Shares" shall mean shares of beneficial interest of the Investment
Company.
"Subcustodian" shall have the meaning provided in Subsection 3.7
hereof, but shall not include any Foreign Custodian.
"Transfer Agent" shall mean the duly appointed and acting transfer
agent for each Investment Company.
"Writing" shall mean a communication in writing, a communication by
telex, facsimile transmission, bankwire or other teleprocess or electronic
instruction system acceptable to the Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. Each Investment Company hereby
appoints and designates the Custodian as a custodian of the assets of each Fund,
including cash denominated in U.S. dollars or foreign currency ("cash"),
securities the Fund desires to be held within the United States ("Domestic
Securities") and securities it desires to be held outside the United States
("Foreign Securities"). Domestic Securities and Foreign Securities are sometimes
referred to herein, collectively, as "Securities." The Custodian hereby accepts
such appointment and designation and agrees that it shall maintain custody of
the assets of each Fund delivered to it hereunder in the manner provided for
herein.
2.2 Delivery of Assets. Each Investment Company may deliver to the
Custodian Securities and cash owned by the Funds, payments of income, principal
or capital distributions received by the Funds with respect to Securities owned
by the Funds from time to time, and the consideration received by the Funds for
such Shares or other securities of the Funds as may be issued and sold from time
to time. The Custodian shall have no responsibility whatsoever for any property
or assets of the Funds held or received by the Funds and not delivered to the
Custodian pursuant to and in accordance with the terms hereof. All Securities
accepted by the Custodian on behalf of the Funds under the terms of this
Agreement shall be in "street name" or other good delivery form as determined by
the Custodian.
2.3 Subcustodians. The Custodian may appoint BNY Western Trust
Company as a Subcustodian to hold assets of the Funds in accordance with the
provisions of this Agreement. In addition, upon receipt of Proper Instructions
and a certified copy of a resolution of the Board or of the Executive Committee,
and certified by the Secretary or an Assistant Secretary, of an Investment
Company, the Custodian may from time to time appoint one or more other
Subcustodians or Foreign Custodians to hold assets of the affected Funds in
accordance with the provisions of this Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian or a Foreign
Custodian shall not have any duty or responsibility to manage or recommend
investments of the assets of any Fund held by them or to initiate any purchase,
sale or other investment transaction in the absence of Proper Instructions or
except as otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE FUNDS HELD
BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and physically
segregate from any property owned by the Custodian, for the account of each
Fund, all non-cash property delivered by each Fund to the Custodian hereunder
other than Securities which, pursuant to Subsection 3.8 hereof, are held through
a registered clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein, individually, as a
"Securities System"), or held by a Subcustodian, Foreign Custodian or in a
Foreign Securities Depository.
3.2 Delivery of Securities. Except as otherwise provided in
Subsection 3.5 hereof, the Custodian, upon receipt of Proper Instructions, shall
release and deliver Securities owned by a Fund and held by the Custodian in the
following cases or as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein, upon sale of such
Securities for the account of the Fund and receipt by the Custodian, a
Subcustodian or a Foreign Custodian of payment therefor;
(b) upon the receipt of payment by the Custodian, a
Subcustodian or a Foreign Custodian in connection with any repurchase agreement
related to such Securities entered into by the Fund;
(c) in the case of a sale effected through a Securities
System, in accordance with the provisions of Subsection 3.8 hereof;
(d) to a tender agent or other authorized agent in connection
with (i) a tender or other similar offer for Securities owned by the Fund, or
(ii) a tender offer or repurchase by the Fund of its own Shares;
(e) to the issuer thereof or its agent when such Securities
are called, redeemed, retired or otherwise become payable; provided, that in any
such case, the cash or other consideration is to be delivered to the Custodian,
a Subcustodian or a Foreign Custodian;
(f) to the issuer thereof, or its agent, for transfer into the
name or nominee name of the Fund, the name or nominee name of the Custodian, the
name or nominee name of any Subcustodian or Foreign Custodian; or for exchange
for a different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided that, in any such case,
the new Securities are to be delivered to the Custodian, a Subcustodian or
Foreign Custodian;
(g) to the broker selling the same for examination in
accordance with the "street delivery" custom;
(h) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, or reorganization of the issuer of such
Securities, or pursuant to a conversion of such Securities; provided that, in
any such case, the new Securities and cash, if any, are to be delivered to the
Custodian or a Subcustodian;
(i) in the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such warrants, rights or
similar Securities or the surrender of interim receipts or temporary Securities
for definitive Securities; provided that, in any such case, the new Securities
and cash, if any, are to be delivered to the Custodian, a subcustodian or a
Foreign Custodian;
(j) for delivery in connection with any loans of Securities
made by the Fund, but only against receipt by the Custodian, a Subcustodian or a
Foreign Custodian of adequate collateral as determined by the Fund (and
identified in Proper Instructions communicated to the Custodian), which may be
in the form of cash or obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the account of the Custodian, a
Subcustodian or a Foreign Custodian in the Federal Reserve's book-entry
securities system, the Custodian will not be held liable or responsible for the
delivery of Securities owned by the Fund prior to the receipt of such
collateral;
(k) for delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but only against receipt
by the Custodian, a Subcustodian or a Foreign Custodian of amounts borrowed;
(l) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a broker-dealer relating to compliance with the rules of registered clearing
corporations and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
(m) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a futures commission merchant, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund;
(n) upon the receipt of instructions from the Transfer Agent
for delivery to the Transfer Agent or to the holders of Shares in connection
with distributions in kind in satisfaction of requests by holders of Shares for
repurchase or redemption; and
(o) for any other proper purpose, but only upon receipt of
Proper Instructions, and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
Fund, specifying the securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
3.3 Registration of Securities. Securities held by the Custodian, a
Subcustodian or a Foreign Custodian (other than bearer Securities) shall be
registered in the name or nominee name of the appropriate Fund, in the name or
nominee name of the Custodian or in the name or nominee name of any Subcustodian
or Foreign Custodian. Each Fund agrees to hold the Custodian, any such nominee,
Subcustodian or Foreign Custodian harmless from any liability as a holder of
record of such Securities.
3.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts for each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
hereunder from or for the account of each Fund, other than cash maintained by a
Fund in a bank account established and used in accordance with Rule 17f-3 under
the Fund Act. Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the banking departments of the Custodian, a
Subcustodian or a Foreign Custodian. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity. In the event a Fund's account for any reason
becomes overdrawn, or in the event an action requested in Proper Instructions
would cause such an account to become overdrawn, the Custodian shall immediately
notify the affected Fund.
3.5 Collection of Income; Trade Settlement; Crediting of Accounts.
The Custodian shall collect income payable with respect to Securities owned by
each Fund, settle Securities trades for the account of each Fund and credit and
debit each Fund's account with the Custodian in connection therewith as stated
in this Subsection 3.5. This Subsection shall not apply to repurchase
agreements, which are treated in Subsection 3.2(b), above.
(a) Upon receipt of Proper Instructions, the Custodian shall
effect the purchase of a Security by charging the account of the Fund on the
contractual settlement date, and by making payment against delivery. If the
seller or selling broker fails to deliver the Security within a reasonable
period of time, the Custodian shall notify the Fund and credit the transaction
amount to the account of the Fund, but the Custodian shall have no further
liability or responsibility for the transaction.
(b) Upon receipt of Proper Instructions, the Custodian shall
effect the sale of a Security by withdrawing a certificate or other indicia of
ownership from the account of the Fund and by making delivery against payment,
and shall credit the account of the Fund with the amount of such proceeds on the
contractual settlement date. If the purchaser or the purchasing broker fails to
make payment within a reasonable period of time, the Custodian shall notify the
Fund, debit the Fund's account for any amounts previously credited to it by the
Custodian as proceeds of the transaction and, if delivery has not been made,
redeposit the Security into the account of the Fund.
(c) The Fund is responsible for ensuring that the Custodian
receives timely and accurate Proper Instructions to enable the Custodian to
effect settlement of any purchase or sale. If the Custodian does not receive
such instructions within the required time period, the Custodian shall have no
liability of any kind to any person, including the Fund, for failing to effect
settlement on the contractual settlement date. However, the Custodian shall use
its best reasonable efforts to effect settlement as soon as possible after
receipt of Proper Instructions.
(d) The Custodian shall credit the account of the Fund with
interest income payable on interest bearing Securities on payable date.
Dividends and other amounts payable with respect to Domestic Securities and
Foreign Securities shall be credited to the account of the Fund when received by
the Custodian. The Custodian shall not be required to commence suit or
collection proceedings or resort to any extraordinary means to collect such
income and other amounts payable with respect to Securities owned by the Fund.
The collection of income due the Fund on Domestic Securities loaned pursuant to
the provisions of Subsection 3.2(j) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is entitled. The Custodian shall have no liability to
any person, including the Fund, if the Custodian credits the account of the Fund
with such income or other amounts payable with respect to Securities owned by
the Fund (other than Securities loaned by the Fund pursuant to Subsection 3.2(j)
hereof) and the Custodian subsequently is unable to collect such income or other
amounts from the payors thereof within a reasonable time period, as determined
by the Custodian in its sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to the account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper Instructions
the Custodian shall pay out monies of a Fund in the following cases or as
otherwise directed in Proper Instructions:
(a) upon the purchase of Securities, futures contracts or
options on futures contracts for the account of the Fund but only, except as
otherwise provided herein, (i) against the delivery of such securities, or
evidence of title to futures contracts or options on futures contracts, to the
Custodian or a Subcustodian registered pursuant to Subsection 3.3 hereof or in
proper form for transfer; (ii) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in Subsection 3.8
hereof; or (iii) in the case of repurchase agreements entered into between the
Fund and the Custodian, another bank or a broker-dealer (A) against delivery of
the Securities either in certificated form to the Custodian or a Subcustodian or
through an entry crediting the Custodian's account at the appropriate Federal
Reserve Bank with such Securities or (B) against delivery of the confirmation
evidencing purchase by the Fund of Securities owned by the Custodian or such
broker-dealer or other bank along with written evidence of the agreement by the
Custodian or such broker-dealer or other bank to repurchase such Securities from
the Fund;
(b) in connection with conversion, exchange or surrender of
Securities owned by the Fund
as set forth in Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares issued by the
Fund;
(d) for the payment of any expense or liability incurred by
the Fund, including but not limited to the following payments for the account of
the Fund: custodian fees, interest, taxes, management, accounting, transfer
agent and legal fees and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred expenses;
and
(e) for the payment of any dividends or distributions
declared by the Board with respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may appoint BNY
Western Trust Company or, upon receipt of Proper Instructions, another bank or
trust company, which is itself qualified under the Investment Company Act to act
as a custodian (a "Subcustodian"), as the agent of the Custodian to carry out
such of the duties of the Custodian hereunder as a Custodian may from time to
time direct; provided, however, that the appointment of any Subcustodian shall
not relieve the Custodian of its responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The Custodian may
deposit and/or maintain Domestic Securities owned by a Fund in a Securities
System in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic Securities of the Fund in
the Depository Trust Company or the Federal Reserve's book entry system or, upon
receipt of Proper Instructions, in another Securities System provided that such
securities are held in an account of the Custodian in the Securities System
("Securities System Account") which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
(b) the records of the Custodian with respect to Domestic
Securities of the Fund which are maintained in a Securities System shall
identify by book-entry those Domestic Securities belonging to the Fund;
(c) the Custodian shall pay for Domestic Securities purchased
for the account of the Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Securities System
Account, and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund. The Custodian
shall transfer Domestic Securities sold for the account of the Fund upon (A)
receipt of advice from the Securities System that payment for such securities
has been transferred to the Securities System Account, and (B) the making of an
entry on the records of the Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from the Securities System of
transfers of Domestic Securities for the account of the Fund shall be maintained
for the Fund by the Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund confirmation of the transfer to or
from the account of the Fund in the form of a written advice or notice; and
(d) upon request, the Custodian shall provide the Fund with
any report obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding domestic
securities deposited in the Securities System.
3.9 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the Custodian
pursuant to Section 3.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer or futures
commission merchant, relating to compliance with the rules of registered
clearing corporations and of any national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or securities in connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or sold by the Fund,
and (iii) for other proper corporate purposes, but only, in the case of this
clause (iii), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes.
3.10 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Fund held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to the Securities
held hereunder, promptly deliver to each Fund all proxies, all proxy soliciting
materials and all notices relating to such Securities. If the Securities are
registered otherwise than in the name of a Fund or a nominee of a Fund, the
Custodian shall use its best reasonable efforts, consistent with applicable law,
to cause all proxies to be promptly executed by the registered holder of such
Securities in accordance with Proper Instructions.
3.12 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to each Fund all written information
(including, without limitation, pendency of calls and maturities of Securities
and expirations of rights in connection therewith and notices of exercise of put
and call options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
Securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to each Fund all written information
received by the Custodian from issuers of the Securities whose tender or
exchange is sought and from the party (or its agents) making the tender or
exchange offer. If a Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three Business Days prior to the date of which the
Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall each business day
furnish each Fund with a statement summarizing all transactions and entries for
the account of the Fund for the preceding day. At the end of every month, the
Custodian shall furnish each Fund with a list of the cash and portfolio
securities showing the quantity of the issue owned, the cost of each issue and
the market value of each issue at the end of each month. Such monthly report
shall also contain separate listings of (a) unsettled trades and (b) when-issued
securities. The Custodian shall furnish such other reports as may be mutually
agreed upon from time-to-time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE
FUNDS HELD OUTSIDE THE UNITED STATES
4.1 Custody Outside the United States. Each Fund authorizes the
Custodian to hold Foreign Securities and cash in custody accounts which have
been established by the Custodian with (i) its foreign branches, (ii) foreign
banking institutions, foreign branches of United States banks and subsidiaries
of United States banks or bank holding companies (each a "Foreign Custodian")
and (iii) Foreign Securities depositories or clearing agencies (each a "Foreign
Securities Depository"); provided, however, that the appropriate Board or
Executive Committee has approved in advance the use of each such Foreign
Custodian and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is set forth in
Proper Instructions and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
appropriate Investment Company. Unless expressly provided to the contrary in
this Section 4, custody of Foreign Securities and assets held outside the United
States by the Custodian, a Foreign Custodian or through a Foreign Securities
Depository shall be governed by this Agreement, including Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of its foreign branches, Foreign
Custodians and Foreign Securities Depositories to: (i) "foreign securities", as
defined in paragraph (c) (1) of Rule 17f-5 under the Fund Act, and (ii) cash and
cash equivalents in such amounts as the Custodian or an affected Fund may
determine to be reasonably necessary to effect the Fund's Foreign Securities
transactions.
4.3 Omitted.
4.4 Segregation of Securities. The Custodian shall identify on its
books and records as belonging to the appropriate Fund, the Foreign Securities
of each Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each agreement between the
Custodian and a Foreign Custodian shall be substantially in the form as
delivered to the Investment Companies for their Boards' review, and shall not be
amended in a way that materially adversely affects any Fund without the prior
written consent of the Fund. Upon request, the Custodian shall certify to the
Funds that an agreement between the Custodian and a Foreign Custodian meets the
requirements of Rule 17f-5 under the 1940 Act.
4.6 Access of Independent Accountants of the Funds. Upon request of
a Fund, the Custodian will use its best reasonable efforts to arrange for the
independent accountants or auditors of the Fund to be afforded access to the
books and records of any Foreign Custodian insofar as such books and records
relate to the custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon receipt of Proper
Instructions, the Custodian shall instruct the appropriate Foreign Custodian to
transfer, exchange or deliver Foreign Securities owned by a Fund, but, except to
the extent explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the Custodian shall pay out
or instruct the appropriate Foreign Custodian to pay out monies of a Fund in any
of the cases specified in Subsection 3.6. Notwithstanding anything herein to the
contrary, settlement and payment for Foreign Securities received for the account
of a Fund and delivery of Foreign Securities maintained for the account of a
Fund may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer.
Foreign Securities maintained in the custody of a Foreign Custodian may be
maintained in the name of such entity or its nominee name to the same extent as
set forth in Section 3.3 of this Agreement and each Fund agrees to hold any
Foreign Custodian and its nominee harmless from any liability as a holder of
record of such securities.
4.8 Liability of Foreign Custodian. Each agreement between the
Custodian and a Foreign Custodian shall, unless otherwise mutually agreed to by
the Custodian and a Fund, require the Foreign Custodian to exercise reasonable
care or, alternatively, impose a contractual liability for breach of contract
without an exception based upon a standard of care in the performance of its
duties and to indemnify and hold harmless the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Custodian's performance of such obligations, excepting,
however, Citibank, N.A., and its subsidiaries and branches, where the
indemnification is limited to direct money damages and requires that the claim
be promptly asserted. At the election of a Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim, unless such
subrogation is prohibited by local law.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform each Fund in the event
that the Custodian learns of a material adverse change in the financial
condition of a Foreign Custodian or learns that a Foreign Custodian's financial
condition has declined or is likely to decline below the minimum levels required
by Rule 17f-5 of the 1940 Act.
(b) The custodian will furnish such information as may be
reasonably necessary to assist each Investment Company's Board in its annual
review and approval of the continuance of all contracts or arrangements with
Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper Instructions" means
instructions of a Fund received by the Custodian via telephone or in Writing
which the Custodian believes in good faith to have been given by Authorized
Persons (as defined below) or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Custodian may specify.
Any Proper Instructions delivered to the Custodian by telephone shall promptly
thereafter be confirmed in accordance with procedures, and limited in subject
matter, as mutually agreed upon by the parties. Unless otherwise expressly
provided, all Proper Instructions shall continue in full force and effect until
canceled or superseded. If the Custodian requires test arrangements,
authentication methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Funds thereafter shall
be given and processed in accordance with such terms and conditions for the use
of such arrangements, methods or devices as the Custodian may put into effect
and modify from time to time. The Funds shall safeguard any testkeys,
identification codes or other security devices which the Custodian shall make
available to them. The Custodian may electronically record any Proper
Instructions given by telephone, and any other telephone discussions, with
respect to its activities hereunder. As used in this Agreement, the term
"Authorized Persons" means such officers or such agents of a Fund as have been
properly appointed pursuant to a resolution of the appropriate Board or
Executive Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Fund under this Agreement. Each of such
persons shall continue to be an Authorized Person until such time as the
Custodian receives Proper Instructions that any such officer or agent is no
longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from
a Fund:
(a) make payments to itself or others for minor expenses of
handling Securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the Fund;
(b) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
(c) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the Securities and property of the Fund except as otherwise
provided in Proper Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions
(conveyed by telephone or in Writing), notice, request, consent, certificate or
other instrument or paper believed by it to be genuine and to have been properly
given or executed by or on behalf of a Fund. The Custodian may receive and
accept a certified copy of a resolution of a Board or Executive Committee as
conclusive evidence (a) of the authority of any person to act in accordance with
such resolution or (b) of any determination or of any action by the Board or
Executive Committee as described in such resolution, and such resolution may be
considered as in full force and effect until receipt by the Custodian of written
notice by an Authorized Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary information
in its possession (to the extent permissible under applicable law) to the entity
or entities appointed by the appropriate Board to keep the books of account of a
Fund and/or compute the net asset value per Share of the outstanding Shares of a
Fund.
Section 9. RECORDS
The Custodian shall create and maintain all records relating to its
activities under this Agreement which are required with respect to such
activities under Section 31 of the Investment Company Act and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the appropriate
Investment Company and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Investment Company and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at a Fund's request, supply the Fund
with a tabulation of Securities and Cash owned by the Fund and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
each Investment Company, on behalf of each Fund, and the Custodian. In addition,
should the Custodian in its discretion advance funds (to include overdrafts) to
or on behalf of a Fund pursuant to Proper Instructions, the Custodian shall be
entitled to prompt reimbursement of any amounts advanced. In the event of such
an advance, and to the extent permitted by the 1940 Act and the Fund's policies,
the Custodian shall have a continuing lien and security interest in and to the
property of the Fund in the possession or control of the Custodian or of a third
party acting in the Custodian's behalf, until the advance is reimbursed. Nothing
in this Agreement shall obligate the Custodian to advance funds to or on behalf
of a Fund, or to permit any borrowing by a Fund except for borrowings for
temporary purposes, to the extent permitted by the Fund's policies.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance of only such
duties as are set forth herein or contained in Proper Instructions and shall use
reasonable care in carrying out such duties. The Custodian shall be liable to a
Fund for any loss which shall occur as the result of the failure of a Foreign
Custodian engaged directly or indirectly by the Custodian to exercise reasonable
care with respect to the safekeeping of securities and other assets of the Fund
to the same extent that the Custodian would be liable to the Fund if the
Custodian itself were holding such securities and other assets. Nothing in this
Agreement shall be read to limit the responsibility or liability of the
Custodian or a Foreign Custodian for their failure to exercise reasonable care
with regard to any decision or recommendation made by the Custodian or
Subcustodian regarding the use or continued use of a Foreign Securities
Depository. In the event of any loss to a Fund by reason of the failure of the
Custodian or a Foreign Custodian engaged by such Foreign Custodian or the
Custodian to utilize reasonable care, the Custodian shall be liable to the Fund
to the extent of the Fund's damages, to be determined based on the market value
of the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or circumstances. The
Custodian shall be held to the exercise of reasonable care in carrying out this
Agreement, and shall not be liable for acts or omissions unless the same
constitute negligence or willful misconduct on the part of the Custodian or any
Foreign Custodian engaged directly or indirectly by the Custodian. Each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities (including legal
fees and expenses) incurred by the Custodian or its nominess in connection with
the performance of this Agreement with respect to such Fund, except such as may
arise from any negligent action, negligent failure to act or willful misconduct
on the part of the indemnified entity or any Foreign Custodian. The Custodian
shall be entitled to rely, and may act, on advice of counsel (who may be counsel
for a Fund) on all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian need not
maintain any insurance for the benefit of any Fund.
All collections of funds or other property paid or distributed in
respect of Securities held by the Custodian, agent, Subcustodian or Foreign
Custodian hereunder shall be made at the risk of the Funds. The Custodian shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Custodian, agent, Subcustodian or by a Foreign Custodian of any
payment, redemption or other transaction regarding securities in respect of
which the Custodian has agreed to take action as provided in Section 3 hereof.
The Custodian shall not be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the Board and may
rely on the genuineness of any such documents which it may in good faith believe
to be validly executed. Notwithstanding the foregoing, the Custodian shall not
be liable for any loss resulting from, or caused by, the direction of a Fund to
maintain custody of any Securities or cash in a foreign country including, but
not limited to, losses resulting from nationalization, expropriation, currency
restrictions, civil disturbance, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation or other similar occurrences,
or events beyond the control of the Custodian. Finally, the Custodian shall not
be liable for any taxes, including interest and penalties with respect thereto,
that may be levied or assessed upon or in respect of any assets of any Fund held
by the Custodian.
Section 12. LIMITED LIABILITY OF EACH INVESTMENT COMPANY
The Custodian acknowledges that it has received notice of and
accepts the limitations of liability as set forth in each Investment Company's
Agreement and Declaration of Trust, Articles of Incorporation, or Agreement of
Limited Partnership. The Custodian agrees that each Fund's obligation hereunder
shall be limited to the assets of the Fund, and that the Custodian shall not
seek satisfaction of any such obligation from the shareholders of the Fund nor
from any Board Member, officer, employee, or agent of the Fund or the Investment
Company on behalf of the Fund.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of its
execution and shall continue in full force and effect until terminated as
hereinafter provided. This Agreement may be terminated by each Investment
Company, on behalf of a Fund, or by the Custodian by 90 days notice in Writing
to the other provided that any termination by an Investment Company shall be
authorized by a resolution of the Board, a certified copy of which shall
accompany such notice of termination, and provided further, that such resolution
shall specify the names of the persons to whom the Custodian shall deliver the
assets of the affected Funds held by the Custodian. If notice of termination is
given by the Custodian, the affected Investment Companies shall, within 90 days
following the giving of such notice, deliver to the Custodian a certified copy
of a resolution of the Boards specifying the names of the persons to whom the
Custodian shall deliver assets of the affected Funds held by the Custodian. In
either case the Custodian will deliver such assets to the persons so specified,
after deducting therefrom any amounts which the Custodian determines to be owed
to it hereunder (including all costs and expenses of delivery or transfer of
Fund assets to the persons so specified). If within 90 days following the giving
of a notice of termination by the Custodian, the Custodian does not receive from
the affected Investment Companies certified copies of resolutions of the Boards
specifying the names of the persons to whom the Custodian shall deliver the
assets of the Funds held by the Custodian, the Custodian, at its election, may
deliver such assets to a bank or trust company doing business in the State of
California to be held and disposed of pursuant to the provisions of this
Agreement or may continue to hold such assets until a certified copy of one or
more resolutions as aforesaid is delivered to the Custodian. The obligations of
the parties hereto regarding the use of reasonable care, indemnities and payment
of fees and expenses shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this Agreement shall (i)
create any fiduciary, joint venture or partnership relationship between the
Custodian and any Fund or (ii) be construed as or constitute a prohibition
against the provision by the Custodian or any of its affiliates to any Fund of
investment banking, securities dealing or brokerages services or any other
banking or financial services.
14.2 Further Assurances. Each party hereto shall furnish to the
other party hereto such instruments and other documents as such other party may
reasonably request for the purpose of carrying out or evidencing the
transactions contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action or proceeding
relating to this Agreement is brought by a party hereto against the other party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (including allocated costs and disbursements of
in-house counsel), in addition to any other relief to which the prevailing party
may be entitled.
14.4 Notices. Except as otherwise specified herein, each notice or
other communication hereunder shall be in Writing and shall be delivered to the
intended recipient at the following address (or at such other address as the
intended recipient shall have specified in a written notice given to the other
parties hereto):
if to a Fund or Investment Company: if to the Custodian:
[Fund or Investment Company] The Bank of New York
c/o Franklin Resources, Inc. Mutual Fund Custody Manager
777 Mariners Island Blvd. BNY Western Trust Co.
San Mateo, CA 94404 550 Kearney St., Suite 60
Attention: Chief Legal Officer San Francisco, CA 94108
14.5 Headings. The underlined headings contained herein are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the interpretation
hereof.
14.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and both of which, when taken
together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of New York
(without giving effect to principles of conflict of laws).
14.8 Force Majeure. Notwithstanding the provisions of Section 11
hereof regarding the Custodian's general standard of care, no failure, delay or
default in performance of any obligation hereunder shall constitute an event of
default or a breach of this agreement, or give rise to any liability whatsoever
on the part of one party hereto to the other, to the extent that such failure to
perform, delay or default arises out of a cause beyond the control and without
negligence of the party otherwise chargeable with failure, delay or default;
including, but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute; flood; war;
riot; theft; earthquake; natural disaster; breakdown of public or common carrier
communications facilities; computer malfunction; or act, negligence or default
of the other party. This paragraph shall in no way limit the right of either
party to this Agreement to make any claim against third parties for any damages
suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to exercise any
power, right, privilege or remedy hereunder, and no delay on the part of any
person in the exercise of any power, right, privilege or remedy hereunder, shall
operate as a waiver thereof; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy.
14.11 Amendments. This Agreement may not be amended, modified,
altered or supplemented other than by means of an agreement or instrument
executed on behalf of each of the parties hereto.
14.12 Severability. In the event that any provision of this
Agreement, or the application of any such provision to any person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
14.13 Parties in Interest. None of the provisions of this Agreement
is intended to provide any rights or remedies to any person other than the
Investment Companies, for themselves and for the Funds, and the Custodian and
their respective successors and assigns, if any.
14.14 Pre-Emption of Other Agreements. In the event of any conflict
between this Agreement, including without limitation any amendments hereto, and
any other agreement which may now or in the future exist between the parties,
the provisions of this Agreement shall prevail.
14.15 Variations of Pronouns. Whenever required by the context
hereof, the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; and the neuter
gender shall include the masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
THE BANK OF NEW YORK
By: _____________________________
Its: _____________________________
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: ______________________________
Harmon E. Burns
Their: Vice President
By: ______________________________
Deborah R. Gatzek
Their: Vice President & Secretary
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series
for which the Custodian shall serve under the Master Custody Agreement dated as
of February 16, 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Delaware Business Trust U.S. Government Adjustable Rate Mortgage
Portfolios Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income
Trust Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income California Corporation
Fund
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Delaware Business Trust Templeton Pacific Growth Fund
Trust Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't
Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities
Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income New York Corporation
Fund, Inc.
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Advantaged California Limited
International Bond Fund Partnership
Franklin Tax-Advantaged U.S. California Limited
Government Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Delaware Business Trust Franklin Real Estate Securities Fund
Trust
Franklin Strategic Mortgage Delaware Business Trust
Portfolio
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals
Fund Real Estate
Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global
Income Securities
Fund Investment
Grade Intermediate
Bond Fund Income
Securities Fund
U.S. Government
Securities Fund
Zero Coupon Fund -
2000 Zero Coupon
Fund - 2005 Zero
Coupon Fund - 2010
Adjustable U.S.
Government Fund
Rising Dividends
Fund Templeton
Pacific Growth Fund
Templeton
International
Equity Fund
Templeton
Developing Markets
Equity Fund
Templeton Global
Growth Fund
Templeton Global
Asset Allocation
Fund Small Cap Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money
Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S.
Government
Securities Fund
Franklin Institutional Adjustable Rate
Securities Fund
Franklin U.S. Government Agency Money Market
Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- ------------------------------------------------------------------------------------------------------------
</TABLE>
TERMINAL LINK AGREEMENT
AGREEMENT made as of February 16, 1996 between The Bank of New York as custodian
(the "Custodian") and each Investment Company listed on Exhibit A, for itself
and for each of Series listed on Exhibit A (each, a "Fund").
WHEREAS, the parties have entered into a Master Custody Agreement dated
as of February 16, 1996;
WHEREAS, the parties desire to provide for the electronic transmission
of instructions from each Fund to the Custodian, as and to the extent permitted
by the Master Custody Agreement; and
WHEREAS, the Board of Directors, Trustees or Managing General Partners,
as applicable, of each Investment Company have previously authorized each
Investment Company to enter into the Master Custody Agreement;
NOW, THEREFORE, in consideration for the mutual promises set forth, the parties
agree as follows:
A. Except as otherwise provided herein, all terms shall have the same meaning as
in the Master Custody Agreement.
B. The term "Certificate" shall mean any Proper Instruction by a Fund to the
Custodian communicated by the Terminal Link.
C . The term "Officer" shall mean an Authorized Person as defined in section 5
of the Master Custody Agreement.
D. The term "Terminal Link" shall mean an electronic data transmission link
between a Fund, Franklin Templeton Investor Services, Inc. acting as agent for
the Fund ("FTISI"), and the Custodian requiring in connection with each use of
the Terminal Link by or on behalf of the Fund use of an authorization code
provided by the Custodian and at least two access codes established by the Fund.
Each Fund represents that FTISI will maintain a transmission line to the
Custodian and has been selected by the Fund to receive electronic data
transmissions from the Custodian or the Fund and forward the same to the Fund or
the Custodian, respectively.
E. Terminal Link
1. The Terminal Link shall be utilized by a Fund only for the purpose of the
Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after a Fund shall have established access codes and
safekeeping procedures to safeguard and protect the confidentiality and
availability of such access codes, and shall have reviewed the safekeeping
procedures established by FTISI to assure that transmissions inputted by the
Fund, and only such transmissions, are forwarded by FTISI to the Custodian
without any alteration or omission. Each use of the Terminal Link by a Fund
shall constitute a representation and warranty that the Terminal Link is being
used only for the purposes permitted hereby, that at least two Officers have
each utilized an access code, that such safekeeping procedures have been
established by the Fund, that FTISI has safekeeping procedures reviewed by the
Fund to assure that all transmissions inputted by the Fund, and only such
transmissions, are forwarded by FTISI to the Custodian without any alteration or
omission by FTISI, and that such use does not, to the Fund's knowledge,
contravene the Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.
2. Each Fund shall obtain and maintain at its own cost and expense all equipment
and services, including, but not limited to communications services, necessary
for it to utilize the Terminal Link, and the Custodian shall not be responsible
for the reliability or availability of any such equipment or services.
3. Each Fund acknowledges that any data bases made available as part of, or
through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. Each Fund shall, and shall cause others to which it discloses
the Information, including without limitation FTISI, to keep the Information
confidential, by using the same care and discretion it uses with respect to its
own confidential property and trade secrets, and shall neither make nor permit
any disclosure without the express prior written consent of the Custodian.
4. Upon termination of this Agreement for any reason, the Fund shall return to
the Custodian any and all copies of the Information which are in the Fund's
possession or under its control, or which the Fund distributed to third parties,
including without limitation FTISI. The provisions of this Article shall not
affect the copyright status of any of the Information which may be copyrighted
and shall apply to all information whether or not copyrighted.
5. The Custodian reserves the right to modify the Terminal Link from time to
time without notice to the Funds or FTISI, except that the Custodian shall give
the Funds notice not less than 75 days in advance of any modification which
would materially adversely affect the Funds' operation. The Funds agree that
neither the Funds nor FTISI shall modify or attempt to modify the Terminal Link
without the Custodian's prior written consent. Each Fund acknowledges that any
software or procedures provided the Fund or FTISI as part of the Terminal Link
are the property of the Custodian and, accordingly, agrees that any
modifications to the Terminal Link, whether by the Fund, FTISI or the Custodian
and whether with or without the Custodian's consent, shall become the property
of the Custodian.
6. The Custodian, the Funds, FTISI and any manufacturers and suppliers utilized
by the Custodian, the Funds or FTISI in connection with the Terminal Link, make
no warranties or representations to any other party, express or implied, in fact
or in law, including but not limited to warranties of merchantability and
fitness for a particular purpose.
7. Each Fund will cause its officers and employees to treat the authorization
codes and the access codes applicable to Terminal Link with extreme care, and
irrevocably authorizes the Custodian to act in accordance with and rely on
Certificates received by it through the Terminal Link. Each Fund acknowledges
that it is its responsibility to assure that only its officers and authorized
persons of FTISI use the Terminal Link on its behalf, and that the Custodian
shall not be responsible nor liable for any action taken in good faith in
reliance upon a Certificate, nor for any alteration, omission, or failure to
promptly forward by FTISI.
8. (a) Except as otherwise specifically provided in Section 8(b) of this
Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the result of the negligence of the Custodian,
provided however, that the Custodian shall have no liability under this Section
8 if the Fund fails to comply with the provisions of section 10.
(b) The Custodian's liability for its negligence in executing or failing
to act in accordance with a Certificate received through Terminal Link shall be
only with respect to a transfer of funds or assets which is not made in
accordance with such Certificate, and shall be subject to Section 11 of this
Article and contingent upon the Fund complying with the provisions of Section 10
of this Article, and shall be limited to the extent of the Fund's damages,
without reference to any special conditions or circumstances.
9. Without limiting the generality of the foregoing, in no event shall the
Custodian or any manufacturer or supplier of its computer equipment, software or
services relating to the Terminal Link be responsible for any special, indirect,
incidental or consequential damages which a Fund or FTISI may incur or
experience by reason of any malfunction of such equipment or software, even if
the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
10. Each Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, or (ii) the business day on which discovery should have
occurred through the exercise of reasonable care. The Custodian shall promptly
advise the Fund or FTISI whenever the Custodian learns of any errors, omissions
or interruption in, or delay or unavailability of, the Terminal Link.
11. The Custodian shall acknowledge to each affected Fund or to FTISI, by use of
the Terminal Link, receipt of each Certificate the Custodian receives through
the Terminal Link, and in the absence of such acknowledgment the Custodian shall
not be liable for any failure to act in accordance with such Certificate and the
Funds may not claim that such Certificate was received by the Custodian. Such
acknowledgment, which may occur after the Custodian has acted upon such
Certificate, shall be given on the same day on which such Certificate is
received.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers, thereunto duly authorized and their respective
seals to be hereto affixed as of the day and year first above written.
THE BANK OF NEW YORK
By: ______________________
Title: ______________________
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: ______________________
Harmon E. Burns
Title: Vice President
By: ______________________
Deborah R. Garzek
Title: Vice President & Secretary
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series
for which the Custodian shall serve under the Master Custody Agreement dated as
of February 16, 1996.
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income Fund, New York Corporation
Inc.
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Advantaged International Bond California Limited
Fund Partnership
Franklin Tax-Advantaged U.S. Government California Limited
Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Trust Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income
Securities Fund Investment
Grade Intermediate Bond
Fund Income Securities
Fund U.S. Government
Securities Fund Zero
Coupon Fund -2000 Zero
Coupon Fund -2005 Zero Coupon
Fund -2010 Adjustable U.S. Government
Fund Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity
Fund Templeton Developing
Markets Equity Fund Templeton
Global Growth Fund Global
Asset Allocation Fund Small
Cap Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
</TABLE>
STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
Fax: (215) 564-8120
Direct Dial:
(215) 564-8101
February 23, 1996
Franklin Tax-Advantaged U.S. Government
Securities Fund
777 Mariners Island Blvd.
San Mateo, California 94404
Re: FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT
SECURITIES
Gentlemen:
We Have examined the Agreement of Limited Partnership of Franklin
Tax-Advantaged U.S. Government Securities Fund ("Fund"), a California limited
partnership, and the various pertinent records, documents and proceedings we
deem material. We have also examined the Notification of Registration and
the Registration Statements filed under the Investment Company Act of 1940
("Investment Company Act") and the Securities Act of 1933 ("Securities Act"),
all as amended to date, as well as other items we deem material to this
opinion.
You have indicated that, pursuant to Section 24(e)(1) of the
Investment Company Act, the Fund intends to file Post-Effective Amendment No.
9 to its registration statement under the Securities Act to register
9,401,621 additional shares of partnership interests for sale pursuant to its
currently effective registration statement under the Securities Act.
Based upon the foregoing information and examination, it is our
opinion that the Fund is a valid and subsisting limited partnership organized
under the laws of California and that the proposed registration of the
9,401,621 shares of partnership interests is proper and such shares of
partnership interests, when issued will be legally outstanding, fully-paid
and non-assessable shares of partnership interests, and the holders of such
shares of partnership interests will have all the rights provided for with
respect to such holding by the Agreement of Limited Partnership and the laws
of the State of California.
We hereby consent to the use of this opinion as an exhibit to
Post-Effective Amendment No. 9 to be filed by the Fund, covering the
registration of the said shares under the Securities Act and the applications
and registration statements, and amendments thereto, filed in accordance with
the securities laws of the several states in which shares of the Fund are
offered, and we further consent to reference in the Prospectus and Statement
of Additional Information of the Fund to the fact that this opinion
concerning the legality of the issue has been rendered by us.
Very truly yours,
Stradley, Ronon, Stevens & Young, LLP
BY:/s/Audrey C. Talley
Audrey C. Talley
ACT/pj
156636.1
THELEN, MARRIN, JOHNSON & BRIDGES
ATTORNEYS AT LAW
SAN FRANCISCO Two EMBARCADERO CENTER LOS ANGELES
NEW YORK SAN FRANCISCO, CA 94111-3995 SAN JOSE
(415) 392-6320
JOHN M. MOONEY FAX (415) 421-1068
(415)955-3596
May 1, 1995
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-lA under the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company
Act of 1940, as amended (the 111940 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.
ss.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, 1995 and ending April 30, 1996.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statements of the Funds on Form N-lA 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 U.S. Government Securities Fund
We consent to the incorporation by reference in Post-Effective Amendment No.
9 to the Registration Statement of Franklin Tax-Advantaged U.S. Government
Securities Fund on Form N-1A File No. 33-11963 of our report dated January
31, 1996 on our audit of the financial statements and financial highlights of
Franklin Tax-Advantaged U.S. Government Securities Fund, which report is
included in the Annual Report to Shareholders for the year ended December 31,
1995, which is incorporated by reference in the Registration Statement.
COOPERS & LYBRAND L.L.P.
San Francisco, California
February 27, 1996
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT 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 U.S. Government 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 U.S. GOVERNMENT SECURITIES FUND
/s/ Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
/s/ Harmon E. Burns
Fund Name: Franklin Tax-Advantaged U.S. Gov't. Secs. Fund
Period Ending: 12/31/94 12/31/94
MAX OFF NAV
1 Yr T.Return: -8.17% -4.13%
5 Yr T.Return: 34.86% 40.83%
10 Yr T.Return: NA NA
From Inception: 76.60% 84.37%
Inception Date: 05/04/87 05/04/87
SEC STANDARD TOTAL RETURN
Franklin Tax-Advantaged U.S. Gov't. Secs. AS OF: 12/31/94
Fund
MAX OFFER NAV
ONE YEAR -8.17% -4.13%
P= 1000.00 1000.00
T= -0.0817 -0.0413
n= 1 1
ERV= 918.30 958.70
FIVE YEAR 6.16% 7.09%
P= 1000.00 1000.00
T= 0.0616 0.0709
n= 5 5
ERV= 1348.36 1408.46
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 7.70% 8.30%
P= 1000.00 1000.00
T= 0.0770 0.0830
n= 7.6685 7.6685
ERV= 1766.23 1843.10
AGGREGATE TOTAL RETURN
1 YEAR -8.17% -4.13%
5 YEAR 34.86% 40.83%
10 YEAR NA NA
FROM INCEPTION 76.60% 84.37%
30-DAY SEC YIELD 7.05%
30-DAY SEC YIELD W/O WAIVER NA
FISCAL YEAR-END DISTRIBUTION 6.83%
RATE (ON MAX OFFERING)
FISCAL YEAR-END DISTRIBUTION 7.13%
RATE (ON NAV)
FPF - FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND #355
For the period ended 12/31/94
SEC - YIELD CALCULATION
a = interest/dividends earned 3,054,559
b = expenses accrued 261,053
c = avg # of shares o/s 47,352,286
d = maximum offering price 10.190
a - b
SEC Yield= 2[(------------------------- + 1) -1]
cd
3,054,559 - 261,053 6
= 2[(----------------------------------- + 1) -1]
47,352,286 * 10.190
2,793,506 6
= 2[(------------------------- + 1) -1]
482,519,794
6
= 2[( 1.00578941223297 ) -1]
CALIFORNIA TAX FREE INCOME FUND
15-Feb-95
= 2( 1.03524313060668 - 1)
= 0.0704862612
= 7.05%
POWER OF ATTORNEY
The undersigned officers and managing general partners of Franklin
Tax-Advantaged U.S. Government 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., Principal Charles B. Johnson,
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
U.S. Government 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 FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN
PARTNERS FUNDS FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND DECEMBER
31, 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 388,653,319
<INVESTMENTS-AT-VALUE> 392,420,171
<RECEIVABLES> 13,437,038
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 405,857,209
<PAYABLE-FOR-SECURITIES> 889,461
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,402,927
<TOTAL-LIABILITIES> 2,292,388
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 410,656,701
<SHARES-COMMON-STOCK> 37,384,174
<SHARES-COMMON-PRIOR> 46,759,786
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (10,858,732)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,766,852
<NET-ASSETS> 403,564,821
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,078,189
<OTHER-INCOME> 0
<EXPENSES-NET> (2,751,570)
<NET-INVESTMENT-INCOME> 29,326,619
<REALIZED-GAINS-CURRENT> (2,853,964)
<APPREC-INCREASE-CURRENT> 46,891,743
<NET-CHANGE-FROM-OPS> 44,127,779
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (29,326,619)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,361,305
<NUMBER-OF-SHARES-REDEEMED> 14,331,556
<SHARES-REINVESTED> 1,594,639
<NET-CHANGE-IN-ASSETS> (52,856,285)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (8,004,768)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (2,173,657)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (2,751,570)
<AVERAGE-NET-ASSETS> 427,479,935
<PER-SHARE-NAV-BEGIN> 9.760
<PER-SHARE-NII> .706
<PER-SHARE-GAIN-APPREC> 1.040
<PER-SHARE-DIVIDEND> (.706)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.800
<EXPENSE-RATIO> .640
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
