As filed with the Securities and Exchange Commission on February 27, 1996
File No.
811-6242
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 9
This Amendment is being filed only under
the Investment Company Act of 1940
ADJUSTABLE RATE SECURITIES PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
Deborah R. Gatzek 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)
Please Send Copy of Communications to:
Mark H. Plafker, Esq.
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19102
ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
FORM N-1A, PART A:
ITEM
Responses to Items 1 through 3 have been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
4. GENERAL DESCRIPTION OF REGISTRANT
ABOUT THE PORTFOLIO
The U.S. Government Adjustable Rate Mortgage Portfolio ("Portfolio") is one of
two no-load, open-end, diversified series of the Adjustable Rate Securities
Portfolios (the "Trust"), a management investment company, commonly called a
mutual fund. The Trust was organized as a Delaware business trust on February
15, 1991 and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Trust's other series is the Adjustable Rate Securities Portfolio. As permitted
by applicable law, the Portfolio's shares of beneficial interest, par value of
$.01 per share, are sold only to other investment companies.
SHARES OF THE PORTFOLIO 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.
INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO
The investment objective of the Portfolio is to seek a high level of current
income, consistent with lower volatility of principal. The Portfolio pursues its
investment objective by investing primarily (at least 65% of its total assets)
in adjustable-rate mortgage securities ("ARMS") or other securities
collateralized by or representing an interest in mortgages (collectively,
"mortgage securities"), which have interest rates which reset at periodic
intervals. All mortgage securities in which the Portfolio invests are issued or
guaranteed by the U.S. government, its agencies or instrumentalities. In
addition to these mortgage securities, the Portfolio may invest up to 35% of its
total assets in (a) notes, bonds and discount notes of the following U.S.
government agencies or instrumentalities: Federal Home Loan Banks, Federal
National Mortgage Association "FNMA"), Government National Mortgage Association
("GNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), and Small Business
Administration, (b) obligations of or guaranteed by the full faith and credit of
the United States and repurchase agreements collateralized by such obligations,
and (c) time and savings deposits in commercial or savings banks or in
institutions whose accounts are insured by the FDIC. There is, of course, no
assurance that the Portfolio's investment objective will be achieved. As the
value of the Portfolio's portfolio securities fluctuate, its net asset value per
share also fluctuates.
ADVANTAGES OF INVESTING IN THE PORTFOLIO
The Portfolio enables its shareholders to invest easily in mortgage securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Any guarantee extends to the payment of interest and principal due on the
mortgage securities and does not provide any protection from fluctuations in the
market value of such mortgage securities. The Portfolio's investment manager
believes that by investing primarily in mortgage securities that provide for
variable rates of interest, the Portfolio achieves a higher, more consistent and
less volatile net asset value than is characteristic of mutual funds that invest
primarily in mortgage securities paying a fixed rate of interest.
Principal payments received on the Portfolio's mortgage securities are
reinvested by the Portfolio in other securities. The securities may have a
higher or lower yield than the mortgage securities already held by the
Portfolio, depending upon market conditions.
An investment in the Portfolio provides liquidity for the investor, who may
redeem at the current net asset value at any time in accordance with procedures
described under the caption "How to Sell Shares of the Portfolio" discussed
under Item 8 below.
CHARACTERISTICS OF THE MORTGAGE SECURITIES
IN WHICH THE PORTFOLIO INVESTS
ADJUSTABLE RATE MORTGAGE SECURITIES. ARMS, like traditional mortgage securities,
are interests in pools of mortgage loans. Most mortgage securities are
pass-through securities, which means that they provide investors with payments
consisting of both principal and interest as mortgages in the underlying
mortgage pool are paid off by the borrower. The dominant issuers or guarantors
of mortgage securities today are GNMA, FNMA, and FHLMC. GNMA creates mortgage
securities from pools of government guaranteed or insured (Federal Housing
Authority or Veterans Administration) mortgages originated by mortgage bankers,
commercial banks, and savings and loan associations. FNMA and FHLMC issue
mortgage securities from pools of conventional and federally insured and/or
guaranteed residential mortgages obtained from various entities, including
savings and loan associations, savings banks, commercial banks, credit unions,
and mortgage bankers.
The adjustable interest rate feature of the mortgages underlying the mortgage
securities in which the Portfolio invests generally acts as a buffer to reduce
sharp changes in the Portfolio's net asset value in response to normal interest
rate fluctuations. As the interest rates on the mortgages underlying the
Portfolio's investments are reset periodically, yields of portfolio securities
gradually align themselves to reflect changes in market rates so that the market
value of the Portfolios securities will remain relatively stable as compared to
fixed-rate instruments and should cause the net asset value of the Portfolio to
fluctuate less significantly than it would if the Portfolio invested in more
traditional long-term, fixed-rate debt securities. During periods of rising
interest rates, changes in the coupon rate lag behind changes in the market
rate, resulting in possibly a lower net asset value until the coupon resets to
market rates. Thus, investors could suffer some principal loss if they sold
their Portfolio shares before the interest rates on the underlying mortgages are
adjusted to reflect current market rates. During periods of extreme fluctuations
in interest rates, the Portfolio's net asset value fluctuates as well. Since
most mortgage securities in the Portfolio's portfolio generally have annual
reset caps of 100 to 200 basis points, short-term fluctuation in interest rates
above these levels could cause such mortgage securities to "cap out" and to
behave more like long-term, fixed-rate debt securities.
Unlike fixed-rate mortgages, which generally decline in value during periods of
rising interest rates, adjustable rate mortgage securities allow the Portfolio
to participate in increases in interest rates through periodic adjustments in
the coupons of the underlying mortgages, resulting in both higher current yields
and lower price fluctuations. Furthermore, if prepayments of principal are made
on the underlying mortgages during periods of rising interest rates, the
Portfolio generally is able to reinvest such amounts in securities with a higher
current rate of return. The Portfolio, however, does not benefit from increases
in interest rates to the extent that interest rates rise to the point where they
cause the current coupon of adjustable rate mortgage securities held as
investments by the Portfolio to exceed the maximum allowable annual or lifetime
reset limits (or "cap rates") for a particular mortgage. Also, the Portfolio's
net asset value could vary to the extent that current yields on mortgage-backed
securities are different than market yields during interim periods between
coupon reset dates.
During periods of declining interest rates, of course, the coupon rates may
readjust downward, resulting in lower yields to the Portfolio. Further, because
of this feature, the value of ARMS is unlikely to rise during periods of
declining interest rates to the same extent as fixed-rate instruments. As with
other mortgage-backed securities, interest rate declines may result in
accelerated prepayment of mortgages, and the proceeds from such prepayments must
be reinvested at lower prevailing interest rates.
One additional difference between ARMS and fixed-rate mortgages is that for
certain types of ARMS, the rate of amortization of principal, as well as
interest payments, can and does change in accordance with movements in a
particular, pre-specified, published interest rate index. The amount of interest
due to an ARMS holder is calculated by adding a specified additional amount, the
"margin," to the index, subject to limitations or "caps" on the maximum and
minimum interest that is charged to the mortgagor during the life of the
mortgage or to maximum and minimum changes to that interest rate during a given
period. It is these special characteristics which are unique to adjustable-rate
mortgages that the Portfolio's investment manager believes make them attractive
investments in seeking to accomplish the Portfolio's objective.
Many mortgage securities which are issued or guaranteed by GNMA, FHLMC, or FNMA
("Certificates") are called pass-through Certificates because a pro rata share
of both regular interest and principal payments (less GNMA's, FHLMC's, or FNMA's
fees and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool, are passed through monthly to the
holder of the Certificate (i.e., the Portfolio). The principal and interest on
GNMA securities are guaranteed by GNMA, which guarantee is backed by the full
faith and credit of the U.S. government. FNMA guarantees full and timely payment
of all interest and principal, while FHLMC guarantees timely payment of interest
and ultimate collection of principal. Mortgage securities issued or guaranteed
by FNMA and FHLMC are not backed by the full faith and credit of the U.S.
government; however, they are generally considered to offer minimal credit
risks. The yields provided by these mortgage securities have historically
exceeded the yields on other types of U.S. government securities with comparable
maturities in large measure due to the prepayment risks. (See "Risks of Mortgage
Securities" below.)
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Portfolio may also invest in
CMOs issued and guaranteed by U.S. government agencies or instrumentalities. A
CMO is a mortgage-backed security that separates mortgage pools into short-,
medium- and long-term components. Each component pays a fixed rate of interest
at regular intervals. These components enable an investor such as the Portfolio
to more accurately predict the pace at which principal is returned. The
Portfolio will not invest in privately issued CMOs except to the extent that it
invests in the securities of entities that are instrumentalities of the U.S.
government.
CMOs purchased by the Portfolio may be:
(1) collateralized by pools of mortgages in which each mortgage is guaranteed as
to payment of principal and interest by an agency or instrumentality of the U.S.
government;
(2) collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer, and the guarantee is collateralized by
U.S. government securities; or
(3) securities in which the proceeds of the issuance are invested in mortgage
securities, and payment of the principal and interest are supported by the
credit of an agency or instrumentality of the U.S.
government.
RESETS. The interest rates paid on the ARMS and CMOs in which the Portfolio
invests generally are readjusted at intervals of one year or less to an
increment over some predetermined interest-rate index. There are three main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure such as a cost of funds index, or a moving average of
mortgage rates. Commonly utilized indices include the one-, three- and five-year
constant maturity Treasury rates, the three-month Treasury bill rate, the
180-day Treasury bill rate, rates on longer-term Treasury securities, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-, three-, six-month or one-year London Interbank Offered Rate
(LIBOR), the prime rate of a specific bank, or commercial paper rates. Some
indices, such as the one-year constant maturity Treasury rate, closely mirror
changes in market interest rate levels. Others, such as the 11th District Home
Loan Bank Cost of Funds index, tend to lag behind changes in market rate levels
and tend to be somewhat less volatile.
CAPS AND FLOORS. The underlying mortgages which collateralize the ARMS and CMOs
in which the Portfolio invests frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower may change up
or down (1) per reset or adjustment interval, and (2) over the life of the loan.
Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization.
STRIPPED MORTGAGE SECURITIES. The Portfolio may also invest in stripped mortgage
securities, which are derivative multi-class mortgage securities. The stripped
mortgage securities in which the Portfolio may invest are issued and guaranteed
by agencies or instrumentalities of the U.S. government. Stripped mortgage
securities have greater market volatility than other types of mortgage
securities in which the Portfolio invests.
Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security has one
class receiving some of the interest and most of the principal from the mortgage
assets, while the other class receives most of the interest and the remainder of
the principal. In the most extreme case, one class receives all of the interest
(the interest-only or "IO" class), while the other class receives all of the
principal (the principal-only or "PO" class). The yield to maturity on an IO
class is extremely sensitive not only to changes in prevailing interest rates
but also to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on the Portfolio's yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Portfolio may fail to fully recoup its initial investment in
these securities even if the securities are rated in the highest rating
categories, AAA or Aaa, by Standard & Poor's Corporation or Moody's Investors
Service, respectively.
Stripped mortgage securities are purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. As these
securities were only recently developed, traditional trading markets have not
yet been established for all such securities. Accordingly, some of these
securities may generally be illiquid. The staff of the SEC (the "Staff") has
indicated that only government-issued IO or PO securities backed by fixed-rate
mortgages may be deemed to be liquid, if procedures with respect to determining
liquidity are established by a fund's board. The Portfolio's Board of Trustees
(the "Board") may, in the future, adopt procedures which would permit the
Portfolio to acquire, hold, and treat as liquid government-issued IO and PO
securities. At the present time, however, all such securities will continue to
be treated as illiquid and will, together with any other illiquid investments,
not exceed 10% of the Portfolio's net assets. Such position may be changed in
the future, without notice to shareholders, in response to the Staff's continued
reassessment of this matter as well as to changing market conditions.
RISKS OF MORTGAGE SECURITIES
The mortgage securities in which the Portfolio principally invests differ from
conventional bonds in that principal is paid back over the life of the mortgage
security rather than at maturity. As a result, the holder of the mortgage
securities (i.e., the Portfolio) receives monthly scheduled payments of
principal and interest, and may receive unscheduled principal payments
representing prepayments on the underlying mortgages. When the holder reinvests
the payments and any unscheduled prepayments of principal it receives, it may
receive a rate of interest which is lower than the rate on the existing mortgage
securities. For this reason, mortgage securities may be less effective than
other types of U.S. government securities as a means of "locking in" long-term
interest rates.
The market value of mortgage securities, like other U.S. government securities,
generally varies inversely with changes in market interest rates, declining when
interest rates rise and rising when interest rates decline. Mortgage securities,
while having less risk of a decline during periods of rapidly rising rates, may
also have less potential for capital appreciation than other investments of
comparable maturities due to the likelihood of increased prepayments of
mortgages as interest rates decline.
In addition, to the extent mortgage securities are purchased at a premium,
mortgage foreclosures and unscheduled principal prepayments may result in some
loss of the holder's principal investment to the extent of the premium paid. On
the other hand, if mortgage securities are purchased at a discount, both a
scheduled payment of principal and an unscheduled prepayment of principal
increases current and total returns and accelerates the recognition of income
which, when distributed to shareholders, is taxable as ordinary income.
OTHER INVESTMENT POLICIES
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase transactions, in
which the Portfolio 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 Portfolio in each agreement, with the value of
the underlying security marked-to-market daily to maintain coverage of at least
100%. The repurchase agreements in which the Portfolio may invest are limited to
those agreements having terms of one year or less. A default by the seller might
cause the Portfolio to experience a loss or delay in the liquidation of the
collateral securing the repurchase agreement. The Portfolio might also incur
disposition costs in liquidating the collateral. The Portfolio, however, intends
to enter into repurchase agreements only with financial institutions such as
broker-dealers and banks which are deemed creditworthy by the Portfolio's
investment manager. A repurchase agreement is deemed to a loan by the Portfolio
under the 1940 Act. The U.S. government security subject to resale (the
collateral) is held on behalf of the Portfolio by a custodian approved by the
Board and is held pursuant to a written agreement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Portfolio may purchase U.S.
government obligations on a "when-issued" or "delayed delivery" basis. These
transactions are arrangements under which the Portfolio purchases securities
with payment and delivery scheduled for a future time, generally in 30 to 60
days. Purchases of U.S. government securities on a when-issued or delayed
delivery basis are subject to market fluctuation and are subject to the risk
that the value or yields at delivery may be more or less than the purchase price
or the yields available when the transaction was entered into. Although the
Portfolio generally purchases U.S. government securities on a when-issued basis
with the intention of acquiring such securities, it may sell such securities
before the settlement date if it is deemed advisable. When the Portfolio is the
buyer in such a transaction, it maintains, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of such purchase commitments until payment is made. To the
extent the Portfolio engages in when-issued and delayed delivery transactions,
it does so only for the purpose of acquiring portfolio securities consistent
with the Portfolio's investment objectives and policies, and not for the purpose
of investment leverage. In when-issued and delayed delivery transactions, the
Portfolio relies on the seller to complete the transaction. The other party's
failure may cause the Portfolio to miss a price or yield considered
advantageous. Securities purchased on a when-issued or delayed delivery basis do
not generally earn interest until their scheduled delivery date. The Portfolio
is not subject to any percentage limit on the amount of its assets which may be
invested in when-issued purchase obligations.
MORTGAGE DOLLAR ROLLS. The Portfolio may enter into mortgage "dollar rolls" in
which the Portfolio sells mortgage-backed securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar (name,
type, coupon and maturity) securities on a specified future date. During the
roll period, the Portfolio foregoes principal and interest paid on the
mortgage-backed securities. The Portfolio is compensated by the difference
between the current sales price and the lower forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale. A covered roll is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
and subject to the following conditions, the Portfolio may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 10% of the value of the Portfolio's total
assets at the time of the most recent loan. The borrower must deposit with the
Portfolio's custodian bank collateral with an initial market value of at least
102% of the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 102%. This
collateral shall consist of cash. The lending of securities is a common practice
in the securities industry. The Portfolio engages in security loan arrangements
with the primary objective of increasing its income either through investing the
cash collateral in short-term interest bearing obligations or by receiving a
loan premium from the borrower. Under the securities loan agreement, the
Portfolio continues to be entitled to all dividends or interest on any loaned
securities. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially.
ILLIQUID SECURITIES. It is the policy of the Portfolio that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Portfolio has valued the
securities and includes, among other things, repurchase agreements and time
deposits of more than seven days duration) may not constitute, at the time of
purchase, more than 10% of the value of the net assets of the Portfolio.
OTHER PERMITTED INVESTMENTS. Other investments permitted by the Portfolio
include: obligations of the U.S. government; notes, bonds, and discount notes of
the following U.S. government agencies or instrumentalities: Federal Home Loan
Banks, FNMA, GNMA, FHLMC, Small Business Administration; and time and savings
deposits (including fixed or adjustable rate certificates of deposit) in
commercial or savings banks or in institutions whose accounts are insured by the
FDIC. The Portfolio's investments in savings deposits with maturities in excess
of seven days are generally deemed to be illiquid and will, together with any
other illiquid investments, not exceed 10% of the Portfolio's net assets. The
Portfolio's investments in time deposits will not exceed 10% of its total
assets.
TEMPORARY DEFENSIVE POSITIONS. When maintaining a temporary defensive position,
the Portfolio may invest its assets, without limit, in U.S. government
securities, certificates of deposit of banks having total assets in excess of $5
billion, and repurchase agreements.
PORTFOLIO TURNOVER RATE. The Portfolio's portfolio turnover rate may vary from
year to year, as well as within a year. For the fiscal periods ended October 31,
1995 and October 31, 1994, the Portfolio's rates of portfolio turnover equalled
20.16% and 56.43%, respectively.
INVESTMENT RESTRICTIONS
The Portfolio is subject to a number of additional investment restrictions, some
of which, like the Portfolio's investment objective and investment policies,
have been adopted as fundamental policies of the Portfolio and may only be
changed with the approval of a majority of the outstanding voting securities of
the Portfolio. A list of these restrictions and more information concerning the
policies are discussed in Part B of this registration statement.
GENERAL INFORMATION
The Trust is authorized to issue an unlimited number of shares of beneficial
interest. All shares of the Trust have one vote, and, when issued, are fully
paid and non-assessable.
The Trust has two series and was formerly named the Franklin Institutional U.S.
Government ARM Fund. On October 18, 1991, the Board approved a change in the
Trust's name and the addition of a second series of the Trust, the Adjustable
Rate Securities Portfolio, the shares of beneficial interest of which are
available only to other investment companies. Additional series may be added in
the future by the Board, the assets and liabilities of which will be separate
and distinct from any other series. On June 15, 1993, the Board approved a
change in the fiscal year end of the Trust to October 31 of each year from
January 31.
5. MANAGEMENT OF THE FUND
MANAGEMENT OF THE PORTFOLIO
The Board has the primary responsibility for the overall management of the Trust
and for electing the officers of the Trust who are responsible for administering
its day-to-day operations.
Franklin Advisers, Inc. ("Advisers" or "Manager"), at the address shown on the
cover of this amendment to the registration statement, serves as the Portfolio's
investment manager. Advisers is a wholly owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr. who own 20%, 16%, and
10%, respectively, of Resources' outstanding shares. Resources is engaged in
various aspects of the financial services industry through its subsidiaries.
Advisers acts as investment manager or administrator to 35 U.S. registered
investment companies (118 separate series) with aggregate assets of over $80
billion.
The team responsible for the day-to-day management of the Portfolio is: Roger
Bayston since 1991, Anthony Coffey since 1991 and Jack Lemein since inception.
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 from the University of California at Los Angeles. He earned his
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.
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.
Pursuant to the management agreement, the Manager supervises and implements the
Portfolio's investment policies and provides certain administrative services and
facilities which are necessary to conduct the Portfolio's business. Advisers
performs similar services for other funds and there may be times when the
actions taken with respect to the portfolio will differ from those taken by
Advisers on behalf of other funds. Neither Advisers (including its affiliates)
nor its officers, directors or employees nor the officers and trustees of the
Trust are prohibited from investing in securities held by the Portfolio or other
funds which are managed or administered by Advisers to the extent such
transactions comply with the Portfolio's Code of Ethics.
The Portfolio is responsible for its own operating expenses including, but not
limited to, the Manager's fee; taxes, if any; custodian, legal and auditing
fees; fees and expenses of trustees who are not members of, affiliated with or
interested persons of the Manager; salaries of any personnel not affiliated with
the Manager; insurance premiums; trade association dues; expenses of obtaining
quotations for calculating the value of the Portfolio's net assets; and printing
and other expenses which are not expressly assumed by the Manager.
Under the management agreement, the Portfolio is obligated to pay the Manager a
fee computed daily and payable monthly, at the annual rate as follows: 40/100 of
1% for the first $5 billion of its average daily net assets; plus 35/100 of 1%
of its average daily net assets in excess of $5 billion up through $10 billion;
33/100 of 1% of its average daily net assets in excess of $10 billion up through
$15 billion; and 30/100 of 1% of its average daily net assets in excess of $15
billion.
During the fiscal year ended October 31, 1995, management fees before any
advance waiver, totaled 0.40% of the average daily net assets of the Portfolio.
Total operating expenses, including management fees before any advance waiver,
totaled 0.43% of the average daily net assets of the Portfolio. Pursuant to an
agreement by Advisers to waive its fees, the Portfolio paid management fees
totaling 0.15% of the average daily net assets of the Fund and operating
expenses totaling 0.03%. This arrangement may be terminated by the Manager at
any time upon notice to the Board.
It is not anticipated that the Portfolio will incur a significant amount of
brokerage expenses because adjustable rate mortgage securities are generally
traded in principal transactions that involve the receipt by the broker of a
spread between the bid and ask prices for the securities and not the receipt of
commissions. In the event that the Portfolio does participate in transactions
involving brokerage commissions, it is the Manager's responsibility to select
brokers through whom such transactions are 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 considers 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 Portfolio, as factors in selecting a broker.
(Further information is included under "The Portfolio's Policies Regarding
Brokers Used on Portfolio Transactions" under Item 17 in this amendment to the
registration statement.)
Shareholder accounting and many of the clerical functions for the Portfolio are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), at the address for the Portfolio shown on the
cover of this amendment to the registration statement, in its capacity as
transfer agent and dividend-paying agent on a fixed fee per account basis.
Investor Services is a wholly owned subsidiary of Resources.
During the fiscal year ended October 31, 1995, total expenses borne by the
Portfolio, including fees paid to Advisers and to Investor Services, aggregated
0.18% (after waivers of 0.25%, of the average net assets of the Portfolio).
The response to Item 5A has been omitted pursuant to paragraph 4 of Instruction
F of the General Instructions to Form N-1A.
6. CAPITAL STOCK AND OTHER SECURITIES
As discussed above, the Trust is a Delaware Business trust. The Agreement and
Declaration of Trust permits the trustees to issue an unlimited number of full
and fractional shares of beneficial interest, with a par value of $.01 per
share, which may be issued in any number of series. Currently the Trust has two
series: one series representing interests in the Portfolio and the other series
representing interests in the Adjustable Rate Securities Portfolio. When issued
for payment as described in this registration statement as amended, shares are
validly issued, fully paid, and non-assessable and have no preemptive,
conversion, or sinking rights. Shares of each series have equal and exclusive
rights as to dividends and distributions as declared by each series and the net
assets of such series upon liquidation or dissolution.
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the 1940
Act. Voting rights are not cumulative, so that the holders of more than 50% of
the shares voting in any election of trustees, can, if they choose to do so,
elect all of the trustees. A meeting may also be called by the trustees in their
discretion or by shareholders holding at least ten percent of the outstanding
shares of the Trust. Shareholders will receive assistance in communicating with
other shareholders in connection with the election or removal of trustees such
as that provided in Section 16(c) of the 1940 Act.
CONTROL PERSONS
As of February 14, 1996, the Franklin Adjustable U.S. Government Securities Fund
held 51,390,203 shares (or 97.5%) of the Portfolio's outstanding shares and,
accordingly, may be deemed to be a controlling person under the 1940 Act.
DISTRIBUTIONS TO SHAREHOLDERS
As indicated below in response to Items 7 and 8, the Portfolio's shares have not
been registered under the Securities Act of 1933 (the "1933 Act"), which means
that its shares are restricted securities which may not be sold, redeemed or
reinvested unless registered or pursuant to an available exemption from that
Act. Accordingly, to the extent distributions to shareholders are reinvested in
additional shares, as discussed below, such transactions are subject to the
requirements of the 1933 Act.
There are two types of distributions which the Portfolio may make to its
shareholders:
1. INCOME DIVIDENDS. The Portfolio receives income primarily in the form of
interest and other income derived from its investments. This income, less the
expenses incurred in the Fund's operations, is its net investment income from
which income dividends may be distributed. Thus, the amount of dividends paid
per share may vary with each distribution. The Portfolio ordinarily declares
dividends from its net investment income on each day its net asset value is
calculated. The Portfolio's earnings for Saturdays, Sundays and holidays are
declared as dividends on the next business day. Daily allocations of dividends
will commence on the day funds are wired to the Portfolio. The amount of the
dividend may fluctuate from day to day depending on changes in the factors that
comprise the Portfolio's net investment income.
Dividends are declared daily and are reinvested monthly in the form of
additional shares of the Portfolio at the net asset value per share generally at
the close of business on the last business day of the month. Shareholders may
request to have their dividends paid out monthly in cash. Shareholders redeeming
all their shares at any time during the month will receive all dividends to
which they are entitled together with the redemption check.
2. CAPITAL GAIN DISTRIBUTIONS. The Portfolio may derive capital gains or losses
in connection with sales or other dispositions of its portfolio securities.
Distributions by the Portfolio derived from net short-term and net long-term
capital gains (after taking into account any net capital loss carryovers) will
generally be made once a year in December and will reflect any net short-term
and net long-term capital gains realized by the Portfolio as of October 31 of
such year. The Portfolio reserves the right to make more than one distribution
derived from net short-term and net long-term capital gains in any year or to
adjust the timing of these distributions for operational or other reasons.
TAX EFFECTS ON AN INVESTMENT IN THE PORTFOLIO
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders.
TAXATION OF THE PORTFOLIO
Each separate series of the Trust is treated as a separate entity for federal
income tax purposes. The Portfolio intends to continue to qualify to be treated
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended, (the "Code"). By distributing all of its net
investment income and any net realized short-term and long-term capital gains
for a fiscal year in accordance with the timing requirements imposed by the Code
and by meeting certain other requirements relating to the sources of its income
and diversification of its assets, the Portfolio will not be liable for federal
income or excise taxes.
TAXATION OF SHAREHOLDERS
For federal income tax purposes, any income dividends received from the
Portfolio, as well as any distributions derived from the excess of net
short-term capital gain over net long-term capital loss, are treated as ordinary
income whether received in cash or in additional shares. Distributions derived
from the excess of net long-term capital gain over net short-term capital loss
are treated as long-term capital gain regardless of the length of time Portfolio
shares have been owned and regardless of whether received in cash or in
additional shares.
It is not expected that any of the distributions to be paid by the Portfolio
will qualify for the corporate dividends received deduction.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January, is treated as if received by the
shareholder on December 31 of the calendar year in which they are declared.
Redemptions and exchanges of Portfolio's shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange of
the Portfolio's shares, held for six months or less, is treated as a long-term
capital loss to the extent of capital gain dividends received with respect to
such shares.
The Portfolio will inform shareholders of the source of dividends and
distributions at the time they are paid and will promptly after the close of
each calendar year advise shareholders of the tax status for federal income tax
purposes of such dividends and distributions.
While many states grant tax-free status to dividends paid to shareholders of
mutual funds from interest income earned from direct obligations of the U.S.
Government, none of the distributions of the Portfolio are expected to qualify
for such tax-free treatment. Investments in mortgage-backed securities
(including GNMA, FNMA and FHLMC securities) and repurchase agreements
collateralized by U.S. government securities do not qualify as direct federal
obligations in most states. Shareholders should consult with their own tax
advisors with respect to the applicability of state and local income taxes to
distributions and redemption proceeds received from the Portfolio.
Additional information in response to this item is contained under the
discussion captioned "General Information" in Item 4, above.
7. PURCHASE OF SECURITIES
The Portfolio's shares have not been registered under the 1933 Act, which means
that its shares may not be sold publicly. However, the Portfolio's shares may be
sold through private placements pursuant to available exemptions from that Act.
Shares of the Portfolio are sold only to other investment companies. All shares
are sold at net asset value without a sales charge. Shares are purchased at the
net asset value next determined after the Portfolio receives the order in proper
form. Funds should be wired to the Portfolio's bank account at Bank of America,
the Portfolio's custodian, for credit to the Portfolio's account. All
investments in the Portfolio are credited to the shareholder's account in the
form of full and fractional shares of the Portfolio (rounded to the nearest
1/1000 of a share). The Portfolio does not issue share certificates.
Shares may generally be purchased on business days except when the New York
Stock Exchange (the "Exchange") is closed. Federal Funds wire purchase orders
are not accepted on days when the Federal Reserve Bank system and the
Portfolio's custodian are closed.
VALUATION OF PORTFOLIO SHARES
The net asset value per share of the Portfolio is determined as of 1:00 p.m.
Pacific time each day that the Exchange is open for trading.
The net asset value per share of the Portfolio is determined in the following
manner: The aggregate of all liabilities, including accrued expenses and taxes
and any necessary reserves, are deducted from the aggregate gross value of all
assets, and the difference is divided by the number of shares of the Portfolio
outstanding at the time. For the purposes of determining the aggregate net
assets of the Portfolio, cash and receivables are valued at their realizable
amounts. Interest is recorded as accrued. Portfolio securities listed on a
securities exchange or on the NASDAQ National Market System for which market
quotations are readily available are valued at the last quoted sale price of the
day or, if there is no such reported sale, within the range of the most recent
quoted bid and asked 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. Other
securities for which market quotations are readily available are valued at
current market value obtained from a pricing service, which is 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 securities. 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 the
Board, the Portfolio may utilize a pricing service, bank or securities dealer to
perform any of the above-described functions.
8. REDEMPTION OR REPURCHASE
HOW TO SELL SHARES OF THE PORTFOLIO
As stated above in response to Item 7, "Purchase of Securities," the Portfolio's
shares are restricted securities which may not be sold unless registered or
pursuant to an available exemption from the 1933 Act.
Redemptions are processed on any day on which the Portfolio is open for business
and are effected at the Portfolio's net asset value next determined after the
Portfolio receives a redemption request in good form.
Payment for redeemed shares is made promptly, but in no event later than seven
days after receipt of the redemption request in good form. Proceeds for
redemption orders cannot be wired on those business days when the Federal
Reserve Bank System and the Custodian are closed. The right of redemption,
however, may be suspended or the date of payment postponed in accordance with
the rules under the 1940 Act. Redemptions are taxable events, and the amount
received upon redemption may be more or less than the amount paid for the shares
depending upon the fluctuations in the market value of the assets owned by the
Portfolio.
9. PENDING LEGAL PROCEEDINGS
Not Applicable
ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
FORM N-1A, PART B:
10. COVER PAGE
Not Applicable
11. TABLE OF CONTENTS
Not Applicable
12. GENERAL INFORMATION AND HISTORY
Not Applicable
13. INVESTMENT OBJECTIVES AND POLICIES
As noted in response to Item 4, the Portfolio's investment objective is to seek
a high level of current income, consistent with lower volatility of principal by
following policies designed to achieve its objective. In addition to the
policies stated in response to Item 4, the following restrictions (except as
noted) have been adopted as fundamental policies for the Portfolio, which means
that they may not be changed without the approval of a majority of the
Portfolio's outstanding shares. The Portfolio may not:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefor) for temporary or emergency purposes may be
made from banks in an amount up to 20% of total asset value. The Portfolio will
not purchase additional investment securities while borrowings in excess of 5%
of total assets are outstanding.
2. Buy any securities on "margin" or sell any securities "short," except for any
delayed delivery or when-issued securities as described in the registration
statement as amended.
3. Lend any funds or other assets, except by the purchase of bonds, debentures,
notes or other debt securities as described in its registration statement as
amended, and except that securities of the Portfolio may be loaned to qualified
broker-dealers or other institutional investors if at least 102% cash collateral
is pledged and maintained by the borrower, provided such loans may not be made
if, as a result, the aggregate of such loans exceeds 10% of the value of the
Portfolio's total assets at the time of the most recent loan. Also, the entry
into repurchase agreements is not considered a loan for purposes of this
restriction.
4. Act as underwriter of securities issued by other persons except insofar as
the Portfolio 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 the total assets of the Portfolio in the
securities of any one issuer, but 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 which would result in owning more than
10% of any class of the outstanding voting securities of such issuer.
7. Purchase from or sell to its officers and trustees, or any firm of which any
officer or trustee is a member, as principal, any securities, but may deal with
such persons or firms as brokers and pay a customary brokerage commission; or
retain securities of any issuer, if to the knowledge of the Portfolio, one or
more of its officers, trustees or investment adviser, own beneficially more than
one-half of 1% of the securities of such issuer and all such officers and
trustees together own beneficially more than 5% of such securities.
8. Purchase any securities issued by a corporation which has not been in
continuous operation for three years, but such period may include the operation
of a predecessor.
9. Acquire, lease or hold real estate. (Does not preclude investments in
securities collateralized by real estate or interests therein.)
10. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads or any combination thereof, or interests in oil, gas or other mineral
exploration or development program.
11. Invest in companies for the purpose of exercising control or management.
12. Purchase securities of other investment companies, except to the extent
permitted by the 1940 Act. To the extent permitted by exemptions which may be
granted under the 1940 Act, the Portfolio may invest in shares of one or more
money market funds managed by Franklin Advisers, Inc. or its affiliates.
13. Issue senior securities as defined in the 1940 Act except that this
restriction will not prevent the Portfolio from entering into repurchase
agreements or making borrowings, mortgages and pledges as permitted by
restriction #1 above.
In order to change any of the foregoing restrictions which are fundamental
policies, approval must be obtained by shareholders of the Portfolio. Such
approval requires the affirmative vote of the lesser of (i) 67% or more of the
voting securities present at a meeting if the holders of more than 50% of voting
securities are represented at that meeting or (ii) more than 50% of the
outstanding voting securities of the Portfolio. If a percentage restriction
contained herein is adhered to at the time of investment, a later increase or
decrease in the percentage resulting from a change in the value of portfolio
securities or the amount of the Portfolio's assets will not be considered a
violation of any of the foregoing restrictions.
OTHER POLICIES. There are no restrictions or limitations on investments in
obligations of the U.S. government, or of corporations chartered by Congress as
federal government instrumentalities. The underlying assets of the Portfolio may
be retained in cash, including cash equivalents which are Treasury bills, and
short-term bank obligations such as certificates of deposit, bankers'
acceptances and repurchase agreements. it is intended, however, that only so
much of the underlying assets of the Portfolio be retained in cash as is deemed
desirable or expedient under then-existing market conditions. As noted elsewhere
in the registration statement as amended, the Portfolio may invest up to 10% of
its total net assets in illiquid securities. Investments in savings deposits are
generally considered illiquid and will, together with other illiquid
investments, not exceed 10% of the Portfolios net assets.
The Portfolio may purchase securities issued or guaranteed by the U.S.
Government, or one of its agencies or instrumentalities. GNMA guarantees are
backed by the full faith and credit of the U.S. Treasury. No assurances can be
given, however, that the U.S. government will provide such financial support to
the obligations of the other U.S. government agencies or instrumentalities in
which the Portfolio invests, since it is not obligated to do so. These agencies
and instrumentalities are supported by either the issuer's right to borrow an
amount limited to a specific line of credit from the U.S. Treasury, the
discretionary authority of the U.S. Government to purchase certain obligations
of an agency or instrumentality, or the credit of the agency or instrumentality.
The Portfolio may invest up to 5% of its total assets in inverse floaters.
Inverse floaters are instruments with floating or variable interest rates that
move in the opposite direction, at an accelerated speed, to short-term interest
rates. The Portfolio may also invest up to 5% of its assets in super floaters.
These are instruments that float at a greater than 1 to 1 ratio with the London
Interbank Offered Rate ("LIBOR") and are used as a hedge against the risk that
LIBOR floaters become "capped" and can no longer float higher.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). The Portfolio may also
invest in REMICs issued and guaranteed by U.S. government agencies or
instrumentalities.
REMICs, which are authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to Collateralized Mortgage
Obligations ("CMOs") in that they issue multiple classes of securities. As with
CMOs, the mortgages which collateralize the REMICs in which the Portfolio may
invest include mortgages backed by GNMA certificates or other mortgage
pass-throughs issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
Several of the funds in the Franklin Group of Funds(R), including the Portfolio,
are major purchasers of government securities and seek to negotiate attractive
prices for such securities and to pass on any savings derived from such
negotiations to their shareholders in the form of higher current yields.
14. MANAGEMENT OF THE REGISTRANT
Trustees and Officers
The Board of Trustees (the "Board") has the responsibility for the overall
management of the Portfolio, including general supervision and review of its
investment activities. The trustees, in turn, elect the officers of the Trust
who are responsible for administering the day-to-day operations of the Trust and
the Portfolio. The affiliations of the officers and trustees and their principal
occupations for the past five years are listed below. Trustees who are deemed to
be "interested persons" as defined in the 1940 Act are indicated by an asterisk
(*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111
Trustee
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
Trustee
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.
S. Joseph Fortunato (63)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
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
Trustee
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 Trustee
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
President and Trustee
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
Vice President and Trustee
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.
Frank W. T. LaHaye (66)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee, as the case may
be, of 26 of the investment companies in the Franklin Group of Funds.
*William J. Lippman (71)
One Parker Plaza
Fort Lee, NJ 07024
Trustee
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc.,
Franklin Templeton Distributors, Inc. and Franklin Management, Inc.; officer
and/or director or trustee of six of the investment companies in the Franklin
Group of Funds.
Gordon S. Macklin (67)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
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.
Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (35)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and officer of 37 of
the investment companies in the Franklin Group of Funds.
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.
Trustees not affiliated with the investment manager ("nonaffiliated trustees")
are currently paid fees of $50 per month plus $50 per meeting attended. As
indicated above, certain of the Trust's nonaffiliated trustees 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
trustees by the Trust and by other funds in the Franklin Templeton Group of
Funds.
NUMBER OF BOARDS
IN THE FRANKLIN
TOTAL FEES RECEIVED TEMPLETON GROUP OF
TOTAL FEES FROM THE FRANKLIN FUNDS ON WHICH
RECEIVED TEMPLETON GROUP OF EACH SERVES***
FROM THE FUNDS**
NAME TRUST*
Frank H. Abbott, III $100 $162,420 31
Harris J. Ashton 100 327,925 56
S. Joseph Fortunato 100 344,745 58
David Garbellano 100 146,100 30
Frank W.T. LaHaye 100 143,200 26
Gordon S. Macklin 100 321,525 53
*For the fiscal year ended October 31, 1995.
**For the calendar year ended December 31, 1995.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
directors are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 162
U.S. based funds or series.
Nonaffiliated trustees are reimbursed for expenses incurred in connection with
attending board meetings, paid pro rata by each fund in the Franklin Templeton
Group of Funds for which they serve as director, trustee or managing general
partner. No officer or trustee received any other compensation directly from the
Trust. Certain officers or trustees 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. Charles B.
Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle,
respectively, of Charles E. Johnson.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
a. As of February 14, 1996, Franklin Adjustable U.S. Government Securities Fund,
a series of the Franklin Investors Securities Trust, ("FIST") owned 97.5% of the
outstanding voting securities of the Portfolio. Accordingly, the Franklin
Adjustable U.S. Government Securities Fund could be deemed to control the
Portfolio, as that term is defined under the 1940 Act. FIST was organized as a
Massachusetts business trust and is located at the address set forth on the
cover of this amendment to the registration statement.
b. Except for the companies referred to in this item, no person was known to
hold beneficially or of record more than 5% of the Portfolio's outstanding
shares of beneficial interest.
c. Not Applicable
16. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of the Portfolio is Franklin Advisers, Inc. ("Advisers"
or "Manager"). Advisers is a wholly owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares are listed on the
New York Stock Exchange (the "Exchange"). Resources owns several other
subsidiaries which are involved in investment management and shareholder
services. The Manager and other subsidiary companies of Resources currently
manage over $135 billion in assets for more than 3.9 million U.S. based mutual
fund shareholder and other accounts. The table above indicates those officers
and trustees who are affiliated persons of Advisers.
Pursuant to the management agreement, the Manager provides investment research
and portfolio management services, including the selection of securities for the
Portfolio to purchase, hold or sell, and the selection of brokers through whom
the Portfolio's securities transactions are executed. The Manager's activities
are subject to the review and supervision of the Board to whom the Manager
renders periodic reports of the Portfolio's investment activities. Under the
terms of the management agreement, the Manager provides office space and office
furnishings, facilities and equipment required for managing the business affairs
of the Portfolio; maintains all internal bookkeeping, clerical, secretarial and
administrative personnel and services. The Manager is covered by fidelity
insurance on its officers, directors and employees for the protection of the
Trust and its Portfolios.
The Manager has agreed to limit its management fees and make certain payments to
reduce its operating expenses. For the fiscal year ended October 31, 1995, the
Portfolio was contractually obligated to pay the Manager a management fee of
$2,456,413. The Portfolio paid management fees of $68,077 for the same period.
The management agreement is in effect until February 28, 1997. Thereafter, it
may continue in effect for successive annual periods, providing such continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of the Portfolio's outstanding voting securities,
and in either event by a majority of the Trust's trustees who are not parties to
the management agreement or interested persons of any such party (other than as
trustees of the Trust), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the
Portfolio or by the Manager on 60 days' written notice and automatically
terminates in the event of its 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 the Trust and acts as the Trust's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a fixed
fee per account.
The Bank of New York, Mutual Funds Division, 90 Washington Street, New York, New
York, 10286, acts as custodian of the securities and other assets of the
Portfolio. 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 Portfolio shares. The custodian does 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,
is the Portfolio's independent auditor. During the fiscal year ended October 31,
1995, their auditing services consisted of rendering an opinion on the financial
statements for such fiscal year.
17. BROKERAGE ALLOCATION
THE PORTFOLIO'S POLICIES REGARDING BROKERS USED ON PORTFOLIO TRANSACTIONS
Since most purchases by the Portfolio are principal transactions at net prices,
the Portfolio incurs little or no brokerage costs. The Portfolio deals directly
with the selling or purchasing principal or market maker without incurring
charges for the services of a broker on its behalf, unless it is determined that
a better price or execution may be obtained by utilizing the services of a
broker. 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 prices. The Portfolio
seeks to obtain prompt execution of orders at the most favorable net price.
Transactions may be directed to dealers in return for research and statistical
information, as well as for special services rendered by such dealers in the
execution of orders.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from brokers or dealers effecting
transactions in portfolio securities. The allocation of transactions in order to
obtain additional research services permits Advisers to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the Manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
Provided that the Trust's officers are satisfied that the best execution is
obtained, the sale of Portfolio shares may also be considered as a factor in the
selection of broker/dealers to execute the Portfolio's portfolio transactions.
Because Franklin/Templeton Distributors, Inc. ("Distributors"), a subsidiary of
Resources, is a member of the National Association of Securities Dealers, Inc.,
Distributors is sometimes entitled to obtain certain fees when the Portfolio
tenders portfolio securities pursuant to a tender-offer solicitation. As a means
of recapturing brokerage for the benefit of the Portfolio, any portfolio
securities tendered by the Portfolio are tendered through Distributors if it is
legally permissible to do so. In turn, the next management fee payable to
Advisers under the management agreement is 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 by the Portfolio and one or more other
investment companies or clients supervised by the Manager or its affiliates 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
Portfolio, the other investment company or client and the amount of securities
to be purchased or sold. It is recognized that in some cases this procedure
could possibly have a detrimental effect on the price or volume of the security
so far as the Portfolio 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 Portfolio.
During the fiscal period ended October 31, 1995, the Portfolio paid no brokerage
commissions. As of such date, the Portfolio did not own securities of its
regular broker-dealers.
18. CAPITAL STOCK AND OTHER SECURITIES
The information provided in response to this item is in addition to the
information provided in response to Item 4 in Part A.
All shares of each series of the Trust have equal voting, dividend and
liquidation rights. Shares of each series vote separately as to issues affecting
that series, unless otherwise permitted by the 1940 Act. The shares have
noncumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of trustees can elect 100% of the trustees if
they choose to do so.
The Portfolio does not intend to hold annual meetings; it may, however, hold a
meeting for such purposes as changing fundamental investment restrictions,
approving a new management agreement or any other matters which are required to
be acted on by shareholders under the 1940 Act. A meeting may also be called by
a majority of the Board or by shareholders holding at least ten percent of the
shares entitled to vote at the meeting. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of Trustees similar to the provisions contained in Section 16(c) of the 1940
Act.
Shares for an initial investment as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are credited to an
account in the name of an investor on the books of the Portfolio. The Portfolio
does not issue share certificates.
Shares have no preemptive, subscription or conversion rights.
An investment in the Portfolio is not a deposit insured by the FDIC and is not
an obligation of or guaranteed by any bank.
19. PURCHASE, REDEMPTION AND PRICING OF
SECURITIES BEING OFFERED
The information provided in response to this item is in addition to the
information provided in response to Items 7 and 8 in Part A.
REDEMPTIONS IN KIND
The Trust has committed itself to pay in cash 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 either series's net assets at the
beginning of such period. Such commitment is irrevocable without the prior
approval of the Securities and Exchange Commission. In the case of requests for
redemption in excess of such amounts, the trustees reserve the right to make
payments in whole or in part in securities or other assets of the Portfolio in
case of an emergency, or if the payment of such redemption in cash would be
detrimental to the existing shareholders of the Portfolio. In such
circumstances, the securities distributed would be valued at the price used to
compute the Portfolio's net assets. Should the Portfolio do so, a shareholder
may incur brokerage fees or other transaction costs in converting the securities
to cash. The Portfolio does not intend to redeem illiquid securities in kind;
however, should it happen, shareholders may not be able to timely recover their
investment and may also incur brokerage costs in selling such securities.
CALCULATION OF NET ASSET VALUE
As noted elsewhere in this amendment to the registration statement, the
Portfolio generally calculates net asset value as of 1:00 p.m. Pacific time each
day that the Exchange is open for trading. As of the date hereof, the Portfolio
is informed that the Exchange intends to observe the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day
(observed), Labor Day, Thanksgiving Day and Christmas Day (observed). Wire
purchases and redemptions are not effected on those days when the Federal
Reserve Bank System is closed (currently, New Year's Day, Martin Luther King,
Jr.'s Birthday, Washington's Birthday, Memorial Day, Independence Day
(observed), Labor Day, Columbus Day (observed), Veteran's Day, Thanksgiving Day,
and Christmas Day (observed)).
REINVESTMENT DATE
The dividend reinvestment date is the date on which additional shares are
purchased for the investor who has elected to have dividends reinvested. This
date varies from month to month based on operational considerations and is not
necessarily the same date as the record date or the payable date for cash
dividends.
20. TAX STATUS
The information provided in response to this item is in addition to the
information provided in response to Item 6 in Part A.
As stated in response to Item 6, the Portfolio intends to continut to qualify
and elect to be treated as a regulated investment company under Subchapter M of
the Code. The trustees reserve the right not to maintain the qualification of
the Portfolio as a regulated investment company if they determine such course of
action to be beneficial to the shareholders. In such case, the Portfolio would
be subject to federal and possibly state corporate taxes on its taxable income
and gains, and distributions to shareholders would be ordinary dividend income
to the extent of the Portfolio's available earnings and profits.
The Code required all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Portfolio) to shareholders by December 31 of each year in order to
avoid the imposition of a federal excise tax. Under these rules, certain
distributions which are declared in October, November or December but which, for
operational reasons, may not be paid to the shareholder until the following
January, are treated for tax purposes as if paid by the Portfolio and received
by the shareholder on December 31 of the calendar year in which they are
declared. The Portfolio intends, as a matter of policy, to declare dividends in
December as necessary to avoid the imposition of this tax, but the Portfolio
does not guarantee that its distributions will be sufficient to avoid any or all
federal excise taxes.
Redemptions and exchanges of the Portfolio's shares are taxable transactions for
federal and state income tax purposes. For most shareholders, gain or loss will
be recognized in an amount equal to the difference between the shareholder's
basis in its shares and the amount received, subject to the rules described
below. If such shares are a capital asset in the hands of the shareholder, gain
or loss is capital gain or loss and is long-term for federal income tax purposes
if the shares have been held for more than one year.
All or a portion of a loss realized upon a redemption of shares is disallowed to
the extent other shares of the Portfolio are purchased (through reinvestment of
dividends or otherwise) within 30 days before or after such redemption.
Any loss realized upon the redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
amounts treated as distributions of net long-term capital gain with respect to
such shares.
21. UNDERWRITERS
Not Applicable
22. CALCULATION OF PERFORMANCE DATA
Not Applicable
23. FINANCIAL STATEMENTS
The audited Financial Statement of the portfolio contained in the annual report
dated October 31, 1995 including the auditors report, are incorporated herein by
reference.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
ADJUSTABLE RATE SECURITIES PORTFOLIO
FORM N-1A, PART A:
ITEM
Responses to Items 1 through 3 have been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
4. GENERAL DESCRIPTION OF REGISTRANT
ABOUT THE PORTFOLIO
The Adjustable Rate Securities Portfolio ("Portfolio") is one of two no-load,
open-end, diversified series of the Adjustable Rate Securities Portfolios
(the "Trust"), a management investment company, commonly called a mutual
fund. The Trust was organized as a Delaware business trust on February 15,
1991 and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Trust's other series is the U.S. Government Adjustable Rate Mortgage
Portfolio. As permitted by applicable law, the Portfolio's shares of
beneficial interest, par value of $.01 per share, are sold only to other
investment companies.
SHARES OF THE PORTFOLIO 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.
INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO
The investment objective of the Portfolio is to seek a high level of current
income, consistent with lower volatility of principal. The Portfolio pursues
its objective by investing primarily (at least 65% of its total assets) in
adjustable-rate securities, including adjustable-rate mortgage securities,
which are issued or guaranteed by private institutions or by the U.S.
government, its agencies or instrumentalities, collateralized by or
representing an interest in mortgages, and other adjustable-rate asset-backed
securities (collectively, "ARS," or, with respect only to adjustable rate
mortgage securities, "ARMS") which have interest rates which reset at
periodic intervals. All securities in which the Portfolio invests will be
rated at least AA by Standard & Poor's Corporation ("S&P") or Aa by Moody's
Investors Service ("Moody's"), or if unrated, will be deemed to be of
comparable quality by the investment manager. Non-governmental issuers of the
ARMS in which the Portfolio may invest include commercial banks, savings and
loan institutions, insurance companies, including private mortgage insurance
companies, mortgage bankers, mortgage conduits of investment banks, finance
companies, real estate companies and private corporations and others,
("private mortgage securities"), so long as they are consistent with the
Portfolio's investment objective. Such private mortgage securities which are
not issued or guaranteed by the U.S. government are generally structured with
one or more types of credit enhancement. The Portfolio may from time to time
increase its investments by borrowing from banks (see "Borrowing" for further
information). In addition, the Portfolio may invest up to 35% of its total
assets in the following fixed-rate securities: (a) notes, bonds and discount
notes of the following U.S. government agencies or instrumentalities: Federal
Home Loan Banks, Federal National Mortgage Association ("FNMA"), Government
National Mortgage Association ("GNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC"), and Small Business Administration; (b) obligations of
or guaranteed by the full faith and credit of the U.S. government and
repurchase agreements collateralized by such obligations; (c)
privately-issued fixed-rate mortgage securities (d) privately-issued
asset-backed securities; and (e) time and savings deposits in commercial or
savings banks or in institutions whose accounts are insured by the FDIC.
Investments in savings deposits are considered illiquid and are further
restricted as noted under "Other Permitted Investments" below. There is, of
course, no assurance that the Portfolio's investment objective will be
achieved. Investments in fixed-rate securities generally decline in value
during periods of rising interest rates and, conversely, increase in value
when interest rates fall. To the extent any Portfolio assets are invested in
such fixed-rate securities, the Portfolio's values are more sensitive to
interest rate changes than if it were fully invested in adjustable-rate
securities.
ADVANTAGES OF INVESTING IN THE PORTFOLIO
The Portfolio enables its shareholders to invest easily in ARS which are
rated at least AA by S&P or Aa by Moody's or, if unrated, will be deemed to
be of comparable quality by the investment manager, or such ARS which are
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The Portfolio's investment manager believes that by
investing primarily in ARS which provide for variable rates of interest, the
Portfolio will achieve a more consistent and less volatile net asset value
than is characteristic of mutual funds that invest primarily in securities
paying a fixed rate of interest.
ADJUSTABLE RATE SECURITIES
Adjustable Rate Securities are debt securities with interest rates which,
rather than being fixed, are adjusted periodically pursuant to a pre-set
formula and interval. As stated above, the Portfolio invests primarily in
ARS. The interest paid on ARS and, therefore, the current income earned by
the Portfolio by investing in such securities, is a function primarily of the
indexes upon which adjustments are based and the applicable spread relating
to such securities. (See the discussion of "Resets" below.)
The interest rates paid on ARS are generally readjusted periodically to an
increment over the chosen interest rate index. Such readjustments occur at
intervals ranging from one to sixty months. The degree of volatility in the
market value of the securities held by the Portfolio and of the net asset
value of Portfolio shares is a function primarily of the length of the
adjustment period and the degree of volatility in the applicable indexes. It
is also a function of the maximum increase or decrease of the interest-rate
adjustment on any one adjustment date, in any one year and over the life of
the securities. These maximum increases and decreases are typically referred
to as "caps" and "floors," respectively. The Portfolio does not seek to
maintain an overall average cap or floor, although the Portfolio's investment
manager considers caps or floors in selecting ARS for the Portfolio.
While the Portfolio does not attempt to maintain a constant net asset value
per share, during periods in which short-term interest rates move within the
caps and floors of the securities held by the Portfolio, the fluctuation in
market value of the ARS in the Portfolio is expected to be relatively
limited, since the interest rate on the Portfolio's ARS generally adjust to
market rates within a short period of time. In periods of substantial
short-term volatility in short-term interest rates, the value of the
Portfolio's holdings may fluctuate more substantially since the caps and
floors of its ARS may not permit the interest rate to adjust to the full
extent of the movements in short-term rates during any one adjustment period.
In the event of dramatic increases in interest rates, the lifetime caps on
the ARS may prevent such securities from adjusting to prevailing rates over
the term of the loans. In this circumstance, the market values of the ARS may
be substantially reduced with a corresponding decline in the Portfolio's net
asset value.
For a discussion of the Portfolio's investments in adjustable-rate
asset-backed securities, including the risk of such investments, see
"Investment Objective and Policies of the Portfolio - Asset-Backed
Securities" below.
RISK OF ADJUSTABLE-RATE SECURITIES
ARS have several characteristics that should be considered before investing
in the Portfolio. As indicated above, the interest rate reset features of ARS
held by the Portfolio reduces the effect on the net asset value of Portfolio
shares caused by changes in market interest rates. The market value of ARS
and, therefore, the Portfolio's net asset value, however, may vary to the
extent that the current interest rate on such securities differs from market
interest rates during periods between the interest reset dates. A portion of
the ARS in which the Portfolio may invest may not reset for up to five years.
These variations in value occur inversely to changes in the market interest
rates. Thus, if market interest rates rise above the current rates on the
securities, the value of the securities decreases; conversely, if market
interest rates fall below the current rate on the securities, the value of
the securities rises. If investors in the Portfolio sold their shares during
periods of rising rates before an adjustment occurred, such investors may
suffer some loss. The longer the adjustment intervals on ARS held by the
Portfolio, the greater the potential for fluctuations in the Portfolio's net
asset value.
Investors in the Portfolio receive increased income as a result of upward
adjustments of the interest rates on ARS held by the Portfolio in response to
market interest rates. The Portfolio and its shareholders, however, do not
benefit from increases in market interest rates once such rates rise to the
point where they cause the rates on such ARS to reach their maximum
adjustment date, annual or lifetime caps. In addition, because of their
interest rate adjustment feature, ARS are not an effective means of
"locking-in" attractive interest rates for periods in excess of the
adjustment period. The largest class of the ARS in which the Portfolio will
invest is ARMS which possess unique risks. For example, in the case of
privately issued ARMS where the underlying mortgage assets carry no agency or
instrumentality guarantee, the mortgagors on the loans underlying the ARMS
are often qualified for such loans on the basis of the original payment
amounts. The mortgagor's income may not be sufficient to enable them to
continue making their loan payments as such payments increase, resulting in a
greater likelihood of default. Conversely, any benefits to the Portfolio and
its shareholders from an increase in the Portfolio's net asset value caused
by falling market interest rates is reduced by the potential for a decline in
the interest rates paid on ARS held by the Portfolio. In this regard, the
Portfolio is not designed for investors seeking capital appreciation.
ADJUSTABLE-RATE MORTGAGE SECURITIES
IN GENERAL. ARMS, like traditional mortgage securities, are interests in
pools of mortgage loans. Most mortgage securities are pass-through
securities, which means that they provide investors with payments consisting
of both principal and interest as mortgages in the underlying mortgage pool
are paid off by the borrower. The dominant issuers or guarantors of mortgage
securities today are GNMA, FNMA, and FHLMC. GNMA creates mortgage securities
from pools of government-guaranteed or insured (Federal Housing Authority or
Veterans Administration) mortgages originated by mortgage bankers, commercial
banks, and savings and loan associations. FNMA and FHLMC issue mortgage
securities from pools of conventional and federally insured and/or guaranteed
residential mortgages obtained from various entities, including savings and
loan associations, savings banks, commercial banks, credit unions, and
mortgage bankers. Non-governmental issuers of mortgage pools may be the
originators of the underlying mortgage loans as well as the guarantors of the
private mortgage securities.
The adjustable interest rate feature of the mortgages underlying the mortgage
securities in which the Portfolio invests generally will act as a buffer to
reduce sharp changes in the Portfolio's net asset value in response to normal
interest rate fluctuations. As the interest rates on the mortgages underlying
the Portfolio's investments are reset periodically, yields of portfolio
securities gradually align themselves to reflect changes in market rates so
that the market value of the Portfolio's portfolio securities will remain
relatively stable as compared to fixed-rate instruments and should cause the
net asset value of the Portfolio to fluctuate less significantly than it
would if the Portfolio invested in more traditional long-term, fixed-rate
debt securities. During periods of rising interest rates, however, changes in
the coupon rate lag behind changes in the market rate, resulting in possibly
a lower net asset value until the coupon resets to market rates. Thus,
investors could suffer some principal loss if they sold their Portfolio
shares before the interest rates on the underlying mortgages are adjusted to
reflect current market rates. A portion of the ARMS in which the Portfolio
may invest may not reset for up to five years. During periods of extreme
fluctuation in interest rates, the Portfolio's net asset value fluctuates as
well. Since most mortgage securities in the Portfolio's portfolio generally
have annual reset caps of 100 to 200 basis points, short-term fluctuation in
interest rates above these levels could cause such mortgage securities to
"cap out" and to behave more like long-term fixed-rate debt securities.
Unlike fixed-rate mortgages, which generally decline in value during periods
of rising interest rates, adjustable rate mortgage securities allow the
Portfolio to participate in increases in interest rates through periodic
adjustments in the coupons of the underlying mortgages, resulting in both
higher current yields and lower price fluctuations. Furthermore, if
prepayments of principal are made on the underlying mortgages during periods
of rising interest rates, the Portfolio generally is able to reinvest such
amounts in securities with a higher current rate of return. The Portfolio,
however, does not benefit from increases in interest rates to the extent that
interest rates rise to the point where they cause the current coupon of
adjustable-rate mortgage securities held as investments by the Portfolio to
exceed the maximum allowable annual or lifetime reset limits (or "cap rates")
for a particular mortgage. Also, the Portfolio's net asset value could vary
to the extent that current yields on mortgage-backed securities are different
than market yields during interim periods between coupon reset dates.
During periods of declining interest rates, of course, the coupon rates may
readjust downward, resulting in lower yields to the Portfolio. Further,
because of this feature, the value of ARMS is unlikely to rise during periods
of declining interest rates to the same extent as fixed-rate instruments. As
with other mortgage-backed securities, interest rate declines may result in
accelerated prepayment of mortgages, and the proceeds from such prepayments
must be reinvested at lower prevailing interest rates.
One additional difference between ARMS and fixed-rate mortgages is that for
certain types of ARMS, the rate of amortization of principal, as well as
interest payments, can and does change in accordance with movements in a
particular, pre-specified, published interest rate index. The amount of
interest due to an ARMS holder is calculated by adding a specified additional
amount, the "margin," to the index, subject to limitations or "caps" on the
maximum and minimum interest that is charged to the mortgagor during the life
of the mortgage or to maximum and minimum changes to that interest rate
during a given period. It is these special characteristics which are unique
to adjustable-rate mortgages that the Portfolio's investment manager believes
make them attractive investments in seeking to accomplish the Portfolio's
objective.
Many mortgage securities which are issued or guaranteed by GNMA, FHLMC, or
FNMA ("Certificates") are called pass-through Certificates because a pro rata
share of both regular interest and principal payments (less GNMA's, FHLMC's,
or FNMA's fees and any applicable loan servicing fees), as well as
unscheduled early prepayments on the underlying mortgage pool, are passed
through monthly to the holder of the Certificate (i.e., the Portfolio). The
principal and interest on GNMA securities are guaranteed by GNMA, which
guarantee is backed by the full faith and credit of the U.S. government. FNMA
guarantees full and timely payment of all interest and principal, while FHLMC
guarantees timely payment of interest and ultimate collection of principal.
Mortgage securities issued or guaranteed by FNMA and FHLMC are not backed by
the full faith and credit of the U.S. government; however, they are generally
considered to offer minimal credit risks. The yields provided by these
mortgage securities have historically exceeded the yields on other types of
U.S. government securities with comparable maturities in large measure due to
the prepayment risk. (See "Risks of Mortgage Securities" below).
The Portfolio may also invest in pass-through Certificates issued by
nongovernmental issuers. Pools of conventional residential mortgage loans
created by such issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or
indirect government guarantees of payment. Timely payment of interest and
principal of these pools is, however, generally supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance. The insurance and guarantees are issued by government entities,
private insurance and the mortgage poolers. Such insurance and guarantees and
the creditworthiness of the issuers thereof is considered in determining
whether a mortgage-related security meets the Portfolio's quality standards.
The Portfolio may buy mortgage-related securities without insurance or
guarantees if through an examination of the loan experience and practices of
the poolers, the investment manager determines that the securities meet the
Portfolio's quality standards.
The Portfolio expects that governmental, government-related or private
entities may create mortgage loan pools offering pass-through investments in
addition to those described above. The mortgages underlying these securities
may be alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may differ
from customary long-term, fixed-rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the
investment manager will, consistent with the Portfolio's objective, policies
and quality standards, consider making investments in such new types of
securities.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE
INVESTMENT CONDUITS ("REMICS") AND MULTI-CLASS PASS-THROUGHS. The Portfolio
may also invest in certain debt obligations which are collateralized by
mortgage loans or mortgage pass-through securities. Such securities may be
issued or guaranteed by U.S. government agencies or issued by certain
financial institutions and other mortgage lenders. CMOs and REMICs are debt
instruments issued by special purpose entities which are secured by pools of
mortgage loans or other mortgage-backed securities. Multi-class pass-through
securities are equity interests in a trust composed of mortgage loans or
other mortgage-backed securities. Payments of principal and interest on
underlying collateral provides the funds to pay debt service on the CMO or
REMIC or make scheduled distributions on the multi-class pass-through
securities. CMOs, REMICs and multi-class pass-through securities
(collectively CMOs unless the context indicates otherwise) may be issued by
agencies or instrumentalities of the U.S. government or by private
organizations.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a
specified coupon rate or adjustable-rate tranche (which is discussed in the
next paragraph) and has a stated maturity or final distribution date.
Principal prepayments on collateral underlying a CMO may cause it to be
retired substantially earlier than the stated maturities or final
distribution dates. Interest is paid or accrues on all classes of a CMO on a
monthly, quarterly or semi-annual basis. The principal and interest on the
underlying mortgages may be allocated among several classes of a series of a
CMO in many ways. In a common structure, payments of principal, including any
principal prepayments, on the underlying mortgages are applied to the classes
of a series of a CMO in the order of their respective stated maturities or
final distribution dates, so that no payment of principal will be made on any
class of a CMO until all other classes having an earlier stated maturity or
final distribution date have been paid in full.
One or more tranches of a CMO may have coupon rates which reset periodically
at a specified increment over an index such as the London Interbank Offered
Rate ("LIBOR"). These adjustable rate tranches, known as "floating rate
CMOs," will be deemed to be treated as ARMS by the Portfolio. Floating rate
CMOs may be backed by fixed-rate or adjustable-rate mortgages; to date,
fixed-rate mortgages have been more commonly utilized for this purpose.
Floating rate CMOs are typically issued with lifetime caps on the coupon rate
thereon. These caps, similar to the caps on adjustable-rate mortgages,
represent a ceiling beyond which the coupon rate on a floating rate CMO may
not be increased regardless of increases in the interest rate index to which
the floating rate CMO is geared.
REMICs, which are authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured
by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities. As with CMOs, the mortgages which
collateralize the REMICs in which the Portfolio may invest include mortgages
backed by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by the U.S. government, its agencies or instrumentalities or
issued by private entities, which are not guaranteed by any government
agency.
The Portfolio's investment manager currently intends to limit investment in
fixed-rate CMOs and REMICS to planned amortization classes ("PACs") and
sequential pay classes. A PAC is retired according to a payment schedule in
order to have a stable average life and yield even if expected prepayment
rates change. Within a specified broad range of prepayment possibilities, the
retirement of all classes is adjusted so that the PAC bond amortization
schedule will be met. Thus PAC bonds offer more predictable amortization
schedules at the expense of less predictable cash flows for the other bonds
in the structure. Within a given structure, the Portfolio currently intends
to buy the PAC bond with the shortest remaining average life. A sequential
pay CMO is structured so that only one class of bonds will receive principal
until it is paid off completely. Then the next sequential pay CMO class will
begin receiving principal until it is paid off. The Portfolio currently
intends to buy sequential pay CMO securities in the class with the shortest
remaining average life.
Yields on privately issued CMOs as described above have been historically
higher than the yields on CMOs issued or guaranteed by U.S. government
agencies. The risk of loss due to default on such instruments, however, is
higher since they are not guaranteed by the U.S. government. The trustees of
the Portfolio believe that accepting the risk of loss relating to privately
issued CMOs that the Portfolio acquires is justified by the higher yield the
Portfolio earns in light of the historic loss experience on such instruments.
The Portfolio does not invest in subordinated privately issued CMOs.
To the extent any privately issued CMOs and REMICs in which the Portfolio
invests are considered by the SEC to be investment companies, the Portfolio
limits its investments in such securities in a manner consistent with the
provisions of the 1940 Act.
RESETS. The interest rates paid on the ARMS and floating rate CMOs in which
the Portfolio invests generally are readjusted at intervals of one year or
less to an increment over some predetermined interest rate index, although
some may have intervals as long as five years. There are three main
categories of indices: those based on the LIBOR; those based on U.S. Treasury
securities; and those derived from a calculated measure such as a cost of
funds index or a moving average of mortgage rates. Commonly utilized indices
include the one-, three- and five-year constant maturity Treasury rates, the
three-month Treasury bill rate, the 180-day Treasury bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank
Cost of Funds, the National Median Cost of Funds, the one-, three-, six-month
or one-year LIBOR, the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the
11th District Home Loan Bank Cost of Funds index, tend to lag behind changes
in market rate levels and tend to be somewhat less volatile.
CAPS AND FLOORS. The underlying mortgages which collateralize ARMS and the
floating rate CMOs in which the Portfolio invests frequently have caps and
floors that limit the maximum amount by which the loan rate to the
residential borrower may change up or down (1) per reset or adjustment
interval and (2) over the life of the loan. Some residential mortgage loans
restrict periodic adjustments by limiting changes in the borrower's monthly
principal and interest payments rather than limiting interest rate changes.
These payment caps may result in negative amortization.
STRIPPED MORTGAGE SECURITIES. The Portfolio may invest in stripped mortgage
securities, which are derivative multi-class mortgage securities. The
stripped mortgage securities in which the Portfolio may invest will be issued
or guaranteed by agencies or instrumentalities of the U.S. government.
Stripped mortgage securities have greater market volatility than other types
of mortgage securities in which the Portfolio invests.
Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on
a pool of mortgage assets. A common type of stripped mortgage security has
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class receives most of the interest and the
remainder of the principal. In the most extreme case, one class receives all
of the interest (the interest-only or "IO" class), while the other class
receives all of the principal (the principal-only or "PO" class). The yield
to maturity on an IO class is extremely sensitive not only to changes in
prevailing interest rates but also to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and, a
rapid rate of principal payments may have a material adverse effect on the
yield to maturity of any such IOs held by the Portfolio. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Portfolio may fail to fully recoup its initial investment in these
securities even if the securities are rated in the highest rating categories,
AAA or Aaa, by S&P or Moody's, respectively.
Stripped mortgage securities are purchased and sold by institutional
investors, such as the Portfolio, through several investment banking firms
acting as brokers or dealers. As these securities were only recently
developed, traditional trading markets have not yet been established for all
stripped mortgage securities. Accordingly, some of these securities may
generally be illiquid. The staff of the SEC has indicated that only
government-issued IO or PO securities which are backed by fixed-rate
mortgages may be deemed to be liquid, if procedures with respect to
determining liquidity are established by a fund's board. The Portfolio's
Board of Trustees (the "Board") may, in the future, adopt procedures which
would permit the Portfolio to acquire, hold, and treat as liquid
government-issued IO and PO securities. At the present time, however, all
such securities will continue to be treated as illiquid and will, together
with any other illiquid investments, not exceed 10% of the Portfolio's net
assets. Such position may be changed in the future, without notice to
shareholders, in response to the staff's continued reassessment of this
matter as well as to changing market conditions.
RISKS OF MORTGAGE SECURITIES
The mortgage securities in which the Portfolio principally invests differ
from conventional bonds in that principal is paid back over the life of the
mortgage security rather than at maturity. As a result, the holder of the
mortgage securities (i.e., the Portfolio) receives monthly scheduled payments
of principal and interest, and may receive unscheduled principal payments
representing prepayments on the underlying mortgages. When the holder
reinvests the payments and any unscheduled prepayments of principal it
receives, it may receive a rate of interest which is lower than the rate on
the existing mortgage securities. For this reason, mortgage securities may be
less effective than other types of U.S. government securities as a means of
"locking in" long-term interest rates. The fixed-rate mortgage securities in
which the Portfolio may invest are generally more exposed to this "prepayment
risk" than adjustable rate mortgage securities.
The market value of mortgage securities, like other U.S. government
securities, generally varies inversely with changes in market interest rates,
declining when interest rates rise and rising when interest rates decline.
Mortgage securities, while having less risk of a decline during periods of
rapidly rising rates, may also have less potential for capital appreciation
than other investments of comparable maturities due to the likelihood of
increased prepayments of mortgages as interest rates decline. To the extent
market interest rates increase beyond the applicable cap or maximum rate on
an adjustable rate mortgage security or beyond the coupon rate of a
fixed-rate mortgage security, the market value of the mortgage security would
likely decline to the same extent as a conventional fixed-rate security.
In addition, to the extent mortgage securities are purchased at a premium,
mortgage foreclosures and unscheduled principal prepayments may result in
some loss of the holder's principal investment to the extent of the premium
paid. On the other hand, if mortgage securities are purchased at a discount,
both a scheduled payment of principal and an unscheduled prepayment of
principal will increase current and total returns and will accelerate the
recognition of income which, when distributed to shareholders, is taxable as
ordinary income.
With respect to pass-through mortgage pools issued by non-governmental
issuers, there can be no assurance that the private insurers associated with
such securities can meet their obligations under the policies. Although the
market for such non-governmentally issued or guaranteed mortgage securities
is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable. The purchase of such securities
is subject to the Portfolio's limit with respect to investment in illiquid
securities, as more fully described below.
ASSET-BACKED SECURITIES
In addition to the above types of securities, the Portfolio may invest in
asset-backed securities, including adjustable- and fixed-rate asset-backed
securities, which have interest rates which reset at periodic intervals.
Asset-backed securities are similar to mortgage-backed securities. The
underlying assets, however, include assets such as receivables on home equity
and credit card loans, and receivables regarding automobiles, mobile home and
recreational vehicle loans and leases. The assets are securitized either in a
pass-through structure (similar to a mortgage pass-through structure) or in a
pay-through structure (similar to the CMO structure). The Portfolio may
invest in these and other types of asset-backed securities that may be
developed in the future. In general, the collateral supporting asset-backed
securities is of a shorter maturity than mortgage loans and historically has
been less likely to experience substantial prepayment.
Asset-backed securities entail certain risks not presented by mortgage-backed
securities. Asset-backed securities do not have the benefit of the same type
of security interests in the related collateral. Credit card receivables are
generally unsecured, and a number of state and federal consumer credit laws
give debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the outstanding balance. In the case of automobile
receivables, there is a risk that the holders may not have either a proper or
first security interest in all of the obligations backing such receivables
due to the large number of vehicles involved in a typical issuance and
technical requirements under state laws. Therefore, recoveries on repossessed
collateral may not always be available to support payments on the securities.
In the case of a home equity loan, there is a risk that the homeowner will
default and there will not be enough money left to pay off the home equity
loan after paying off the first mortgage. (For further discussion concerning
the risks of investing in asset-backed securities, see the discussion in Part
B under Item 13.)
OTHER INVESTMENT POLICIES
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase transactions,
in which the Portfolio 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 Portfolio in each
agreement, with the value of the underlying security marked-to-market daily
to maintain coverage of at least 100%. The repurchase agreements in which the
Portfolio may invest are limited to those agreements having terms of one year
or less. A default by the seller might cause the Portfolio to experience a
loss or delay in the liquidation of the collateral securing the repurchase
agreement. The Portfolio might also incur disposition costs in liquidating
the collateral. The Portfolio, however, intends to enter into repurchase
agreements only with financial institutions such as broker-dealers and banks
which are deemed creditworthy by the Portfolio's investment manager. A
repurchase agreement is deemed to be a loan by the Portfolio under the 1940
Act. The U.S. government security subject to resale (the collateral) will be
held on behalf of the Portfolio by a custodian approved by the Board and will
be held pursuant to a written agreement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Portfolio may purchase any
securities for its portfolio on a "when-issued" or "delayed delivery" basis.
These transactions are arrangements under which the Portfolio purchases
securities with payment and delivery scheduled for a future time, generally
in 30 to 60 days. Purchases of securities on a when-issued or delayed
delivery basis are subject to market fluctuation and are subject to the risk
that the value or yields at delivery may be more or less than the purchase
price or the yields available when the transaction was entered into. Although
the Portfolio generally purchases securities on a when-issued basis with the
intention of acquiring such securities, it may sell such securities before
the settlement date if it is deemed advisable. When the Portfolio is the
buyer in such a transaction, it maintains, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of such purchase commitments until payment is made. To
the extent the Portfolio engages in when-issued and delayed delivery
transactions, it does so only for the purpose of acquiring portfolio
securities consistent with the Portfolio's investment objective and policies
and not for the purpose of investment leverage. In when-issued and delayed
delivery transactions, the Portfolio relies on the seller to complete the
transaction. The other party's failure to do so may cause the Portfolio to
miss a price or yield considered advantageous. Securities purchased on a
when-issued or delayed delivery basis do not generally earn interest until
their scheduled delivery date. The Portfolio is not subject to any percentage
limit on the amount of its assets which may be invested in when-issued
purchase obligations.
BORROWING. The Portfolio is authorized to borrow from banks from time to time
to increase its investments. Borrowings may be secured or unsecured, and at
fixed or variable rates of interest. The Portfolio will borrow only to the
extent that the value of its assets, less its liabilities other than
borrowings, is equal to at least 300% of its borrowings. If the Portfolio
does not meet the 300% test, it will be required to reduce its debt within
three business days to the extent necessary to meet that test. This would
require the Portfolio to sell a portion of its investments at a
disadvantageous time.
Borrowing for investment purposes is a speculative investment technique known
as leveraging. When the Portfolio leverages its assets, the net asset value
of the Portfolio may increase or decrease at a greater rate than would be the
case if the Portfolio were not leveraged. The interest payable on the amount
borrowed increases the Portfolio's expenses, and if the appreciation and
income produced by the investments purchased with the borrowings exceed the
cost of the borrowing, the investment performance of the Portfolio is reduced
by leveraging.
The Portfolio does not presently intend to borrow for investment purposes.
The Portfolio may, however, borrow from banks for temporary or defensive
purposes up to 20% of its assets and pledge its assets in connection
therewith. The Portfolio may not, however, purchase any portfolio securities
while borrowings representing more than 5% of its total assets are
outstanding.
MORTGAGE DOLLAR ROLLS. The Portfolio may enter into mortgage "dollar rolls"
in which the Portfolio sells mortgage-backed securities for delivery in the
current month and simultaneously contracts to repurchase substantially
similar (name, type, coupon and maturity) securities on a specified future
date. During the roll period, the Portfolio forgoes principal and interest
paid on the mortgage-backed securities. The Portfolio is compensated by the
difference between the current sales price and the lower forward price for
the future purchase (often referred to as the "drop"), as well as by the
interest earned on the cash proceeds of the initial sale. A covered roll is a
specific type of dollar roll for which there is an offsetting cash position
or a cash equivalent security position.
LOANS OF PORTFOLIO SECURITIES. Consistent with the procedures approved by the
Board and subject to the following conditions, the Portfolio may lend its
portfolio securities to qualified securities dealers or other institutional
investors provided that such loans do not exceed 10% of the value of the
Portfolio's total assets at the time of the most recent loan. The borrower
must deposit with the Portfolio's custodian collateral with an initial market
value of at least 102% of the initial market value of the securities loaned,
including any accrued interest, with the value of the collateral and loaned
securities marked-to-market daily to maintain collateral coverage of at least
102%. Such collateral shall consist of cash. The lending of securities is a
common practice in the securities industry. The Portfolio engages in security
loan arrangements with the primary objective of increasing its income either
through investing the cash collateral in short-term interest bearing
obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Portfolio continues to be entitled to all
dividends or interest on any loaned securities. As with any extension of
credit, there are risks of delay in recovery and loss of rights in the
collateral should the borrower of the security fail financially.
OTHER PERMITTED INVESTMENTS. Other investments permitted by the Portfolio
include: obligations of the U.S. government; notes, bonds, and discount notes
of the following U.S. government agencies or instrumentalities: Federal Home
Loan Banks, FNMA; GNMA; and time and savings deposits (including fixed or
adjustable rate certificates of deposit) in commercial or savings banks or in
institutions whose accounts are insured by the FDIC, and other securities
which are consistent with the Portfolio's investment objective. The
Portfolio's investments in savings deposits are generally deemed to be
illiquid and will, together with any other illiquid investments, not exceed
10% of the Portfolio's total net assets. The Portfolio's investments in time
deposits will not exceed 10% of its total assets.
ILLIQUID SECURITIES. It is the policy of the Portfolio that illiquid
securities (securities that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which the Portfolio
has valued the securities and includes, among other things, repurchase
agreements of more than seven days duration) may not constitute, at the time
of purchase, more than 10% of the value of the net assets of the Portfolio.
TEMPORARY DEFENSIVE POSITIONS. When maintaining a temporary defensive
position, the Portfolio may invest its assets without limit in U.S.
government securities, certificates of deposit of banks having total assets
in excess of $5 billion, and repurchase agreements.
PORTFOLIO TURNOVER RATE. The Portfolio's portfolio turnover rate may vary
from year to year, as well as within a year. For the fiscal periods ended
October 31, 1995 and October 31, 1994, the Portfolio's rates of portfolio
turnover equaled 50.29% and 192.06%, respectively. The high portfolio
turnover rate in 1994 was due to substantial volume in mortgage prepayment
because of mortgage refinancings in the low interest-rate environment which
existed in 1993 and early 1994 and a high rate of shareholder redemptions in
the rising interest rate environment in 1994. High portfolio turnover
increases transaction costs which must be paid by the Fund.
INVESTMENT RESTRICTIONS
The Portfolio is subject to a number of additional investment restrictions,
some of which, like the Portfolio's investment objective and investment
policies, have been adopted as fundamental policies of the Portfolio and may
only be changed with the approval of a majority of the outstanding voting
securities of the Portfolio. A list of these restrictions and more
information concerning the policies are discussed in Part B of this
registration statement.
GENERAL INFORMATION
The Trust is authorized to issue an unlimited number of shares of beneficial
interest. All shares of the Trust have one vote, and, when issued, are fully
paid and non-assessable.
The Trust has two series and was formerly named the Franklin Institutional
U.S. Government ARM Fund. On October 18, 1991, the Board approved a change in
the Trust's name and the addition of the Portfolio as the Trust's second
series. Additional series may be added in the future by the Board, the assets
and liabilities of which will be separate and distinct from any other series.
On June 15, 1993, the Board approved a change in the fiscal year end of the
Trust to October 31 of each year from January 31.
5. MANAGEMENT OF THE FUND
MANAGEMENT OF THE PORTFOLIO
The Board has the primary responsibility for the overall management of the
Trust and for electing the officers of the Trust who are responsible for
administering its day-to-day operations.
Franklin Advisers, Inc. ("Advisers" or "Manager"), at the address shown on
the cover of this amendment to the registration statement, serves as the
Portfolio's investment manager. Advisers is a wholly owned subsidiary of
Franklin Resources, Inc. ("Resources"), a publicly owned holding company, the
principal shareholders of which are Charles B. Johnson and Rupert H. Johnson,
Jr., who own 20%, 16%, and 10%, respectively, of Resources' outstanding
shares. Resources is engaged in various aspects of the financial services
industry through its subsidiaries,. Advisers acts as investment manager or
administrator to 35 U.S. registered investment companies (118 separate
series) with aggregate assets of over $80 billion.
The team responsible for the day-to-day management of the Portfolio since
inception is:
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 from the University of California at Los Angeles. He earned
his 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.
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.
Pursuant to the management agreement, the Manager supervises and implements
the Portfolio's investment policies and provides certain administrative
services and facilities which are necessary to conduct the Portfolio's
business. Advisers performs similar services for other funds and there may be
times when the actions taken with respect to the portfolio will differ from
those taken by Advisers on behalf of other funds. Neither Advisers (including
its affiliates) nor its officers, directors or employees nor the officers and
trustees of the Trust are prohibited from investing in securities held by the
Portfolio or other funds which are managed or administered by Advisers to the
extent such transactions comply with the Portfolio's Code of Ethics.
The Portfolio is responsible for its own operating expenses including, but
not limited to, the Manager's fee; taxes, if any; custodian, legal and
auditing fees; fees and expenses of trustees who are not members of,
affiliated with or interested persons of the Manager; salaries of any
personnel not affiliated with the Manager; insurance premiums; trade
association dues; expenses of obtaining quotations for calculating the value
of the Portfolio's net assets; and printing and other expenses which are not
expressly assumed by the Manager.
Under the management agreement, the Portfolio is obligated to pay the Manager
a fee computed daily and payable monthly, at the annual rate as follows:
40/100 of 1% for the first $5 billion of its average daily net assets; plus
35/100 of 1% of its average daily net assets in excess of $5 billion up
through $10 billion; 33/100 of 1% of its average daily net assets in excess
of $10 billion up through $15 billion; and 30/100 of 1% of its average daily
net assets in excess of $15 billion.
During the fiscal year ended October 31, 1995, management fees before any
advance waiver, totaled 0.40% of the average daily net assets of the
Portfolio. Total operating expenses, including management fees before any
advance waiver, totaled 0.47% of the average daily net assets of the
Portfolio. Pursuant to an agreement by Advisers to waive its fees, the
Portfolio paid management fees totaling 0.18% of the average daily net assets
of the Fund and operating expenses totaling 0.07%. This arrangement may be
terminated by the Manager at any time upon notice to the Board.
It is not anticipated that the Portfolio will incur a significant amount of
brokerage expenses because adjustable rate securities are generally
traded in principal transactions that involve the receipt by the broker of a
spread between the bid and ask prices for the securities and not the receipt
of commissions. In the event that the Portfolio does participate in
transactions involving brokerage commissions, it is the Manager's
responsibility to select brokers through whom such transactions are 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 considers 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 Portfolio, as factors in
selecting a broker. (Further information is included under "The Portfolio's
Policies Regarding Brokers Used on Portfolio Transactions" under Item 17 in
this amendment to the registration statement.)
Shareholder accounting and many of the clerical functions for the Portfolio
are performed by Franklin/Templeton Investor Services, Inc. ("Investor
Services" or "Shareholder Services Agent"), at the address for the Portfolio
shown on the cover of this amendment to the registration statement, in its
capacity as transfer agent and dividend-paying agent on a fixed fee per
account basis. Investor Services is a wholly owned subsidiary of Resources.
During the fiscal year ended October 31, 1995, total expenses borne by the
Portfolio, including fees paid to Advisers and to Investor Services,
aggregated 0.25% (after waivers and expense reimbursements of 0.22%) of the
average net assets of the Portfolio.
The response to Item 5A has been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
6. CAPITAL STOCK AND OTHER SECURITIES
As discussed above, the Trust is a Delaware Business trust. The Agreement
and Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest, with a par value of $.01
per share, which may be issued in any number of series. Currently the Trust
has two series: one series representing interests in the Portfolio and the
other series representing interests in the Adjustable U.S. Government
Securities Portfolio. When issued for payment as described in this
registration statement as amended, shares are validly issued, fully paid, and
non-assessable and have no preemptive, conversion, or sinking rights. Shares
of each series have equal and exclusive rights as to dividends and
distributions as declared by each series and the net assets of such series
upon liquidation or dissolution.
Shares of each series have equal rights as to voting and vote separately as
to issues affecting that series or the Trust unless otherwise permitted by
the 1940 Act. Voting rights are not cumulative, so that the holders of more
than 50% of the shares voting in any election of trustees, can, if they
choose to do so, elect all of the trustees. A meeting may also be called by
the trustees in their discretion or by shareholders holding at least ten
percent of the outstanding shares of the Trust. Shareholders will receive
assistance in communicating with other shareholders in connection with the
election or removal of trustees such as that provided in Section 16(c) of the
1940 Act.
CONTROL PERSONS
As of February 14, 1995, the Franklin Adjustable Rate Securities Fund and the
Franklin Institutional Adjustable Rate Securities Fund held 1,506,100 shares
(or 61.9%) and 925,512 shares (or 38%), respectively, of the Portfolio's
outstanding shares and, accordingly, each may be deemed to be a controlling
person under the 1940 Act.
DISTRIBUTIONS TO SHAREHOLDERS
As indicated below in response to Items 7 and 8, the Portfolio's shares have
not been registered under the Securities Act of 1933 (the "1933 Act"), which
means that its shares are restricted securities which may not be sold,
redeemed or reinvested unless registered or pursuant to an available
exemption from that Act. Accordingly, to the extent distributions to
shareholders are reinvested in additional shares, as discussed below, such
transactions are subject to the requirements of the 1933 Act.
There are two types of distributions which the Portfolio may make to its
shareholders:
1. INCOME DIVIDENDS. The Portfolio receives income primarily in the form of
interest and other income derived from its investments. This income, less the
expenses incurred in the Fund's operations, is its net investment income from
which income dividends may be distributed. Thus, the amount of dividends paid
per share may vary with each distribution. The Portfolio ordinarily declares
dividends from its net investment income on each day its net asset value is
calculated. The Portfolio's earnings for Saturdays, Sundays and holidays are
declared as dividends on the next business day. Daily allocations of
dividends will commence on the day funds are wired to the Portfolio. The
amount of the dividend may fluctuate from day to day depending on changes in
the factors that comprise the Portfolio's net investment income.
Dividends are declared daily and are reinvested monthly in the form of
additional shares of the Portfolio at the net asset value per share generally
at the close of business on the last business day of the month. Shareholders
may request to have their dividends paid out monthly in cash. Shareholders
redeeming all their shares at any time during the month will receive all
dividends to which they are entitled together with the redemption check.
2. CAPITAL GAIN DISTRIBUTIONS. The Portfolio may derive capital gains or
losses in connection with sales or other dispositions of its portfolio
securities. Distributions by the Portfolio derived from net short-term and
net long-term capital gains (after taking into account any net capital loss
carryovers) will generally be made once a year in December and will reflect
any net short-term and net long-term capital gains realized by the Portfolio
as of October 31 of such year. The Portfolio reserves the right to make more
than one distribution derived from net short-term and net long-term capital
gains in any year or to adjust the timing of these distributions for
operational or other reasons.
TAX EFFECTS ON AN INVESTMENT IN THE PORTFOLIO
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders.
TAXATION OF THE PORTFOLIO
Each separate series of the Trust is treated as a separate entity for federal
income tax purposes. The Portfolio intends to continue to qualify to be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code). By distributing all of its net
investment income and any net realized short-term and long-term capital gains
for a fiscal year in accordance with the timing requirements imposed by the
Code and by meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Portfolio will not be liable
for federal income or excise taxes.
TAXATION OF SHAREHOLDERS
For federal income tax purposes, any income dividends received from the
Portfolio, as well as any distributions derived from the excess of net
short-term capital gain over net long-term capital loss, are treated as
ordinary income whether received in cash or in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of
the length of time Portfolio shares have been owned and regardless of whether
received in cash or in additional shares.
It is not expected that any of the distributions to be paid by the Portfolio
will qualify for the corporate dividends received deduction.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to
the shareholder until the following January, is treated as if received by the
shareholder on December 31 of the calendar year in which they are declared.
Redemptions and exchanges of Portfolio's shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange
of the Portfolio's shares, held for six months or less, is treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares.
The Portfolio will inform shareholders of the source of dividends and
distributions at the time they are paid and will promptly after the close of
each calendar year advise shareholders of the tax status for federal income
tax purposes of such dividends and distributions.
While many states grant tax-free status to dividends paid to shareholders of
mutual funds from interest income earned from direct obligations of the U.S.
Government, none of the distributions of the Portfolio are expected to
qualify for such tax-free treatment. Investments in mortgaged-backed
securities (including GNMA, FNMA, and FHLMC securities) and repurchase
agreements collateralized by U.S. government securities do not qualify as
direct federal obligations in most states. Shareholders should consult with
their own tax advisors with respect to the applicability of state and local
income taxes to distributions and redemption proceeds received from the
Portfolio.
Additional information in response to this item is contained under the
discussion captioned "General Information" in Item 4, above.
7. PURCHASE OF SECURITIES
The Portfolio's shares have not been registered under the 1933 Act, which
means that its shares may not be sold publicly. However, the Portfolio's
shares may be sold through private placements pursuant to available
exemptions from that Act.
Shares of the Portfolio are sold only to other investment companies. All
shares are sold at net asset value without a sales charge. Shares are
purchased at the net asset value next determined after the Portfolio receives
the order in proper form. Funds should be wired to the Portfolio's bank
account at Bank of America, the Portfolio's custodian, for credit to the
Portfolio's account. All investments in the Portfolio are credited to the
shareholder's account in the form of full and fractional shares of the
Portfolio (rounded to the nearest 1/1000 of a share). The Portfolio does not
issue share certificates.
Shares may generally be purchased on business days except when the New York
Stock Exchange (the "Exchange") is closed. Federal Funds wire purchase orders
are not accepted on days when the Federal Reserve Bank system and the
Portfolio's custodian are closed.
VALUATION OF PORTFOLIO SHARES
The net asset value per share of the Portfolio is determined as of 1:00 p.m.
Pacific time each day that the Exchange is open for trading.
The net asset value per share of the Portfolio is determined in the following
manner: The aggregate of all liabilities, including accrued expenses and
taxes and any necessary reserves, are deducted from the aggregate gross value
of all assets, and the difference is divided by the number of shares of the
Portfolio outstanding at the time. For the purposes of determining the
aggregate net assets of the Portfolio, cash and receivables are valued at
their realizable amounts. Interest is recorded as accrued. Portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System for which market quotations are readily available are valued at the
last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and asked 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. Other securities for which market
quotations are readily available are valued at current market value obtained
from a pricing service, which is 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 securities. 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 the Board, the
Portfolio may utilize a pricing service, bank or securities dealer to perform
any of the above-described functions.
8. REDEMPTION OR REPURCHASE
HOW TO SELL SHARES OF THE PORTFOLIO
As stated above in response to Item 7, "Purchase of Securities," the
Portfolio's shares are restricted securities which may not be sold unless
registered or pursuant to an available exemption from the 1933 Act.
Redemptions are processed on any day on which the Portfolio is open for
business and are effected at the Portfolio's net asset value next determined
after the Portfolio receives a redemption request in good form.
Payment for redeemed shares is made promptly but in no event later than seven
days after receipt of the redemption request in good form. Proceeds for
redemption orders cannot be wired on those business days when the Federal
Reserve Bank System and the Custodian are closed. The right of redemption,
however, may be suspended or the date of payment postponed in accordance with
the rules under the 1940 Act. Redemptions are taxable events, and the amount
received upon redemption may be more or less than the amount paid for the
shares depending upon the fluctuations in the market value of the assets
owned by the Portfolio.
9. PENDING LEGAL PROCEEDINGS
Not Applicable
ADJUSTABLE RATE SECURITIES PORTFOLIOS
ADJUSTABLE RATE SECURITIES PORTFOLIO
FORM N-1A, PART B:
10. COVER PAGE
Not Applicable
11. TABLE OF CONTENTS
Not Applicable
12. GENERAL INFORMATION AND HISTORY
Not Applicable
13. INVESTMENT OBJECTIVES AND POLICIES
As noted in response to Item 4, the Portfolio's investment objective is to
seek a high level of current income, consistent with lower volatility of
principal by following policies designed to achieve its objective. In
addition to the policies stated in response to Item 4, the following
restrictions (except as noted) have been adopted as fundamental policies for
the Portfolio, which means that they may not be changed without the approval
of a majority of the Portfolio's outstanding shares. The Portfolio MAY NOT:
1. Borrow money or mortgage or pledge any of its assets in an amount
exceeding 33 1/3% of the value of the Portfolio's total assets (including the
amount borrowed) valued at market less liabilities (not including the amount
borrowed) at the time the borrowing was made.
2. Buy any securities on "margin" or sell any securities "short," except for
any delayed delivery or when-issued securities as described in the
registration statement as amended.
3. Lend any funds or other assets, except by the purchase of bonds,
debentures, notes or other debt securities as described in the registration
statement as amended, and except that securities of the Portfolio may be
loaned to qualified broker-dealers or other institutional investors if at
least 102% cash collateral is pledged and maintained by the borrower,
provided such loans may not be made if, as a result, the aggregate of such
loans exceeds 10% of the value of the Portfolio's total assets at the time of
the most recent loan. Also, the entry into repurchase agreements is not
considered a loan for purposes of this restriction.
4. Act as underwriter of securities issued by other persons except insofar as
the Portfolio 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 the total assets of the Portfolio in
the securities of any one issuer, but 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 which would result in owning more
than 10% of any class of the outstanding voting securities of such issuer.
7. Purchase from or sell to its officers and trustees, or any firm of which
any officer or trustee is a member, as principal, any securities, but may
deal with such persons or firms as brokers and pay a customary brokerage
commission; or retain securities of any issuer, if to the knowledge of the
Portfolio, one or more of its officers, trustees or investment adviser, own
beneficially more than one-half of 1% of the securities of such issuer and
all such officers and trustees together own beneficially more than 5% of such
securities.
8. Purchase any securities issued by a corporation which has not been in
continuous operation for three years, but such period may include the
operation of a predecessor.
9. Acquire, lease or hold real estate. (Does not preclude investments in
securities collateralized by real estate or interests therein.)
10. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads or any combination thereof, or interests in oil, gas or other mineral
exploration or development program.
11. Invest in companies for the purpose of exercising control or management.
12. Purchase securities of other investment companies, except to the extent
permitted by the 1940 Act or pursuant to an exemption therefrom, granted by
the Securities and Exchange Commission (the "SEC"). To the extent permitted
by exemptions which may be granted under the 1940 Act, the Portfolio may
invest in shares of one or more money market funds managed by Franklin
Advisers, Inc. or its affiliates.
13. Issue senior securities as defined in the 1940 Act except that this
restriction will not prevent the Portfolio from entering into repurchase
agreements or making borrowings, mortgages and pledges as permitted by
restriction #1 above.
In order to change any of the foregoing restrictions which are fundamental
policies, approval must be obtained by shareholders of the Portfolio. Such
approval requires the affirmative vote of the lesser of (i) 67% or more of
the voting securities present at a meeting if the holders of more than 50% of
the Portfolio's voting securities are represented at that meeting or (ii)
more than 50% of the outstanding voting securities of the Portfolio. If a
percentage restriction contained herein is adhered to at the time of
investment, a later increase or decrease in the percentage resulting from a
change in the value of portfolio securities or the amount of the Portfolio's
assets will not be considered a violation of any of the foregoing
restrictions.
OTHER POLICIES. There are no restrictions or limitations on investments in
obligations of the U.S. government, or of corporations chartered by Congress
as federal government instrumentalities. The underlying assets of the
Portfolio may be retained in cash, including cash equivalents which are
Treasury bills, and short-term bank obligations such as certificates of
deposit, bankers' acceptances and repurchase agreements. It is intended,
however, that only so much of the underlying assets of the Portfolio be
retained in cash as is deemed desirable or expedient under then-existing
market conditions. As noted elsewhere in the registration statement as
amended, the Portfolio may invest up to 10% of its total net assets in
illiquid securities. Investments in savings deposits are generally considered
illiquid and will, together with other illiquid investments, not exceed lO%
of the Portfolio's net assets.
To the extent indicated in this amendment to the registration statement, the
Portfolio may invest in CMOs and REMICs. CMOs and REMICs may be issued by
governmental or government related entities or by non-governmental entities
such as banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers. Privately
issued CMOs and REMICs include obligations issued by such non-governmental
entities which are collateralized by (a) mortgage securities issued by the
Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association or the Government National Mortgage Association, (b) pools of
mortgages which are guaranteed by an agency or instrumentality of the U.S.
government, or (c) pools of mortgages which are not guaranteed by an agency
or instrumentality of the U.S. Government and which may or may not be
guaranteed by the private issuer.
The Portfolio may purchase securities issued or guaranteed by the U.S.
Government, or one of its agencies or instrumentalities. GNMA guarantees are
backed by the full faith and credit of the U.S. Treasury. No assurances can
be given, however, that the U.S. government will provide such financial
support to the obligations of the other U.S. government agencies or
instrumentalities in which the Portfolio invests, since it is not obligated
to do so. These agencies and instrumentalities are supported by either the
issuer's right to borrow an amount limited to a specific line of credit from
the U.S. Treasury, the discretionary authority of the U.S. Government to
purchase certain obligations of an agency or instrumentality, or the credit
of the agency or instrumentality.
The Portfolio may invest up to 5% of its total assets in inverse floaters.
Inverse floaters are instruments with floating or variable interest rates
that move in the opposite direction, at an accelerated speed, to short-term
interest rates. The Portfolio may also invest up to 5% of its assets in super
floaters. These are instruments that float at a greater than 1 to 1 ratio
with the London Interbank Offered Rate ("LIBOR") and are used as a hedge
against the risk that LIBOR floaters become "capped" and can no longer float
higher.
Several of the funds in the Franklin Group of Funds(R), including the
Portfolio, are major purchasers of government securities and seek to
negotiate attractive prices for such securities and to pass on any savings
derived from such negotiations to their shareholders in the form of higher
current yields.
The Portfolio may invest a portion of its assets in asset-backed securities.
The rate of principal payment on asset-backed securities generally depends on
the rate of principal payments received on the underlying assets. The rate of
payments may be affected by economic and various other factors. Therefore,
the yield may be difficult to predict and actual yield to maturity may be
more or less than the anticipated yield to maturity. The credit quality of
most asset-backed securities depends primarily on the credit quality of the
assets underlying the securities, how well the entities issuing the
securities are insulated from the credit risk of the originator or affiliated
entities, and the amount of credit support provided to the securities.
Credit supported asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, these
securities may contain elements of credit support. Credit support falls into
two categories: (i) liquidity protection, and (ii) protection against losses
resulting from the ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of
payments due on the underlying pool is timely. Protection against losses
resulting from ultimate default enhances the likelihood of payments of the
obligations on at least some of the assets in the pool. This protection may
be provided through guarantees, insurance policies or letters of credit
obtained by the issuer or sponsor from third parties, through various means
of structuring the transaction or through a combination of these approaches.
The Portfolio does not pay any additional fees for such credit support,
although the existence of credit support may increase the price of a security.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one
or more classes subordinate to other classes as to the payment of principal
and interest, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceeds that required to make
payments of the securities and pay any servicing or other fees). The degree
of credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the
underlying assets. Delinquencies or losses in excess of those anticipated
could adversely affect the return on an investment in the issue.
14. MANAGEMENT OF THE REGISTRANT
Trustees and Officers
The Board of Trustees (the "Board") has the responsibility for the overall
management of the Portfolio, including general supervision and review of its
investment activities. The trustees, in turn, elect the officers of the Trust
who are responsible for administering the day-to-day operations of the Trust
and the Portfolio. The affiliations of the officers and trustees and their
principal occupations for the past five years are listed below. Trustees who
are deemed to be "interested persons" as defined in the 1940 Act are
indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111
Trustee
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
Trustee
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.
S. Joseph Fortunato (63)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
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
Trustee
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 Trustee
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
President and Trustee
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
Vice President and Trustee
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.
Frank W. T. LaHaye (66)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee, as the case
may be, of 26 of the investment companies in the Franklin Group of Funds.
*William J. Lippman (71)
One Parker Plaza
Fort Lee, NJ 07024
Trustee
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc.,
Franklin Templeton Distributors, Inc. and Franklin Management, Inc.; officer
and/or director or trustee of six of the investment companies in the Franklin
Group of Funds.
Gordon S. Macklin (67)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
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.
Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case
may be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment
companies in the Franklin Group of Funds.
Martin L. Flanagan (35)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; officer of most other subsidiaries of Franklin Resources,
Inc.; and officer of 61 of the investment companies in the Franklin Templeton
Group of Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; Vice President, Franklin Advisers, Inc. and
officer of 37 of the investment companies in the Franklin Group of Funds.
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.
Trustees not affiliated with the investment manager ("nonaffiliated
trustees") are currently paid fees of $50 per month plus $50 per meeting
attended. As indicated above, certain of the Trust's nonaffiliated trustees
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 trustees by the Trust and by other funds in the
Franklin Templeton Group of Funds.
NUMBER OF BOARDS
IN THE FRANKLIN
TOTAL FEES RECEIVED TEMPLETON GROUP OF
TOTAL FEES FROM THE FRANKLIN FUNDS ON WHICH
RECEIVED TEMPLETON GROUP OF EACH SERVES***
FROM THE FUNDS**
NAME TRUST*
Frank H. Abbott, III $100 $162,420 31
Harris J. Ashton 100 327,925 56
S. Joseph Fortunato 100 344,745 58
David Garbellano 100 146,100 30
Frank W.T. LaHaye 100 143,200 26
Gordon S. Macklin 100 321,525 53
*For the fiscal year ended October 31, 1995.
**For the calendar year ended December 31, 1995.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
directors are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 162
U.S. based funds or series.
Nonaffiliated trustees are reimbursed for expenses incurred in connection
with attending board meetings, paid pro rata by each fund in the Franklin
Templeton Group of Funds for which they serve as director, trustee or
managing general partner. No officer or trustee received any other
compensation directly from the Trust. Certain officers or trustees 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. Charles B. Johnson and Rupert H. Johnson,
Jr. are brothers and the father and uncle, respectively, of Charles E.
Johnson.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
a. As of February 14, 1996, Franklin Adjustable Rate Securities Fund, a
series of the Franklin Investors Securities Trust ("FIST"), and Franklin
Institutional Adjustable Rate Securities Fund, a series of the Institutional
Fiduciary Trust ("IFT"), owned 61.9%% and 38%, respectively, of the
outstanding voting securities of the Portfolio and could be deemed to control
the Portfolio, as that term is defined under the 1940 Act. Both FIST and IFT
were organized as Massachusetts business trusts and are located at the
address set forth on the cover of this amendment to the registration
statement.
b. Except for the companies referred to in this item, no person was known to
hold beneficially or of record more than 5% of the Portfolio's outstanding
shares of beneficial interest.
c. Not Applicable
16. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of the Portfolio is Franklin Advisers, Inc.
("Advisers" or "Manager"). Advisers is a wholly owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly owned holding company whose shares
are listed on the New York Stock Exchange (the "Exchange"). Resources owns
several other subsidiaries which are involved in investment management and
shareholder services. The Manager and other subsidiary companies of Resources
currently manage over $135 billion in assets for more than 3.9 million U.S.
based mutual fund shareholder and other accounts. The table above indicates
those officers and trustees who are affiliated persons of Advisers.
Pursuant to the management agreement, the Manager provides investment
research and portfolio management services, including the selection of
securities for the Portfolio to purchase, hold or sell, and the selection of
brokers through whom the Portfolio's securities transactions are executed.
The Manager's activities are subject to the review and supervision of the
Board to whom the Manager renders periodic reports of the Portfolio's
investment activities. Under the terms of the management agreement, the
Manager provides office space and office furnishings, facilities and
equipment required for managing the business affairs of the Portfolio;
maintains all internal bookkeeping, clerical, secretarial and administrative
personnel and services. The Manager is covered by fidelity insurance on its
officers, directors and employees for the protection of the Trust and its
Portfolios.
The Manager has agreed to limit its management fees and make certain payments
to reduce its operating expenses. For the fiscal year ended October 31, 1995,
the Portfolio was contractually obligated to pay the Manager a management fee
of $119,324. The Portfolio paid management fees of $55,384 for the same
period.
The management agreement is in effect until February 28, 1997. Thereafter, it
may continue in effect for successive annual periods, providing such
continuance is specifically approved at least annually by a vote of the Board
or by a vote of the holders of a majority of the Portfolio's outstanding
voting securities, and in either event by a majority of the Trust's trustees
who are not parties to the management agreement or interested persons of any
such party (other than as trustees of the Trust), cast in person at a meeting
called for that purpose. The management agreement may be terminated without
penalty at any time by the Portfolio or by the Manager on 60 days' written
notice and automatically terminates in the event of its 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 the Trust and acts as the Trust's transfer
agent and dividend-paying agent. Investor Services is compensated on the
basis of a fixed fee per account.
The Bank of New York, Mutual Funds Division, 90 Washington Street, New York,
New York, 10286, acts as custodian of the securities and other assets of the
Portfolio. 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 Portfolio shares. The custodian does 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, is the Portfolio's independent auditor. During the fiscal year ended
October 31, 1995, their auditing services consisted of rendering an opinion
on the financial statements for such fiscal year.
17. BROKERAGE ALLOCATION
THE PORTFOLIO'S POLICIES REGARDING BROKERS USED ON PORTFOLIO TRANSACTIONS
Since most purchases by the Portfolio are principal transactions at net
prices, the Portfolio incurs little or no brokerage costs. The Portfolio
deals directly with the selling or purchasing principal or market maker
without incurring charges for the services of a broker on its behalf, unless
it is determined that a better price or execution may be obtained by
utilizing the services of a broker. 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 prices. The Portfolio seeks to obtain prompt execution of orders
at the most favorable net price. Transactions may be directed to dealers in
return for research and statistical information, as well as for special
services rendered by such dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on
the research services received by Advisers from brokers or dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services permits Advisers to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the Manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
Provided that the Trust's officers are satisfied that the best execution is
obtained, the sale of Portfolio shares may also be considered as a factor in
the selection of broker/dealers to execute the Portfolio's portfolio
transactions.
Because Franklin/Templeton Distributors, Inc. ("Distributors"), a subsidiary
of Resources, is a member of the National Association of Securities Dealers,
Inc., Distributors is sometimes entitled to obtain certain fees when the
Portfolio tenders portfolio securities pursuant to a tender-offer
solicitation. As a means of recapturing brokerage for the benefit of the
Portfolio, any portfolio securities tendered by the Portfolio are tendered
through Distributors if it is legally permissible to do so. In turn, the next
management fee payable to Advisers under the management agreement is 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 by the Portfolio and one or more other
investment companies or clients supervised by the Manager or its affiliates
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 Portfolio, the other investment company or client and
the amount of securities to be purchased or sold. It is recognized that in
some cases this procedure could possibly have a detrimental effect on the
price or volume of the security so far as the Portfolio 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 Portfolio.
During the fiscal period ended October 31, 1995, the Portfolio paid no
brokerage commissions. As of such date, the Portfolio did not own securities
of its regular broker-dealers.
18. CAPITAL STOCK AND OTHER SECURITIES
The information provided in response to this item is in addition to the
information provided in response to Item 4 in Part A.
All shares of each series of the Trust have equal voting, dividend and
liquidation rights. Shares of each series vote separately as to issues
affecting that series, unless otherwise permitted by the 1940 Act. The shares
have noncumulative voting rights, which means that holders of more than 50%
of the shares voting for the election of trustees can elect 100% of the
trustees if they choose to do so.
The Portfolio does not intend to hold annual meetings; it may, however, hold
a meeting for such purposes as changing fundamental investment restrictions,
approving a new management agreement or any other matters which are required
to be acted on by shareholders under the 1940 Act. A meeting may also be
called by a majority of the Board or by shareholders holding at least ten
percent of the shares entitled to vote at the meeting. Shareholders may
receive assistance in communicating with other shareholders in connection
with the election or removal of Trustees similar to the provisions contained
in Section 16(c) of the 1940 Act.
Shares for an initial investment as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are credited to
an account in the name of an investor on the books of the Portfolio. The
Portfolio does not issue share certificates.
An investment in the Portfolio is not a deposit insured by the FDIC and is
not an obligation of or guaranteed by any bank.
19. PURCHASE, REDEMPTION AND PRICING OF
SECURITIES BEING OFFERED
The information provided in response to this item is in addition to the
information provided in response to Items 7 and 8 in Part A.
REDEMPTIONS IN KIND
The Trust has committed itself to pay in cash 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 either series' net
assets at the beginning of such period. Such commitment is irrevocable
without the prior approval of the SEC. In the case of requests for redemption
in excess of such amounts, the trustees reserve the right to make payments in
whole or in part in securities or other assets of the Portfolio in case of an
emergency, or if the payment of such redemption in cash would be detrimental
to the existing shareholders of the Portfolio. In such circumstances, the
securities distributed would be valued at the price used to compute the
Portfolio's net assets. Should the Portfolio do so, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to
cash. The Portfolio does not intend to redeem illiquid securities in kind;
however, should it happen, shareholders may not be able to timely recover
their investment and may also incur brokerage costs in selling such
securities.
CALCULATION OF NET ASSET VALUE
As noted elsewhere in this amendment to the registration statement, the
Portfolio generally calculates net asset value as of 1:00 p.m. Pacific time
trading each day that the Exchange is open for trading. As of the date
hereof, the Portfolio is informed that the Exchange intends to observe the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day (observed), Labor Day, Thanksgiving Day and Christmas
Day (observed). Wire purchases and redemptions are not effected on those
days when the Federal Reserve Bank System is closed (currently, New Year's
Day, Martin Luther King, Jr.'s Birthday, Washington's Birthday, Memorial Day,
Independence Day (observed), Labor Day, Columbus Day (observed), Veteran's
Day, Thanksgiving Day, and Christmas Day (observed)).
REINVESTMENT DATE
The dividend reinvestment date is the date on which additional shares are
purchased for the investor who has elected to have dividends reinvested. This
date varies from month to month based on operational considerations and is
not necessarily the same date as the record date or the payable date for cash
dividends.
20. TAX STATUS
The information provided in response to this item is in addition to the
information provided in response to Item 6 in Part A.
As stated in response to Item 6, the Portfolio intends to continue to qualify
and elect to be treated as a regulated investment company under Subchapter M
of the Code. The trustees reserve the right not to maintain the qualification
of the Portfolio as a regulated investment company if they determine such
course of action to be beneficial to the shareholders. In such case, the
Portfolio would be subject to federal and possibly state corporate taxes on
its taxable income and gains, and distributions to shareholders would be
ordinary dividend income to the extent of the Portfolio's available earnings
and profits.
The Code required all funds to distribute at least 98% of their taxable
ordinary income earned during the calendar year and at least 98% of their
capital gain net income earned during the twelve-month period ending October
31 of each year (in addition to amounts from the prior year that were neither
distributed nor taxed to the Portfolio) to shareholders by December 31 of
each year in order to avoid the imposition of a federal excise tax. Under
these rules, certain distributions which are declared in October, November or
December but which, for operational reasons, may not be paid to the
shareholder until the following January, are treated for tax purposes as if
paid by the Portfolio and received by the shareholder on December 31 of the
calendar year in which they are declared. The Portfolio intends, as a matter
of policy, to declare dividends in December as necessary to avoid the
imposition of this tax, but the Portfolio does not guarantee that its
distributions will be sufficient to avoid any or all federal excise taxes.
Redemptions and exchanges of the Portfolio's shares are taxable transactions
for federal and state income tax purposes. For most shareholders, gain or
loss will be recognized in an amount equal to the difference between the
shareholder's basis in its shares and the amount received, subject to the
rules described below. If such shares are a capital asset in the hands of
the shareholder, gain or loss is capital gain or loss and is long-term for
federal income tax purposes if the shares have been held for more than one
year.
All or a portion of a loss realized upon a redemption of shares is disallowed
to the extent other shares of the Portfolio are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption.
Any loss realized upon the redemption of shares within six months from the
date of their purchase will be treated as a long-term capital loss to the
extent of amounts treated as distributions of net long-term capital gain with
respect to such shares.
21. UNDERWRITERS
Not Applicable
22. CALCULATION OF PERFORMANCE DATA
Not Applicable
23. FINANCIAL STATEMENTS
The audited Financial Statement of the portfolio contained in the annual report
dated October 31, 1995 including the auditors report, are incorporated herein by
reference.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
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 October 31, 1995, as filed with the SEC
electronically on form type N-30D on December 27, 1995
(i) Report of Independent Auditors - December 8, 1995
(ii) Statement of Investments in Securities and Net Assets - October 31,
1995
(iii)Statements of Assets and Liabilities - October 31, 1995
(iv) Statements of Operations - for the year ended October 31, 1995
(v) Statements of Changes in Net Assets - for the years ended October 31,
1995 and 1994
(b) Exhibits:
The following exhibits are attached hereto, except as otherwise noted:
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust of Franklin Institutional U.S.
Government ARM Fund dated February 12, 1991
(ii) Certificate of Trust of Franklin Institutional U.S. Government
ARM Fund dated February 12, 1991
(iii)Certificate of Amendment to the Certificate of Trust of Franklin
Institutional U.S. Government ARM Fund dated October 18, 1991 as
filed with the office of the Secretary of the State of Delaware
on February 15, 1991
(iv) Certificate of Amendment to the Certificate of Trust of Franklin
Institutional U.S. Government ARM Fund dated March 7, 1991 as
filed with the Office of the Secretary of State of Delaware on
March 14, 1991
(v) Certificate of Amendment to the Certificate of Trust of
Adjustable Rate Securities Portfolio dated May 14, 1992 as filed
with the Office of the Secretary of State of Delaware on June 12,
1992
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) By-Laws of Franklin Institutional U.S. Government ARM Fund
(3) copies of any voting trust agreement with respect to more than five
percent of any class of equity securities of the Registrant;
N/A
(4) specimens or copies of each security issued by the Registrant,
including copies of all constituent instruments, defining the rights
of the holders of such securities, and copies of each security being
registered;
Not Applicable
(5) copies of all investment advisory contracts relating to the management
of the assets of the Registrant;
(i) Management Agreement between Franklin Institutional U.S.
Government ARM Fund and Franklin Advisers, Inc. dated June 3,
1991
(ii) Management Agreement between Adjustable Rate Securities
Portfolios and Franklin Advisers, Inc. dated November 5, 1991
(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) Not Applicable
(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of Trustees
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 May 1, 1991
(ii) Amendment to Custodian Agreement between Registrant and Bank of
America NT & SA dated April 12, 1995
(iii) Master Custody Agreement between Registrant and Bank of New York
dated February 16, 1996
(iv) 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;
Not Applicable
(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;
Not Applicable
(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;
Not Applicable
(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.
Not Applicable
(16) schedule for computation of each performance quotation provided in the
registration statement in response to Item 22 (which need not be
audited).
Not applicable
(17) (i) Power of Attorney dated February 16, 1995
(ii) Certificate of Secretary dated February 16, 1995
(27) Financial Data Schedule
(i) Financial Data Schedule for Adjustable Rate Securities Portfolio
(ii) Financial Data Schedule for U.S. Government
Adjustable Rate Mortgage Portfolio
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders
Title of Class as of February 15, 1996
- --------------
Shares of Beneficial Interest
of:
Adjustable Rate Securities
Portfolio Three
U.S. Government
Adjustable Rate Mortgage
Portfolio Two
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of the Registrant's By-Laws (Exhibit 2).
Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court 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.
Notwithstanding the provisions contained in the Registrant's By-Laws, in
the absence of authorization by the appropriate court on the merits pursuant to
Section 5 of Article VI of said By-Laws, any indemnification under said Article
shall be made by Registrant only if authorized in the manner provided in either
subsection (a) or (b) of Section 6 of Article VI.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Franklin Advisers, Inc., a wholly owned subsidiary of Franklin Resources,
Inc., the investment manager for the Registrant, is the investment manager or
administrator for 36 other U.S. registered open-end investment companies and
three closed-end investment companies. The officers and directors of the
Registrant's investment advisor also serve as officers and/or directors, and/or
portfolio managers for (1) the advisor's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin Templeton Group of
Funds. In addition, Messrs. Charles B. Johnson and Harris J. Ashton are
directors of General Host Corporation. For additional information please see
Part B.
ITEM 29. PRINCIPAL UNDERWRITERS
Not Applicable
ITEM 30. LOCATIONS 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 and the Rules thereunder are kept by
the Registrant or its shareholder services agent, Franklin/Templeton Investor
Services, Inc., at their respective principal business offices, both of which
are at 777 Mariners Island Blvd., San Mateo, California 94404.
ITEM 31. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Parts A
or Part B.
ITEM 32. UNDERTAKING.
The Registrant hereby undertakes to promptly call a meeting of shareholders
for the purpose of voting upon the question of removal of any trustee or
trustees when requested in writing to do so by the record holders of not less
than 10 per cent of the Registrant's outstanding shares and to assist its
shareholders in accordance with the requirements of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, 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, the State of California, on the 26th day
of February 1996.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
By Charles E. Johnson*
Charles E. Johnson,
President
By
Larry L. Greene, Attorney-in-Fact
pursuant to a Power of Attorney
filed herewith.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of Trust of Attached
Franklin Institutional U.S. Government
ARM Fund dated February 12, 1991
EX-99.B1(ii) Certificate of Trust of Franklin Attached
Institutional U.S. Government ARM Fund
dated February 12, 1991
EX-99.B1(iii) Certificate of Amendment to the Attached
Certificate of Trust of Franklin
Institutional U.S. Government ARM Fund
dated October 18, 1991
EX-99.B(iv) Certificate of Amendment to the Attached
Certificate of Trust of Franklin
Institutional U.S. Government ARM Fund
dated March 7, 1991
EX-99.B1(v) Certificate of Amendment to the Attached
Certificate of Trust of Adjustable
Rate Securities Portfolio dated May
14, 1992
EX-99.B2(i) By-Laws of Franklin Institutional U.S. Attached
Government ARM Fund
EX-99.B5(i) Manangement Agreement between Franklin Attached
Institutional U.S. Government ARM Fund
and Franklin Advisers, Inc. dated June
3, 1991
EX-99.B5(ii) Management Agreement between Attached
Adjustable Rate Securities Portfolios
and Franklin Advisers, Inc. dated
November 5, 1991
EX-99.B8(i) Custodian Agreement between Registrant Attached
and Bank of America NT & SA dated May
1, 1991
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) Master Custody Agreement between Attached
Regisrant and Bank of New York dated
February 16, 1996
EX-99.B8(iv) Terminal Link Agreeemnt between Attached
Registrant and Bank of New York
dated February 16, 1996
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 Date Schedule for Adjustable Attached
Rate Securities Portfolio
EX-27.B2 Financial Data Schedule for U.S. Attached
Government Adjustable Rate Mortgage
Portfolio
*Incorporated by Reference
Effective as of
February 15, 1991
AGREEMENT AND DECLARATION OF TRUST
of
FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND
a Delaware Business Trust
Principal Place of Business:
777 Mariners Island Boulevard
San Mateo, California 94404
TABLE OF CONTENTS
FRANKLIN INSTITUTIONAL U.S GOVERNMENT ARM FUND
AGREEMENT AND DECLARATION OF TRUST
ARTICLE I Name and Definitions
1. Name
2. Definitions
(a) Trust
(b) Trust Property
(c) Trustees
(d) Shares
(e) Shareholder
(f) Person
(g) 1940 Act
(h) Commission and Principal Underwriter
(i) Declaration of Trust
(j) By-Laws
(k) Interested Person
(1) Investment Manager
(m) Series
ARTICLE II Purpose of Trust
ARTICLE III Shares
1. Division of Beneficial Interest
2. Ownership of Shares
3. Investments in the Trust
4. Status of Shares and Limitation of Personal Liability
5. Power of Board of Trustees to Change Provisions
Relating to Shares
6. Establishment and Designation of Series
(a) Assets With Respect to a Particular Series
(b) Liabilities Held With Respect to a Particular
Series
(c) Dividends, Distributions, Redemptions, and
Repurchases
(d) Voting
(e) Equality
(f) Fractions
(g) Exchange Privilege
(h) Combination of Series
(i) Elimination of Series
7. Indemnification of Shareholders
ARTICLE IV The Board of Trustees
1. Number, Election and Tenure
2. Effect of Death, Resignation, etc. of a Trustee
3. Powers
4. Payment of Expenses by the Trust
5. Payment of Expenses by Shareholders
6. Ownership of Assets of the Trust
7. Service Contracts
ARTICLE V Shareholders' Voting Powers and Meetings
1. Voting Powers
2. Voting Power and Meetings
3. Quorum and Required Vote
4. Action by Written Consent
5. Record Dates
6. Additional Provisions
ARTICLE VI Net Asset Value, Distributions, and Redemptions
1. Determination of Net Asset Value, Net Income and
Distributions
2. Redemptions and Repurchases
3. Redemptions at the Option of the Trust
ARTICLE VII Compensation and Limitation of Liability of
Trustees
1. Compensation
2. Indemnification and Limitation of Liability
3. Trustee's Good Faith Action, Expert Advice, No Bond
or Surety
4. Insurance
ARTICLE VIII Miscellaneous
1. Liability of Third Persons Dealing with Trustees
2. Termination of Trust or Series
3. Merger and Consolidation
4. Amendments
5. Filing of Copies, Reference, Headings
6. Applicable Law
7. Provisions in conflict
8. Business Trust Only
9. Use of the Name "Franklin"
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is
made and entered into as of the date set forth below by the
Trustees named hereunder for the purpose of forming a Delaware
business trust in accordance with the provisions hereinafter set
forth,
NOW, THEREFORE, the Trustees hereby direct that a
Certificate of Trust be filed with Office of the Secretary of
State of the State of Delaware and do hereby declare that the
Trustees will hold IN TRUST all cash, securities and other assets
which the Trust now possesses or may hereafter acquire from time
to time in any manner and manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the
holders of Shares in this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as FRANKLIN
INSTITUTIONAL U.S. GOVERNMENT ARM FUND and the Trustees shall
conduct the business of the Trust under that name or any other
name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust
established by this Agreement and Declaration of Trust, as
amended from time to time;
(b) The "Trust Property" means any and all property,
real or personal, tangible or intangible, which is owned or held
by or for the account of the Trust, including without limitation
the rights referenced in Article VIII, Section 9 hereof;
(c) "Trustees" refers to the persons who have signed
this Agreement and Declaration of Trust, so long as they continue
in office in accordance with the terms hereof, and all other
persons who may from time to time be duly elected or appointed to
serve on the Board of Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in their capacity as trustees
hereunder;
(d) "Shares" means the shares of beneficial interest
into which the beneficial interest in the Trust shall be divided
from time to time and includes fractions of Shares as well as
whole Shares;
(e) "Shareholder" means a record owner of outstanding
Shares;
(f) "Person" means and includes individuals,
corporations, partnerships, trusts, associations, joint ventures,
estates and other entities, whether or not legal entities, and
governments and agencies and political subdivisions thereof,
whether domestic or foreign;
(g) The "1940 Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder, all as amended
from time to time;
(h) The terms "Commission" and "Principal Underwriter"
shall have the meanings given them in the 1940 Act;
(i) "Declaration of Trust" shall mean this Agreement
and Declaration of Trust, as amended or restated from time to
time;
(j) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time and incorporated herein by reference;
(k) The term "Interested Person" has the meaning given
it in Section 2(a)(19) of the 1940 Act;
(1) "Investment Manager" or "Manager" means a party
furnishing services to the Trust pursuant to any contract
described in Article IV, Section 7(a) hereof;
(m) "Series" refers to each Series of Shares
established and designated under or in accordance with the
provisions of Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and
carry on the business of a management investment company
registered under the 1940 Act through one or more Series
investing primarily in securities.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The
beneficial interest in the Trust shall at all times be divided
into an unlimited number of Shares, with a par value of $ .01 per
Share. The Trustees may authorize the division of Shares into
separate Series and the division of Series into separate classes
of Shares. The different Series shall be established and
designated, and the variations in the relative rights and
preferences as between the different Series shall be fixed and
determined, by the Trustees. If only one or no Series (or
classes) shall be established, the Shares shall have the rights
and preferences provided for herein and in Article III, Section 6
hereof to the extent relevant and not otherwise provided for
herein, and all references to Series (and classes) shall be
construed (as the context may require) to refer to the Trust.
Subject to the provisions of Section 6 of this Article
III, each Share shall have voting rights as provided in Article V
hereof, and holders of the Shares of any Series shall be entitled
to receive dividends, when, if and as declared with respect
thereto in the manner provided in Article VI, Section 1 hereof.
No Shares shall have any priority or preference over any other
Share of the same Series with respect to dividends or
distributions upon termination of the Trust or of such Series
made pursuant to Article VIII, Section 4 hereof. All dividends
and distributions shall be made ratably among all Shareholders of
a particular (class of a) particular Series from the assets held
with respect to such Series according to the number of Shares of
such (class of such) Series held of record by such Shareholder on
the record date for any dividend or distribution or on the date
of termination, as the case may be. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares
or other securities issued by the Trust or any Series. The
Trustees may from time to time divide or combine the Shares of
any particular Series into a greater or lesser number of Shares
of that Series without thereby materially changing the
proportionate beneficial interest of the Shares of that Series in
the assets held with respect to that Series or materially
affecting the rights of Shares of any other Series.
Section 2. Ownership of Shares. The ownership of Shares
shall be recorded on the books of the Trust or a transfer or
similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series (or class). No
certificates certifying the ownership of Shares shall be issued
except as the Board of Trustees may otherwise determine from time
to time. The Trustees may make such rules as they consider
appropriate for the transfer of Shares of each Series (or class)
and similar matters. The record books of the Trust as kept by the
Trust or any transfer or similar agent, as the case may be, shall
be conclusive as to who are the Shareholders of each Series (or
class) and as to the number of Shares of each Series (or class)
held from time to time by each.
Section 3. Investments in the Trust. Investments may be
accepted by the Trust from such Persons, at such times, on such
terms, and for such consideration as the Trustees from time to
time may authorize.
Section 4. Status of Shares and Limitation of
Personal Liability. Shares shall be deemed to be personal
property giving only the rights provided in this instrument.
Every Shareholder by virtue of having become a Shareholder shall
be held to have expressly assented and agreed to the terms hereof
and to have become a party hereto. The death of a Shareholder
during the existence of the Trust shall not operate to terminate
the Trust, nor entitle the representative of any deceased
Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but entitles such
representative only to the rights of said deceased Shareholder
under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the
Trust Property or right to call for a partition or division of
the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders as partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust
shall have any power to bind personally any Shareholders, nor,
except as specifically provided herein, to call upon any
Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time
personally agree to pay.
Section 5. Power of Board of Trustees to Change
Provisions Relating to Shares. Notwithstanding any other
provision of this Declaration of Trust and without limiting the
power of the Board of Trustees to amend the Declaration of Trust
as provided elsewhere herein, the Board of Trustees shall have
the power to amend this Declaration of Trust, at any time and
from time to time, in such manner as the Board of Trustees may
determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise
modify any provisions relating to the Shares contained in this
Declaration of Trust, provided that before adopting any such
amendment without Shareholder approval the Board of Trustees
shall determine that it is consistent with the fair and equitable
treatment of all Shareholders or that Shareholder approval is not
otherwise required by the 1940 Act or other applicable law. If
Shares have been issued, Shareholder approval shall be required
to adopt any amendments to this Declaration of Trust which would
adversely affect to a material degree the rights and preferences
of the Shares of any Series (or class) or to increase or decrease
the par value of the Shares of any Series (or class).
Subject to the foregoing Paragraph, the Board of
Trustees may amend the Declaration of Trust to amend any of the
provisions set forth in paragraphs (a) through (i) of Section 6
of this Article III.
Section 6. Establishment and Designation of Series. The
establishment and designation of any Series (or class) of Shares
shall be effective upon the resolution by a majority of the then
Trustees, adopting a resolution which sets forth such
establishment and designation and the relative rights and
preferences of such Series (or class). Each such resolution shall
be incorporated herein by reference upon adoption.
Shares of each Series (or class) established pursuant
to this Section 6, unless otherwise provided in the resolution
establishing such Series, shall have the following relative
rights and preferences:
(a) Assets Held With Respect to a Particular Series.
All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which
such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably be held with
respect to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of
account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source
derived, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, are herein referred to as "assets
held with respect to" that Series. In the event that there are
any assets, income, earnings, profits and proceeds thereof, funds
or payments which are not readily identifiable as assets held
with respect to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to,
between or among any one or more of the Series in such manner and
on such basis as the Trustees, in their sole discretion, deem
fair and equitable, and any General Asset so allocated to a
particular Series shall be held with respect to that Series. Each
such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series for all purposes.
(b) Liabilities Held With Respect to a Particular
Series. The assets of the Trust held with respect to each
particular Series shall be charged against the liabilities of the
Trust held with respect to that Series and all expenses, costs,
charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as
being held with respect to any particular Series shall be
allocated and charged by the Trustees to and among any one or
more of the Series in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to
a Series are herein referred to as "liabilities held with respect
to" that Series. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and
binding upon the holders of all Series for all purposes. All
Persons who have extended credit which has been allocated to a
particular Series, or who have a claim or contract which has been
allocated to any particular Series, shall look, and shall be
required by contract to look exclusively, to the assets of that
particular Series for payment of such credit, claim, or contract.
In the absence of an express contractual agreement so limiting
the claims of such creditors, claimants and contract providers,
each creditor, claimant and contract provider will be deemed
nevertheless to have impliedly agreed to such limitation unless
an express provision to the contrary has been incorporated in the
written contract or other document establishing the claimant
relationship.
(c) Dividends, Distributions, Redemptions, and
Repurchases. Notwithstanding any other provisions of this
Declaration of Trust, including, without limitation, Article VI,
no dividend or distribution including, without limitation, any
distribution paid upon termination of the Trust or of any Series
(or class) with respect to, nor any redemption or repurchase of,
the Shares of any Series (or class) shall be effected by the
Trust other than from the assets held with respect to such
Series, nor, except as specifically provided in Section 7 of this
Article III, shall any Shareholder of any particular Series
otherwise have any right or claim against the assets held with
respect to any other Series except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder
of such other Series. The Trustees shall have full discretion, to
the extent not inconsistent with the 1940 Act, to determine which
items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and
binding upon the Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on
a matter shall vote separately by Series (and, if applicable, by
class): that is, the Shareholders of each Series (or class) shall
have the right to approve or disapprove matters affecting the
Trust and each respective Series (or class) as if the Series (or
classes) were separate companies. There are, however, two
exceptions to voting by separate Series (or classes). First, if
the 1940 Act requires all Shares of the Trust to be voted in the
aggregate without differentiation between the separate Series (or
classes), then all the Trust's Shares shall be entitled to vote
on a one-vote-per-Share basis. Second, if any matter affects only
the interests of some but not all Series (or classes), then only
the Shareholders of such affected Series (or classes) shall be
entitled to vote on the matter.
(e) Equality. All the Shares of each particular Series
shall represent an equal proportionate interest in the assets
held with respect to that Series (subject to the liabilities held
with respect to that Series and such rights and preferences as
may have been established and designated with respect to classes
of Shares within such Series), and each Share of any particular
Series shall be equal to each other Share of that Series.
(f) Fractions. Any fractional Share of a Series shall
carry proportionately all the rights and obligations of a whole
share of that Series, including rights with respect to voting,
receipt of dividends and distributions, redemption of Shares and
termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the
authority to provide that the holders of Shares of any Series
shall have the right to exchange said Shares for Shares of one or
more other Series of Shares in accordance with such requirements
and procedures as may be established by the Trustees.
(h) Combination of Series. The Trustees shall have the
authority, without the approval of the Shareholders of any Series
unless otherwise required by applicable law, to combine the
assets and liabilities held with respect to any two or more
Series into assets and liabilities held with respect to a single
Series.
(i) Elimination of Series. At any time that there are
no Shares outstanding of any particular Series (or class)
previously established and designated, the Trustees may by
resolution of a majority of the then Trustees abolish that Series
(or class) and rescind the establishment and designation thereof.
Section 7. Indemnification of Shareholders. If any
Shareholder or former Shareholder shall be exposed to liability
by reason of a claim or demand relating to his or her being or
having been a Shareholder, and not because of his or her acts or
omissions, the Shareholder or former Shareholder (or his or her
heirs, executors, administrators, or other legal representatives
or in the case of a corporation or other entity, its corporate or
other general successor) shall be entitled to be held harmless
from and indemnified out of the assets of the Trust against all
loss and expense arising from such claim or demand.
ARTICLE IV
The Board of Trustees
Section 1. Number, Election and Tenure. The number of
Trustees constituting the Board of Trustees shall be fixed from
time to time by a written instrument signed, or by resolution
approved at a duly constituted meeting, by a majority of the
Board of Trustees, provided, however, that the number of Trustees
shall in no event be less than one (1) nor more than fifteen
(15). The Board of Trustees, by action of a majority of the then
Trustees at a duly constituted meeting, may fill vacancies in the
Board of Trustees or remove Trustees with or without cause. Each
Trustee shall serve during the continued lifetime of the Trust
until he or she dies, resigns, is declared bankrupt or
incompetent by a court of appropriate jurisdiction, or is
removed, or, if sooner, until the next meeting of Shareholders
called for the purpose of electing Trustees and until the
election and qualification of his or her successor. Any Trustee
may resign at any time by written instrument signed by him and
delivered to any officer of the Trust or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless
specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust,
no Trustee resigning and no Trustee removed shall have any right
to any compensation for any period following his or her
resignation or removal, or any right to damages on account of
such removal. The Shareholders may fix the number of Trustees and
elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose. Any Trustee may be removed at any
meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of the Trust. A meeting of Shareholders for
the purpose of electing or removing one or more Trustees may be
called (i) by the Trustees upon their own vote, or (ii) upon the
demand of Shareholders owning 10% or more of the Shares of the
Trust in the aggregate.
Section 2. Effect of Death, Resignation, etc. of a
Trustee. The death, declination, resignation, retirement,
removal, or incapacity of one or more Trustees, or all of them,
shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of
Trust. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled as provided in Article IV, Section
1, the Trustees in office, regardless of their number, shall have
all the powers granted to the Trustees and shall discharge all
the duties imposed upon the Trustees by this Declaration of
Trust. As conclusive evidence of such vacancy, a written
instrument certifying the existence of such vacancy may be
executed by an officer of the Trust or by a majority of the Board
of Trustees. In the event of the death, declination, resignation,
retirement, removal, or incapacity of all the then Trustees
within a short period of time and without the opportunity for at
least one Trustee being able to appoint additional Trustees to
fill vacancies, the Trust's Investment Manager(s) are empowered
to appoint new Trustees subject to the provisions of Section
16(a) of the 1940 Act.
Section 3. Powers. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed
by the Board of Trustees, and such Board shall have all powers
necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing, the
Trustees may: adopt By-Laws not inconsistent with this
Declaration of Trust providing for the regulation and management
of the affairs of the Trust and may amend and repeal them to the
extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in or remove from their number, and
may elect and remove such officers and appoint and terminate such
agents as they consider appropriate; appoint from their own
number and establish and terminate one or more committees
consisting of two or more Trustees which may exercise the powers
and authority of the Board of Trustees to the extent that the
Trustees determine; employ one or more custodians of the assets
of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a
system or systems for the central handling of securities or with
a Federal Reserve Bank, retain a transfer agent or a shareholder
servicing agent, or both; provide for the issuance and
distribution of Shares by the Trust directly or through one or
more Principal Underwriters or otherwise; redeem, repurchase and
transfer Shares pursuant to applicable law; set record dates for
the determination of Shareholders with respect to various
matters; declare and pay dividends and distributions to
Shareholders of each Series from the assets of such Series; and
in general delegate such authority as they consider desirable to
any officer of the Trust, to any committee of the Trustees and to
any agent or employee of the Trust or to any such custodian,
transfer or shareholder servicing agent, or Principal
Underwriter. Any determination as to what is in the interests of
the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the
Trustees. Unless otherwise specified or required by law, any
action by the Board of Trustees shall be deemed effective if
approved or taken by a majority of the Trustees then in office.
Without limiting the foregoing, the Trust shall have
power and authority:
(a) To invest and reinvest cash, to hold cash
uninvested, and to subscribe for, invest in, reinvest in,
purchase or otherwise acquire, own, hold, pledge, sell, assign,
transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future
acquisition or delivery of fixed income or other securities, and
securities of every nature and kind, including, without
limitation, all types of bonds, debentures, stocks, negotiable or
non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed, or sponsored
by any and all Persons, including, without limitation, states,
territories, and possessions of the United States and the
District of Columbia and any political subdivision, agency, or
instrumentality thereof, any foreign government or any political
subdivision of the U.S. Government or any foreign government, or
any international instrumentality, or by any bank or savings
institution, or by any corporation or organization organized
under the laws of the United States or of any state, territory,
or possession thereof, or by any corporation or organization
organized under any foreign law, or in "when issued" contracts
for any such securities, to change the investments of the assets
of the Trust; and to exercise any and all rights, powers, and
privileges of ownership or interest in respect of any and all
such investments of every kind and description, including,
without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons, to
exercise any of said rights, powers, and privileges in respect of
any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage,
hypothecate, lease, or write options with respect to or otherwise
deal in any property rights relating to any or all of the assets
of the Trust or any Series;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property;
and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or
otherwise which in any manner arise out of ownership of
securities;
(e) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or other
negotiable form, or in its own name or in the name of a custodian
or subcustodian or a nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer of any security which is held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting
through a committee, depositary, voting trustee or otherwise, and
in that connection to deposit any security with, or transfer any
security to, any such committee, depositary or trustee, and to
delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims
in favor of or against the Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) To borrow funds or other property in the name of
the Trust exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or
other obligations of any Person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof;
(1) To purchase and pay for entirely out of Trust
Property such insurance as the Trustees may deem necessary or
appropriate for the conduct of the business, including, without
limitation, insurance policies insuring the assets of the Trust
or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers,
principal underwriters, or independent contractors of the Trust,
individually against all claims and liabilities of every nature
arising by reason of holding Shares, holding, being or having
held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such Person as
Trustee, officer, employee, agent, investment adviser, principal
underwriter, or independent contractor, including any action
taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such
Person against liability; and
(m) To adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for
any or all of the Trustees, officers, employees and agents of the
Trust.
The Trust shall not be limited to investing in
obligations maturing before the possible termination of the Trust
or one or more of its Series. The Trust shall not in any way be
bound or limited by any present or future law or custom in regard
to investment by fiduciaries. The Trust shall not be required to
obtain any court order to deal with any assets of the Trust or
take any other action hereunder.
Section 4. Payment of Expenses by the Trust. The
Trustees are authorized to pay or cause to be paid out of the
principal or income of the Trust, or partly out of the principal
and partly out of income, as they deem fair, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and
such expenses and charges for the services of the Trust's
officers, employees, investment adviser or manager, principal
underwriter, auditors, counsel, custodian, transfer agent,
Shareholder servicing agent, and such other agents or independent
contractors and such other expenses and charges as the Trustees
may deem necessary or proper to incur.
Section 5. Payment of Expenses by Shareholders. The
Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder, or each Shareholder of any
particular Series, to pay directly, in advance or arrears, for
charges of the Trust's custodian or transfer, Shareholder
servicing or similar agent, an amount fixed from time to time by
the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends owed such
Shareholder and/or by reducing the number of shares in the
account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such
charges due from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to
all of the assets of the Trust shall at all times be considered
as vested in the Trust, except that the Trustees shall have power
to cause legal title to any Trust Property to be held by or in
the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such
terms as the Trustees may determine. The right, title and
interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee.
Upon the resignation, removal or death of a Trustee he or she
shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of
such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall
be effective whether or not conveyancing documents have been
executed and delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as
may be set forth in the By-Laws, the Trustees may, at any time
and from time to time, contract for exclusive or nonexclusive
advisory, management and/or administrative services for the Trust
or for any Series with any corporation, trust, association or
other organization; and any such contract may contain such other
terms as the Trustees may determine, including without
limitation, authority for the Investment Manager or administrator
to determine from time to time without prior consultation with
the Trustees what investments shall be purchased, held, sold or
exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's
investments or such other activities as may specifically be
delegated to such party.
(b) The Trustees may also, at any time and from time to
time, contract with any corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor
or Principal Underwriter for the Shares of one or more of the
Series (or classes) or other securities to be issued by the
Trust. Every such contract shall comply with such requirements
and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms as the Trustees may
determine.
(c) The Trustees are also empowered, at any time and
from time to time, to contract with any corporations, trusts,
associations or other organizations, appointing it or them the
custodian, transfer agent and/or shareholder servicing agent for
the Trust or one or more of its Series. Every such contract shall
comply with such requirements and restrictions as may be set
forth in the By-Laws or stipulated by resolution of the Trustees.
(d) The Trustees are further empowered, at any time and
from time to time, to contract with any entity to provide such
other services to the Trust or one or more of the Series, as the
Trustees determine to be in the best interests of the Trust and
the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers
of the Trust is a shareholder, director, officer,
partner, trustee, employee, Manager, adviser, Principal
Underwriter, distributor, or affiliate or agent of or
for any corporation, trust, association, or other
organization, or for any parent or affiliate of any
organization with which an advisory, management or
administration contract, or principal underwriter's or
distributor's contract, or transfer, shareholder
servicing or other type of service contract may have
been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory, management or
administration contract or principal underwriter's or
distributor's contract, or transfer, shareholder
servicing or other type of service contract may have
been or may hereafter be made also has an advisory,
management or administration contract, or principal
underwriter's or distributor's contract, or transfer,
shareholder servicing or other service contract with
one or more other corporations, trust, associations, or
other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon
or executing the same, or create any liability or accountability
to the Trust or its Shareholders, provided approval of each such
contract is made pursuant to the requirements of the 1940 Act.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of
Article III, Section 6(d), the Shareholders shall have power to
vote only (i) for the election or removal of Trustees as provided
in Article IV, Section 1, and (ii) with respect to such
additional matters relating to the Trust as may be required by
this Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state,
or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of
a Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden of proving invalidity shall rest
on the challenger.
Section 2. Voting Power and Meetings. Meetings of the
Shareholders may be called by the Trustees for the purpose of
electing Trustees as provided in Article IV, Section 1 and for
such other purposes as may be prescribed by law, by this
Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to time
for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable. A meeting of
Shareholders may be held at any place designated by the Trustees.
Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at
least seven (7) days before such meeting, postage prepaid,
stating the time and place of the meeting, to each Shareholder at
the Shareholder's address as it appears on the records of the
Trust. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a
written waiver thereof, executed before or after the meeting by
such Shareholder or his or her attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent
to such notice.
Section 3. Quorum and Required Vote. Except when a
larger quorum is required by applicable law, by the By-Laws or by
this Declaration of Trust, forty percent (40%) of the Shares
entitled to vote shall constitute a quorum at a Shareholders'
meeting. When any one or more Series (or classes) is to vote as a
single class separate from any other Shares, forty percent (40%)
of the Shares of each such Series (or classes) entitled to vote
shall constitute a quorum at a Shareholder's meeting of that
Series. Any meeting of Shareholders may be adjourned from time to
time by a majority of the votes properly cast upon the question
of adjourning a meeting to another date and time, whether or not
a quorum is present, and the meeting may be held as adjourned
within a reasonable time after the date set for the original
meeting without further notice. Subject to the provisions of
Article III, Section 6(d), when a quorum is present at any
meeting, a majority of the Shares voted shall decide any
questions and a plurality shall elect a Trustee, except when a
larger vote is required by any provision of this Declaration of
Trust or the By-Laws or by applicable law.
Section 4. Action by Written Consent. Any action taken
by Shareholders may be taken without a meeting if Shareholders
holding a majority of the Shares entitled to vote on the matter
(or such larger proportion thereof as shall be required by any
express provision of this Declaration of Trust or by the By-Laws)
and holding a majority (or such larger proportion as aforesaid)
of the Shares of any Series (or class) entitled to vote
separately on the matter consent to the action in writing and
such written consents are filed with the records of the meetings
of Shareholders. Such consent shall be treated for all purposes
as a vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining
the Shareholders of any Series (or class) who are entitled to
vote or act at any meeting or any adjournment thereof, the
Trustees may from time to time fix a time, which shall be not
more than ninety (90) days before the date of any meeting of
Shareholders, as the record date for determining the Shareholders
of such Series (or class) having the right to notice of and to
vote at such meeting and any adjournment thereof, and in such
case only Shareholders of record on such record date shall have
such right, notwithstanding any transfer of shares on the books
of the Trust after the record date. For the purpose of
determining the Shareholders of any Series
(or class) who are entitled to receive payment of any dividend or
of any other distribution, the Trustees may from time to time fix
a date, which shall be before the date for the payment of such
dividend or such other payment, as the record date for
determining the Shareholders of such Series (or class) having the
right to receive such dividend or distribution. Without fixing a
record date the Trustees may for voting and/or distribution
purposes close the register or transfer books for one or more
Series for all or any part of the period between a record date
and a meeting of Shareholders or the payment of a distribution.
Nothing in this Section shall be construed as precluding the
Trustees from setting different record dates for different Series
(or classes).
Section 6. Additional Provisions. The By-Laws may include
further provisions for Shareholders' votes and meetings and
related matters.
ARTICLE VI
Net Asset Value, Distributions, and Redemptions
Section 1. Determination of Net Asset Value, Net
Income, and Distributions. Subject to Article III, Section 6
hereof, the Trustees, in their absolute discretion, may prescribe
and shall set forth in the By-Laws or in a duly adopted vote of
the Trustees such bases and time for determining the per Share or
net asset value of the Shares of any Series or net income
attributable to the Shares of any Series, or the declaration and
payment of dividends and distributions on the Shares of any
Series, as they may deem necessary or desirable.
Section 2. Redemptions and Repurchases. The Trust shall
purchase such Shares as are offered by any Shareholder for
redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust or a
person designated by the Trust that the Trust purchase such
Shares or in accordance with such other procedures for redemption
as the Trustees may from time to time authorize; and the Trust
will pay therefor the net asset value thereof, in accordance with
the By-Laws and applicable law. Payment for said Shares shall be
made by the Trust to the Shareholder within seven days after the
date on which the request is made in proper form. The obligation
set forth in this Section 2 is subject to the provision that in
the event that any time the New York Stock Exchange (the
"Exchange") is closed for other than weekends or holidays, or if
permitted by the Rules of the Commission during periods when
trading on the Exchange is restricted or during any emergency
which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the
value of the net assets held with respect to such Series or
during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or
postponed by the Trustees.
The redemption price may in any case or cases be paid
wholly or partly in kind if the Trustees determine that such
payment is advisable in the interest of the remaining
Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection and
quantity of securities or other property so paid or delivered as
all or part of the redemption price may be determined by or under
authority of the Trustees. In no case shall the Trust be liable
for any delay of any corporation or other Person in transferring
securities selected for delivery as all or part of any payment in
kind.
Section 3. Redemptions at the option of the Trust. The
Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof
as described in Section 1 of this Article VI: (i) if at such time
such Shareholder owns Shares of any Series having an aggregate
net asset value of less that an amount determined from time to
time by the Trustees prior to the acquisition of said Shares; or
(ii) to the extent that such Shareholder owns Shares of a
particular Series equal to or in excess of a percentage of the
outstanding Shares of that Series determined from time to time by
the Trustees; or (iii) to the extent that such Shareholder owns
Shares equal to or in excess of a percentage, determined from
time to time by the Trustees, of the outstanding Shares of the
Trust or of any Series.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be
entitled to reasonable compensation from the Trust, and they may
fix the amount of such compensation. Nothing herein shall in any
way prevent the employment of any Trustee for advisory,
management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Indemnification and Limitation of Liability.
The Trustees shall not be responsible or liable in any event for
any neglect or wrong-doing of any officer, agent, employee,
Manager or Principal Underwriter of the Trust, nor shall any
Trustee be responsible for the act or omission of any other
Trustee, and the Trust out of its assets shall indemnify and hold
harmless each and every Trustee from and against any and all
claims and demands whatsoever arising out of or related to each
Trustee's performance of his or her duties as a Trustee of the
Trust; provided that nothing herein contained shall indemnify,
hold harmless or protect any Trustee from or against any
liability to the Trust or any Shareholder to which he or she
would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever issued,
executed or done by or on behalf of the Trust or the Trustees or
any of them in connection with the Trust shall be conclusively
deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee,
and such Trustees or Trustee shall not be personally liable
thereon.
Section 3. Trustee's Good Faith Action, Expert Advice,
No Bond or Surety. The exercise by the Trustees of their powers
and discretions hereunder shall be binding upon everyone
interested. A Trustee shall be liable to the Trust and to any
Shareholder solely for his or her own wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and shall not
be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect
to the meaning and operation of this Declaration of Trust, and
shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 4. Insurance. The Trustees shall be entitled
and empowered to the fullest extent permitted by law to purchase
with Trust assets insurance for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee
or officer in connection with any claim, action, suit or
proceeding in which he or she becomes involved by virtue of his
or her capacity or former capacity with the Trust.
ARTICLE VIII
Miscellaneous
Section 1. Liability of Third Persons Dealing with
Trustees. No Person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made
or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its
order.
Section 2. Termination of Trust or Series. Unless
terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by
vote of a majority of the Shares of each Series entitled to vote,
voting separately by Series, or by the Trustees by written notice
to the Shareholders. Any Series may be terminated at any time by
vote of a majority of the Shares of that Series or by the
Trustees by written notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case
may be), after paying or otherwise providing for all charges,
taxes, expenses and liabilities held, severally, with respect to
each Series (or the applicable Series, as the case may be),
whether due or accrued or anticipated as may be determined by the
Trustees, the Trust shall, in accordance with such procedures as
the Trustees consider appropriate, reduce the remaining assets
held, severally, with respect to each Series (or the applicable
Series, as the case may be), to distributable form in cash or
shares or other securities, or any combination thereof, and
distribute the proceeds held with respect to each Series (or the
applicable Series, as the case may be), to the Shareholders of
that Series, as a Series, ratably according to the number of
Shares of that Series held by the several Shareholders on the
date of termination.
Section 3. Merger and Consolidation. The Trustees may
cause (i) the Trust or one or more of its Series to the extent
consistent with applicable law to be merged into or consolidated
with another Trust or company, (ii) the Shares of the Trust or
any Series to be converted into beneficial interests in another
business trust or series thereof) created pursuant to this
Section 3 of Article VIII, or (iii) the Shares to be exchanged
under or pursuant to any state or federal statute to the extent
permitted by law. Such merger or consolidation, Share conversion
or Share exchange must be authorized by vote of a majority of the
outstanding Shares of the Trust, as a whole, or any affected
Series, as may be applicable; provided that in all respects not
governed by statute or applicable law, the Trustees shall have
power to prescribe the procedure necessary or appropriate to
accomplish a sale of assets, merger or consolidation including
the power to create one or more separate business trusts to which
all or any part of the assets, liabilities, profits or losses of
the Trust may be transferred and to provide for the conversion of
Shares of the Trust or any Series into beneficial interests in
such separate business trust or trusts (or series thereof).
Section 4. Amendments. This Declaration of Trust may be
restated and/or amended at any time by an instrument in writing
signed by a majority of the then Trustees and, if required, by
approval of such amendment by Shareholders in accordance with
Article V, Section 3 hereof. Any such restatement and/or
amendment hereto shall be effective immediately upon execution
and approval. The Certificate of Trust of the Trust may be
restated and/or amended by a similar procedure, and any such
restatement and/or amendment shall be effective immediately upon
filing with the Office of the Secretary of State of the State of
Delaware or upon such future date as may be stated therein.
Section 5. Filing of Copies, References, Headings. The
original or a copy of this instrument and of each restatement
and/or amendment hereto shall be kept at the office of the Trust
where it may be inspected by any Shareholder. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such restatements and/or amendments have
been made and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original,
may rely on a copy certified by an officer of the Trust to be a
copy of this instrument or of any such restatements and/or
amendments. In this instrument and in any such restatements
and/or amendment, references to this instrument, and all
expressions like "herein", "hereof" and "hereunder", shall be
deemed to refer to this instrument as amended or affected by any
such restatements and/or amendments. Headings are placed herein
for convenience of reference only and shall not be taken as a
part hereof or control or affect the meaning, construction or
effect of this instrument. Whenever the singular number is used
herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
Section 6. Applicable Law. This Agreement and
Declaration of Trust is created under and is to be governed by
and construed and administered according to the laws of the State
of Delaware and the Delaware Business Trust Act, as amended from
time to time (the "Act"). The Trust shall be a Delaware business
trust pursuant to such Act, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily
exercised by such a business trust.
Section 7. Provisions in Conflict with Law or
Regulations.
(a) The provisions of the Declaration of Trust are
severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the
1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to
have constituted a part of the Declaration of Trust; provided,
however, that such determination shall not affect any of the
remaining provisions of the Declaration of Trust or render
invalid or improper any action taken or omitted prior to such
determination.
(b) If any provision of the Declaration of Trust
shall be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such
provision in such jurisdiction and shall not in any manner affect
such provision in any other jurisdiction or any other provision
of the Declaration of Trust in any jurisdiction.
Section 8. Business Trust Only. It is the intention of
the Trustees to create a business trust pursuant to the Delaware
Business Trust Act, as amended from time to time (the "Act"), and
thereby to create only the relationship of trustee and beneficial
owners within the meaning of such Act between the Trustees and
each Shareholder. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock
association corporation, bailment, or any form of legal
relationship other than a business trust pursuant to such Act.
Nothing in this Declaration of Trust shall be construed to make
the Shareholders, either by themselves or with the Trustees
partners or members of a joint stock association.
Section 9. Use of the Name "Franklin". The name
"Franklin" and all rights to the use of the name "Franklin"
belongs to Franklin Resources, Inc. ("Franklin"), the sponsor of
the Trust. Franklin has consented to the use by the Trust of the
identifying word "Franklin" and has granted to the Trust a non-
exclusive license to use the name "Franklin" as part of the name
of the Trust and the name of any Series of Shares. In the event
Franklin or an affiliate of Franklin is not appointed as Manager
and/or Principal Underwriter or ceases to be the Manager and/or
Principal Underwriter of the Trust or of any Series using such
names, the non-exclusive license granted herein may be revoked by
Franklin and the Trust shall cease using the name "Franklin" as
part of its name or the name of any Series of Shares, unless
otherwise consented to by Franklin or any successor to its
interests in such names.
IN WITNESS WHEREOF, the Trustees named below do hereby
make and enter into this Declaration of Trust as of the 12th day
of February 1991.
/s/Frank H. Abbott, III /s/ Charles B. Johnson
Frank H. Abbott, III Charles B. Johnson
1045 Samsome Street 777 Mariners Island Blvd.
San Francisco, California 94111 San Mateo, California 94404
/s/ Harris J. Ashton /s/ Rupert H. Johnson, Jr.
Harris J. Ashton Rupert H. Johnson, Jr.
22 Gate House Road 777 Mariners Island Blvd.
Stamford, Connecticut 06902 San Mateo, California 94404
/s/ S. Joseph Fortunato /s/ Edmund H. Kerr
S. Joseph Fortunato Edmund H. Kerr
Park Avenue at Morris County One Liberty Plaza
P.O. Box 1945 New York, New York 10006
Morristown, New Jersey 07962-1945
/s/ David W. Garbellano /s/ Frank W.T. LaHaye
David W. Garbellano Frank W.T. LaHaye
111 New Montgomery St. # 402 20833 Stevens Creek Blvd.
San Francisco, California 94105 Suite 102
Cupertino, California 95014
/s/ Henry L. Jamieson /s/ Johannes R. Krahmer
Henry L. Jamieson Johannes R. Krahmer
777 Mariners Island Blvd. c/o Morris, Nichols, Arsht
& Tunnell
1201 N. Marker Street
Wilmington, Delaware 19899
-1347
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS 777 Mariners
Island Boulevard, San Mateo, California 94404
CERTIFICATE OF TRUST
OF
FRANKLIN INSTITUTIONAL U.S GOVERNMENT ARM FUND
This Certificate of Trust of FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND, a business Trust (hereafter called the
"Business Trust"), executed by the undersigned trustees, one of
whom has a residence in the State of Delaware, and filed under
and in accordance with the provisions of the Delaware Business
Trust Act (12 Del. C. (section)3801 et seq.), sets forth the
following:
FIRST: The name of the Business Trust is FRANKLIN
INSTITUTIONAL U.S. GOVERNMENT ARM FUND.
SECOND: The name and business address of the Delaware
resident trustee of the Business Trust required by 12 Del. C.
(section)(section)3807 is as follows:
Name Business Address
Johannes R. Krahmer Morris, Nichols, Arsht
& Tunnell
1201 N. Market Street
Wilmington, Delaware 19899
-1347
The name and business address of each of the other
trustees of the Business Trust is as follows:
Name Business Address
Frank H. Abbott, III 1045 Sansome Street
San Francisco, CA 94111
Harris J. Ashton 22 Gate House Road
Stamford, Connecticut 06902
S. Joseph Fortunato Park Avenue at Morris County
P. O. Box 1945
Morristown, N.J. 07962-1945
David Garbellano 111 New Montgomery St. #402
San Francisco, CA 94105
Henry L. Jamieson 777 Mariners Island Blvd.
San Mateo, CA 94404
Charles B. Johnson 777 Mariners Island Blvd.
San Mateo, CA 94404
Rupert H. Johnson, Jr. 777 Mariners Island Blvd.
San Mateo, CA 94404
Edmund H. Kerr 1 Liberty Plaza
New York, N.Y. 10006
Frank W. T. LaHaye 20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
THIRD: The nature of the business or purpose or
purposes of the Business Trust as set forth in its governing
instrument is to conduct, operate and carry on the business of a
management investment company registered under the Investment
Company Act of 1940, as amended, through one or more series of
shares of beneficial interest, investing primarily in securities.
FOURTH: The trustees of the Business Trust, as set
forth in its governing instrument, reserve the right to amend,
alter, change or repeal any provision contained in this
Certificate of Trust, in the manner now or hereafter prescribed
by statute.
FIFTH: This Certificate of Trust shall become effective
immediately upon filing with the Office of the Secretary of State
of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, being all of the
trustees of Franklin institutional U.S. Government Arm Fund, have
duly executed this Certificate of Trust as of this 12th day of
February 1991.
/s/ Frank H. Abbott, III
Frank H. Abbott, III
/s/ Harris, J. Ashton
Harris, J. Ashton
/s/ S. Joseph Fortunato
S. Joseph Fortunato
/s/ David W. Garbellano
David W. Garbellano
/s/ Henry L. Jamieson
Henry L. Jamieson
/s/ Charles B. Johnson
Charles B. Johnson
/s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
/s/ Edmund H. Kerr
Edmund H. Kerr
/s/ Frank W. T. LaHaye
Frank W. T. LaHaye
/s/ Johannes R. Krahmer
Johannes R. Krahmer
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF TRUST
OF
FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND
The undersigned certifies that:
1. The name of the business trust is FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND (the "Business Trust).
2. The amendment to the Certificate of Trust of the Business
Trust set forth below has been duly authorized by the Board
of Trustees of the Business Trust.
The First Article of the Certificate of Trust is hereby
amended to read as follows:
"The name of the Business Trust is the ADJUSTABLE RATE
SECURITLES PORTFOLIOS".
3. Pursuant to 12 Del. Code (section) 3810(b) (1)c, this
Certificate of Amendment to the Certificate of Trust of the
Business Trust shall become effective immediately upon
filing with the Office of the Secretary of State of the
State of Delaware.
4. This Amendment is made pursuant to the Fourth Article of the
Certificate of Trust which reserves to the Trustees the
right to amend, alter, change or repeal any provisions
contained in the Certificate of Trust.
IN WITNESS WHEREOF, the undersigned, being a trustee of the
Business Trust, has duly executed this Certificate of Amendnment
this 18th day of October 1991.
/s/ Charles B.Johnson
Charles B. Johnson
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF TRUST
FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND
The undersigned certifies that:
1. The name of the business trust is FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND (the "Business Trust").
2. The amendments to the Certificate of Trust of the Business
Trust set forth below have been duly authorized by the Board
of Trustees of the Business Trust:
The Preamble is hereby amended to read as follows:
"This Certificate of Trust of the FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND, a business trust registered under
the Investment Company Act of 1940 (the "Business Trust"),
is filed in accordance with the provisions of the Delaware
Business Trust Act (12 Del. C. (section)(section)3801 seg.)
and sets forth the following:"
The Second Article is hereby amended to read as follows:
"SECOND: As required by 12 De1. C. (section) (section) 3807
and 3810(a)(1)b, the name and business address of the
Business Trust's Registered Agent for Service of Process and
the address of the Business Trust's Registered Office are:
Address of Business Trust's
Registered Office and
Business Address of
Registered Agent Registered Agent
Corporation Trust 1209 Orange Street
Company Wilmington, Delaware 19801
The name and business address of each trustee of the
Business Trust, effective on March 15, 1991, is as follows:
Name Business Address
Frank H. Abbott, III 1045 Sansome Street
San Francisco, CA 94111
Harris J. Ashton 22 Gate House Road
Stamford, Connecticut 06902
S. Joseph Fortunato Park Avenue at Morris County
P.O. Box 1945
Morristown, N.J. 07962-1945
David. W. Garbellano 111 New Montgomery St. #402
San Francisco, CA 94105
Henry L. Jamieson 777 Mariners Island B1vd.
San Mateo, CA 94404
Charles B. Johnson 777 Mariners Island Blvd.
San Mateo, CA 94404
Rupert H. Johnson, Jr. 777 Mariners Island Blvd.
San Mateo, CA 94404
Edmund H. Kerr 1 Liberty Plaza
New York, N.Y. 10006
Frank W. T. LaHaye 20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014"
3. Pursuant to 12 Del. C. 13810(b)(1)c, this Certificate of
Amendment to the Certificate of Trust of the Business Trust
shall become effective on March 15, 1991.
4. This Amendment is made pursuant to the Fourth Article Of the
Certificate of Trust which reserves to the Trustees the
right to amend, alter, change or repeal any provision
contained in the Certificate of Trust.
IN WITNESS WHEREOF, the undersigned, being a trustee of
the Business Trust, has duly executed this Certificate of
Amendment this 7th day of March 1991.
/s/ Charles B. Johnson
Charles B. Johnson
CERTIFICATE OF
AMENDMENT TO
THE
CERTIFICATE OF TRUST
OF
ADJUSTABLE RATE SECURITIES PORTFOLIO
The undersigned certifies that:
1. The name of the business trust is the Adjustable Rate
Securities Portfolio (the "Business Trust").
2. The amendment to the Certificate of Trust of the Business
Trust set forth below (the "Amendment") has been duly
authorized by the Board of Trustees of the Business
Trust.
The following Article is hereby added to the Certificate of
Trust:
SIXTH: Pursuant to section 3804 of the Delaware Business
Trust Act, Del. Code. Ann. tit. 12, sec. 3801-3819 (the
"Act"), the debts, liabilities, obligations and expenses
incurred contracted for or otherwise existing with
respect to each particular series of the Trust, whether
such series is now existing or is hereinafter created,
shall be enforceable against the assets of such series
only, and not against the assets of the Trust generally.
3. Pursuant to Section 3810(b)(1)(c) of the Act, this
Certificate of Amendment to the Certificate of Trust of
the Business Trust shall become effective immediately
upon filing with the office of the Secretary of State of
the State of Delaware.
4. The Amendment is made pursuant to the authority granted
to
the Trustees of the Business Trust under Section
3810(b)(2) of the Act and pursuant to the authority set
forth in the governing instrument of the Business Trust.
IN WITNESS WHEREOF, the undersigned, being a trustee of
the Business Trust, has duly executed this Certificate of
Amendment this 14th day of May 1992.
/s/ Charles B. Johnson
Charles B. Johnson
Trustee
BY-LAWS
for the regulation, except as
otherwise provided by statute or
the Agreement and Declaration of Trust of
FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND
a Delaware Business Trust
TABLE OF CONTENTS
BY-LAWS
FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND
ARTICLE I Offices
1. Principal Office
2. Delaware Office
3. Other Offices
ARTICLE II Meetings of Shareholders
1. Place of Meetings
2. Call of Meeting
3. Notice of Shareholders' Meeting
4. Manner of Giving Notice; Affidavit of Notice
5. Adjourned Meeting; Notice
6. Voting
7. Waiver of Notice of Consent by Absent Shareholders
8. Shareholder Action by Written Consent without a Meeting
9. Record Date for Shareholder' Notice, Voting and Giving
Consents
10. Proxies
11. Inspectors of Election
ARTICLE III Trustees
1. Powers
2. Number of Trustees
3. Vacancies
4. Place of Meetings and Meetings by Telephone
5. Regular Meetings
6. Special Meetings
7. Quorum
8. Waiver of Notice
9. Adjournment
10. Notice of Adjournment
11. Action Without a Meeting
12. Fees and Compensation of Trustees
13. Delegation of Power to Other Trustees
ARTICLE IV Committees
1. Committees of Trustees
2. Meetings and Action of Committees
ARTICLE V Officers
1. Officers
2. Election of Officers
3. Subordinate Officers
4. Removal and Resignation of Officers
5. Vacancies in Offices
6. Chairman of the Board
7. President
8. Vice President
9. Secretary
10. Treasurer
ARTICLE VI Indemnification of Trustees, Officers Employees and
Other Agents
1. Agents, Proceedings and Expenses
2. Actions Other than by Trust
3. Actions by the Trust
4. Exclusion and Indemnification
5. Successful Defense by Agent
6. Required Approval
7. Advance of Expenses
8. Other Contractual Rights
9. Limitations
10. Insurance
11. Fiduciaries of Corporate Employee Benefit Plan
ARTICLE VII Records and Reports
1. Maintenance and Inspection of Share Register
2. Maintenance and Inspection of By-Laws
3. Maintenance and Inspection of Other Records
4. Inspection by Trustees
5. Financial Statements
ARTICLE VIII General Matters
1. Checks, Drafts, Evidence of Indebtedness
2. Contracts and Instruments; How Executed
3. Certificate of Shares
4. Lost Certificates
5. Representation of Shares of Other Entities
6. Fiscal Year
ARTICLE IX Amendments
1. Amendment by Shareholders
2. Amendment by Trustees
3. Incorporation by Reference into Agreement and Declaration
of Trust of the Trust
BY-LAWS
OF
FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND
A Delaware Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees
shall fix and, from time to time, may change the location of the
principal executive office of the Franklin Institutional U.S.
Government Arm Fund (the "Trust") at any place within or outside
the State of Delaware.
Section 2. DELAWARE OFFICE. The Board of Trustees shall
establish a registered office in the State of Delaware and shall
appoint as the Trust's registered agent for service of process in
the State of Delaware an individual resident of the State of
Delaware or a Delaware corporation or a corporation authorized to
transact business in the State of Delaware; in each case the
business office of such registered agent for service of process
shall be identical with the registered Delaware office of the
Trust.
Section 3. OTHER OFFICES. The Board of Trustees may at
any time establish branch or subordinate offices at any place or
places where the Trust intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders
shall be held at any place designated by the Board of Trustees.
In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the Trust.
Section 2. CALL OF MEETING. A meeting of the
shareholders may be called at any time by the Board of Trustees
or by the Chairman of the Board or by the President.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices
of meetings of shareholders shall be sent or otherwise given in
accordance with Section 4 of this Article II not less than seven
(7) nor more than seventy-five (75) days before the date of the
meeting. The notice shall specify (i) the place, date and hour of
the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which Trustees are to be
elected also shall include the name of any nominee or nominees
whom at the time of the notice are intended to be presented for
election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a Trustee has
a direct or indirect financial interest, (ii) an amendment of the
Agreement and Declaration of Trust of the Trust, (iii) a
reorganization of the Trust, or (iv) a voluntary dissolution of
the Trust, the notice shall also state the general nature of that
proposal.
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF
NOTICE. Notice of any meeting of shareholders shall be given
either personally or by first-class mail or telegraphic or other
written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the
books of the Trust or its transfer agent or given by the
shareholder to the Trust for the purpose of notice. If no such
address appears on the Trust's books or is given, notice shall be
deemed to have been given if sent to that shareholder by first-
class mail or telegraphic or other written communication to the
Trust's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at
the time when delivered personally or deposited in the mail or
sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address
of that shareholder appearing on the books of the Trust is
returned to the Trust by the United States Postal Service marked
to indicate that the Postal Service is unable to deliver the
notice to the shareholder at that address, all future notices or
reports shall be deemed to have been duly given without further
mailing if these shall be available to the shareholder on written
demand of the shareholder at the principal executive office of
the Trust for a period of one year from the date of the giving of
the notice.
An affidavit of the mailing or other means of giving
any notice of any shareholder's meeting shall be executed by the
Secretary, Assistant Secretary or any transfer agent of the Trust
giving the notice and shall be filed and maintained in the minute
book of the Trust.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholders'
meeting, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares
represented at that meeting, either in person or by proxy.
When any meeting of shareholders is adjourned to
another time or place, notice need not be given of the adjourned
meeting at which the adjournment is taken, unless a new record
date of the adjourned meeting is fixed or unless the adjournment
is for more than sixty (60) days from the date set for the
original meeting, in which case the Board of Trustees shall set a
new record date. Notice of any such adjourned meeting shall be
given to each shareholder of record entitled to vote at the
adjourned meeting in accordance with the provisions of Sections 3
and 4 of this Article II. At any adjourned meeting, the Trust may
transact any business which might have been transacted at the
original meeting.
Section 6. VOTING. The shareholders entitled to vote at
any meeting of shareholders shall be determined in accordance
with the provisions of the Agreement and Declaration of Trust of
the Trust, as in effect at such time. The shareholders' vote may
be by voice vote or by ballot, provided, however, that any
election for Trustees must be by ballot if demanded by any
shareholder before the voting has begun. On any matter other than
elections of Trustees, any shareholder may vote part of the
shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, but if the
shareholder fails to specify the number of shares which the
shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to
the total shares that the shareholder is entitled to vote on such
proposal.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT
SHAREHOLDERS. The transactions of the meeting of shareholders,
however called and noticed and wherever held, shall be as valid
as though had at a meeting duly held after regular call and
notice if a quorum be present either in person or by proxy and if
either before or after the meeting, each person entitled to vote
who was not present in person or by proxy signs a written waiver
of notice or a consent to a holding of the meeting or an approval
of the minutes. The waiver of notice or consent need not specify
either the business to be transacted or the purpose of any
meeting of shareholders.
Attendance by a person at a meeting shall also
constitute a waiver of notice of that meeting, except when the
person objects at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver
of any right to object to the consideration of matters not
included in the notice of the meeting if that objection is
expressly made at the beginning of the meeting.
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING. Any action which may be taken at any meeting
of shareholders may be taken without a meeting and without prior
notice if a consent in writing setting forth the action so taken
is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. All such
consents shall be filed with the Secretary of the Trust and shall
be maintained in the Trust's records. Any shareholder giving a
written consent or the shareholder's proxy holders or a
transferee of the shares or a personal representative of the
shareholder or their respective proxy holders may revoke the
consent by a writing received by the Secretary of the Trust
before written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote
have not been solicited in writing and if the unanimous written
consent of all such shareholders shall not have been received,
the Secretary shall give prompt notice of the action approved by
the shareholders without a meeting. This notice shall be given in
the manner specified in Section 4 of this Article II. In the case
of approval of (i) contracts or transactions in which a Trustee
has a direct or indirect financial interest, (ii) indemnification
of agents of the Trust, and (iii) a reorganization of the Trust,
the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING
AND GIVING CONSENTS. For purposes of determining the shareholders
entitled to notice of any meeting or to vote or entitled to give
consent to action without a meeting, the Board of Trustees may
fix in advance a record date which shall not be more than ninety
(90) days nor less than seven (7) days before the date of any
such meeting as provided in the Agreement and Declaration of
Trust of the Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders
entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on
the business day next preceding the day on which
notice is given or if notice is waived, at the
close of business on the business day next
preceding the day on which the meeting is held.
(b) The record date for determining shareholders
entitled to give consent to action in writing
without a meeting, (i) when no prior action by the
Board of Trustees has been taken, shall be the day
on which the first written consent is given, or
(ii) when prior action of the Board of Trustees
has been taken, shall be at the close of business
on the day on which the Board of Trustees adopt
the resolution relating to that action or the
seventy-fifth day before the date of such other
action, whichever is later.
Section 10. PROXIES. Every person entitled to vote for
Trustees or on any other matter shall have the right to do so
either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the Secretary of the
Trust. A proxy shall be deemed signed if the shareholder's name
is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the shareholder or the
shareholders' attorney-in-fact. A validly executed proxy which
does not state that it is irrevocable shall continue in full
force and effect unless (i) revoked by the person executing it
before the vote pursuant to that proxy by a writing delivered to
the Trust stating that the proxy is revoked or by a subsequent
proxy executed by or attendance at the meeting and voting in
person by the person executing that proxy; or (ii) written notice
of the death or incapacity of the maker of that proxy is received
by the Trust before the vote pursuant to that proxy is counted;
provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy.
Section 11. INSPECTORS OF ELECTION. Before any meeting
of shareholders, the Board of Trustees may appoint any persons
other than nominees for office to act as inspectors of election
at the meeting or its adjournment. If no inspectors of election
are so appointed, the chairman of the meeting may and on the
request of any shareholder or a shareholder's proxy shall,
appoint inspectors of election at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors
are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one
(1) or three (3) inspectors are to be appointed. If any person
appointed as inspector fails to appear or fails or refuses to
act, the Chairman of the meeting may and on the request of any
shareholder or a shareholder's proxy shall appoint a person to
fill the vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at
the meeting, the existence of a quorum and the
authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in
any way arising in connection with the right to
vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result;
(g) Do any other acts that may be proper to conduct
the election or vote with fairness to all
shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions
of the Agreement and Declaration of Trust of the Trust and these
By-Laws relating to action required to be approved by the
shareholders or by the outstanding shares, the business and
affairs of the Trust shall be managed and all powers shall be
exercised by or under the direction of the Board of Trustees.
Section 2. NUMBER OF TRUSTEES. The exact number of
Trustees within the limits specified in the Agreement and
Declaration of Trust of the Trust shall be fixed from time to
time by a written instrument signed or a resolution approved at a
duly constituted meeting by a majority of the Board of Trustees.
Section 3. VACANCIES. Vacancies in the Board of
Trustees may be filled by a majority of the remaining Trustees,
though less than a quorum, or by a sole remaining Trustee, unless
the Board of Trustees calls a meeting of shareholders for the
purposes of electing Trustees. In the event that at any time less
than a majority of the Trustees holding office at that time were
so elected by the holders of the outstanding voting securities of
the Trust, the Board of Trustees shall forthwith cause to be held
as promptly as possible, and in any event within sixty (60) days,
a meeting of such holders for the purpose of electing Trustees to
fill any existing vacancies in the Board of Trustees, unless such
period is extended by order of the United States Securities and
Exchange Commission.
Notwithstanding the above, whenever and for so long as
the Trust is a participant in or otherwise has in effect a Plan
under which the Trust may be deemed to bear expenses of
distributing its shares as that practice is described in Rule 12b-
1 under the Investment Company Act of 1940, then the selection
and nomination of the Trustees who are not interested persons of
the Trust (as that term is defined in the Investment Company Act
of 1940) shall be, and is, committed to the discretion of such
disinterested Trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
All meetings of the Board of Trustees may be held at any place
that has been designated from time to time by resolution of the
Board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the Trust. Any
meeting, regular or special, may be held by conference telephone
or similar communication equipment, so long as all Trustees
participating in the meeting can hear one another and all such
Trustees shall be deemed to be present in person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the
Board of Trustees shall be held without call at such time as
shall from time to time be fixed by the Board of Trustees. Such
regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the
Board of Trustees for any purpose or purposes may be called at
any time by the Chairman of the Board or the President or any
Vice President or the Secretary or any two (2) Trustees.
Notice of the time and place of special meetings shall
be delivered personally or by telephone to each Trustee or sent
by first-class mail or telegram, charges prepaid, addressed to
each Trustee at that Trustee's address as it is shown on the
records of the Trust. In case the notice is mailed, it shall be
deposited in the United States mail at least seven (7) calendar
days before the time of the holding of the meeting. In case the
notice is delivered personally or by telephone or to the
telegraph company or by express mail or similar service, it shall
be given at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the Trustee or to a
person at the office of the Trustee who the person giving the
notice has reason to believe will promptly communicate it to the
Trustee. The notice need not specify the purpose of the meeting
or the place if the meeting is to be held at the principal
executive office of the Trust.
Section 7. QUORUM. A majority of the authorized number
of Trustees shall constitute a quorum for the transaction of
business, except to adjourn as provided in Section 10 of this
Article III. Every act or decision done or made by a majority of
the Trustees present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Trustees,
subject to the provisions of the Agreement and Declaration of
Trust of the Trust. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the
withdrawal of Trustees if any action taken is approved by a least
a majority of the required quorum for that meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need
not be given to any Trustee who either before or after the
meeting signs a written waiver of notice, a consent to holding
the meeting, or an approval of the minutes. The waiver of notice
or consent need not specify the purpose of the meeting. All such
waivers, consents, and approvals shall be filed with the records
of the Trust or made a part of the minutes of the meeting. Notice
of a meeting shall also be deemed given to any Trustee who
attends the meeting without protesting before or at its
commencement the lack of notice to that Trustee.
Section 9. ADJOURNMENT. A majority of the Trustees
present, whether or not constituting a quorum, may adjourn any
meeting to another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time
and place of holding an adjourned meeting need not be given
unless the meeting is adjourned for more than forty-eight (48)
hours, in which case notice of the time and place shall be given
before the time of the adjourned meeting in the manner specified
in Section 7 of this Article III to the Trustees who were present
at the time of the adjournment.
Section 11. ACTION WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Trustees may be
taken without a meeting if a majority of the members of the Board
of Trustees shall individually or collectively consent in writing
to that action. Such action by written consent shall have the
same force and effect as a majority vote of the Board of
Trustees. Such written consent or consents shall be filed with
the minutes of the proceedings of the Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees
and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be
fixed or determined by resolution of the Board of Trustees. This
Section 12 shall not be construed to preclude any Trustee from
serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those
services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any
Trustee may, by power of attorney, delegate his power for a
period not exceeding six (6) months at any one time to any other
Trustee or Trustees; provided that in no case shall fewer than
two (2) Trustees personally exercise the powers granted to the
Trustees under this Agreement and Declaration of Trust of the
Trust except as otherwise expressly provided herein or by
resolution of the Board of Trustees. Except where applicable law
may require a Trustee to be present in person, a Trustee
represented by another Trustee pursuant to such power of attorney
shall be deemed to be present for purposes of establishing a
quorum and satisfying the required majority vote.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of
Trustees may by resolution adopted by a majority of the
authorized number of Trustees designate one or more committees,
each consisting of two (2) or more Trustees, to serve at the
pleasure of the Board. The Board may designate one or more
Trustees as alternate members of any committee who may replace
any absent member at any meeting of the committee. Any committee
to the extent provided in the resolution of the Board, shall have
the authority of the Board, except with respect to:
(a) the approval of any action which under applicable
law also requires shareholders' approval or
approval of the outstanding shares, or requires
approval by a majority of the entire Board or
certain members of said Board;
(b) the filling of vacancies on the Board of Trustees
or in any committee;
(c) the fixing of compensation of the Trustees for
serving on the Board of Trustees or on any
committee;
(d) the amendment or repeal of the Agreement and
Declaration of Trust of the Trust or of the By-
Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the
Board of Trustees which by its express terms is
not so amendable or repealable;
(f) a distribution to the shareholders of the Trust,
except at a rate or in a periodic amount or within
a designated range determined by the Board of
Trustees; or
(g) the appointment of any other committees of the
Board of Trustees or the members of these
committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings
and action of committees shall be governed by and held and taken
in accordance with the provisions of Article III of these By-
Laws, with such changes in the context thereof as are necessary
to substitute the committee and its members for the Board of
Trustees and its members, except that the time of regular
meetings of committees may be determined either by resolution of
the Board of Trustees or by resolution of the committee. Special
meetings of committees may also be called by resolution of the
Board of Trustees. Alternate members shall be given notice of
meetings of committees and shall have the right to attend all
meetings of committees. The Board of Trustees may adopt rules for
the government of any committee not inconsistent with the
provisions of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall
be a President, a Secretary, and a Treasurer. The Trust may also
have, at the discretion of the Board of Trustees, a Chairman of
the Board, one or more Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any number of offices may be held by
the same person.
Section 2. ELECTION OF OFFICERS. The officers of the
Trust, except such officers as may be appointed in accordance
with the provisions of Section 3 or Section 5 of this Article V,
shall be chosen by the Board of Trustees, and each shall serve at
the pleasure of the Board of Trustees, subject to the rights, if
any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees
may appoint and may empower the President to appoint such other
officers as the business of the Trust may require, each of whom
shall hold office for such period, have such authority and
perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject
to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without
cause, by the Board of Trustees at any regular or special meeting
of the Board of Trustees or by the principal executive officer or
by such other officer upon whom such power of removal may be
conferred by the Board of Trustees.
Any officer may resign at any time by giving written
notice to the Trust. Any resignation shall take effect at the
date of the receipt of that notice or at any later time specified
in that notice; and unless otherwise specified in that notice,
the acceptance of the resignation shall not be necessary to make
it effective. Any resignation is without prejudice to the rights,
if any, of the Trust under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any
office because of death, resignation, removal, disqualification
or other cause shall be filled in the manner prescribed in these
By-Laws for regular appointment to that office. The President may
make temporary appointments to a vacant office pending action by
the Board of Trustees.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the
Board, if such an Officer is elected, shall if present preside at
meetings of the Board of Trustees, shall be the Chief Executive
Officer of the Trust and shall, subject to the control of the
Board of Trustees, have general supervision, direction and
control of the business and the Officers of the Trust and
exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or
prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory
powers, if any, as may be given by the Board of Trustees to the
Chairman of the Board, if there be such an officer, the President
shall be the chief operating officer of the Trust and shall,
subject to the control of the Board of Trustees and the Chairman,
have general supervision, direction and control of the business
and the officers of the Trust. He shall preside at all meetings
of the shareholders and in the absence of the Chairman of the
Board or if there be none, at all meetings of the Board of
Trustees. He shall have the general powers and duties of
management usually vested in the office of President of a
corporation and shall have such other powers and duties as may be
prescribed by the Board of Trustees or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or
disability of the President, the Vice Presidents, if any, in
order of their rank as fixed by the Board of Trustees or if not
ranked, the Executive Vice President (who shall be considered
first ranked) and such other Vice Presidents as shall be
designated by the Board of Trustees, shall perform all the duties
of the President and when so acting shall have all powers of and
be subject to all the restrictions upon the President. The Vice
Presidents shall have such other powers and perform such other
duties as from time to time may be prescribed for them
respectively by the Board of Trustees or the President or the
Chairman of the Board or by these By-Laws.
Section 9. SECRETARY. The Secretary shall keep or cause
to be kept at the principal executive office of the Trust or such
other place as the Board of Trustees may direct a book of minutes
of all meetings and actions of Trustees, committees of Trustees
and shareholders with the time and place of holding, whether
regular or special, and if special, how authorized, the notice
given, the names of those present at Trustees' meetings or
committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings.
The Secretary shall keep or cause to be kept at the
principal executive office of the Trust or at the office of the
Trust's transfer agent or registrar, a share register or a
duplicate share register showing the names of all shareholders
and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same and
the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give or cause to be given notice of
all meetings of the shareholders and of the Board of Trustees
required to be given by these By-Laws or by applicable law and
shall have such other powers and perform such other duties as may
be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The Treasurer shall be the chief
financial officer and chief accounting officer of the Trust and
shall keep and maintain or cause to be kept and maintained
adequate and correct books and records of accounts of the
properties and business transactions of the Trust, including
accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by
any Trustee.
The Treasurer shall deposit all monies and other
valuables in the name and to the credit of the Trust with such
depositaries as may be designated by the Board of Trustees. He
shall disburse the funds of the Trust as may be ordered by the
Board of Trustees, shall render to the President and Trustees,
whenever they request it, an account of all of his transactions
as chief financial officer and of the financial condition of the
Trust and shall have other powers and perform such other duties
as may be prescribed by the Board of Trustees or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the
purpose of this Article, "agent" means any person who is or was a
Trustee, officer, employee or other agent of this Trust or is or
was serving at the request of this Trust as a Trustee, director,
officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other
enterprise or was a Trustee, director, officer, employee or agent
of a foreign or domestic corporation which was a predecessor of
another enterprise at the request of such predecessor entity;
"proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes without limitation
attorney's fees and any expenses of establishing a right to
indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any proceeding (other than an action by or in the
right of this Trust) by reason of the fact that such person is or
was an agent of this Trust, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with such proceeding, if it is determined that person
acted in good faith and reasonably believed: (a) in the case of
conduct in his official capacity as a Trustee of the Trust, that
his conduct was in the Trust's best interests and (b) in all
other cases, that his conduct was at least not opposed to the
Trust'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 Trust or that the person had reasonable
cause to believe that the person's conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or
in the right of this Trust to procure a judgment in its favor by
reason of the fact that that person is or was an agent of this
Trust, against expenses actually and reasonably incurred by that
person in connection with the defense or settlement of that
action if that person acted in good faith, in a manner that
person believed to be in the best interests of this Trust and
with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar
circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION.
Notwithstanding any provision to the contrary contained herein,
there shall be no right to indemnification for any liability
arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in
the conduct of the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3
of this Article:
(a) In respect of any claim, issue, or matter as to
which that person shall have been adjudged to be
liable 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 Trust, unless and only to the extent that the
court in which that action was brought shall
determine upon application that in view of all the
circumstances of the case, that person was not
liable by reason of the disabling conduct set
forth in the preceding paragraph and is fairly and
reasonably entitled to indemnity for the expenses
which the court shall determine; or
(c) Of amounts paid in settling or otherwise disposing
of a threatened or pending action, with or without
court approval, or of expenses incurred in
defending a threatened or pending action which is
settled or otherwise disposed of without court
approval, unless the required approval set forth
in Section 6 of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent
that an agent of this Trust has been successful on the merits in
defense of any proceeding referred to in Sections 2 or 3 of this
Article or in defense of any claim, issue or matter therein,
before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith,
provided that the Board of Trustees, including a majority who are
disinterested, non-party Trustees, also determines that based
upon a review of the facts, the agent was not liable by reason of
the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in
Section 5 of this Article, any indemnification under this Article
shall be made by this Trust only if authorized in the specific
case on a determination that indemnification of the agent is
proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of
this Article and is not prohibited from indemnification because
of the disabling conduct set forth in Section 4 of this Article,
by:
(a) A majority vote of a quorum consisting of Trustees
who are not parties to the proceeding and are not
interested persons of the Trust (as defined in the
Investment Company Act of 1940); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by this Trust before the
final disposition of the proceeding (a) receipt of a written
affirmation by the Trustee 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 8. OTHER CONTRACTUAL RIGHTS. Nothing contained
in this Article shall affect any right to indemnification to
which persons other than Trustees and officers of this Trust or
any subsidiary hereof may be entitled by contract or otherwise.
Section 9. LIMITATIONS. No indemnification or advance
shall be made under this Article, except as provided in Sections
5 or 6 in any circumstances where it appears:
(a) That it would be inconsistent with a provision of
the Agreement and Declaration of Trust of the
Trust, a resolution of the shareholders, or an
agreement in effect at the time of accrual of the
alleged cause of action asserted in the proceeding
in which the expenses were incurred or other
amounts were paid which prohibits or otherwise
limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a
settlement.
Section 10. INSURANCE. Upon and in the event of a
determination by the Board of Trustees of this Trust to purchase
such insurance, this Trust shall purchase and maintain insurance
on behalf of any agent of this Trust against any liability
asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such, but only to the extent
that this Trust would have the power to indemnify the agent
against that liability under the provisions of this Article and
the Agreement and Declaration of Trust of the Trust.
Section ll. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any Trustee,
investment manager or other fiduciary of an employee benefit plan
in that person's capacity as such, even though that person may
also be an agent of this Trust as defined in Section 1 of this
Article. Nothing contained in this Article shall limit any right
to indemnification to which such a Trustee, investment manager,
or other fiduciary may be entitled by contract or otherwise which
shall be enforceable to the extent permitted by applicable law
other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE
REGISTER. This Trust shall keep at its principal executive office
or at the office of its transfer agent or registrar, if either be
appointed and as determined by resolution of the Board of
Trustees, a record of its shareholders, giving the names and
addresses of all shareholders and the number and series of shares
held by each shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The
Trust shall keep at its principal executive office the original
or a copy of these By-Laws as amended to date, which shall be
open to inspection by the shareholders at all reasonable times
during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS.
The accounting books and records and minutes of proceedings of
the shareholders and the Board of Trustees and any committee or
committees of the Board of Trustees shall be kept at such place
or places designated by the Board of Trustees or in the absence
of such designation, at the principal executive office of the
Trust. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form
or in any other form capable of being converted into written
form. The minutes and accounting books and records shall be open
to inspection upon the written demand of any shareholder or
holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to
the holder's interests as a shareholder or as the holder of a
voting trust certificate. The inspection may be made in person or
by an agent or attorney and shall include the right to copy and
make extracts.
Section 4. INSPECTION BY TRUSTEES. Every Trustee shall
have the absolute right at any reasonable time to inspect all
books, records, and documents of every kind and the physical
properties of the Trust. This inspection by a Trustee may be
made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of
documents.
Section 5. FINANCIAL STATEMENTS. A copy of any
financial statements and any income statement of the Trust for
each quarterly period of each fiscal year and accompanying
balance sheet of the Trust as of the end of each such period that
has been prepared by the Trust shall be kept on file in the
principal executive office of the Trust for at least twelve (12)
months and each such statement shall be exhibited at all
reasonable times to any shareholder demanding an examination of
any such statement or a copy shall be mailed to any such
shareholder.
The quarterly income statements and balance sheets
referred to in this section shall be accompanied by the report,
if any, of any independent accountants engaged by the Trust or
the certificate of an authorized officer of the Trust that the
financial statements were prepared without audit from the books
and records of the Trust.
ARTICLE VIII
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS.
All checks, drafts, or other orders for payment of money, notes
or other evidences of indebtedness issued in the name of or
payable to the Trust shall be signed or endorsed in such manner
and by such person or persons as shall be designated from time to
time in accordance with the resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED.
The Board of Trustees, except as otherwise provided in these By-
Laws, may authorize any officer or officers, agent or agents, to
enter into any contract or execute any instrument in the name of
and on behalf of the Trust and this authority may be general or
confined to specific instances; and unless so authorized or
ratified by the Board of Trustees or within the agency power of
an officer, no officer, agent, or employee shall have any power
or authority to bind the Trust by any contract or engagement or
to pledge its credit or to render it liable for any purpose or
for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or
certificates for shares of beneficial interest in any series of
the Trust may be issued to a shareholder upon his request when
such shares are fully paid. All certificates shall be signed in
the name of the Trust by the Chairman of the Board or the
President or Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or any Assistant Secretary, certifying
the number of shares and the series of shares owned by the
shareholders. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been
placed on a certificate shall have ceased to be that officer,
transfer agent, or registrar before that certificate is issued,
it may be issued by the Trust with the same effect as if that
person were an officer, transfer agent or registrar at the date
of issue. Notwithstanding the foregoing, the Trust may adopt and
use a system of issuance, recordation and transfer of its shares
by electronic or other means.
Section 4. LOST CERTIFICATES. Except as provided in
this Section 4, no new certificates for shares shall be issued to
replace an old certificate unless the latter is surrendered to
the Trust and cancelled at the same time. The Board of Trustees
may in case any share certificate or certificate for any other
security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the
Board of Trustees may require, including provision for
indemnification of the Trust secured by a bond or other adequate
security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on
account of the alleged loss, theft, or destruction of the
certificate or the issuance of the replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES
HELD BY TRUST. The Chairman of the Board, the President or any
Vice President or any other person authorized by resolution of
the Board of Trustees or by any of the foregoing designated
officers, is authorized to vote or represent on behalf of the
Trust any and all shares of any corporation, partnership, trusts,
or other entities, foreign or domestic, standing in the name of
the Trust. The authority granted may be exercised in person or
by proxy duly executed by such designated person.
Section 6. FISCAL YEAR. The fiscal year of the Trust
shall be fixed and refixed or changed from time to time by
resolution of the Trustees. The fiscal year of the Trust shall
be the taxable year of each Series of the Trust.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may
be amended or repealed by the affirmative vote or written consent
of a majority of the outstanding shares entitled to vote, except
as otherwise provided by applicable law or by the Agreement and
Declaration of Trust of the Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right
of shareholders as provided in Section 1 of this Article to
adopt, amend or repeal By-Laws, and except as otherwise provided
by applicable law or by the Agreement and Declaration of Trust of
the Trust, these By-Laws may be adopted, amended, or repealed by
the Board of Trustees.
Section 3. INCORPORATION BY REFERENCE INTO AGREEMENT
AND DECLARATION OF TRUST OF THE TRUST. These By-Laws and any
amendments thereto shall be incorporated by reference to the
Agreement and Declaration of Trust of the Trust.
FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN
INSTITUTIONAL U.S. GOVERNMENT ARM FUND, a Delaware Business
Trust, 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 for the purpose of investing and reinvesting its
assets in securities, as set forth in its Agreement and
Declaration of the Fund, its By-Laws and its Registration
Statements under the Investment Company Act of 1940 and the
Securities Act of 1933, all as heretofore amended and
supplemented;
WHEREAS, 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; 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 clients, and desires to provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Fund hereby employs the
Manager to manage the investment and reinvestment of the Fund's
assets and to administer its affairs, subject to the direction of
the Board of Trustees and the officers of the Fund, for the
period and on the terms hereinafter set forth. The Manager hereby
accepts such employment and agrees during such period to render
the services and to assume the obligations herein set forth for
the compensation herein provided. The Manager shall for all
purposes herein be deemed to be an independent contractor and
shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Fund
in any way or otherwise be deemed an agent of the Fund.
2. Obligations of and Services to be Provided by the
Manager. The Manager undertakes to provide the services
hereinafter set forth and to assume the following obligations:
A. Office Space, Furnishings, Facilities, Equipment,
and Personnel.
The Manager shall furnish to the Fund adequate (i)
office space, which may be space within the offices of
the Manager or in such other place as may be agreed
upon from time to time, and (ii) office furnishings,
facilities and equipment as may be reasonably required
for managing the affairs and conducting the business of
the Fund, including complying with the securities
reporting requirements of the United States and the
various states in which the Fund does business,
conducting correspondence and other communications with
the shareholders of the Fund, maintaining all internal
bookkeeping, accounting, auditing services and records
in connection with the Fund's investment and business
activities, and computing its net asset value. The
Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary
to provide such services. The Manager shall also
compensate all officers and employees of the Fund who
are officers or employees of the Manager.
B. Investment Management Services.
(a) The Manager shall manage the assets of the
Fund subject to and in accordance with its investment
objective and policies and any directions which the
Fund's Board of Trustees may issue from time to time.
In pursuance of the foregoing, the Manager shall make
all determinations with respect to the investment of
the assets of the Fund and the purchase and sale of its
portfolio securities, and shall take such steps as may
be necessary to implement the same. Such determinations
and services shall also include determining the manner
in which voting rights, rights to consent to corporate
action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. The Manager
shall render regular reports to the Fund, at regular
meetings of the Board of Trustees and at such other
times as may be reasonably requested by the Fund's
Board of Trustees, of (i) the decisions which it has
made with respect to the investment of the assets of
the Fund and the purchase and sale of its portfolio
securities, (ii) the reasons for such decisions and
(iii) the extent to which those decisions have been
implemented.
(b) The Manager, subject to and in accordance with
any directions which the Fund's Board of Trustees may
issue from time to time, shall place, in the name of
the Fund, orders for the execution of the Fund's
portfolio transactions. When placing such orders, the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission
rate if the other standards set forth in this section
have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers
or dealers are equally able to provide such best price
and execution and that, in selecting among such brokers
and dealers with respect to particular trades, it is
desirable to choose those brokers or dealers who
furnish research, statistical quotations and other
information to the Fund and the Manager in accord with
the standards set forth below. Moreover, to the extent
that it continues to be lawful to do so and so long as
the Board determines that the Fund will benefit,
directly or indirectly, by doing so, the Manager may
place orders with a broker who charges a commission for
that transaction which is in excess of the amount of
commission that another broker would have charged for
effecting that transaction, provided that the excess
commission is reasonable in relation to the value of
"brokerage and research services" (as defined in
Section 28(e)(3) of the Securities Exchange Act of
1934) provided by that broker.
Accordingly, the Fund and the Manager agree that the
Manager shall select brokers and dealers for the execution of the
Fund's portfolio transactions from among:
(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Funds net assets, in such amount of
total brokerage as may reasonably be retired 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 portfolio securities actual or potential,
of the Fund or which place the Manager in a better
position to make decisions in connection with the
management of the Fund's assets and portfolios,
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
retired.
Provided that the Fund's officers are satisfied that
the best execution is obtained, the sale of shares of the Fund
may also be considered as a factor in the selection of broker-
dealers to execute the Fund's portfolio transactions.
(c) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin Distributors, Inc.
("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in
such capacity under the Federal securities laws and
rules thereunder and the rules of any securities
exchange or association of which it may be a member.
Neither the Manager nor Distributors shall be obligated
to make any additional commitments of capital, expense
or personnel beyond that already committed (other than
normal periodic fees or Payments necessary to maintain
Distributors' 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
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, on behalf of the Fund, with brokers falling
into each of the foregoing categories 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 and
state securities laws and with such information as the
Fund may reasonably request for use in the preparation
of such documents or of other materials necessary or
helpful for the offering of the Fund's shares.
D. Other Obligations and Services. The Manager shall
make available its officers and employees to the Board
of Trustees 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 Fund. 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 record-
keeping services;
D. Expenses of obtaining quotations for calculating
the value of the Fund's net assets;
E. Salaries and other compensation of any of its
executive officers who are not officers, trustees,
stockholders or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with
the purchase and sale of portfolio securities for
the Fund;
H. Costs, including the interest expense, of
borrowing money;
I. Costs incident is meetings of the Board of
Trustees, 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. Costs of printing share certificates representing
shares of the Fund;
L. Trustees' fees and expenses to trustees who are
not directors, officers, employees or stockholders
of the Manager or any of its affiliates;
M. Trade association dues; and
N. Its pro rata portion of the fidelity bond
insurance premium and trustees and officers errors
and omissions insurance premium.
4. Compensation of the Manager. The Fund shall pay a
monthly management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated as
set forth below, on the first business day of each month in each
year as compensation for the services rendered and obligations
assumed by the Manager during the preceding month. The initial
management fee under this Agreement shall be payable on the first
business day of the first month following the effective date of
this Agreement, and shall be reduced by the amount of any advance
payments made by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value
of the net assets of the Fund shall be the average
daily net assets during the month for which the payment
is being made, determined in the same manner as the
Fund uses to compute the value of its net assets in
connection with the determination of the daily net
asset value of its shares, all as set forth more fully
in the Fund's current prospectus. The annual rate of
the management fee payable by the Fund shall be as
follows:
40/100 of 1% of the value of its net assets
up to and including $5,000,000,000;
35/100 of 1% of the value of its net assets
in excess of $5,000,000,000 up to and
including $10,000,000,000
33/100 of 1% of the value of its net assets
in excess of $10,000,000,000 up to and
including $15,000,000,000 and
30/100 of 1% of the value of its net assets
in excess of $15,000,000,000.
B. The Management fee payable by the Fund shall be
reduced or eliminated to the extent that Distributors
has actually received cash payments of tender offer
solicitation fees less certain costs and expenses
incurred in connection therewith, and to the extent
necessary to comply with the limitations on expenses
which may be borne by the Fund as set forth in the
laws, regulations and administrative interpretations of
those states in which the Fund's shares are registered.
C. If this Agreement is terminated prior to the end
of any month, the monthly management fee for the Fund
shall be prorated for the portion of any month in which
this Agreement is in effect which is not a complete
month according to the proportion which the number of
calendar days in the fiscal quarter during which the
Agreement is in effect bears to the number of calendar
days in the month, and shall be payable within 10 days
after the date of termination.
5. Activities of the Manager. The services of the
Manager to the Fund hereunder are not to be deemed exclusive, and
the Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance with the
Agreement and Declaration of Trust and By-Laws of the Fund and to
Section 10(a) of the Investment Company Act of 1940, it is
understood that Trustees, officers, agents and shareholders of
the Fund are or may be interested in the Manager or its
affiliates as trustees, directors officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in the Fund as Trustees, officers, agents,
shareholders or otherwise, and that the Manager or its affiliates
may be interested in the Fund as shareholders or otherwise; and
that the effect of any such interests shall be governed by said
Agreement and Declaration of Trust, the By-Laws and the
Investment Company Act of 1940.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Manager, the
Manager shall not be subject to liability to the Fund
or to any shareholder of the Fund for any act or
omission in the course of, or connected with, rendering
services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any
security by the Fund.
B. Notwithstanding the foregoing, the Manager
agrees to reimburse the Fund for any and all costs,
expenses, and counsel and trustees' 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 Trustees, the conduct of factual
investigations, any legal or administrative proceedings
(including any applications for exemptions or
determinations by the Securities and Exchange
Commission) which the Fund incurs as the result of
action or inaction of the Manager or any of its
affiliates or any of their officers, directors,
employees or shareholders where the action or inaction
necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed
transaction in the shares or control of the Manager or
its affiliates (or litigation related to any pending or
proposed or future transaction in such shares or
control); or (ii) is within the control of the Manager
or any of its affiliates or any of their officers,
trustees, employees or shareholders. The Manager shall
not be obligated pursuant to the provisions of this
Subsection 6(B), to reimburse the Fund for any
expenditures related to the institution of an
administrative proceeding or civil litigation by the
Fund or a shareholder seeking to recover all or a
portion of the proceeds derived by any shareholder of
the Manager or any of its affiliates from the sale of
his shares of the Manager, or similar matters. So long
as this Agreement is in effect the Manager shall pay to
the Fund the amount due for expenses subject to
Subsection 6(B) of this Agreement within 30 days after
a bill or statement has been received by the Manager
therefor. This provision shall not be deemed to be a
waiver of any claim the Fund may have or may assert
against the Manager or others for costs, expenses or
damages heretofore incurred by the Fund or for costs,
expenses or damages the Fund may hereafter incur which
are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed
to protect any Trustee or officer of the Fund, or
director or officer of the Manager, from liability in
violation of Sections 17(h) and (i) of the Investment
Company Act of 1940.
7. Renewal and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect for two (2)
years. The Agreement is renewable annually thereafter
for successive periods not to exceed one (1) year (i)
by a vote of a majority or the outstanding voting
securities of the Fund or by a vote of the Board of
Trustees of the Fund, and (ii) by a vote of a majority
of the Trustees of the Fund who are not parties to the
Agreement or interested persons of any parties to the
Agreement (other than as Trustees of the Fund), cast in
person at a meeting called for the purpose of voting on
the Agreement.
B. This Agreement
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Trustees
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 with respect to the
Fund in the event of its assignment; and
(iii) may at any time be terminated by the Manager on
60 days' written notice to the Fund.
C. As used in this Section the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings
set forth for any such terms in the Investment Company
Act of 1940, as amended.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid,
to the other party at any office of such party.
8. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be
affected thereby.
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 Manager acknowledges
that it has received notice of and accepts the limitations of the
Fund's liability as set forth in Article VIII of its Agreement
and Declaration of Trust. The Manager agrees that the Trust's
obligations hereunder shall be limited to the assets of the Fund,
and that the Manager shall not seek satisfaction of any such
obligation from any shareholder, trustee, officer, employee or
agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and effective on the 3rd day of June,
1991.
FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND
By: /s/ Charles B. Johnson
Charles B. Johnson
President
FRANKLIN ADVISERS, INC.
By: /s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
President
ADJUSTABLE RATE SECURITIES PORTFOLIOS
ADJUSTABLE RATE SECURITIES PORTFOLIO
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between ADJUSTABLE RATE
SECURITIES PORTFOLIOS, a Delaware business trust, (the "Trust"),
on behalf of the ADJUSTABLE RATE SECURITIES PORTFOLIO (the
"Fund"), a separate series of the Trust, and FRANKLIN ADVISERS,
INC., a California corporation (the "Manager").
WHEREAS, the Trust has been organized and intends to operate
as an investment company registered under the Investment Company
Act of 1940 for the purpose of investing and reinvesting its
assets in securities, as set forth in its Agreement and
Declaration of Trust, its By-Laws and its Registration Statements
under the Investment Company Act of 1940 and the Securities Act
of 1933, all as heretofore amended and supplemented;
WHEREAS, the Fund, as a separate series of the Trust,
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; 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 clients, and desires to provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Fund hereby
employs the Manager to manage the investment and reinvestment of
the Fund's assets and to administer its affairs, subject to the
direction of the Board of Trustees and the officers of the Trust,
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 or the Trust in any way or
otherwise be deemed an agent of the Fund or the Trust.
2. Obligations of and Services to be Provided by the
Manager. The Manager undertakes to provide the services
hereinafter set forth and to assume the following obligations:
A. Office Space, Furnishings, Facilities, Equipment,
and Personnel.
The Manager shall furnish to the Fund adequate (i)
office space, which may be space within the offices of
the Manager or in such other place as may be agreed
upon from time to time, and (ii) office furnishings,
facilities and equipment as may be reasonably required
for managing the affairs and conducting the business of
the Fund, including complying with the securities
reporting requirements of the United States and the
various states in which the Fund does business,
conducting correspondence and other communications with
the shareholders of the Fund, maintaining all internal
bookkeeping, accounting, auditing services and records
in connection with the Fund's investment and business
activities and computing its net asset value. The
Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary
to provide such services. The Manager shall also
compensate all officers and employees of the Trust who
are officers or employees of the Manager.
B. Investment Management Services.
(a) The Manager shall manage the assets of the Fund
subject to and in accordance with its investment
objective and policies and any directions which the
Trust's Board of Trustees may issue from time to time.
In pursuance of the foregoing, the Manager shall make
all determinations with respect to the investment of
the assets of the Fund and the purchase and sale of its
portfolio securities, and shall take such steps as may
be necessary to implement the same. Such determinations
and services shall also include determining the manner
in which voting rights, rights to consent to corporate
action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. The Manager
shall render regular reports to the Trust, at regular
meetings of the Board of Trustees and at such other
times as may be reasonably requested by the Trust's
Board of Trustees, of (i) the decisions which it has
made with respect to the investment of the assets of
the Fund and the purchase and sale of its portfolio
securities, (ii) the reasons for such decisions and
(iii) the extent to which those decisions have been
implemented.
(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may
issue from time to time, shall place, in the name of
the Fund, orders for the execution of the Fund's
portfolio transactions. When placing such orders, the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission
rate if the other standards set forth in this section
have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers
or dealers are equally able to provide such best price
and execution and that, in selecting among such brokers
and dealers with respect to particular trades, it is
desirable to choose those brokers or dealers who
furnish research, statistical quotations and other
information to the Fund and the Manager in accordance
with the standards set forth below. Moreover, to the
extent that it continues to be lawful to do so and so
long as the Board determines that the Fund will
benefit, directly or indirectly, by doing so, the
Manager may place orders with a broker who charges a
commission for that transaction which is in excess of
the amount of commission that another broker would have
charged for effecting that transaction, provided that
the excess commission is reasonable in relation to the
value of "brokerage and research services" (as defined
in Section 28(e) (3) of the Securities Exchange Act of
1934) provided by that broker.
Accordingly, the Trust and the Manager agree that the
Manager shall select brokers and dealers for the execution of the
Fund's portfolio transactions from among:
(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Fund's net assets, in such amount of
total brokerage as may reasonably be required in
light of such services;
(ii) Those brokers and dealers who supply
research, statistical and other data to the
Manager or its affiliates which the Manager or its
affiliates may lawfully and appropriately use in
their investment advisory capacities, which relate
directly to portfolio securities, actual or Fund
or which place the Manager in a better position to
make decisions in connection with the management
of the Fund's assets and portfolios, 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.
Provided that the Trust's officers are satisfied that
the best execution is obtained, the sale of shares of the Fund
may also be considered as a factor in the selection of broker-
dealers to execute the Fund's portfolio transactions.
(c) When the Manager has determined that the Fund
should tender securities pursuant to a "tender
offer solicitation," Franklin Distributors, Inc.
("Distributors") shall be designated as the
"tendering dealer" so long as it is legally
permitted to act in such capacity under the
Federal securities laws and rules thereunder and
the rules of any securities exchange or
association of which it may be a member. Neither
the Manager nor Distributors shall be obligated to
make any additional commitments of capital,
expense or personnel beyond that already committed
(other than normal periodic fees or payments
necessary to maintain Distributors 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 Trust, on
behalf of the Fund, shall enter into an agreement
with the Manager and/or Distributors to reimburse
them for all expenses connected with attempting to
collect such fees including legal fees and
expenses and that portion of the compensation due
to their employees which is attributable to the
time involved in attempting to collect such fees.
(d) The Manager shall render regular reports to
the Trust, not more frequently than quarterly, of
how much total brokerage business has been placed
by the Manager, on behalf of the Fund, with
brokers falling into each of the foregoing
categories 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 and state securities laws and with such
information as the Fund may reasonably request for
use in the preparation of such documents or of
other materials necessary or helpful for the
offering of the Fund's shares.
D. Other Obligations and Services. The Manager shall
make available its officers and employees to the
Board of Trustees and officers of the Trust for
consultation and discussions regarding the
administration and management of the Fund and its
investment activities.
3. Expenses of the Fund. It is understood that the
Fund will pay all of its own expenses other than those expressly
assumed by the Manager herein, which expenses payable by the Fund
shall include:
A. Fees to the Manager as provided herein;
B. Expenses of all audits by independent public
accountants;
C. Expenses of transfer agent, registrar, custodian,
dividend disbursing agent and shareholder record-
keeping services;
D. Expenses of obtaining quotations for calculating
the value of the Fund's net assets;
E. Salaries and other compensation of any of its
executive officers who are not officers, trustees,
stockholders or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with
the purchase and sale of portfolio securities for
the Fund;
H. Costs, including the interest expense, of
borrowing money;
I. Costs incident to meetings of the Board of
Trustees, reports to the Fund's shareholders, the
filing of reports with regulatory bodies and the
maintenance of the Trust's legal existence;
J. Legal fees, including the legal fees related to
the registration and continued qualification of
the Fund's shares for sale;
K. Costs of printing share certificates representing
shares of the Fund;
L. Trustees' fees and expenses to trustees who are
not directors, officers, employees or stockholders
of the Manager or any of its affiliates;
M. Trade association dues; and
N. Its pro rata portion of the fidelity bond
insurance premium and trustees and officers errors
and omissions insurance premium.
4. Compensation of the Manager. The Fund shall pay a
monthly management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated
asset forth below, on the first business day of each month in
each year as compensation for the services rendered and
obligations assumed by the Manager during the preceding month.
The initial management fee under this Agreement shall be payable
on the first business day of the first month following the
effective date of this Agreement, and shall be reduced by the
amount of any advance payments made by the Fund relating to the
previous month.
A. For purposes of calculating such fee, the value of
the net assets of the Fund shall be the average
daily net assets during the month for which the
payment is being made, determined in the same
manner as the Fund uses to compute the value of
its net assets in connection with the
determination of the daily net asset value of its
shares, all as set forth more fully in the Fund's
current prospectus. The annual rate of the
management fee payable by the Fund shall be as
follows:
40/1OO of 1% of the value of its net assets up to
and including $5,000,000,000;
35/100 of 1% of the value of its net assets in
excess of $5,000,000,000 up to and including
$10,000,000,000;
33/100 of 1% of the value of its net assets in
excess of $10,000,000,000 up to and including
$15,000,000,000;
30/100 of 1% of the value of its net assets in
excess of $15,000,000,000.
B. The Management fee payable by the Fund shall be
reduced or eliminated to the extent that
Distributors has actually received cash payments
of tender offer solicitation fees less certain
costs and expenses incurred in connection
therewith, and to the extent necessary to comply
with the limitations on expenses which may be
borne by the Fund as set forth in the laws,
regulations and administrative interpretations of
those states in which the Fund's shares are
registered. The Manager may, from time to time,
voluntarily reduce or waive any management fee due
to it hereunder.
C. If this Agreement is terminated prior to the end
of any month, the monthly management fee for the
Fund shall be prorated for the portion of any
month in which this Agreement is in effect which
is not a complete month according to the
proportion which the number of calendar days in
the fiscal quarter during which the Agreement is
in effect bears to the number of calendar days in
the month, and shall be payable within 10 days
after the date of termination.
5. Activities of the Manager. The services of the
Manager to the Fund hereunder are not to be deemed exclusive, and
the Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance with the
Agreement and Declaration of Trust and By-Laws of the Trust and
to Section 10(a) of the Investment Company Act of 1940, it is
understood that trustees, officers, and agents of the Trust and
shareholders of the Fund are or may be interested in the Manager
or its affiliates as trustees, directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in the Trust as Trustees, officers or agents or in the
Fund as shareholders or otherwise; and that the effect of any
such interests shall be governed by said Agreement and
Declaration of Trust, the By-Laws and the Investment Company Act
of 1940.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of
obligations or duties hereunder on the part of the
Manager, the Manager shall not be subject to
liability to the Trust or to any shareholder of
the Fund for any act or omission in the course of,
or connected with, rendering services hereunder or
for any losses that may be sustained in the
purchase, holding or sale of any security by the
Fund.
B. Notwithstanding the foregoing, the Manager agrees
to reimburse the Fund for any and all costs,
expenses, and counsel and trustees' 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 trustees, the conduct of factual
investigations, any legal or administrative
proceedings (including any applications for
exemptions or determinations by the Securities and
Exchange Commission) which the Fund incurs as the
result of action or inaction of the Manager or any
of its affiliates or any of their officers,
directors, employees or shareholders where the
action or inaction necessitating such expenditures
(i) is directly or indirectly related to any
transactions or proposed transaction in the shares
or control of the Manager or its affiliates (or
litigation related to any pending or proposed or
future transaction in such shares or control); or
(ii) is within the control of the Manager or any
of its affiliates or any of their officers,
trustees, employees or shareholders. The Manager
shall not be obligated pursuant to the provisions
of this Subsection 6(B), to reimburse the Fund for
any expenditures related to the institution of an
administrative proceeding or civil litigation by
the Trust or a shareholder seeking to recover all
or a portion of the proceeds derived by any
shareholder of the Manager or any of its
affiliates from the sale of his shares of the
Manager, or similar matters. So long as this
Agreement is in effect the Manager shall pay to
the Fund the amount due for expenses subject to
Subsection 6(B) of this Agreement within 30 days
after a bill or statement has been received by the
Manager therefor. This provision shall not be
deemed to be a waiver of any claim the Fund may
have or may assert against the Manager or others
for costs, expenses or damages heretofore incurred
by the Fund or for costs, expenses or damages the
Fund may hereafter incur which are not
reimbursable to it hereunder.
C. No provision of this Agreement shall be construed
to protect any trustee or officer of the Trust, or
director or officer of the Manager, from liability
in violation of Sections 17(h) and (i) of the
Investment Company Act of 1940.
7. Renewal and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect for two
(2) years. 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 Trust or by a
vote of the Board of Trustees of the Trust, and
(ii) by a vote of a majority of the Trustees of
the Fund who are not parties to the Agreement or
interested persons of any parties to the Agreement
(other than as Trustees of the Fund), cast in
person at a meeting called for the purpose of
voting on the Agreement.
B. This Agreement
(i) may at any time be terminated without the
payment of any penalty either by vote of the Board
of Trustees of the Trust 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 with respect to
the Fund in the event of its assignment; and
(iii) may at any time be terminated by the Manager
on 60 days' written notice to the Fund.
C. As used in this Section the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the
meanings set forth for any such terms in the
Investment Company Act of 1940, as amended.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-
paid, to the other party at any office of such
party.
8. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be
affected thereby.
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 Manager acknowledges
that it has received notice of and accepts the limitations of the
Trust's liability as set forth in its Agreement and Declaration
of Trust. The Manager agrees that the Trust's obligations
hereunder shall be limited to the assets of the Fund, and that
the Manager shall not seek satisfaction of any such obligation
from any shareholders, of the Fund nor from any trustee, officer,
employee or agent of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and effective on the 5th day of
November, 1991.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
on behalf of ADJUSTABLE RATE
SECURITIES PORTFOLIO
By: /s/ Charles B. Johnson
Charles B. Johnson
President
FRANKLIN ADVISERS, INC.
By: /s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
President
AGREEMENT
AGREEMENT, made as of May 1, 1991, between Franklin
Institutional U.S. Government ARM Fund, a Delaware business trust
(hereinafter called the "Trust"), and Bank of America NT & SA, a
national banking association (hereinafter called the
"Custodian").
WITNESSETH:
WHEREAS, the Trust 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 available for each of the separate Funds (referred to
herein as a "Fund" or collectively as the "Funds") formed as a
series of the Trust, 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 Trust 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 Trust designee to be followed by a certification in
writing signed in the name of the Trust by any two of the
following persons: the Chairman of the Board of Trustees, the
President, a Vice-President, the Secretary and Treasurer of the
Trust, or any other persons duly authorized to sign by the Board
of Trustees of the Trust 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 of the Trust 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 Funds, 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 Funds. This shall
include, without limitation, the proceeds from the sale of shares
of the capital stock of the Funds which shall be received along
with proper instructions from the Trust. 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 Funds from such cash or Direct Demand Deposit Account
only (a) for the purchase of securities for the portfolio of the
Funds 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 capital stock of the Funds, (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 Funds held by or to be delivered to
Custodian; or (e) for other proper Trust 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 Funds all checks, drafts or other orders for
the payment of money received by Custodian for the account of the
Funds
Sec. 4. Holding of Securities:
Custodian shall hold all securities received by it for the
account of the Funds, 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
Trust, 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 Trust and only
for the account of the Funds 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 Funds 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 Funds 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 beneficial interest of the Funds upon delivery thereof
to Custodian, or (i) for other proper Trust 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 two.
(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 Trust.
Sec. 7. Reports by Custodian:
Custodian shall each business day furnish the Trust 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 Trust 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
certified copy of any resolution of, the Board of Trustees of the
Trust, and may rely on the genuineness of any such document which
it may in good faith believe to have been validly executed.
(b) The Trust 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 Trust and, if and to the extent applicable,
of the principal underwriter of the shares of the Funds, and that
upon proper instructions of the Trust or such principal
underwriter, if any, or both, it shall:
(a) Deliver said records to the Trust, principal underwriter
or a successor custodian, as appropriate;
(b) Provide the auditors of the Trust or principal
underwriter or any securities regulatory agency with a copy of
such records without charge; and provide the Trust 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 Trust 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 Funds in such portfolio securities, send a written
confirmation to the Trust;
3) upon receipt by Custodian, send promptly to Trust
(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 Trust 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 Trust or the
Custodian without written consent of the other party.
(b) Either the Custodian or the Trust 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
all cash and the delivery of all portfolio securities, duly
endorsed, to the successor of the Custodian when appointed by the
Trust. The Trust 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 Trust 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 Trust to a bank or trust company of its own selection
having an aggregate capital, surplus and undivided profits of not
less than Two Million Dollars ($2,000,000) (or such greater sum
as may then be required by the laws and regulations governing the
conduct by the Trust 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
Trust 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 Board of Trustees
of the Trust.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement.
Franklin Institutional U.S. Government
ARM Fund
By /s/ Charles B. Johnson
Bank of America, NT & SA
/s/ John B. Housen
By /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>
POWER OF ATTORNEY
The undersigned officers and trustees of ADJUSTABLE RATE
SECURITIES PORTFOLIOS (the "Registrant") hereby appoint HARMON E.
BURNS, DEBORAH R. GATZEK, KAREN L. SKIDMORE, LARRY L. GREENE, and
MARK H. PLAFKER (with full power to each of them to act alone) as
their 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, or the registration statements of other funds
investing all or substantially all of their assets in shares
issued by the Registrant, on Form N-1A under the Investment
Company Act of 1940, as amended, and, in the case of a fund
investing all or substantially all of its assets in shares issued
by the Registrant, the Securities Act of 1933, covering the sale
of shares of beneficial interest by the Registrant or such other
fund under prospectuses becoming effective after the date hereof,
including any amendment or amendments filed for the purpose of
updating the prospectus/or SAI, registering securities to be
issued in transactions permitted under the federal securities
laws or 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 trustees hereby execute this
Power of Attorney as of this 16th day of February 1995.
/s/ Charles E. Johnson /s/ Charles B. Johnson
Charles E. Johnson, Principal Charles B. Johnson,
Executive Officer and Trustee Trustee
/s/ Rupert H. Johnson, Jr. /s/ Frank H. Abbott, III
Rupert H. Johnson, Jr., Trustee Frank H. Abbott, III, Trustee
/s/ Harris J. Ashton /s/ S. Joseph Fortunato
Harris J. Ashton, Trustee S. Joseph Fortunato, Trustee
/s/ David W. Garbellano /s/ Frank W.T. LaHaye
David W. Garbellano, Trustee Frank W. T. LaHaye, Trustee
/s/ Willliam J. Lippman /s/ Gordon S. Macklin
William J. Lippman, Trustee Gordon S. Macklin, Trustee
/s/ Diomedes Loo-Tam /s/ Martin L. Flanagan
Diomedes Loo-Tam, Martin L. Flanagan, Principal
Principal Accounting Officer Financial Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of
Adjustable Rate Securities Portfolios (the "Trust").
As Secretary of the Trust, I further certify that the following
resolution was adopted by a majority of the Trustees of the Trust
present at a meeting held at 777 Mariners Island Boulevard, San
Mateo, California, on 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 Trustee and designated officer.
I declare under penalty of perjury that the matters set forth in
this certificate are true and correct of my own knowledge.
/s/ Deborah R. Gatzek
Dated: February 16, 1995 Deborah R. Gatzek
Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ADJUSTABLE RATE SECURITIES PORTFOLIOS OCTOBER 31, 1995 ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> ADJUSTABLE RATE SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 26,823,730
<INVESTMENTS-AT-VALUE> 26,279,717
<RECEIVABLES> 941,391
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,745
<TOTAL-ASSETS> 27,223,853
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 144,953
<TOTAL-LIABILITIES> 144,953
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,328,801
<SHARES-COMMON-STOCK> 2,760,971
<SHARES-COMMON-PRIOR> 4,297,010
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,705,888)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (544,013)
<NET-ASSETS> 27,078,900
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,971,336
<OTHER-INCOME> 0
<EXPENSES-NET> (74,899)
<NET-INVESTMENT-INCOME> 1,896,437
<REALIZED-GAINS-CURRENT> (602,782)
<APPREC-INCREASE-CURRENT> 913,301
<NET-CHANGE-FROM-OPS> 2,206,956
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,896,437)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,241,431
<NUMBER-OF-SHARES-REDEEMED> (2,973,631)
<SHARES-REINVESTED> 196,161
<NET-CHANGE-IN-ASSETS> (14,539,853)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,103,106)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 119,324
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 138,839
<AVERAGE-NET-ASSETS> 29,814,970
<PER-SHARE-NAV-BEGIN> 9.690
<PER-SHARE-NII> .625
<PER-SHARE-GAIN-APPREC> .120
<PER-SHARE-DIVIDEND> (.625)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.810
<EXPENSE-RATIO> .250
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ADJUSTABLE RATE SECURITIES PORTFOLIO OCTOBER 31, 1995 ANNUAL REPORT AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 507,934,470
<INVESTMENTS-AT-VALUE> 505,313,743
<RECEIVABLES> 14,565,633
<ASSETS-OTHER> 3,137,654
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 523,017,030
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 215,073
<TOTAL-LIABILITIES> 215,073
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 662,823,970
<SHARES-COMMON-STOCK> 56,035,644
<SHARES-COMMON-PRIOR> 81,367,809
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (137,401,286)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,620,727)
<NET-ASSETS> 522,801,957
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 39,043,371
<OTHER-INCOME> 0
<EXPENSES-NET> (1,124,104)
<NET-INVESTMENT-INCOME> 37,919,267
<REALIZED-GAINS-CURRENT> (7,672,691)
<APPREC-INCREASE-CURRENT> 16,342,196
<NET-CHANGE-FROM-OPS> 46,588,772
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (37,919,267)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,454,626
<NUMBER-OF-SHARES-REDEEMED> (37,893,534)
<SHARES-REINVESTED> 4,106,743
<NET-CHANGE-IN-ASSETS> (224,669,157)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (129,728,595)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,456,413
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,612,440
<AVERAGE-NET-ASSETS> 614,147,144
<PER-SHARE-NAV-BEGIN> 9.190
<PER-SHARE-NII> .572
<PER-SHARE-GAIN-APPREC> .140
<PER-SHARE-DIVIDEND> (.572)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.330
<EXPENSE-RATIO> .180
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
