(As filed with the Securities and Exchange Commission on August 29, 1996.
File No.
811-7638
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 (X)
MIDCAP GROWTH PORTFOLIO
(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
MIDCAP GROWTH 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 FUND
The MidCap Growth Portfolio (the "Fund") is a no-load, open-end, diversified
management investment company, or mutual fund, registered with the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940 (the
"1940 Act") and organized as a Delaware business trust on February 26, 1993. The
Fund issues shares of beneficial interest with a par value of $.01 per share
without any sales charge.
INVESTMENT OBJECTIVE AND POLICES OF THE FUND
The Fund's investment objective is to seek capital growth by investing primarily
in a broadly diversified portfolio of medium capitalization stocks. The Fund's
performance goal is to annually exceed the return of the Standard and Poor's
MidCap 400 Index* (the "Benchmark") on a total return basis.
The Fund seeks to accomplish its objective by investing primarily in the common
stocks of companies selected by means of a structured quantitative investment
strategy. The Fund will not attempt to replicate the Benchmark with its
portfolio composition. Under normal market conditions, the Fund will invest 50%
to 100% of its assets in the common stocks of companies represented in the
Benchmark. The Fund's investments will be distributed across the broad industry
sectors represented in the Benchmark including the industrial, utilities,
financial and transportation sectors. The Fund's investment manager will
regularly determine which stocks in the Benchmark and outside of the Benchmark
should be included in the Fund's portfolio for the purpose of outperforming the
Benchmark. The Fund intends to invest at least 65% of its assets in common
stocks of medium capitalization companies which are either included in the
Benchmark or have the characteristics described below.
- --------
* "Standard & Poor's MidCap 400 Index" and "S&P MidCap 400 Index" are
trademarks of Standard & Poor's Corporation. The Fund is not sponsored,
endorsed, sold or promoted by S&P.
The Fund will implement a structured quantitative stock selection strategy. The
Fund is not limited to stocks in the Benchmark as long as the total portfolio
maintains similar systematic characteristics of the Benchmark, such as
capitalization, beta and economic sector weightings. To avoid any potential
conflict of interest, the Fund will not purchase securities of issuers with
which it is affiliated. This includes, but is not limited to, the common shares
of Franklin Resources, Inc. The latter policy does not apply to the Fund's
short-term investments. (See "Investment Objectives and Policies of the Fund -
Short-Term Investments.")
The Fund may invest up to 50% of its assets in stocks not represented in the
Benchmark, and in other securities and derivative instruments. The securities
selected from outside of the Benchmark will be primarily medium capitalization
stocks, which the Fund's manager believes have superior prospects for return
relative to the Benchmark. Medium capitalization companies in which the Fund
will invest generally have a market capitalization between $200 million and $5
billion. Market capitalization is defined as the total market value of a
company's outstanding common stock. If the purchase of a company's common stock
is not appropriate in light of current market factors or if sufficient shares of
its common stock are not available for purchase, the Fund may purchase such
company's outstanding convertible preferred stock. The Fund may also purchase
options on stocks and stock indices, and futures and options on futures
contracts on stock indices as a hedge against changes in the values of its
securities or securities which it intends to purchase resulting from market
conditions and, to the extent consistent therewith, to accommodate cash flows.
Consistent with its objective, the Fund attempts to be fully invested at all
times in equity securities and, under normal market conditions, its assets will
be invested primarily in a broadly diversified portfolio of medium
capitalization stocks.
The Fund's portfolio will overweight, relative to the Benchmark, stocks that are
attractive on the basis of their valuation and growth prospects. The Fund's
manager has developed a proprietary stock selection model that combines certain
valuation and growth factors to create a composite rank score. The valuation
factors include, but are not limited to: earnings momentum, estimate revision,
earnings surprise, consensus growth estimates and return on equity. Value
characteristics deemed to be important include, but are not limited to: dividend
discount model expected returns, price to earnings ratio, price to book ratio,
price to cash flow ratio and price to sales ratio. The proprietary stock
selection model dynamically weights these individual factors, based on their
relative attractiveness and stock selection potential. The Fund's manager
believes that a diversified portfolio of stocks that are favorably ranked based
on its proprietary stock selection model is consistent with the objective of
exceeding the performance of the Benchmark.
The Fund's manager will diversify the portfolio of stocks by generally holding
at least 50 stocks at all times, selected with the assistance of quantitative
modeling that includes specific risk management technology. The Fund's manager
believes that this diversification will increase the likelihood that the Fund
will meet its objective. Although the majority of the Fund's assets will be held
in stocks with attractive scores based upon the proprietary stock selection
model used by the Fund, the risk management technology will sometimes require
the holding of stocks that are less attractive but comprise a substantial weight
in the Benchmark.
THE BENCHMARK. The performance Benchmark is the S&P Midcap 400 Index, which
consists of 400 stocks chosen for market size (the median capitalization of the
companies comprising the index as of July 29, 1994 was approximately $901
million), liquidity and industry group representation. It is a market value
weighted index with each stock affecting the index in proportion to its market
value. The Benchmark is the property of Standard & Poor's, which makes all the
decisions with respect to its composition.
On July 29, 1994, the Benchmark consisted of 270 companies listed on the New
York Stock Exchange (4 of which were NYSE-listed Canadian companies), 10
companies listed on the American Stock Exchange and 120 NASDAQ companies. The
broad sector weights in the Benchmark on that date were approximately as
follows: Industrials 65%; Utilities 15%; Financial 18%; and Transportation 2%.
These weights will change in accordance with relative price movements of the
individual stocks. The Fund will attempt to maintain a sector weighting similar
to the Benchmark.
The Benchmark is designed to capture growth companies, with less of an emphasis
on current income. As such, the Benchmark may experience greater price
volatility than broad market averages. In addition, there is no guarantee that
the Fund's performance will be similar to that of the Benchmark.
REBALANCING CONSIDERATIONS. The Fund is re-balanced periodically based on new
scores resulting from the proprietary stock selection model in an attempt to
weight the portfolio so as to exceed the performance of the Benchmark. It is the
manager's reasonable expectation that there will be a close correlation between
the Fund's performance on a total return basis and that of the Benchmark in both
rising and falling markets. The Fund is managed to outperform the Benchmark in
both rising and falling markets.
The Fund's ability to outperform the Benchmark may be affected by, among other
things, changes in the security markets, daily execution price of stocks
purchased or sold compared to the closing price of the stocks comprising the
Benchmark, the manner in which the Benchmark is calculated, and the extent and
timing of purchases and redemptions of Fund shares. Occasionally, stock
positions may not be sold from the Fund when to do so may involve adverse tax
consequences, excessive portfolio turnover or other expenses, restrictions
imposed by the SEC, or when it may require the disposition of such position
under circumstances which do not reflect the typical market for such stocks. The
Fund's trading strategy is designed to minimize portfolio turnover and
transaction costs. The Fund attempts to do this by buying or selling stock
positions that are under or overvalued, which would improve performance relative
to the Benchmark, and by restricting Fund trades to only round-lot or large
block trades.
INVESTMENT RISK CONSIDERATIONS. Historically, the medium market capitalization
stocks, which will constitute the majority of the investments of the Fund, have
been more volatile in price than the larger capitalization stocks. Among the
reasons for greater price volatility of these securities are the less certain
growth prospects of smaller firms, the lower degree of liquidity in the market
for such stocks, and the greater sensitivity of small and medium size companies
to changing economic conditions. Besides exhibiting greater volatility, medium
and small company stocks may fluctuate independently of larger company stocks.
Medium and small company stocks may decline in price as large company stocks
rise or vice versa. Investors should therefore expect that the value of the
Fund's shares may be more volatile than the shares of a fund that invests in
larger capitalization stocks. In addition, medium size companies in which the
Fund invests may have products and management which have not been thoroughly
tested by time or by the marketplace. These companies may also be more dependent
on a limited number of key personnel and their financial resources may not be as
substantial as those of more established companies. Adversity which leads to a
decline in the value of such a security will have a negative impact on the
Fund's share price as well.
If the Fund experiences difficulty in achieving its performance goal due to the
size of the Fund's net assets and excessive portfolio re-balancing brought on by
purchases and redemptions of Fund shares, the Fund reserves the right to limit
or discontinue the sale of Fund shares. If the sale of shares to prospective
investors were to be discontinued, current shareholders would continue to be
permitted to invest their dividends and distributions in Fund shares.
The investment objective of the Fund is fundamental and may not be changed
without the approval of the majority of the Fund's outstanding shares.
The Fund should not be considered suitable for investors who are unable or
unwilling to assume the risks of loss inherent in such a program, nor should
investment in the Fund be considered a balanced or complete investment program.
The Fund cannot guarantee that it will achieve its investment objective.
OTHER INVESTMENT POLICIES OF THE FUND
LOANS OF PORTFOLIO SECURITIES. As approved by the Board of Trustees and subject
to the following conditions, the Fund may lend its portfolio securities to
qualified securities dealers or other institutional investors, provided that
such loans do not exceed 20% of the value of the Fund's total assets at the time
of the most recent loan, and further provided that the borrower deposits 102%
collateral for the benefit of the Fund. The lending of securities is a common
practice in the securities industry. The Fund will engage in security loan
arrangements with the primary objective of increasing the Fund's income either
through investing cash collateral in short-term, interest bearing obligations or
by receiving a loan premium from the borrower. The Fund will continue 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 securities fail financially.
BORROWING. As a fundamental policy, the Fund does not borrow money or mortgage
or pledge any of its assets, except that the Fund may borrow from banks up to
10% of its total asset value to meet redemption requests and for other temporary
or emergency purposes. While borrowings exceed 5% of the Fund's total assets,
the Fund will not make any additional investments.
ILLIQUID INVESTMENTS. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities, including illiquid equity securities, securities with legal or
contractual restrictions on resale, repurchase agreements of more than seven
days duration, illiquid real estate investment trusts, securities of issuers
with less than 3 years continuous operation and other securities which are not
readily marketable) may not constitute, at the time of purchase, more than 10%
of the value of the total net assets of the Fund. The Fund's Board of Trustees
has authorized the Fund to invest in restricted securities (securities not
registered with the SEC, which might otherwise be considered illiquid) where
such investment is consistent with the Fund's investment objective and has
authorized such securities to be considered liquid (and thus not subject to the
foregoing 10% limitation), to the extent the manager determines on a daily basis
that there is a liquid institutional or other market for such securities.
Notwithstanding the manager's determination in this regard, the Fund's Board of
Trustees will remain responsible for such determinations and will consider
appropriate action, consistent with the Fund's investment objective and
policies, if a security should become illiquid subsequent to its purchase. In
this regard, if qualified institutional buyers become uninterested in purchasing
restricted securities previously designated as liquid or if the market for these
securities contracts, these securities will be redesignated as illiquid and
subject to the 10% limitation.
SECURITIES INDUSTRY RELATED INVESTMENTS. To the extent it is consistent with the
Fund's investment objective and certain limitations under the 1940 Act, the Fund
may invest its assets in securities issued by companies engaged in securities
related businesses, including such companies that are securities brokers,
dealers, underwriters or investment advisers. Such companies are considered part
of the financial services industry sector.
In accordance with Section 12(d)(3) under the 1940 Act and Rule 12d3-1
thereunder, the Fund may not acquire a security or any interest in a securities
related business, to the extent such acquisition would exceed certain
limitations. The Fund does not believe that these limitations will impede the
attainment of its investment objective.
SHORT-TERM INVESTMENTS. The Fund may temporarily invest its cash, including cash
resulting from purchases and sales of Fund shares, in short-term debt
instruments, including high grade commercial paper, repurchase agreements and
other money market equivalents and, subject to the receipt of an order of
exemption from the SEC, the shares of affiliated money market funds which invest
primarily in short-term debt securities. Such temporary investments will only be
made with cash held to maintain liquidity or pending investment and will be
consistent with the Fund's overall policy of being fully invested.
OPTIONS AND FINANCIAL FUTURES. The Fund may write covered put and call options
and purchase put and call options which trade on securities exchanges and in the
over-the-counter market. The Fund may purchase and sell futures and options on
futures with respect to securities indices and enter into futures and options to
"close out" futures and options it may have purchased or sold. The Fund will not
enter into any futures contract or related option (except for closing
transactions) if, immediately thereafter, the sum of the amount of its initial
deposits and premiums on open contracts and options would exceed 5% of the
Fund's total assets (taken at current value). The Fund will not engage in any
stock options or stock index options if the option premiums paid, regarding its
open option positions, exceed 5% of the value of the Fund's total assets.
The Fund's option and futures investments involve certain risks. Such risks
include the risk that the effectiveness of an options and futures strategy
depends on the degree to which price movements in the underlying index or
securities correlate with price movements in the relevant portion of the Fund's
portfolio. The Fund bears the risk that the prices of its portfolio securities
will not move in the same amount as the option or future it has purchased, or
that there may be a negative correlation which would result in a loss on both
such securities and the option or future.
Positions in exchange traded options and futures may be closed out only on an
exchange which provides a secondary market. There may not always be a liquid
secondary market for a futures or option contract at a time when the Fund seeks
to "close out" its position. If the Fund were unable to "close out" a futures or
option position, and if prices moved adversely, the Fund would have to continue
to make daily cash payments to maintain its required margin, and if the Fund had
insufficient cash, it might have to sell portfolio securities at a
disadvantageous time. In addition, the Fund might be required to deliver the
stocks underlying futures or options contracts it holds. Over-the-counter
Options ("OTC" options) may not be closed out on an exchange and the Fund may be
able to realize the value of an OTC option it has purchased only by exercising
it or entering into a closing sale transaction with the dealer that issued it.
There can be no assurance that a liquid secondary market will exist for any
particular option or futures contract at any specific time. Thus, it may not be
possible to close such an option or futures position. The Fund will enter into
an option or futures position only if there appears to be a liquid secondary
market for such option or futures.
The Fund understands the current position of the staff of the SEC to be that
purchased OTC options are illiquid securities and that the assets used to cover
the sale of an OTC option are considered illiquid. The Fund and the Fund's
manager disagree with this position. Nevertheless, pending a change in the
staff's position, the Fund will treat OTC options and "cover" assets as subject
to the Fund's limitation on illiquid securities. (See "Investment Objectives and
Policies of the Fund - Illiquid Investments.")
In addition, adverse market movements could cause the Fund to lose up to its
full investment in a call option contract and/or to experience substantial
losses on an investment in a futures contract. There is also the risk of loss by
the Fund of margin deposits in the event of the bankruptcy of a broker with whom
the Fund has an open position in a futures contract or option.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase transactions, in which
the Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agree-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked to market daily to maintain coverage of at least
100%. A default by the seller might cause the Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with government
securities dealers recognized by the Federal Reserve Board or with member banks
of the Federal Reserve System. Under the 1940 Act, a repurchase agreement is
deemed to be the loan of money by the Fund to the seller, collateralized by the
underlying security. The U.S. government security subject to resale (the
collateral) will be held pursuant to a written agreement and the Fund's
custodian will take title to, or actual delivery of, the security. The Fund may
not enter into a repurchase agreement with more than seven days duration if, as
a result, more than 10% of the market value of the Fund's total assets would be
invested in such repurchase agreement.
PORTFOLIO TURNOVER. The Fund anticipates that its annual portfolio turnover rate
generally will not exceed 100% but this rate should not be construed as a
limiting factor in the operation of the Fund's portfolio. High portfolio
turnover increases transaction costs which must be paid by the Fund.
GENERAL INFORMATION
The Fund is an open-end, management investment company, commonly called a
"mutual fund", organized as a Delaware business trust on February 26, 1993 and
registered with the SEC under the 1940 Act. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, with a par value of $.01 per
share. The Fund currently has one series of shares. All shares of the Fund have
one vote and, when issued, are fully paid, non-assessable, and redeemable.
Additional series may be added in the future by the Board of Trustees, the
assets and liabilities of which will be separate and distinct from any other
series.
Investments in the Fund may not be transferred. An investor may, however,
withdraw all or any portion of an investment at any time, at net asset value.
Investors in the Fund will each be liable for all obligations of the Fund. The
risk of an investor in the Fund incurring financial loss on account of such
liability, however, is limited to circumstances in which both inadequate
insurance exists and the Fund itself is unable to meet its obligations.
The organization expenses of the Fund are being amortized over a period of five
years from the effective date of the Fund's registration statement under the
1940 Act. In the event any initial shares of the Fund purchased by Franklin
Institutional Services Corporation or Franklin Strategic Series' Franklin MidCap
Growth Fund are redeemed during the amortization period, such redemption will be
reduced by a pro rata portion of any of the then unamortized organization
expenses. Such portion is to be calculated by dividing the number of initial
shares redeemed by the aggregate number of remaining initial shares at the time
of redemption. Investors purchasing shares of the Fund during the amortization
period bear such expenses only as they are amortized against the Fund's income.
MANAGEMENT OF THE FUND
MANAGEMENT OF THE FUND
The Board of Trustees has the primary responsibility for the overall management
of the Fund and for electing the officers of the Fund who are responsible for
administering its day-to-day operations.
Franklin Advisers, Inc. ("Advisers" or "Manager"), at the address shown on the
cover of this amendment to the registration statement, serves as the Fund'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
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Through its subsidiaries, Resources is engaged in various aspects of the
financial services industry.
Pursuant to the management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.
The Fund 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 Fund's net assets; printing and
other expenses which are not expressly assumed by the Manager.
Under the management agreement dated August 16, 1994, the Fund is obligated to
pay the Manager a fee computed at the close of business on the last business day
of each month equal to an annual rate of 0.50% of the Fund's average daily net
assets. The management agreement specifies that the management fee will be
reduced to the extent necessary to comply with the most stringent limits on the
expenses which may be borne by the Fund as prescribed by any state in which the
Fund's shares are offered for sale. Currently, the most restrictive of such
provisions limits a fund's allowable expenses as a percentage of its average net
assets for each fiscal year to 2.5% of the first $30 million in assets, 2% of
the next $70 million, and 1.5% of assets in excess of $100 million.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under
"Execution of Portfolio Transactions."
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), 777 Mariners Island Blvd., San Mateo, CA 94404,
in its capacity as transfer agent and dividend-paying agent. Investor Services
is a wholly-owned subsidiary of Resources.
CAPITAL STOCK AND OTHER SECURITIES
The Fund is organized as a trust under Delaware law. Under the anticipated
method of operation of the Fund as a partnership for federal tax purposes, it
will not be subject to any federal income tax. Accordingly, an investor in the
Fund will be treated as a partner in the Fund and will take into account its
distributive share of income, gain, loss and expense in accordance with the
governing instruments of the Fund in determining such investor's income tax
liability. The determination of such distributive share will be made in
accordance with the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations promulgated thereunder.
The Fund's taxable year-end will be April 30. Although the Fund will not be
subject to federal income tax, as described above, it will file appropriate
income tax returns.
It is intended that the Fund's assets, income and distributions will be managed
in such a way that an investor in the Fund will be able to satisfy the
requirements of Subchapter M of the Code, assuming the investor invested all of
its assets in the Fund.
There are certain tax issues that will be relevant only to investors that are
tax-exempt, investors that are segregated asset accounts and investors who
contribute assets rather than cash to the Fund. It is intended that
contributions of assets will not be taxable provided certain requirements are
met. Such investors are advised to consult their own tax advisors as to the tax
consequences of an investment in the Fund.
The Fund 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.
Additional information in response to this item is contained under the
discussion captioned "General Information" in Item 4, above.
7. PURCHASE OF SECURITIES BEING OFFERED
The Fund's shares have not been registered under the Securities Act of 1933 (the
"1933 Act"), which means that Fund shares may not be sold publicly. The Fund
may, however, sell its shares through private placements pursuant to available
exemptions from the 1933 Act.
Shares of the Fund may only be purchased by other investment companies, with a
minimum initial investment of $5,000,000 and no minimum on subsequent
investments. All shares are sold at the net asset value (without a sales charge)
next computed after receipt of an order in proper form. All investments in the
Fund are credited to the shareholder's account in the form of full and
fractional shares of the Fund (rounded to the nearest 1/1000 of a share). The
Fund does not issue share certificates.
VALUATION OF FUND SHARES
The net asset value per share of the Fund is determined as of 1:00 p.m. Pacific
time each day that the New York Stock Exchange (the "Exchange") is open for
trading.
The net asset value per share of the Fund is calculated by adding the value of
the portfolio holdings (i.e. shares of the Portfolio in which the Fund invests)
and other assets, deducting the Fund's liabilities and dividing the result by
the number of shares of the Fund outstanding at the time.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask price. Over the counter securities are valued
within the range of the most recent quoted bid and ask price. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying actively traded call
options are valued at their market price as determined above. The current market
value of any option held by the Fund is its last sales price on the relevant
exchange prior to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the options are valued
within the range of the current closing bid and ask prices if such valuation is
believed to fairly reflect the contract's market value. Other securities for
which market quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, based on a variety of
factors, including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Trustees. With the approval of the trustees, the Fund
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 FUND
As stated above in response to Item 7, "Purchase of Securities Being Offered,"
the Fund's shares have not been registered under the 1933 Act, which means that
its shares are restricted securities which may not be sold unless they are
registered or sold pursuant to an available exemption from the 1933 Act.
Redemptions are processed on any day the Fund is open for business and are
effected at the Fund's net asset value next determined after receipt of a
redemption request in proper form.
Payment for redeemed shares will be made within seven days after receipt of the
redemption request in proper form. The right of redemption, however, may be
suspended or the date of payment postponed in accordance with the 1940 Act.
Redemptions are taxable events and the amount received upon redemption may be
more or less than the amount invested by the shareholder, depending on
fluctuations in the market value of the securities owned by the Fund.
9. PENDING LEGAL PROCEEDINGS
Not Applicable
Part B:
10. COVER PAGE
Not Applicable
11. TABLE OF CONTENTS
Not Applicable
12. GENERAL INFORMATION AND HISTORY
Not Applicable
13. INVESTMENT OBJECTIVE AND POLICIES
As noted in response to Item 4, the Fund's investment objective is to seek
capital growth by investing primarily in a broadly diversified portfolio of
medium capitalization stocks. The Fund's performance goal is to annually exceed
the return of the Fund's Benchmark, Standard and Poor's MidCap 400 Benchmark, on
a total return basis. In addition to the policies stated in response to Item 4,
the Fund has adopted the following restrictions (except as noted) as fundamental
policies, which means that they may not be changed without the approval of a
majority of the Fund's outstanding shares. The Fund MAY NOT:
1.Borrow money or mortgage or pledge any of its assets, except that
borrowings (and a pledge of assets therefor) to satisfy redemption requests and
for other temporary or emergency purposes may be made from banks in any amount
up to 10% of the Fund's total asset value (including the amount borrowed) based
on the lesser of cost or market, less liabilities (not including the amount
borrowed) at the time the borrowing is made. While borrowings exceed 5% of the
Fund's total assets, the Fund will not make any additional investments.
2. Make loans, except (a) through the purchase of debt securities in accordance
with the investment objective and policies of the Fund, (b) to the extent the
entry into a repurchase agreement is deemed to be a loan, or (c) by the loan of
its portfolio securities in accordance with the policies described above.
3. Invest in any issuer for purposes of exercising control or management.
4. Buy any securities "on margin" or sell any securities "short," except that it
may use such short-term credits as are necessary for the clearance of
transactions.
5. Purchase securities of other investment companies, except in connection with
a merger, consolidation, acquisition, or reorganization.
6. Invest more than 25% of its assets in securities of any industry, although
for purposes of this limitation, U.S. government obligations are not considered
to be part of any industry.
7. Act as underwriter of securities issued by other persons except insofar as
the Fund may technically be deemed an underwriter under the federal securities
laws in connection with the disposition of portfolio securities.
8. Purchase securities from or sell to the Fund's officers and trustees, or any
firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Fund, one or more of the
Fund's officers, trustees or investment adviser own beneficially more than 1/2
of 1% of the securities of such issuer and all such officers and trustees
together own beneficially more than 5% of such securities.
9. Acquire, lease or hold real estate, provided that this limitation shall not
prohibit the purchase of securities secured by real estate or interests therein.
10. Invest in commodities and commodity contracts (except that the Fund may
engage in financial futures, including stock index futures, and options on stock
index futures), or interests in oil, gas, or other mineral exploration or
development programs, or invest in excess of 5% of its total assets in options
unrelated to the Fund's transactions in futures, including puts, calls,
straddles, spreads, or any combination thereof.
In addition to these fundamental policies, it is the policy of the Fund, which
may be changed without the approval of shareholders, not to invest in real
estate limited partnerships, except the Fund may invest in marketable securities
issued by real estate investment trusts. The Fund's restriction against
investment in interests in oil, gas, or other mineral leases, exploration or
development does not include publicly traded equity securities.
In order to change any of the foregoing restrictions which are fundamental
policies, the lesser of (i) 67% or more of the voting securities present at a
meeting of shareholders if the holders of more than 50% of the Fund's voting
securities are represented at that meeting, or (ii) more than 50% of the
outstanding voting securities of the Fund must vote to make the change. 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 Fund's assets will not be
considered a violation of any of the foregoing restrictions.
14. MANAGEMENT OF THE REGISTRANT
OFFICERS AND TRUSTEES
The Board of Trustees has the responsibility for the overall management of the
Fund, including general supervision and review of its investment activities. The
trustees, in turn, elect the officers of the Fund who are responsible for
administering the day-to-day operations of the Fund. 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" of the
Fund, as defined in the 1940 Act, are indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
Frank H. Abbott, III (75)
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 (64)
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.
*Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
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 61 of the investment companies in the Franklin Templeton Group of Funds.
S. Joseph Fortunato (64)
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.
*Rupert H. Johnson, Jr. (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
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 61 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (67)
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 or managing
general partner, as the case may be, of 26 of the investment companies in the
Franklin Group of Funds.
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications, Inc., MedImmune, Inc.
(biotechnology), InfoVest Corporation (information services), Fusion Systems
Corporation (industrial technology), and Source One Mortgage Services
Corporation (information services); 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.
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 (36)
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, director and/or trustee 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 and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 61 of the investment companies in the Franklin
Templeton Group of Funds.
Charles E. Johnson (40)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Vice President
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 40 of the investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (59)
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")
may be but are not currently paid fees or expenses incurred in connection with
attending meetings. 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 FundsAE 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
FROM THE FRANKLIN FUNDS ON WHICH EACH
TEMPLETON GROUP OF SERVES**
FUNDS*
NAME
Frank H. Abbott, III $162,420 31
Harris J. Ashton 327,925 56
S. Joseph Fortunato 344,745 58
David Garbellano 146,100 30
Frank W.T. LaHaye 143,200 26
Gordon S. Macklin 321,525 53
* 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
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 60 registered investment companies, consisting of more than 166 U.S.
based mutual funds or series.
No officer or trustee received any other compensation directly from the Fund.
Certain officers or trustees who are shareholders of Franklin Resources, Inc.
may be deemed to receive indirect remuneration by virtue of their participation,
if any, in the fees paid to its subsidiaries. Many of the Fund's trustees also
own shares in various of the other funds in the Franklin Templeton Group of
Funds. Charles E. Johnson is the son and nephew, respectively, of Charles B.
Johnson and Rupert H.Johnson, Jr., who are brothers.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Not applicable.
16. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly owned subsidiary of 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 $145 billion in assets for more than 4.1 million shareholders.
Pursuant to the management agreement, the Manager provides investment research
and portfolio management services, including the selection of securities for the
Fund to purchase, hold or sell and the selection of brokers through whom the
Fund's portfolio transactions are executed. The Manager's activities are subject
to the review and supervision of the Fund's Board of Trustees to whom the
Manager renders periodic reports of the Fund's investment activities. The
Manager, at its own expense, furnishes the Fund with office space and office
furnishings, facilities and equipment required for managing the business affairs
of the Fund; maintains all internal bookkeeping, clerical, secretarial and
administrative personnel and services; and provides certain telephone and other
mechanical services. The Manager is covered by fidelity insurance on its
officers, trustees and employees for the protection of the Fund. The Fund bears
all of its expenses not assumed by the Manager.
Pursuant to the management agreement, the Fund is obligated to pay the Manager a
fee computed at the close of business on the last business day of each month
equal to an annual rate of 0.50% of the Fund's average daily net assets.
The management agreement is in effect until December 31, 1997. Thereafter, it
may continue in effect for successive annual periods, provided such continuance
is specifically approved at least annually by a vote of the Fund's Board of
Trustees or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority vote of the Fund's trustees
who are not parties to the management agreement or interested persons of any
such party (other than as trustees of the Fund), cast in person at a meeting
called for that purpose. The management agreement may be terminated without
penalty at any time by the Fund or by the Manager on 60 days' written notice and
will automatically terminate in the event of its assignment, as defined in the
1940 Act. During the fiscal year ended April 30, 1996, the Manager agreed in
advance to waive all of its management fees and to make certain payments to
reduce expenses of the Fund.
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Fund and acts as the Fund's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a fixed
fee per account.
Bank of New York, Mutual Funds Division, 90 Washington Street, New York, New
York, 10286, acts as custodian of the securities and other assets of the Fund.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian for cash received in connection with the
purchase of Fund shares Citibank Delaware, One Penn's Way, New Castle, Delaware
19720, acts as custodian in connection with transfer services through bank
automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.
Coopers & Lybrand, 333 Market Street, San Francisco, California 94105, have been
selected as the Fund's independent auditors.
17. BROKERAGE ALLOCATION
EXECUTION OF PORTFOLIO TRANSACTIONS
Under the current management agreement with Advisers, the selection of brokers
and dealers to execute transactions in the Fund's portfolio is made by the
Manager in accordance with criteria set forth in the management agreement and
any directions which the Fund's Board of Trustees may give.
When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of transaction. On portfolio transactions which are done
on a securities exchange, the amount of commission paid by the Fund is
negotiated between the Manager and the broker executing the transaction. The
Manager seeks to obtain the lowest commission rate available from brokers which
are felt to be capable of efficient execution of the transactions. The
determination and evaluation of the reasonableness of the brokerage commissions
paid in connection with portfolio transactions are based to a large degree on
the professional opinions of the persons responsible for the placement and
review of such transactions. These opinions are formed on the basis of, among
other things, the experience of these individuals in the securities industry and
information available to them concerning the level of commissions being paid by
other institutional investors of comparable size. The Manager will ordinarily
place orders for the purchase and sale of over-the-counter securities on a
principal rather than an agency basis, with a principal market maker unless, in
the opinion of the Manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price. As a general
rule, the Fund does not purchase bonds in underwritings where it is not given
any choice, or only limited choice, in the designation of dealers to receive
commissions. The Fund will seek to obtain prompt execution of orders at the most
favorable net price.
The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in the Fund's best
interests, the Manager may place portfolio transactions with brokers who provide
the types of services described below, even if it means the Fund will have to
pay a higher commission than would be the case if no weight were given to the
broker's furnishing of these services. This will be done only if, in the opinion
of the Manager, the amount of any additional commission is reasonable in
relation to the value of the services. Higher commissions will be paid only when
the brokerage and research services received are bona fide and produce a direct
benefit to the Fund or assist the Manager in carrying out its responsibilities
to the Fund, or when it is otherwise in the best interest of the Fund to do so,
whether or not such data may also be useful to the Manager in advising other
clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of the Fund's net
assets, in such amount of total brokerage as may reasonably be required in light
of such services, and through brokers who supply research, statistical and other
data to the Fund and Manager in such amount of total brokerage as may reasonably
be required.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, the Manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. Provided that
the Fund's officers are satisfied that the best execution is obtained, the sale
of Fund shares may also be considered as a factor in the selection of securities
dealers to execute the Fund's portfolio transactions.
Franklin/Templeton Distributors, Inc. ("Distributors"), an affiliate of the
Fund's Manager, is a member of the National Association of Securities Dealers,
and may sometimes be entitled to obtain certain fees when the Fund tenders
portfolio securities pursuant to a tender-offer solicitation. As a means of
recapturing brokerage for the benefit of the Fund, any portfolio securities
tendered by the Fund will be tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee payable to Advisers under
the management agreement will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.
If purchases or sales of securities for the Fund and one or more other
investment companies or clients supervised by the Manager are considered at or
about the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Manager, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. It is recognized that in some
cases this procedure could possibly have a detrimental effect on the price or
volume of the security so far as the Fund is concerned. In other cases it is
possible that the ability to participate in volume transactions and to negotiate
lower brokerage commissions will be beneficial to the Fund.
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 the Fund have equal voting, dividend and liquidation rights. 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. Shares have no preemptive, subscription or
conversion rights.
The Fund does not intend to hold annual shareholders' 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 of Trustees 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 generally
credited to an account in the name of an investor on the books of the Fund.
Shareholders will receive confirmation statements each time there is a
transaction which affects an account, including the reinvestment of dividends.
These statements will also show the total number of Fund shares owned by a
shareholder, including the number of shares in "plan balance" for the account of
the shareholder.
SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL NOT
BE ISSUED.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank; further, such shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
Shares of the Fund involve investment risks, including the possible loss of
principal.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES
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.
All purchases of shares of the Fund will be credited to the shareholder in full
and fractional shares (rounded to the nearest 1/1000 of a share) in an account
maintained for the shareholder. To open an account in the name of a corporation,
a resolution of the corporation's Board of Directors will be required.
The Fund reserves the right to reject any order for the purchase of shares of
the Fund and to waive minimum investment requirements. In addition, the offering
of shares of the Fund may be suspended by the Fund at any time and resumed at
any time thereafter.
The Fund will attempt to make payment for all shares redeemed within one
business day, but in no event later than seven days after receipt by the Fund of
the redemption request in proper form. The right of redemption may be suspended
or the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. At various times, the Fund may be requested to
redeem shares for which it has not yet received proper payment. Accordingly, the
Fund may delay the sending of redemption proceeds until such time as it has
assured itself that proper payment has been collected for the purchase of such
shares.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, involuntarily, at net asset value, the
shares of any shareholder whose account has a value less than a specified
minimum amount, but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares. Until further notice, it is
the present policy of the Fund not to exercise this right with respect to any
shareholder whose account has a value of $1,000,000 or more. In any event,
before the Fund redeems such shares and sends the proceeds to the shareholder,
it will notify the shareholder that the value of the shares in the account is
less than the minimum amount and allow the shareholder 30 days to make an
additional investment in an amount which will increase the value of the account
to at least $1,000,000.
CALCULATION OF NET ASSET VALUE
As noted elsewhere in this registration statement, the Fund generally calculates
net asset value as of 1:00 p.m. Pacific time each day that the Exchange is open
for trading. As of the date of this registration statement, the Fund is informed
that the Exchange observes the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The Fund's portfolio securities are valued as stated elsewhere in this
registration statement. Generally, trading in corporate bonds, U.S. government
securities and money market instruments is substantially completed each day at
various times prior to the close of the Exchange. The values of such securities
used in computing the net asset value of the Fund's shares are determined as of
such times. Occasionally, events affecting the values of such securities may
occur between the times at which they are determined and 1:00 p.m. Pacific time
which will not be reflected in the computation of the Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by the Board of Trustees.
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 will vary 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.
The Fund's taxable year-end is April 30. The Fund currently intends to continue
to use the April 30 tax year; however, the entry of a significant investor with
a different tax year may cause the Fund to adopt the tax year of such new
investor.
Each investor will be subject to federal income tax on the investor's
distributive share of the Fund's income for the tax year of the investor which
includes the last day of the Fund's taxable year (e.g., April 30). An investor
that is a regulated investment company will take into account its distributive
share of the Fund's daily allocations of ordinary income and capital gain net
income for purposes of determining the investor's required distribution
necessary to avoid the 4% excise tax on the undistributed income of a regulated
investment company.
The Fund's investment in certain options and futures may be limited by the Code
in order for its investors to satisfy Subchapter M qualification requirements.
The Fund's investment in certain options and futures involving actual or short
sales or foreign exchange gains or losses are also subject to special tax rules
and may affect the amount and character of distributive share items.
Investors should consult with their tax or financial advisors with respect to
federal, state, local, or foreign income taxes that might apply to an investment
in the Fund.
21. UNDERWRITERS
Not Applicable
22. CALCULATION OF PERFORMANCE DATA
Not Applicable
23. FINANCIAL STATEMENTS
FRANKLIN MIDCAP GROWTH PORTFOLIO #187
STATEMENT OF ASSETS AND LIABILITIES
4-30-96 04-30-95
(Unaudited) (Audited)
ASSETS:
Investments in securities:
At identified cost $ 0 $ 0
At value 0 0
Short-term securities (At cost 0) 0 0
Option Contracts at Value (At cost 0) 0 0
Cash and Foreign Currency:
Cash 100,000 100,000
Foreign Currency (At Cost 0) 0 0
Receivables:
Capital shares sold 0 0
Interest 0 0
Dividends 0 0
Unrealized currency exchange, gain (loss) 0 0
Investment securities sold 0 0
From affiliates 0 0
Others 0 0
Prepaid expenses 0 0
Total assets 100,000 100,000
LIABILITIES:
Call & put options written, at value
(Premiums received 0) 0 0
Payables:
Investment securities purchased:
Regular delivery 0 0
When-issued basis 0 0
Unrealized currency exchange, gain(loss) 0 0
Capital shares repurchased 0 0
Dividends to shareholders 0 0
Shareholder servicing cost 0 0
Collateral on loaned securities 0 0
Management fees 0 0
Distribution/12b-1 fees 0 0
Accounts payable and accrued expenses 0 0
Total liabilities 0 0
Net assets - Fund Level $ 100,000 $ 100,000
Net Assets - Class I $ 100,000 $ 100,000
Net Assets - Class II $ N/A $ N/A
Shares outstanding - Class I 10,000 10,000
Shares outstanding - Class II N/A N/A
NAV per share - Class I
Current $ 10 $ 10
Six months prior $ 10 $ 10
One year prior $ 10 $ 10
NAV per share - Class II
Current $ N/A $ N/A
Six months prior $ N/A $ N/A
One year prior $ N/A $ N/A
UNII per share - Fund Level
Book basis $ 0 $ 0
Tax Basis $ 0 $ 0
Undistributed capital gains(loss)
carryovers per share - Fund Level
Book basis $ 0 $ 0
Tax Basis $ 0 $ 0
Note: Standard Monthly Financial Statement Format - some items may not be
applicable.
Note: Other assets and liabilities may not agree to the attached portfolio
listing report due to last day transactions.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the 12 Fiscal Year
Months ended Ended
4-30-96 04-30-95
(Unaudited) (Audited)
Investment income:
<S> <C> <C>
Interest $ 0 $ 0
Dividends 0 0
Discount(prem.) amortization 0 0
Total investment income 0 0
Expenses:
Management fees 0 0
Distribution/12b-1 fees-class I 0 0
Distribution/12b-1 fees-class II 0 0
Accounting fees 0
Shareholder servicing costs 0 0
Custodian fees 0 0
Reports to shareholders 0 0
Legal fees 0 0
Auditing fees 0 0
Directors fees and expenses 0 0
Registration 0 0
Expenses waived - mgmt fees 0 0
Payments from manager 0 0
Other 0 0
Total expenses 0 0
Net investment income 0 0
Realized and unrealized gain (loss) on investments:
Net realized gain(loss) from security transactions (Note 1) 0 0
Net realized gain(loss) from closed options (Note 1) 0 0
Net realized gain(loss) from FX-Investment transactions 0 0
Net realized gain(loss) from investments 0 0
Net realized gain(loss) from foreign currency trans. 0 0
Realized gain(loss) from investments & FX transactions 0 0
Net unrealized appreciation (depreciation)
on investments during the period 0 0
Net unrealized appreciation (depreciation) on trans-
lation of assets & liabilities denominated in FX 0 0
Net unrealized appr(depr) on investments & translation
of assets and liabilities denominated in FX 0 0
Net realized & unrealized gain(loss) from inv & FX trans 0 0
Net increase (decrease) in net assets from operations $ 0 $ 0
Note 1: Gains on the sale or other disposition of securities held less
than three months amounted to approximately 0.00% of gross income
In order to qualify for pass-through tax treatment, less than 30% of gross
income must be derived from such source.
Note: Standard Monthly Financial Statement Format - some items may not be
applicable.
STATEMENT OF CHANGES IN NET ASSETS
For the 12 Fiscal Year
Months ended Ended
4-30-96 04-30-95
(Unaudited) (Audited)
From investment activities:
<S> <C> <C>
Net investment income $ 0 $ 0
Net realized gain (loss) from investments & foreign
currency transactions 0 0
Net unrealized appr(depr) on investments and translation of
assets and liabilities denominated in foreign currencies 0 0
Increase (decrease) in net assets from operations 0 0
Distributions to shareholders from:
Net investment income
Class I 0 0
Class II 0 0
Net realized gain
Class I 0 0
Class II 0 0
Net fund shares transactions 0 0
Net increase in net assets 0 0
Net assets:
Beginning of period 100,000 100,000
End of period $100,000 $100,000
Undist Net Invest Inc included in net assets:
Beginning of period $ 0 $ 0
End of period $ 0 $ 0
Undist Net Invest Inc included in net assets-tax basis:
Beginning of period $ 0 $ 0
End of period $ 0 $ 0
Undistributed capital gains (loss carryovers):
Beginning of period $ 0 $ 0
End of period $ 0 $ 0
Undistributed capital gains (loss carryovers)-tax basis:
Beginning of period $ 0 $ 0
End of period $ 0 $ 0
From fund share transactions:
CLASS I
Shares sold 0 0
Shares issued in reinv of dividends 0 0
Shares redeemed 0 0
Exchanges: Shares sold 0 0
Exchanges: Shares redeemed 0 0
Net increase (decrease) - Class I $ 0 $ 0
CLASS II
Shares sold 0 0
Shares issued in reinv of dividends 0 0
Shares redeemed 0 0
Exchanges: Shares sold 0 0
Exchanges: Shares redeemed 0 0
Net increase (decrease) - Class II $ 0 $ 0
Wash sale deferrals-current period $ 0 $ 0
Other UNII tax adjustments $ 0 $ 0
Other UNCG tax adjustments $ 0 $ 0
Note: Standard Monthly Financial Statement Format - some items may not be
applicable.
</TABLE>
MIDCAP GROWTH PORTFOLIO
File No. 811-7638
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
a) Financial Statement:
Unaudited Statement of Assets and Liabilities for the MidCap Growth
Portfolio, dated April 30, 1996 filed in Part B.
b) Exhibits:
The following exhibits are Incorporated by Reference, except
exhibits 5(i), 8(ii), 8(iii) and 27(i) which are attached herewith.
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust dated January 13, 1993
Filing: Amendment No. 2 to
Registration Statement on Form N-1A
File No. 811-7638
Filing Date: August 29, 1995
(ii) Certificate of Trust dated January 13, 1993
Filing: Amendment No. 2 to
Registration Statement on Form N-1A
File No. 811-7638
Filing Date: August 29, 1995
(iii) Certificate of Amendment to the Certificate of Trust dated
April 8, 1993
Filing: Amendment No. 2 to
Registration Statement on Form N-1A
File No. 811-7638
Filing Date: August 29, 1995
(iv) Certificate of Amendment of Agreement and Declaration of Trust
dated April 18, 1995
Filing: Amendment No. 2 to
Registration Statement on Form N-1A
File No. 811-7638
Filing Date: August 29, 1995
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) By-Laws
Filing: Amendment No. 2 to
Registration Statement on Form N-1A
File No. 811-7638
Filing Date: August 29, 1995
(3) copies of any voting trust agreement with respect to more than five
percent of any class of equity securities of the Registrant;
Not applicable
(4) specimens or copies of each security issued by the Registrant,
including copies of all constituent instruments defining the rights
of the holders of such securities, and copies of each security being
registered;
Not applicable
(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(ii) Management Agreement between Registrant and Franklin Advisers,
Inc. dated January 1, 1996.
(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;
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) Custody Agreement between Registrant and Bank of America
NT & SA dated April 13, 1993
Filing: Amendment No. 2 to
Registration Statement on Form N-1A
File No. 811-7638
Filing Date: August 29, 1995
(ii) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
(iii) 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;
(i) Letters of Understanding relating to initial capital dated
April 13, 1993
Filing: Amendment No. 2 to
Registration Statement on Form N-1A
File No. 811-7638
Filing Date: August 29, 1995
(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) Power of Attorney
(i) Power of Attorney dated June 29, 1995
Filing: Amendment No. 2 to
Registration Statement on Form N-1A
File No. 811-7638
Filing Date: August 29, 1995
(ii) Certificate of Secretary dated June 29, 1995
Filing: Amendment No. 2 to
Registration Statement on Form N-1A
File No. 811-7638
Filing Date: August 29, 1995
(27) Financial Data Schedule
(i) Financial Data Schedule for MidCap Growth 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 April 30, 1996
--------------
Shares of Beneficial Interest
of:
MidCap Growth Portfolio 1
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of the Registrant's Bylaws (Exhibit 2),
which is incorporated herein by reference. 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 Bylaws, in
the absence of authorization by the appropriate court on the merits pursuant to
Section 5 of Article VI of said Bylaws, 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 for
the other registered investment companies in the Franklin Templeton Group of
Funds with aggregate assets of approximately $145 billion. 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
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 and Schedules A and D of Form ADV of the Fund's Investment Manager (SEC
File 801-26292), incorporated herein by reference, which sets forth the officers
and directors of the Investment Manager and information as to any business,
profession, vocation or employment of a substantial nature engaged in by those
officers and directors during the past two years.
ITEM 29. PRINCIPAL UNDERWRITERS.
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
will be 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 Part 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 centum 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,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Mateo,
the State of California, on the 29th day of August, 1996.
MIDCAP GROWTH PORTFOLIO
Registrant
By: RUPERT H. JOHNSON, JR.*
Rupert H. Johnson, Jr.
President
RUPERT H. JOHNSON, JR.* Principal Executive Officer and Trustee
Rupert H. Johnson, Jr. Dated: August 29, 1996
FRANK H. ABBOTT, III* Trustee
Frank H. Abbott, III Dated: August 29, 1996
HARRIS J. ASHTON Trustee
Harris J. Ashton Dated: August 29, 1996
HARMON E. BURNS* Trustee
Harmon E. Burns Dated: August 29x, 1996
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: August 29, 1996
DAVID W. GARBELLANO* Trustee
David W. Garbellano Dated: August 29, 1996
CHARLES B. JOHNSON* Trustee
Charles B. Johnson Dated: August 29, 1996
FRANK W. T. LAHAYE* Trustee
Frank W. T. LaHaye Dated: August 29, 1996
GORDON S. MACKLIN* Trustee
Gordon S. Macklin Dated: August 29, 1996
DIOMEDES LOO-TAM Principal Accounting Officer
Diomedes Loo-Tam Dated: August 29, 1996
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: August 29, 1996
By: /s/ Larry L. Greene
*Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)
MIDCAP GROWTH PORTFOLIO
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of Trust *
dated January 13, 1993
EX-99.B1(ii) Certificate of Trust dated January *
13, 1993
EX-99.B1(iii) Certificate of Amendment to the *
Certificate of Trust dated April
8, 1993
EX-99.B1(iv) Certificate of Amendment of *
Agreement and Declaration of Trust
dated April 18, 1995
EX-99.B2(i) By-Laws *
EX-99.B5(i) Management Agreement between Attached
Registrant and Franklin Advisers,
Inc. dated January 1, 1996
EX-99.B8(i) Custody Agreement between *
Registrant and Bank of America NT
& SA dated April 13, 1993
EX-99.B8(ii) Master Custody Agreement between Attached
Registrant and Bank of New York
dated February 16, 1996
EX-99.B8(iii) Terminal Link Agreement between Attached
Registrant and Bank of New York
dated February 16, 1996
EX-99.B13(i) Letters of Understanding relating *
to initial capital dated April 13,
1993
EX-99.B17(i) Power of Attorney dated June 29, *
1995
EX-99.B17(ii) Certificate of Secretary dated June *
29, 1995
EX-27.B1 Financial Data Schedule Attached
* Incorporated by Reference
MIDCAP GROWTH PORTFOLIO
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between MIDCAP GROWTH PORTFOLIO, a Delaware
business trust (the "Fund") and FRANKLIN ADVISERS, INC., a California
corporation, (the "Manager").
WHEREAS, the Fund has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its By-Laws
and its Registration Statements under the 1940 Act and the Securities Act of
1933, all as heretofore and hereafter amended and supplemented; and the Fund
desires to avail itself of the services, information, advice, assistance and
facilities of an investment manager and to have an investment manager perform
various management, statistical, research, investment advisory and other
services for the Fund; and,
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
management, investment advisory, counseling and supervisory services to
investment companies and other investment counseling clients, and desires to
provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
l. EMPLOYMENT OF THE 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. ADMINISTRATIVE SERVICES. The Manager shall furnish to the Fund
adequate (i) office space, which may be space within the offices of the Manager
or in such other place as may be agreed upon from time to time, (ii) office
furnishings, facilities and equipment as may be reasonably required for managing
the affairs and conducting the business of the Fund, including conducting
correspondence and other communications with the shareholders of the Fund,
maintaining all internal bookkeeping, accounting and auditing services and
records in connection with the Fund's investment and business activities. The
Manager shall employ or provide and compensate the executive, secretarial and
clerical personnel necessary to provide such services. The Manager shall also
compensate all officers and employees of the Fund who are officers or employees
of the Manager or its affiliates.
B. INVESTMENT MANAGEMENT SERVICES.
(a) The Manager shall manage the Fund's assets subject to
and in accordance with the investment objectives and policies of the Fund 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 Fund's assets and the purchase and sale of its
investment securities, and shall take such steps as may be necessary to
implement the same. Such determinations and services shall include determining
the manner in which any voting rights, rights to consent to corporate action and
any other rights pertaining to the Fund's investment securities shall be
exercised. The Manager shall render or cause to be rendered regular reports to
the Fund, at regular meetings of its Board of Trustees and at such other times
as may be reasonably requested by the Fund's Board of Trustees, of (i) the
decisions made with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, (ii) the reasons for such
decisions and (iii) the extent to which those decisions have been implemented.
(b) The 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
securities transactions. When placing such orders, the Manager shall seek to
obtain the best net price and execution for the Fund, but this requirement shall
not be deemed to obligate the Manager to place any order solely on the basis of
obtaining the lowest commission rate if the other standards set forth in this
section have been satisfied. The parties recognize that there are likely to be
many cases in which different brokers are equally able to provide such best
price and execution and that, in selecting among such brokers with respect to
particular trades, it is desirable to choose those brokers who furnish research,
statistical, quotations and other information to the Fund and the Manager in
accordance with the standards set forth below. Moreover, to the extent that it
continues to be lawful to do so and so long as the Board of Trustees determines
that the Fund will benefit, directly or indirectly, by doing so, the Manager may
place orders with a broker who charges a commission for that transaction which
is in excess of the amount of commission that another broker would have charged
for effecting that transaction, provided that the excess commission is
reasonable in relation to the value of "brokerage and research services" (as
defined in Section 28(e) (3) of the Securities Exchange Act of 1934) provided by
that broker.
Accordingly, the Fund and the Manager agree that the Manager
shall select brokers for the execution of the Fund's transactions from among:
(i) Those brokers and dealers who provide quotations and
other services to the Fund, specifically including the
quotations necessary to determine the Fund's net assets, in
such amount of total brokerage as may reasonably be required
in light of such services; and
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its affiliates
which the Manager or its affiliates may lawfully and
appropriately use in their investment advisory capacities,
which relate directly to securities, actual or potential, of
the Fund, or which place the Manager in a better position to
make decisions in connection with the management of the
Fund's assets and securities, whether or not such data may
also be useful to the Manager and its affiliates in managing
other portfolios or advising other clients, in such amount
of total brokerage as may reasonably be required. 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/Templeton
Distributors, Inc. ("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in such capacity under the
federal securities laws and rules thereunder and the rules of any securities
exchange or association of which Distributors may be a member. Neither the
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 its corporate existence
and membership in the National Association of Securities Dealers, Inc.) as of
the date of this Agreement. This Agreement shall not obligate the Manager or
Distributors (i) to act pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to institute legal or other
proceedings to collect fees which may be considered to be due from others to it
as a result of such a tender, unless the Fund on behalf of the Fund shall enter
into an agreement with the Manager and/or Distributors to reimburse them for all
such expenses connected with attempting to collect such fees, including legal
fees and expenses and that portion of the compensation due to their employees
which is attributable to the time involved in attempting to collect such fees.
(d) The Manager shall render regular reports to the Fund,
not more frequently than quarterly, of how much total brokerage business has
been placed by the Manager, on behalf of the Fund, with brokers falling into
each of the categories referred to above and the manner in which the allocation
has been accomplished.
(e) The 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
underwriting and distribution of the Fund's shares.
D. OTHER OBLIGATIONS AND SERVICES. The Manager shall make its officers and
employees available 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 and expenses paid 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, including the expenses
of issue, repurchase or redemption of its shares;
D. Expenses of obtaining quotations for calculating the value
of the Fund's net assets;
E. Salaries and other compensations of executive officers of
the Fund who are not officers, directors, stockholders or employees of the
Manager or itsaffiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the filing of
reports with regulatory bodies and the maintenance of the Fund's and 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. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Manager or any of its
affiliates;
L. Costs and expense of registering and maintaining the
registration of the Fund and its shares under federal and any applicable state
laws; including the printing and mailing of prospectuses to its shareholders;
M. Trade association dues; and
N. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
4. COMPENSATION OF THE MANAGER. The Fund shall pay a management fee in
cash to the Manager based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, as compensation for the services rendered
and obligations assumed by the Manager, during the preceding month, on the first
business day of the month in each year.
A. For purposes of calculating such fee, the value of the net assets
of the Fund shall be determined in the same manner as that Fund uses to compute
the value of its net assets in connection with the determination of the net
asset value of its shares, all as set forth more fully in the Fund's current
prospectus and statement of additional information. The rate of the management
fee payable by the Fund shall be calculated daily at the annual rate of 0.50% of
average daily net assets.
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 waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in purchase price of
its services. The Manager shall be contractually bond hereunder by the terms of
any publicly announced waiver of its fee, or any limitation of the Fund's
expenses, as if such waiver or limitation were full set forth herein.
C. If this Agreement is terminated prior to the end of any month,
the accrued management fee shall be paid to 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 Fund and By-Laws of the Fund
and Section 10(a) of the 1940 Act, it is understood that trustees, officers,
agents and shareholders of the Fund are or may be interested in the Manager or
its affiliates as directors, officers, agents or stockholders; that directors,
officers, agents or stockholders of the Manager or its affiliates are or may be
interested in the Fund as trustees, officers, agents, shareholders or otherwise;
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, By-Laws and the 1940 Act.
6. LIABILITIES OF THE MANAGER.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Manager, the Manager shall not be subject to liability to the Fund or 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 stockholders where
the action or inaction necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed transaction in the stock or
control of the Manager or its affiliates (or litigation related to any pending
or proposed or future transaction in such shares or control) which shall have
been undertaken without the prior, express approval of the Fund's Board of
Trustees; or, (ii) is within the control of the Manager or any of its affiliates
or any of their officers, directors, employees or stockholders. The Manager
shall not be obligated pursuant to the provisions of this Subparagraph 6(B), to
reimburse the Fund for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Fund or a shareholder
seeking to recover all or a portion of the proceeds derived by any stockholder
of the Manager or any of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is in effect, the Manager
shall pay to the Fund the amount due for expenses subject to this Subparagraph
6(B) within 30 days after a bill or statement has been received by the Manager
therefor. This provision shall not be deemed to be 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 1940 Act.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written below
and shall continue in effect for two (2) years thereafter, unless sooner
terminated as hereinafter provided and shall continue in effect thereafter for
periods not exceeding one (1) year so long as such continuation is approved at
least annually (i) by a vote of a majority of the outstanding voting securities
of each 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 (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 be terminated by the Manager on 60 days' written
notice to the Fund.
C. As used in this Paragraph the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the meanings set forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed post-paid, to the other party at any office
of such party.
8. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and effective on the 1st day of January 1996.
MIDCAP GROWTH PORTFOLIO
By: /s/ Rupert H. Johnson, Jr.
FRANKLIN ADVISERS, INC.
By: /s/ Harmon E. Burns
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>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MIDCAP GROWTH PORTFOLIO APRIL 30, 1996 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 100,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,000
<SHARES-COMMON-STOCK> 10,000
<SHARES-COMMON-PRIOR> 10,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 100,000
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> .000
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .000
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 10.000
<EXPENSE-RATIO> .000
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
