[Federal Register Volume 64, Number 183 (Wednesday, September 22, 1999)]
[Notices]
[Pages 51356-51360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24602]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24016; 812-11502]


Franklin Gold Fund, et al., Notice of Application

September 16, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1949 (the ``Act'') under (i) section 6(c) of the Act granting an 
exemption from sections 18(f) and 21(b) of the Act; (ii) section 
12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of 
the Act; (iii) sections 6(c) and 17(b) of the Act granting an exemption 
from sections 17(a) (1) and 17(a)(3) of the Act; and (iv) section 17(d) 
of the Act and rule 17d-1 under the Act to permit certain joint 
arrangements.

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SUMMARY OF APPLICATION: Applicants request an order that would permit 
certain registered investment companies to participate in a joint 
lending and borrowing facility.

APPLICANTS: Franklin Gold fund, Franklin Asset Allocation Fund, 
Franklin Equity Fund, Franklin High Income Trust, Franklin Custodian 
Funds, Inc., Franklin California Tax-Free Income Fund, Inc., Franklin 
New York Tax-Free Income Fund, Franklin Federal Tax-Free Income Fund, 
Franklin Tax-Free Trust, Franklin California Tax-Free Trust, Franklin 
New York Tax-Free Trust, Franklin Investors Securities Trust, 
Institutional Fiduciary Trust, Franklin Value Investors Trust, Franklin 
Strategic Mortgage Portfolio, Franklin Municipal Securities Trust, 
Franklin Managed Trust, Franklin Strategic Series, Adjustable Rate 
Securities Portfolios, Franklin Templeton International Trust, Franklin 
Real Estate Securities Trust, Franklin Templeton Global Trust, Franklin 
Valuemark Funds, Franklin Universal Trust, Franklin Multi-income Trust, 
Franklin Templeton Fund Allocator Series, Franklin Money Fund, Franklin 
Money Fund Trust, Franklin Federal Money Fund, Franklin Tax-Exempt 
Money Fund, Franklin Mutual Series Fund Inc., Franklin Floating Rate 
Trust, The Money Market Portfolios, Templeton Growth Fund, Inc., 
Templeton Funds, Inc., Templeton Global Smaller Companies Fund, Inc., 
Templeton Income Trust, Templeton Global Real Estate Fund, Templeton 
Capital Accumulator Fund, Inc., Templeton Global Opportunities Trust, 
Templeton Institutional Funds, Inc., Templeton Developing Markets 
Trust, Templeton Global Investment Trust, Templeton Emerging Markets 
Fund, Inc., Templeton Emerging Markets Appreciation Fund, Inc., 
Templeton Global Income Fund, Inc., Templeton Global Governments Income 
Trust, Templeton Emerging Markets Income Fund, Inc., Templeton China 
World Fund, Inc., Templeton Dragon Fund, Inc., Templeton Vietnam and 
Southeast Asia Fund, Inc., Templeton Russia Fund, Inc., Templeton 
Variable Products Series Fund (collectively, the ``Franklin Templeton 
Funds''), Franklin Advisers, Inc., Franklin Advisory Services, LLC, 
Franklin Investment Advisory Services, Inc., Templeton Asset 
Management, Ltd., Templeton Global Advisors Limited, Franklin Mutual 
Advisers, LLC, Templeton Investment Counsel, Inc., (collectively, the 
Franklin Templeton Advisers''), and any future registered management 
investment company advised by the Franklin Templeton Advisers or an 
entity controlling, controlled by, or under common control with one of 
the Franklin Templeton Advisers (together with the Franklin Templeton 
Funds, the ``Funds'').\1\
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    \1\ All existing funds that currently intend to rely on the 
order are named as applicants. Any other existing Fund and any 
future Fund will rely on the order only in accordance with the terms 
and conditions of the application.

    Filing Dates: The application was filed on February 5. 1999 and 
amended on July 6, 1999 and on September 2, 1999.
    Hearing or Notification of Hearing. An order granting the 
application will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving applicants with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on October 
12, 1999 and should be accompanied by proof of service on applicants in 
the form of an affidavit or, for lawyers a certificate or service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons may request 
notification by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549-0609. Applicants, 777 Mariners Island Boulevard, San Mateo, 
California, 94404.

FOR FURTHER INFORMATION, CONTACT: Janet M. Grossnickle, Attorney-
Adviser, (202) 942-0526, or Mary Kay Frech, Branch Chief, (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTAL INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, 
D.C. 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. Each Franklin Templeton Fund is registered under the Act as a 
management investment company and organized as a Massachusetts business 
trust, a Delaware business trust, a Maryland corporation, or a 
California corporation. Each Franklin Templeton Adviser is or will be 
registered as an investment adviser under the Investment Advisers Act 
of 1940 and serves as an investment adviser to the Funds.
    2. Some Funds may lend money to banks or other entities by entering 
into repurchase agreements or purchasing other short-term instruments, 
either directly or through a joint account. Certain of the Funds and 
Franklin

[[Page 51357]]

Templeton Advisers obtained an order to permit them to deposit 
uninvested cash balances that remain at the end of a trading day in one 
or more joint trading accounts (each a ``Joint Account'') to be used to 
enter into short-term investments.\2\ The Funds and the Franklin 
Templeton Advisers obtained an order to permit them to invest their 
cash balances in one or more of the Funds that are money market funds 
that comply with rule 2a-7 under the Act (``Money market Funds'').\3\ 
Other Funds may borrow money from the same or other banks for temporary 
purposes to satisfy redemption requests or to cover unanticipated cash 
shortfalls such as a trade ``fail'' in which cash payment for a 
portfolio security sold by a Fund has been delayed.
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    \2\ AGE High Income Fund, Investment Company Act Release Nos. 
15485 (Dec. 17, 1986) (notice) and 15534 (Jan. 13, 1987) (order).
    \3\ Franklin Gold Fund, Investment Company Act Release Nos. 
23633 (Jan. 5, 1999) (notice) and 23675 (Feb. 2, 1999) (order.)
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    3. If the Funds were to borrow money under credit arrangements with 
a bank, the Funds would pay interest on the borrowed cash at a rate 
which would be significantly higher than the rate would be earned by 
other (non-borrowing) Funds on investments in repurchase agreements and 
other short-term instruments of the same maturity as the bank loan. 
Applicants state that this differential represents the bank's profit 
for serving as a middleman between a borrower and lender. Other bank 
loan arrangements, such as committed lines of credit would require the 
Funds to pay substantial commitment fees in addition to the interest 
rate to be paid by the borrowing Fund.
    4. Applicants request an order that would permit the Funds to enter 
into lending agreements (``Interfund Lending Agreements'') under which 
the Funds would lend money directly to and borrow money directly from 
each other through a credit facility for temporary purposes 
(``Interfund Loan''). Applicants believe that the proposed credit 
facility would substantially reduce the Funds' potential borrowing 
costs and enhance their ability to earn higher rates of interest on 
short-term lendings. Although the proposed credit facility would 
substantially reduce the Funds' need to borrow from banks, the Funds 
would be free to establish committed lines of credit or other borrowing 
arrangements with banks. The Funds also would continue to maintain 
overdraft protection, if any, currently provided by their custodians. 
Applicants state that closed-end Funds will participate in the credit 
facility only as lenders.
    5. Applicants anticipate that the credit facility would provide a 
borrowing Fund with significant savings when the cash position of the 
Fund is insufficient to meet temporary cash requirements. This 
situation could arise when redemptions exceed anticipated volumes and 
the Funds have insufficient cash on hand to satisfy such redemptions. 
When the Funds liquidate portfolio securities to meet redemption 
requests, which normally are effected immediately, they often do not 
receive payment in settlement for up to three days (or longer for 
certain foreign transactions). The credit facility would provide a 
source of immediate, short-term liquidity pending settlement of the 
sale of portfolio securities.
    6. Applicants also propose using the credit facility when a sale of 
securities ``fails'' due to circumstances such as a delay in the 
delivery of cash to the Fund's custodian or improper delivery 
instructions by the broker effecting the transaction. ``Sales fails'' 
may present a cash shortfall if the Fund has undertaken to purchase a 
security with the proceeds from securities sold. When the Fund 
experiences a cash shortfall due to a sales fail, the custodian 
typically extends temporary credit to cover the shortfall and the Fund 
incurs overdraft charges. Alternatively, the Fund could fail on its 
intended purchase due to lack of funds from the previous sale, 
resulting in additional cost to the Fund, or sell a security on a same 
day settlement basis, earning a lower return on the investment. Use of 
the credit facility under these circumstances would enable the Fund to 
have access to immediate short-term liquidity without incurring 
custodian overdraft or other charges.
    7. While borrowing arrangements with banks could generally supply 
needed cash to cover unanticipated redemptions and sales fails, 
applicants state that under the proposed credit facility a borrowing 
Fund would pay lower interest rates than those offered by banks on 
short term loans. In addition, Funds making loans to other Funds would 
earn interest at a rate higher than they otherwise could obtain from 
investing their cash through the Joint Account in repurchase agreements 
or in the Money Market Funds. Thus, applicants believe that the 
proposed credit facility would benefit both borrowing and lending 
Funds.
    8. The interest rate charged to the Funds on any Interfund Loan 
would be the average of the Repo Rate and the Bank Loan Rate, as 
defined below. The Repo Rate for any day would be the highest rate 
available to the Joint Account participants from investments in 
overnight repurchase agreements. The Bank Loan Rate for any day would 
be calculated by the Franklin Templeton Advisers each day an Interfund 
Loan is made according to a formula established by the directors or 
trustees of the Funds (the ``Trustees'') designed to approximate the 
lowest interest rate at which bank short-term loans would be available 
to the Funds. The formula would be based upon a publicly available rate 
(e.g., Federal Funds plus 25 basis points) and would vary with this 
rate so as to reflect changing bank loan rates. Each Fund's Trustees 
periodically would review the continuing appropriateness of using the 
publicly available rate, as well as the relationship between the Bank 
Loan Rate and current bank rates that would be available to the Funds. 
The initial formula and any subsequent modifications to the formula 
would be subject to the approval of each Fund's Trustees.
    9. The credit facility would be administered by the Franklin 
Templeton Advisers' money market investment professionals (including 
the portfolio manager(s) for the Money Market Funds) and fund 
accounting department (collectively, the ``Cash Management Team''). 
Under the proposed credit facility, the portfolio managers for each 
participating Fund may provide standing instructions to participate 
daily as a borrower or lender. The Franklin Templeton Advisers on each 
business day would collect data on the uninvested cash and borrowing 
requirements of all participating Funds from the Funds' custodians. 
Applicants expect far more available uninvested cash each day than 
borrowing demand. Once it had determined the aggregate amount of cash 
available for loans and borrowing demand, the Cash Management Team 
would allocate loans among borrowing Funds without any further 
communication from portfolio managers (other than the Money Market Fund 
portfolio managers on the Cash Management Team). All allocations will 
require approval of at least one member of the Cash Management Team who 
is not a Money Market Fund's portfolio manager. After the Cash 
Management Team has allocated cash for Interfund Loans, the Franklin 
Templeton Advisers will invest any remaining cash in accordance with 
the standing instructions from portfolio managers or return remaining 
amounts for investment to the Funds. The Money Market Funds typically 
would not participate as borrowers because they rarely need to borrow 
cash to meet redemptions.

[[Page 51358]]

    10. The Cash Management Team would allocate borrowing demand and 
cash available for lending among the Funds on what the Cash Management 
Team believed to be an equitable basis, subject to certain 
administrative procedures applicable to all Funds, such as the time of 
filing requests to participate, minimum loan lot sizes, and the need to 
minimize the number of transactions and associated administrative 
costs. To reduce transaction costs, each loan normally would be 
allocated in a manner intended to minimize the number of Funds 
necessary to complete the loan transaction. The method of allocation 
and related administrative procedures would be approved by each Fund's 
Trustees, including a majority of Trustees who are not ``interested 
persons'' of the Funds, as defined in section 2(a)(19) of the Act 
(``Independent Trustees''), to ensure that the borrowing and lending 
Funds participate on an equitable basis.
    11. The Franklin Templeton Advisers would (i) monitor the interest 
rates charged and the other terms and conditions of the Interfund 
Loans, (ii) ensure compliance with each Fund's investment policies and 
limitations, (iii) ensure equitable treatment of each Fund, and (iv) 
make quarterly reports to the Trustees concerning any transactions by 
the Funds under the credit facility and the interest rates charged.
    12. The Franklin Templeton Advisers would administer the credit 
facility as part of their duties under existing contracts with each 
Fund and would receive no additional fee as compensation for their 
services. The Franklin Templeton Advisers or companies affiliated with 
them may collect standard pricing, recordkeeping, bookkeeping and 
accounting fees applicable to repurchase and lending transactions 
generally, including transactions effected through the credit facility. 
Fees would be no higher than those applicable for comparable bank loan 
transactions.
    13. Each Fund's participation in the proposed credit facility will 
be consistent with its organizational documents and its investment 
policies and limitations. The prospectus of each Fund discloses the 
individual borrowing and lending limitations of the Fund. Each Fund 
will notify shareholders of its intended participation in the proposed 
credit facility prior to relying upon any relief granted pursuant to 
the application. The Statement of Additional Information (``SAI'') of 
each Fund will disclose all material facts about the Fund's intended 
participation in the credit facility.
    14. In connection with the credit facility, applicants request an 
order under (i) section 6(c) of the Act granting relief from sections 
18(f) and 21(b) of the Act; (ii) section 12(d)(1(J) of the Act granting 
relief from section 12(d)(1) of the Act; (iii) sections 6(c) and 17(b) 
of the Act granting relief from sections 17(a)(1) and 17(a)(3) of the 
Act; and (iv) section 17(d) of the Act and rule 17d-1 under the Act to 
permit certain joint arrangements.

Applicant's Legal Analysis

    1. Section 17(a)(3) generally prohibits any affiliated person, or 
affiliated person of an affiliated person, from borrowing money or 
other property from a registered investment company. Section 21(b) 
generally prohibits any registered management investment company from 
lending money or other property to any person if that person controls 
or is under common control with the company. Section 2(a)(3)(C) of the 
Act defines an ``affiliated person'' of another person, in part, to by 
any person directly or indirectly controlling, controlled by, or under 
common control with, the other person. Applicants state that the Funds 
may be under common control by virtue of having the Franklin Templeton 
Advisers as their common investment advisers.
    2. Section 6(c) provides that an exemptive order may be granted 
where an exemption is necessary or appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act. Section 17(b) 
authorizes the SEC to exempt a proposed transaction from section 17(a) 
provided that the terms of the transaction, including the consideration 
to be paid or received, are fair and reasonable and do not involve 
overreaching on the part of any person concerned, and the transaction 
is consistent with the policy of the investment company as recited in 
its registration statement and with the general purposes of the Act. 
Applicants believe that the proposed arrangements satisfy these 
standards for the reasons discussed below.
    3. Applicants submit that sections 17(a)(3) and 21(b) of the Act 
were intended to prevent a party with potential adverse interests to 
and influence over the investment decisions of a registered investment 
company from causing or inducing the investment company to engage in 
lending transactions that unfairly inure to the benefit of such party 
and that are detrimental to the best interests of the investment 
company and its shareholders. Applicants assert that the proposed 
credit facility transactions do not raise these concerns because (i) 
the Franklin Templeton Advisers would administer the program as 
disinterested fiduciaries; (ii) all Interfund Loans would consist only 
of uninvested cash reserves that the Fund otherwise would invest in 
short-term repurchase agreements or other short-term instruments either 
directly or through the Joint Account or in the Money Market Funds; 
(iii) the Interfund Loans would not involve a greater risk than such 
other investments; (iv) the lending Fund would receive interest at a 
rate higher than it could obtain through such other investments; and 
(v) the borrowing Fund would pay interest at a rate lower than 
otherwise available to it under any bank loan agreements and avoid the 
up-front commitment fees associated with committed lines of credit. 
Moreover, applicants believe that the other conditions in the 
application would effectively preclude the possibility of any Fund 
obtaining an undue advantage over any other Fund.
    4. Section 17(a)(1) generally prohibits an affiliated person of a 
registered investment company, or an affiliated person of an affiliated 
person, from selling any securities or other property to the company. 
Section 12(d)(1) of the Act generally makes it unlawful for a 
registered investment company to purchase or otherwise acquire any 
security issued by any other investment company except in accordance 
with the limitations set forth in that section. Applicants believe that 
the obligation of a borrowing Fund to repay an Interfund Loan may 
constitute a security under sections 17(a)(1) and 12(d)(1). Section 
12(d)(1)(J) provides that the SEC may exempt persons or transactions 
from any provision of section 12(d)(1) if and to the extent such 
exception is consistent with the public interest and the protection of 
investors. Applicants contend that the standards under sections 6(c), 
17(b) and 12(d)(1) are satisfied for all the reasons set forth above in 
support of their request for relief from sections 17(a)(3) and 21(b) 
and for the reasons discussed below.
    5. Applicants state that section 12(d)(1) was intended to prevent 
the pyramiding of investment companies in order to avoid duplicative 
costs and fees attendant upon multiple layers of investment companies. 
Applicants submit that the proposed credit facility does not involve 
these abuses. Applicants note that there would be no duplicative costs 
or fees to the Funds or shareholders, and that the Franklin Templeton 
Advisers would receive no

[[Page 51359]]

additional compensation for their services in administering the credit 
facility. Applicants also note that the purpose of the proposed credit 
facility is to provide economic benefits for all the participating 
Funds.
    6. Section 18(f)(1) prohibits open-end investment companies from 
issuing any senior security except that a company is permitted to 
borrow from any bank; provided, that immediately after any such 
borrowing there is an asset coverage of at least 300 per centum for all 
borrowings of the company. Under section 18(g) of the Act, the term 
``senior security'' includes any bond, debenture, note, or similar 
obligation or instrument constituting a security and evidencing 
indebtedness. Applicants request relief from section 18(f)(1) to the 
limited extent necessary to implement the credit facility (because the 
lending Funds are not banks).
    7. Applicants believe that granting relief under section 6(c) is 
appropriate because the Funds would remain subject to the requirement 
of section 18(f)(1) that all borrowings of the Fund, including combined 
credit facility and bank borrowings, have at least 300% asset coverage. 
Based on the conditions and safeguards described in the application, 
applicants also submit that to allow the Funds to borrow from other 
Funds pursuant to the proposed credit facility is consistent with the 
purposes and policies of section 18(f)(1).
    8. Section 17(d) and rule 17d-1 generally prohibit any affiliated 
person of a registered investment company, or affiliated person of an 
affiliated person, when acting as principal, from effecting any joint 
transaction in which the company participates unless the transaction is 
approved by the SEC. Rule 17d-1 provides that in passing upon 
applications for exemptive relief from section 17(d), the SEC will 
consider whether the participation of a registered investment company 
in a joint enterprise on the basis proposed is consistent with the 
provisions, policies, and purposes of the Act and the extent to which 
the company's participation is on a basis different from or less 
advantageous than that of other participants.
    9. Applicants submit that the purpose of section 17(d) is to avoid 
overreaching by and unfair advantage to investment company insiders. 
Applicants believe that the credit facility is consistent with the 
provisions, policies and purposes of the Act in that it offers both 
reduced borrowing costs and enhanced returns on loaned funds to all 
participating Funds and their shareholders. Applicants note that each 
Fund would have an equal opportunity to borrow and lend on equal terms 
consistent with its investment policies and fundamental investment 
limitations. Applicants therefore believe that each fund's 
participation in the credit facility will be on terms which are no 
different from or less advantageous than that of other participating 
Funds.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The interest rates to be charged to the Funds under the credit 
facility will be the average of the Repo Rate and the Bank Loan Rate.
    2. On each business day, the Franklin Templeton Advisers will 
compare the Bank Loan Rate with the Repo Rate and will make cash 
available for Interfund Loans only if the Interfund Loan Rate is (i) 
more favorable to the lending Fund than the Repo Rate; (ii) more 
favorable to the lending Fund than the yield on the Money Market Funds 
(``MMF Yield'') (for those Funds that invest in the Money Market 
Funds); and (iii) more favorable to the borrowing Fund than the Bank 
Loan Rate.
    3. If a Fund has outstanding borrowings, any Interfund Loans to the 
Fund: (a) Will be at an interest rate equal to or lower than any 
outstanding bank loan, (b) will be secured at least on an equal 
priority basis with at least an equivalent percentage of collateral to 
loan value as any outstanding bank loan that requires collateral, (c) 
will have a maturity no longer than any outstanding bank loan (and in 
any event not over seven days), and (d) will provide that, if an event 
of default occurs under any agreement evidencing an outstanding bank 
loan to the Fund, that event of default will automatically (without 
need for action or notice by the lending Fund) constitute an immediate 
event of default under the Interfund Lending Agreement entitling the 
lending Fund to call the Interfund Loan (and exercise all rights with 
respect to any collateral) and that such call will be made if the 
lending bank exercises its right to call its loan under its agreement 
with the borrowing Fund.
    4. A Fund may make an unsecured borrowing through the credit 
facility if its outstanding borrowings from all sources immediately 
after the interfund borrowing total less than 10% of its total assets, 
provided that if the Fund has a secured loan outstanding from any other 
lender, including but not limited to another fund, the Fund's interfund 
borrowing will be secured on at least an equal priority basis with at 
least an equivalent percentage of collateral to loan value as any 
outstanding loan that requires collateral. If a Fund's total 
outstanding borrowings immediately after interfund borrowing would be 
greater than 10% of its total assets, the Fund may borrow through the 
credit facility on a secured basis only. A Fund may not borrow through 
the credit facility or from any other source if its total outstanding 
borrowings immediately after the interfund borrowing would be more than 
33\1/3\% of its total assets.
    5. Before any Fund that has outstanding interfund borrowings may, 
through additional borrowings, cause its outstanding borrowings from 
all sources to exceed 10% of its total assets, the Fund must first 
secure each outstanding Interfund Loan by the pledge of segregated 
collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan. If the total outstanding 
borrowings of a Fund with outstanding Interfund Loans exceeds 10% of 
its total assets for any other reason (such as decline in net asset 
value or because of shareholder redemptions), the Fund will within one 
business day thereafter: (a) Repay all its outstanding Interfund Loans, 
(b) reduce its outstanding indebtedness to 10% or less of its total 
assets, or (c) secure each outstanding Interfund Loan by the pledge of 
segregated collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan until the Fund's total 
outstanding borrowings cease to exceed 10% of its total assets, at 
which time the collateral called for by this condition (5) shall no 
longer be required. Until each Interfund Loan that is outstanding at 
any time that a Fund's total outstanding borrowings exceeds 10% is 
repaid or the Fund's total outstanding borrowings cease to exceed 10% 
of its total assets, the Fund will mark the value of the collateral to 
market each day and will pledge such additional collateral as is 
necessary to maintain the market value of the collateral that secures 
each outstanding Interfund Loan at least equal to 102% of the 
outstanding principal value of the loan.
    6. No equity, taxable bond or Money Market Fund may lend to another 
Fund through the credit facility if the loan would cause its aggregate 
outstanding loans through the credit facility to exceed 5%, 7.5% or 
10%, respectively, of its net assets at the time of the loan.
    7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of 
the lending Fund's net assets.
    8. The duration of Interfund Loans will be limited to the time 
required to receive payment for securities sold, but in no event more 
than seven days. Loans effected within seven days of each other

[[Page 51360]]

will be treated as separate loan transactions for purposes of this 
condition.
    9. A Fund's borrowings through the credit facility, as measured on 
the day the most recent loan was made, will not exceed the greater of 
125% of the Fund's total net cash redemptions and 102% of sales fails 
for the preceding seven calendar days.
    10. Each Interfund Loan may be called on one business day's notice 
by the lending Fund and may be repaid on any day by the borrowing Fund.
    11. A Fund's participation in the credit facility must be 
consistent with its investment policies and limitations and 
organizational documents.
    12. The Cash Management Team will calculate total Fund borrowing 
and lending demand through the credit facility, and allocate loans on 
an equitable basis among the Funds without intervention of the 
portfolio manager of a Fund (except a portfolio manager of the Money 
Market Funds acting in his or her capacity as a member of the Cash 
Management Team). All allocations will require approval of at least one 
member of the Cash Management Team who is not a portfolio manager of 
the Money Market Funds. The Cash Management Team will not solicit cash 
for the credit facility from any Fund or prospectively publish or 
disseminate loan demand data to portfolio managers (except to the 
extent that the portfolio managers of the Money Market Funds on the 
Cash Management Team have access to loan demand data). The Franklin 
Templeton Advisers will invest any amounts remaining after satisfaction 
of borrowing demand in accordance with the standing instructions from 
portfolio managers or return remaining amounts for investment to the 
Funds.
    13. The Franklin Templeton Advisers will monitor the interest rates 
charged and the other terms and conditions of the Interfund Loans and 
will make a quarterly report to the Trustees concerning the 
participation of the Funds in the credit facility and the terms and 
other conditions of any extensions of credit thereunder.
    14. The Trustees of each Fund, including a majority of the 
Independent Trustees: (a) will review no less frequently than quarterly 
the Fund's participation in the credit facility during the preceding 
quarter for compliance with the conditions of any order permitting such 
transactions; (b) will establish the Bank Loan Rate formula used to 
determine the interest rate on Interfund Loans and review no less 
frequently than annually the continuing appropriateness of the Bank 
Loan Rate formula; and (c) will review no less frequently than annually 
the continuing appropriateness of the Fund's participation in the 
credit facility.
    15. In the event an Interfund Loan is not paid according to its 
terms and such default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand for payment 
under the provisions of the Interfund Lending Agreement, the Franklin 
Templeton Advisers will promptly refer such loan for arbitration to an 
independent arbitrator selected by the Trustees of any Fund involved in 
the loan who will serve as arbitrator of disputes concerning Interfund 
Loans.\4\ The arbitrator will resolve any problem promptly, and the 
arbitrator's decision will be binding on both Funds. The arbitrator 
will submit, at least annually, a written report to the Trustees 
setting forth a description of the nature of any dispute and the 
actions taken by the Funds to resolve the dispute.
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    \4\ If the dispute involves Funds with separate boards of 
Trustees, the Trustees of each Fund will select an independent 
arbitrator that is satisfactory to each party.
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    16. Each Fund will maintain had preserve for a period of not less 
than six years from the end of the fiscal year in which any transaction 
under the credit facility occurred, the first two years in an easily 
accessible place, written records of all such transactions setting 
forth a description of the terms of the transaction, including the 
amount, the maturity, and the rate of interest on the loan, the rate of 
interest available at the time on short-term repurchase agreements and 
bank borrowings, the MMF Yield, and such other information presented to 
the Trustees in connection with the review required by conditions 13 
and 14 above.
    17. The Franklin Templeton Advisers will prepare and submit to the 
Trustees for review an initial report describing the operations of the 
credit facility and the procedures to be implemented to ensure that all 
Funds are treated fairly. After the credit facility commences 
operations, the Franklin Templeton Advisers will report on the 
operations of the credit facility at the Trustees' quarterly meetings. 
in addition, for two years following the commencement of the credit 
facility, the independent public accountant for each Fund shall prepare 
an annual report that evaluates the Franklin Templeton Adviser's 
assertion that it has established procedures reasonably designed to 
achieve compliance with the conditions of the order. The report shall 
be prepared in accordance with the Statements on Standards for 
Attestation Engagements No. 3 and it shall be filed pursuant to Item 
77Q3 of Form N-SAR. In particular, the report shall address procedures 
designed to achieve the following objectives: (a) that the Interfund 
Rate will be higher than the Repo Rate, and than the MMF Yield, but 
lower than the Bank Loan Rate; (b) compliance with the collateral 
requirements as set forth in the application; (c) compliance with the 
percentage limitations on interfund borrowing and lending; (d) 
allocation of interfund borrowing and lending demand in an equitable 
manner and in accordance with procedures established by the Trustees; 
and (e) that the interest rate on any Interfund Loan does not exceed 
the interest rate on any third party borrowings of a borrowing Fund at 
the time of the Interfund Loan. After the final report is filed, the 
Fund's external auditors, in connection with their Fund audit 
examinations, will continue to review the operation of the credit 
facility for compliance with the conditions of the application and 
their review will form the basis, in part, of the auditor's report on 
internal accounting controls in Form N-SAR.
    18. No fund will participate in the credit facility upon receipt of 
requisite regulatory approval unless it has fully disclosed in its SAI 
all material facts about its intended participation.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-24602 Filed 9-21-99; 8:45 am]
BILLING CODE 8010-01-M