AGREEMENT
AGREEMENT, made as of May 1, 1991, between Franklin
Institutional U.S. Government ARM Fund, a Delaware business trust
(hereinafter called the "Trust"), and Bank of America NT & SA, a
national banking association (hereinafter called the
"Custodian").
WITNESSETH:
WHEREAS, the Trust is registered as an investment company
under the Investment Company Act of 1940, as amended (the "1940
Act"), as a diversified, open-end management company which will
make shares available for each of the separate Funds (referred to
herein as a "Fund" or collectively as the "Funds") formed as a
series of the Trust, and desires that its securities and cash
shall be held and administered by the Custodian pursuant to the
terms of this Agreement; and
WHEREAS, the Custodian has an aggregate capital, surplus,
and undivided profits in excess of Two Million Dollars
($2,000,000) and has its functions and physical facilities
supervised by federal authority and is ready and willing to serve
pursuant to and subject to the terms of this Agreement:
NOW, THEREFORE, in consideration of the mutual agreements
herein made, the Trust and Custodian agree as follows:
Sec. 1. Definitions:
The word "securities" as used herein includes stocks,
shares, bonds, debentures, notes, mortgages and other obligations
and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase, or subscribe for the
same, or evidencing or representing any other rights or interests
therein, or in any property or assets.
The term "proper instructions" shall mean a request or
direction by telephone or any other communication device from an
authorized Trust designee to be followed by a certification in
writing signed in the name of the Trust by any two of the
following persons: the Chairman of the Board of Trustees, the
President, a Vice-President, the Secretary and Treasurer of the
Trust, or any other persons duly authorized to sign by the Board
of Trustees of the Trust and for whom authorization has been
communicated in writing to the Custodian. The term "proper
officers" shall mean the officers authorized above to give proper
instructions.
Sec. 2. Names, Titles and Signatures of Authorized Signers:
An officer of the Trust will certify to Custodian the names
and signatures of those persons authorized to sign in accordance
with Sec. 1 hereof, and on a timely basis, of any changes which
thereafter may occur.
Sec. 3. Receipt and Disbursement of Money:
Custodian shall open and maintain a separate account or
accounts in the name of the Funds, subject only to draft or order
by Custodian acting pursuant to the terms of this Agreement,
("Direct Demand Deposit Account"). Custodian shall hold in such
account or accounts, subject to the provisions hereof, all cash
received by it from or for the accounts of the Funds. This shall
include, without limitation, the proceeds from the sale of shares
of the capital stock of the Funds which shall be received along
with proper instructions from the Trust. All such payments
received by Custodian shall be converted to Federal Funds no
later than the day after receipt and deposited to such Direct
Demand Deposit Account.
Custodian shall make payments of cash to, or for the account
of, the Funds from such cash or Direct Demand Deposit Account
only (a) for the purchase of securities for the portfolio of the
Funds upon the delivery of such securities to Custodian
registered in the name of the Custodian or of the nominee or
nominees thereof, in the proper form for transfer, (b) for the
redemption of shares of the capital stock of the Funds, (c) for
the payment of interest, dividends, taxes, management or
supervisory fees or any operating expenses (including, without
limitations thereto, insurance premiums, fees for legal,
accounting and auditing services), (d) for payments in connection
with the conversion, exchange or surrender of securities owned or
subscribed to by the Funds held by or to be delivered to
Custodian; or (e) for other proper Trust purposes. Before making
any such payment, Custodian shall receive and may rely upon,
proper instructions requesting such payment and setting forth the
purposes of such payment.
Custodian is hereby authorized to endorse and collect for
the account of the Funds all checks, drafts or other orders for
the payment of money received by Custodian for the account of the
Funds
Sec. 4. Holding of Securities:
Custodian shall hold all securities received by it for the
account of the Funds, pursuant to the provisions hereof, in
accordance with the provisions of Section 17(f) of the Investment
Company Act of 1940 and the regulations thereunder. All such
securities are to be held or disposed of by the Custodian for,
and subject at all times to the proper instructions of, the
Trust, pursuant to the terms of this Agreement. The Custodian
shall have no power of authority to assign, hypothecate, pledge
or otherwise dispose of any such securities and investments,
except pursuant to the proper instructions of the Trust and only
for the account of the Funds as set forth in Sec. 5 of this
Agreement.
Sec. 5. Transfer, Exchange or Delivery, of Securities:
Custodian shall have sole power to release or to deliver any
securities of the Funds held by it pursuant to this Agreement.
Custodian agrees to transfer, exchange, or deliver securities
held by it hereunder only (a) for the sales of such securities
for the account of the Funds upon receipt by Custodian of payment
therefor, (b) when such securities are called, redeemed or
retired or otherwise become payable, (c) for examination by any
broker selling any such securities in accordance with "street
delivery" custom, (d) in exchange for or upon conversion into
other securities alone or other securities and cash whether
pursuant to any plan or merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise, (e) on conversion
of such securities pursuant to their terms into other securities,
(f) upon exercise of subscription, purchase or other similar
rights represented by such securities, (g) for the purpose of
exchanging interim receipts or temporary securities for
definitive securities, (h) for the purpose of redeeming in kind
shares of beneficial interest of the Funds upon delivery thereof
to Custodian, or (i) for other proper Trust purposes. Any
securities or cash receivable in exchange for such deliveries
made by Custodian, shall be deliverable to Custodian. Before
making any such transfer, exchange or delivery, the Custodian
shall receive, and may rely upon, proper instructions authorizing
such transfer, exchange or delivery and setting forth the purpose
thereof.
Sec. 6. Other Actions of Custodians:
(a) The Custodian shall collect, receive and deposit income
dividends, interest and other payments or distribution of cash or
property of whatever kind with respect to the securities held
hereunder; receive and collect securities received as a
distribution upon portfolio securities as a result of a stock
dividend, share split-up, reorganization, recapitalization,
consolidation, merger, readjustment, distribution of rights and
other items of like nature, or otherwise, and execute ownership
and other certificates and affidavits for all federal and state
tax purposes in connection with the collection of coupons upon
corporate securities, setting forth in any such certificate or
affidavit the name of the Fund as owner of such securities; and
do all other things necessary or proper in connection with the
collection, receipt and deposit of such income and securities,
including without limiting the generality of the foregoing,
presenting for payment all coupons and other income items
requiring presentation and presenting for payment all securities
which may be called, redeemed, retired or otherwise become
payable. Amounts to be collected hereunder shall be credited to
the account of the Fund according to the following formula:
(1) Periodic interest payments and final payments on
maturities of Federal instruments such as U.S. Treasury bills,
bonds and notes; interest payments and final payments on
maturities of other money market instruments including tax-exempt
money market instruments payable in federal or depository funds;
and payments on final maturities of GNMA instruments, shall be
credited to the account of the Fund on payable or maturity date.
(2) Dividends on equity securities and interest
payments, and payments on final maturities of municipal bonds
(except called bonds) shall be credited to the account of the
Fund on payable or maturity date plus one.
(3) Payments for the redemption of called bonds,
including called municipal bonds shall be credited to the account
of the Fund on the payable date except that called municipal
bonds paid in other than Federal or depository funds shall be
credited on payable date plus one.
(4) Periodic payments of interest and/or of partial
principal on GNMA instruments (other than payments on final
maturity) shall be credited to the account of the Fund on payable
date plus two.
(5) Proceeds of insurance in lieu of any payments on
municipal securities in default shall be credited to the account
of the Fund on date of receipt.
(6) Should the Custodian fail to credit the account of
the Fund on the date specified in paragraphs (1) - (5) above, the
Fund may at its option, require compensation from the Custodian
of foregone interest (at the rate of prime plus one) and for
damages, if any.
(b) Payments to be received or to be paid in connection with
purchase and sale transactions shall be debited or credited to
the account of the Fund on the contract settlement date with the
exception of "when-issued" municipal bonds. Payments to be made
for purchase by the Fund of when-issued municipal bonds shall be
debited to the account of the Fund on actual settlement date.
(1) In the event a payment is wrongfully debited to
the account of the Fund due to an error by the Custodian, the
Custodian will promptly credit such amount to the Fund, plus
interest (prime plus one) and damages, if any.
(2) In the event a payment is credited to the account
of the Fund and the Custodian is unable to deliver securities
being sold due to an error on the part of the Fund, such payment
shall be debited to the account of the Fund, and an appropriate
charge for costs of the transaction may be sent by the Custodian
to the Trust.
Sec. 7. Reports by Custodian:
Custodian shall each business day furnish the Trust with a
statement summarizing all transactions and entries for the
account of the Fund for the preceding day. At the end of every
month Custodian shall furnish the Trust with a list of the
portfolio securities showing the quantity of each issue owned,
the cost of each issue and the market value of each issue at the
end of each month. Such monthly report shall also contain
separate listings of (a) unsettled trades and (b) when-issued
securities. Custodian shall furnish such other reports as may be
mutually agreed upon from time-to-time.
Sec. 8. Compensation:
Custodian shall be paid as compensation for its services
pursuant to this Agreement such compensation as may from time to
time be agreed upon in writing between the two parties.
Sec. 9. Liabilities and Indemnifications:
(a) Custodian shall not be liable for any action taken in
good faith upon any proper instructions herein described or
certified copy of any resolution of, the Board of Trustees of the
Trust, and may rely on the genuineness of any such document which
it may in good faith believe to have been validly executed.
(b) The Trust agrees to indemnify and hold harmless the
Custodian and its nominee from all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees)
incurred or assigned against it or its nominee in connection with
the performance of this Agreement, except such as may arise from
negligent action, negligent failure to act or willful misconduct
of Custodian or its nominee.
Sec. 10. Records:
The Custodian hereby acknowledges that all of the records it
shall prepare and maintain pursuant to this Agreement shall be
the property of the Trust and, if and to the extent applicable,
of the principal underwriter of the shares of the Funds, and that
upon proper instructions of the Trust or such principal
underwriter, if any, or both, it shall:
(a) Deliver said records to the Trust, principal underwriter
or a successor custodian, as appropriate;
(b) Provide the auditors of the Trust or principal
underwriter or any securities regulatory agency with a copy of
such records without charge; and provide the Trust and successor
custodian with a reasonable number of reports and copies of such
records at a mutually agreed upon charge appropriate to the
circumstances.
(c) Permit any securities regulatory agency to inspect or
copy during normal business hours of the Custodian any such
records.
Sec. 11. Appointment of Agents:
(a) The Custodian shall have the authority, in its
discretion, to appoint an agent or agents to do and perform any
acts or things for and on behalf of the Custodian, pursuant at
all times to its instructions, as the Custodian is permitted to
do under this Agreement.
(b) Any agent or agents appointed to have physical custody
of securities held under this Agreement or any part thereof must
be:
(1) a bank or banks, as that term is defined in Section
2(a)(5) of the 1940 Act, having an aggregate, surplus and
individual profits of not less than $2,000,000 (or such greater
sum as may then be required by applicable laws), or
(2) a securities depository, (the "Depository") as that
term is defined in Rule 17f-4 under the 1940 Act, upon proper
instructions from the Trust and subject to any applicable
regulations, or
(3) the book-entry system of the U.S. Treasury
Department and Federal Reserve Board, (the "System") upon proper
instructions and subject to any applicable regulations.
(c) With respect to portfolio securities deposited or held
in the System or the Depository, Custodian shall:
1) hold such securities in a nonproprietary account
which shall not include securities owned by Custodian;
2) on each day on which there is a transfer to or from
the Funds in such portfolio securities, send a written
confirmation to the Trust;
3) upon receipt by Custodian, send promptly to Trust
(i) a copy of any reports Custodian receives from the System or
the Depository concerning internal accounting controls, and (ii)
a copy of such reports on Custodian's systems of internal
accounting controls as Trust may reasonably request.
(d) The delegation of any responsibilities or activities by
the Custodian to any agent or agents shall not relieve the
Custodian from any liability which would exist if there were no
such delegation.
Sec. 12. Assignment and Termination:
(a) This Agreement may not be assigned by the Trust or the
Custodian without written consent of the other party.
(b) Either the Custodian or the Trust may terminate this
Agreement without payment of any penalty, at any time upon one
hundred twenty (120) days written notice thereof delivered by the
one to the other, and upon the expiration of said one hundred
twenty (120) days, this Agreement shall terminate; provided,
however, that this Agreement shall continue thereafter for such
period as may be necessary for the complete divestiture of all
assets held hereinunder, as next herein provided. In the event
of such termination, the Custodian will immediately upon the
receipt or transmittal of such notice, as the case may be,
commence and prosecute diligently to completion the transfer of
all cash and the delivery of all portfolio securities, duly
endorsed, to the successor of the Custodian when appointed by the
Trust. The Trust shall select such successor custodian within
sixty (60) days after the giving of such notice of termination,
and the obligation of the Custodian named herein to deliver and
transfer over said assets directly to such successor custodian
shall commence as soon as such successor is appointed and shall
continue until completed, as aforesaid. At any time after
termination hereof the Trust may have access to the records of
the administration of this custodianship whenever the same may be
necessary.
(c) If, after termination of the services of the Custodian,
no successor custodian has been appointed within the period above
provided, the Custodian may deliver the cash and securities owned
by the Trust to a bank or trust company of its own selection
having an aggregate capital, surplus and undivided profits of not
less than Two Million Dollars ($2,000,000) (or such greater sum
as may then be required by the laws and regulations governing the
conduct by the Trust of its business as an investment company)
and having its functions and physical facilities supervised by
federal or state authority, to be held as the property of the
Trust under the terms similar to those on which they were held by
the retiring Custodian, whereupon such bank or trust company so
selected by the Custodian shall become the successor custodian
with the same effect as though selected by the Board of Trustees
of the Trust.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement.
Franklin Institutional U.S. Government
ARM Fund
By /s/ Xxxxxxx X. Xxxxxxx
Bank of America, NT & SA
/s/ Xxxx X. Xxxxxx
By /s/ illegible
