FRANKLIN VALUEMARK FUNDS
on behalf of
SMALL CAP FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN
VALUEMARK FUND, a Massachusetts business trust (the
"Trust"), on behalf of SMALL CAP FUND (the "Fund"), a series
of the Trust, and FRANKLIN ADVISERS, INC., a California
corporation, (the "Manager"). This Management Agreement
shall supersede the "Addendum to the Investment Management
Agreement by and between Franklin Valuemark Funds and
Franklin Advisers Inc., on behalf of the Small Cap Fund,"
dated July 19, 1995.
WHEREAS, the Trust 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 Trust
desires to avail itself of the services, information,
advice, assistance and facilities of an investment manager
and to have an investment manager perform various
management, statistical, research, investment advisory and
other services 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 Trust hereby
employs the Manager to manage the investment and
reinvestment of the Fund's assets and to administer its
affairs, subject to the direction of the Board of Trustees
and the officers of the Trust, for the period and on the
terms hereinafter set forth. The Manager hereby accepts such
employment and agrees during such period to render the
services and to assume the obligations herein set forth for
the compensation herein provided. The Manager shall for all
purposes herein be deemed to be an independent contractor
and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for
or represent the Fund or the Trust in any way or otherwise
be deemed an agent of the Fund or the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE
MANAGER. The Manager undertakes to provide the services
hereinafter set forth and to assume the following
obligations:
A. 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 Trust 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 Trust's
Board of Trustees may issue from time to time. In pursuance
of the foregoing, the Manager shall make all determinations
with respect to the investment of the 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
Trust, at regular meetings of its Board of Trustees and at
such other times as may be reasonably requested by the
Trust'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 Trust's Board of Trustees may issue
from time to time, shall place, in the name of the Fund,
orders for the execution of the Fund's 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 Trust 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 Trust's officers are
satisfied that the best execution is obtained, the
sale of shares of the Fund may also be considered
as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
(c) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin/Xxxxxxxxx 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 Trust 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
Trust, not more frequently than quarterly, of how much total
brokerage business has been placed by the Manager, on behalf
of the Fund, with brokers falling into each of the
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 Trust for consultation and
discussions regarding the administration and management of
the Fund and its investment activities.
3. EXPENSES OF THE FUND. It is understood that the
Fund will pay all of its own expenses other than those
expressly assumed by the Manager herein, which expenses
payable by the Fund shall include:
A. Fees 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 Trust who are not officers, directors,
stockholders or employees of the Manager or its affiliates;
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 Trust's legal
existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's
shares for sale;
K. 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 at the following annual rates:
0.75% of the value of net assets up to and
including $500,000,000;
0.625% of the value of net assets over
$500,000,000 up to and including $1 billion; and
0.50% of the value of net assets over $1 billion.
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 Trust
and By-Laws of the Trust and Section 10(a) of the 1940 Act,
it is understood that trustees, officers, agents and
shareholders of the Trust 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 Trust 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 Trust
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 Trust for any and all costs,
expenses, and counsel and trustees' fees reasonably incurred
by the Trust 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 Trust 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 Trust'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
Trust for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust
or a shareholder seeking to recover all or a portion of the
proceeds derived by any 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 Trust the amount due for
expenses subject to this Subparagraph 6(B) within 30 days
after a xxxx or statement has been received by the Manager
therefor. This provision shall not be deemed to be a waiver
of any claim the Trust may have or may assert against the
Manager or others for costs, expenses or damages heretofore
incurred by the Trust or for costs, expenses or damages the
Trust may hereafter incur which are not reimbursable to it
hereunder.
C. No provision of this Agreement shall be construed to
protect any trustee or officer of the Trust, or director or
officer of the Manager, from liability in violation of
Sections 17(h) and (i) of the 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 Trust, and (ii)
by a vote of a majority of the Trustees of the Trust who are
not parties to the Agreement (other than as Trustees of the
Trust), cast in person at a meeting called for the purpose
of voting on the Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Trustees of
the Trust or by vote of a majority of the outstanding voting
securities of the Fund on 60 days' written notice to the
Manager;
(ii) shall immediately terminate with respect to the
Fund in the event of its assignment; and
(iii) may 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. DISTRIBUTION PLAN.
A. The provisions set forth in this paragraph
8 (hereinafter referred to as the "Plan") have been adopted
pursuant to Rule 12b-1 under the Act by the Trust, having
been approved by a majority of the Trust's Board of
Trustees, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan
(the "non-interested Trustees"), cast in person at a meeting
called for the purpose of voting on such Plan. The Board of
Trustees concluded that the rate of compensation to be paid
to the Manager by the Fund was fair and not excessive, but
that due solely to the uncertainty that may exist from time
to time with respect to whether payments made by the Fund to
the Manager or to other firms may nevertheless be deemed to
constitute distribution expenses, it was determined that
adoption of the Plan would be prudent and in the best
interests of the Fund. The Trustees' approval included a
determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties,
there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders or policyholders investing in
the Fund.
B. No additional payments are to be made by
the Fund as a result of the Plan other than the payments the
Fund is otherwise obligated to make (i) to the Manager
pursuant to paragraph 4 of this Agreement, (ii) to the
Transfer and Dividend Paying Agents or Custodian, pursuant
to their respective Agreements as in effect at any time, and
(iii) in payment of any expenses by the Fund in the ordinary
course of its respective businesses that may be deemed
primarily intended to result in the sale of shares issued by
such Fund. However, to the extent any of such other payments
by the Fund, to or by the Manager, or to the Fund's Agents,
are nevertheless deemed to be payments for the financing of
any activity primarily intended to result in the sale of
shares issued by the Fund within the context of Rule 12b-1
under the Act, then such payments shall be deemed to have
been made pursuant to the Plan as set forth herein. The cost
and activities, the payment of which are intended to be
within the scope of the Plan, shall include, but not
necessarily be limited to, the following:
(a) the costs of the preparation, printing and mailing
of all required reports and notices to shareholders or
policyholders investing in the Fund;
(b) the costs of the preparation, printing and mailing
of all prospectuses and statements of additional
information;
(c) the costs of preparation, printing and mailing of
any proxy statements and proxies;
(d) all legal and accounting fees relating to the
preparation of any such reports, prospectuses, proxies and
proxy statements;
(e) all fees and expenses relating to the qualification
of the Fund and/or its shares under the securities or "Blue
Sky" laws of any jurisdiction;
(f) all fees under the Securities Act of 1933 and the
Act, including fees in connection with any application for
exemption relating to or directed toward the sale of the
Fund's shares;
(g) all fees and assessments of the Investment Company
Institute or any successor organization, irrespective of
whether some of its activities are designed to provide sales
assistance;
(h) all costs of the preparation and mailing of
confirmations of shares sold or redeemed, and reports of
share balances;
(i) all costs of responding to telephone or mail
inquiries of investors or prospective investors; and
(j) payments to dealers, financial institutions,
advisers, or other firms, any one of whom may receive monies
in respect of the Fund's shares held in accounts for
policyholders for whom such firm is the dealer of record or
holder of record, or with whom such firm has a servicing
relationship. Servicing may include, among other things: (i)
answering client inquiries regarding the Fund; (ii)
assisting clients in changing account designations and
addresses; (iii) performing sub- accounting; (iv)
establishing and maintaining shareholder or policyholder
accounts and records; (v) processing purchase and redemption
transactions; (vi) providing periodic statements showing a
client's account balance and integrating such statements
with those of other transactions and balances in the
client's other accounts serviced by such firm; (vii)
arranging for bank wires; and (viii) such other services as
the Fund may request, to the extent such are permitted by
applicable statute, rule or regulation.
C. The terms and provisions of the Plan are as follows:
(a) The Manager shall report to the Board of
Trustees of the Trust at least quarterly on payments for any
of the activities in subparagraph B of this paragraph 8, and
shall furnish the Board of Trustees of the Trust with such
other information as the Board may reasonably request in
connection with such payments in order to enable the Board
to make an informed determination of whether the Plan should
be continued.
(b) The Plan shall continue in effect for a
period of more than one year from the date written below
only so long as such continuance is specifically approved at
least annually (from the date below) by the Trust's Board of
Trustees, including the non-interested Trustees, cast in
person at a meeting called for the purpose of voting on the
Plan.
(c) The Plan may be terminated with respect
to the Fund at any time by vote of a majority of
non-interested Trustees or by vote of a majority of such
Fund's outstanding voting securities on not more than sixty
(60) days' written notice to any other party to the Plan,
and the Plan shall terminate automatically with respect to
the Fund in the event of any act that constitutes an
assignment of this Management Agreements.
(d) The Plan may not be amended to increase
materially the amount deemed to be spent for distribution
without approval by a majority of the Fund's outstanding
shares (as defined by the Act) and all material amendments
to the Plan shall be approved by the not-interested Trustees
cast in person at a meeting called for the purpose of voting
on such amendment.
(e) So long as the Plan is in effect, the
selection and nomination of the Trust's non-interested
Trustees shall be committed to the discretion of such
non-interested Trustees.
(f) Any termination of the Plan shall not
terminate this Management Agreement or affect the validity
of any of the provisions of this Agreement other than this
paragraph 8.
9. 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.
10. 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 11th day of
October, 1995.
FRANKLIN VALUEMARK FUNDS
By: /s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx
Vice President & Secretary
FRANKLIN ADVISERS, INC.
By: /s/ Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx
Executive Vice President
