FRANKLIN XXXXXXXXX FUND ALLOCATOR SERIES
on behalf of its series
Franklin Xxxxxxxxx Conservative Target Fund
Franklin Xxxxxxxxx Moderate Target Fund
Franklin Xxxxxxxxx Growth Target Fund
INVESTMENT ADVISORY and ASSET ALLOCATION AGREEMENT
This INVESTMENT ADVISORY and ASSET ALLOCATION AGREEMENT ("Agreement") made
between FRANKLIN XXXXXXXXX FUND ALLOCATOR SERIES, a Delaware business trust (the
"Trust"), on behalf of each of its series named above (the "Funds"), and
FRANKLIN ADVISERS, INC., a California corporation, (the "Adviser").
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 Funds; and,
WHEREAS, the investment policies of each Fund contemplate that the Fund
seek to achieve its investment objectives through investment of the Fund's
assets in a number of asset classes and, consequently, each Fund will require
the provision of asset allocation services, as well as traditional investment
advisory services; and
WHEREAS, each Fund currently intends to invest its assets primarily in one
or more available investment companies in the Franklin Xxxxxxxxx Group of Funds,
although each Fund is also permitted to and may invest some or all of its assets
directly in non-investment company securities; and
WHEREAS, the parties hereto have agreed to the respective fees for asset
allocation and investment advisory services as described below; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering asset
allocation, investment advisory, counseling and supervisory services to
investment companies and other investment counseling clients, and desires to
provide these services to the Funds.
NOW THEREFORE, in consideration of the terms and conditions hereinafter set
forth, it is mutually agreed as follows:
l. EMPLOYMENT OF THE ADVISER. The Trust hereby employs the Adviser to
provide asset allocation services to the Funds, to manage the investment and
reinvestment of the Funds' assets in investment company and non-investment
company securities and to administer certain aspects of their 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 Adviser 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
Adviser 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 Funds or the Trust in
any way or otherwise be deemed an agent of the Funds or the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE ADVISER. The Adviser
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
A. ASSET ALLOCATION SERVICES. The Adviser shall, subject to and in
accordance with the investment objectives and policies of each Fund and any
directions which the Trust's Board may issue from time to time, (i) manage
the allocation of each Fund's assets as between different asset classes,
which may include but are not be limited to domestic equity, international,
fixed income, gold and cash; and (ii) consistent with those allocation
decisions, select the amount, if any, to be invested by each Fund in either
the Franklin Xxxxxxxxx Funds available for purchase by such Funds to it or
such other securities as are consistent with each Fund's investment
objectives and policies.
B. INVESTMENT ADVISORY SERVICES. The Adviser shall manage each Fund's
assets subject to and in accordance with the investment objectives and
policies of each Fund and any directions which the Trust's Board may issue
from time to time. In pursuance of the foregoing, the Adviser shall make
all determinations with respect to the investment of each 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.
C. This subsection 2.C applies only to any assets of the Funds which
are not invested in investment company securities.
(a) The Adviser, subject to and in accordance with any directions
which the Board may issue from time to time, shall place, in the name
of each Fund, orders for the execution of each Fund's securities
transactions. When placing such orders, the Adviser shall seek to
obtain the best net price and execution for each Fund, but this
requirement shall not be deemed to obligate the Adviser 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 one or more
Funds and the Adviser in accordance with the standards set forth
below. Moreover, to the extent that it continues to be lawful to do so
and so long as the Board determines that the affected Funds will
benefit, directly or indirectly, by doing so, the Adviser 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 Adviser agree that the Adviser
shall select brokers for the execution of each 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 Adviser or its affiliates which
the Adviser 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
Adviser 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 Adviser 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.
(b) When the Adviser has determined that a 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 Adviser
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 Adviser 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 affected Fund shall enter into an agreement with the Adviser
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.
(c) The Adviser shall render regular reports to the Trust, not
more frequently than quarterly, of how much total brokerage business
has been placed by the Adviser, on behalf of each Fund, with brokers
falling into each of the categories referred to above and the manner
in which the allocation has been accomplished.
(d) The Adviser 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 Adviser's
paramount duty to obtain the best net price and execution for each
Fund.
D. This subsection 2.D applies to any assets of the Funds which are
invested in investment company securities. Orders for the purchase or sale
of investment company securities shall be placed directly with
Franklin/Xxxxxxxxx Distributors, Inc.
E. The Adviser shall render or cause to be rendered regular reports to
the Trust, at regular meetings of its Board and at such other times as may
be reasonably requested by the Board, of (i) decisions made with respect to
the allocation of each Fund's assets; (ii) to the extent each Fund's assets
are invested in investment companies in the Franklin Xxxxxxxxx Group of
Funds, decisions made with respect to purchases and sales of such funds
within the specific asset classes; (iii) to the extent that any portion of
a Fund's assets is invested directly in non-investment company securities,
decisions made with respect to purchase and sale of non-investment company
securities; (iv) the reasons for such decisions; and (v) the extent to
which those decisions have been implemented.
F. The Adviser shall be responsible for determining the manner in
which any voting rights, rights to consent to corporate action and any
other rights pertaining to each Fund's investment company and
non-investment company securities shall be exercised.
G. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES
REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Adviser, its
officers and employees will make available and provide accounting and
statistical information required by each 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.
H. OTHER OBLIGATIONS AND SERVICES. The Adviser shall make its officers
and employees available to the Board and officers of the Trust for
consultation and discussions regarding the administration and management of
each Fund and its investment activities.
3. EXPENSES OF THE FUND. It is understood that each Fund will pay all of
its own expenses other than those expressly assumed by the Adviser herein, which
expenses payable by the Fund shall include, without limitation:
A. Fees and expenses paid to the Adviser as provided herein;
B. Expenses of fund administration, including without limitation
fees paid pursuant to the Fund's contract with Franklin Xxxxxxxxx
Services, Inc. or fees paid to any other entity which provides similar
services to the Fund in the future;
C. Expenses of all audits by independent public accountants;
D. 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;
E. Expenses of obtaining quotations for calculating the value of
the Fund's net assets;
F. Salaries and other compensations of executive officers of the
Trust who are not officers, directors, stockholders or employees of
the Adviser or its affiliates;
G. Taxes levied against the Fund;
H. Brokerage fees and commissions in connection with the purchase
and sale of securities for the Fund;
I. Costs, including the interest expense, of borrowing money;
J. Costs incident to meetings of the Board 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;
K. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for
sale;
L. Board members' fees and expenses to Board members who are not
directors, officers, employees or stockholders of the Adviser or any
of its affiliates;
M. 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;
N. Trade association dues; and
O. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
4. COMPENSATION OF THE ADVISER. The Adviser shall receive no fee for any
services under this Agreement, except for the Asset Allocation Services
described in subsection 2.A., above. Each Fund shall pay an asset allocation fee
in cash to the Adviser based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, as compensation for asset allocation
services rendered assumed by the Adviser, 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 each 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 asset allocation fee payable by the Fund shall be calculated daily
at the following annual rates:
0.25% of the Fund's average daily net assets
B. The fee payable by a 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 Adviser 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 Adviser shall be
contractually bound hereunder by the terms of any publicly announced waiver
of its fee, or any limitation of a Fund's expenses, as if such waiver or
limitation were fully set forth herein.
C. If this Agreement is terminated prior to the end of any month, the
accrued asset allocation fee shall be paid to the date of termination.
5. ACTIVITIES OF THE ADVISER. The services of the Adviser to each Fund
hereunder are not to be deemed exclusive, and the Adviser 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 or Articles of
Incorporation of the Trust, the By-Laws of the Trust, and Section 10(a) of the
1940 Act, it is understood that Board members, officers, agents and shareholders
of the Trust are or may be interested in the Adviser or its affiliates as
directors, officers, agents or stockholders; that directors, officers, agents or
stockholders of the Adviser or its affiliates are or may be interested in the
Trust as Board members, officers, agents, shareholders or otherwise; that the
Adviser or its affiliates may be interested in each Fund as shareholders or
otherwise; and that the effect of any such interests shall be governed by said
Agreement and Declaration of Trust or Articles of Incorporation, By-Laws and the
1940 Act.
6. LIABILITIES OF THE ADVISER.
A. In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on the part of the
Adviser, the Adviser shall not be subject to liability to the Trust or any
Fund or to any shareholder of any 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 any Fund.
B. Notwithstanding the foregoing, the Adviser 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 Adviser 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
Adviser 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 Board; or, (ii) is
within the control of the Adviser or any of its affiliates or any of their
officers, directors, employees or stockholders. The Adviser 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 Adviser or any of its affiliates from the sale of his
shares of the Adviser, or similar matters. So long as this Agreement is in
effect, the Adviser 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 Adviser therefor. This provision shall not be
deemed to be a waiver of any claim the Trust may have or may assert against
the Adviser 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
Board member or officer of the Trust, or director or officer of the
Adviser, 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, and (ii) by a
vote of a majority of the Board members who are not parties to the
Agreement (other than as Board members), 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 as to a Fund without the
payment of any penalty either by vote of the Board or by vote of a
majority of the outstanding voting securities of the Fund on 60 days'
written notice to the Adviser;
(ii) shall immediately terminate as to a Fund with respect to the
Fund in the event of its assignment; and
(iii) may be terminated as to a Fund by the Adviser 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 19th day of November, 1996.
FRANKLIN XXXXXXXXX FUND ALLOCATOR SERIES
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
