FRANKLIN OPTION FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN OPTION FUND, a
California Corporation, hereinafter called the "Fund" and
FRANKLIN ADVISERS, Inc., a California Corporation, hereinafter
called the "Manager."
WHEREAS, the Fund has been organized and operates as an
investment company registered under the Investment Company Act of
1940 for the purpose of investing and reinvesting its assets in
securities, as set forth in its Articles of Incorporation, its By-
Laws and its Registration Statements under the Investment Company
Act of 1940 and the Securities Act of 1933, all as heretofore
amended and supplemented; and the Fund desires to avail itself of
the services, information, advice, assistance and facilities of
an investment manager and to have an investment manager perform
for its various management, statistical, research, investment
advisory and other services; and,
WHEREAS, the Manager is registered as an investment adviser under
the Investment Advisor's Act of 1940, is engaged in the business
of rendering management, investment advisory, counselling and
supervisory services to investment companies and other investment
counselling clients, and desires to provide these services to the
Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Fund hereby employs the
Manager to manage the investment and reinvestment of the
Fund's assets and to administer its affairs, subject to the
direction of the Board of Directors and the officers of the
Fund, for the period and on the terms hereinafter set forth.
The Manager hereby accepts such employment and agrees during
such period to render the services and to assume the
obligations herein set forth for the compensation herein
provided. The Manager shall for all purposes herein be
deemed to be an independent contractor and shall, except as
expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter
set forth and to assume the following obligations:
A. Office Space, Furnishings, Facilities, Equipment, and
Personnel. 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 corporate affairs
and conducting the business of the Fund, including
complying with the corporate and securities reporting
requirements of the United States and the various
states in which the Fund does business, 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, and computing net asset value.
The Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary
to provide such services. The Manager shall also
compensate all officers and employees of the Fund who
are officers or employees of the Manager.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets and
portfolio subject to and in accordance with the
investment objectives and policies of the Fund and any
directions which the Fund's Board of Directors 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 portfolio securities, and
shall take such steps as may be necessary to implement
the same. Such determinations and services shall also
include determining the manner in which voting rights,
rights to consent to corporate action and any other
rights pertaining to the Fund's portfolio securities
shall be exercised. The Manager shall render regular
reports to the Fund, at regular meetings of the Board
of Directors and at such other times as may be
reasonably requested by the Fund's Board of Directors,
of (i) the decisions which it has made with respect to
the investment of the Fund's assets and the purchase
and sale of portfolio securities, (ii) the reasons for
such decisions and (iii) the extent to which those
decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Fund's Board of Directors may
issue from time to time, shall place, in the name of
the Fund, orders for the execution of the Fund's
portfolio 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 accord 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
Fund will benefit, directly or indirectly, by doing so,
the Manager may place orders with a broker who charges
a commission for that transaction which is in excess of
the amount of commission that another broker would have
charged for effecting that transaction, provided that
the excess commission is reasonable in relation to the
value of "brokerage and research services" (as defined
in Section 28(e)(3) of the Securities Exchange Act of
1934) provided by that broker. Accordingly, the Fund
and the Manager agree that the Manager shall select
brokers for the execution of the Fund's portfolio
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;
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its
affiliates which relate directly to portfolio
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 portfolio, 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.
When the Manager has determined that the Fund should
tender securities pursuant to a "tender offer
solicitation," the Manager shall designate Franklin
Distributors, Inc. ("Distributors") as the "tendering
dealer" so long as it is legally permitted act in such
capacity under the Federal securities laws and rules
thereunder and the rules of any securities exchange or
association of which it may be a member. Distributors
shall not 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 and this Agreement shall not obligate the
Manager or Distributors (i) to act pursuant to the
foregoing requirement under any circumstances in which
they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to
institute legal or other proceedings to collect fees
which may be considered to be due from others to it as
a result of such a tender, unless the Fund shall enter
into an agreement with the Manager or Distributors to
reimburse them for all 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.
The Manager shall render regular reports to the Fund,
not more frequently than quarterly, of how much total
brokerage business has been placed by the Manager with
brokers falling into each of the foregoing categories
and the manner in which the allocation has been
accomplished.
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 Underwriter
in the preparation of registration statements, reports
and other documents required by Federal and state
securities laws and with such information as the
Underwriter 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
available its officers and employees to the Board of
Directors and officers of the Fund for consultation and
discussions regarding the administrative management of
the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all its expenses other than these expressly assumed by
the Manager herein, which expenses payable by the Fund shall
include:
A. Fees 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;
D. Expenses of obtaining quotations for calculating the
value of the Fund's net assets;
E. Salaries and other compensation of any of its executive
officers who are not officers, directors, stockholders
or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to corporate meetings of the Fund,
reports to the Fund to its shareholders, the filing of
reports with regulatory bodies and the maintenance of
the Fund's corporate existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund
shares for sale;
K. Costs of printing stock certificates representing
shares of the Fund;
L. Directors' fees and expenses to directors who are not
directors, officers, employees or stockholders of the
Manager or any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance
premium.
4. Compensation of the Manager. The Fund shall pay a monthly
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, on the first business day of each month
in each year as compensation for the services rendered and
obligations assumed by the Manager during the preceding
month. The initial management fee under this Agreement
shall be payable on the first business day of the first
month following the effective date of this Agreement, and
shall be reduced by the amount of any advance payments made
by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the
net assets of the Fund shall be the net assets computed
as of the close of business on the last business day of
the month preceding the month in which the payment is
being made, determined in the same manner as the Fund
uses to compute the value of its net assets in
connection with the determination of the net asset
value of Fund shares, all as set forth more fully in
the Fund's current prospectus. The rate of the monthly
management fee shall be as follows:
5/96 of 1% of the value of net assets up to and
including $100,000,000; and
1/24 of 1% of the value of net assets over $100,000,000
and not over $250,000,000; and
9/240 of 1% of the value of net assets in excess of
$250,000,000.
B. The Management fee payable by the Fund shall be reduced
or eliminated to the extent that Franklin Distributors,
Inc. 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.
C. If this Agreement is terminated prior to the end of any
month, the monthly management fee shall be prorated for
the portion of any month in which this Agreement is in
effect which is not a complete month according to the
proportion which the number of calendar days in the
month during which the Agreement is in effect bears to
the number of calendar days in the month, and shall be
payable within 10 days after 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 Articles of Incorporation and By-Laws of the Fund
and to Section 10(a) of the Federal Investment Company Act
of 1940, it is understood that directors, officers, agents
and stockholders of the Fund are or may be interested in the
Manager or its affiliates as directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in the Fund as directors, officers, agents,
stockholders or otherwise, that the Manager or its
affiliates may be interested in the Fund as stockholders or
otherwise; and that the effect of any such interests shall
be governed by said Articles of Incorporation, the By-Laws
and the Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or
duties hereunder on the part of the Manager, the
Manager shall not be subject to liability to the Fund
or to any shareholder of the Fund for any act or
omission in the course of, or connected with, rendering
services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any
security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and
counsel and directors' fees reasonably incurred by the
Fund in the preparation, printing and distribution of
proxy statements, amendments to its Registration
Statement, holdings of meetings of its shareholders or
directors, the conduct of factual investigations, any
legal or administrative proceedings (including any
applications for exemptions or determinations by the
Securities and Exchange Commission) which the Fund
incurs as the result of action or inaction of the
Manager or any of its affiliates or any of their
officers, directors, employees or shareholders where
the action or inaction necessitating such expenditures
(i) is directly or indirectly related to any
transactions or proposed transaction in the shares or
control of the Manager or its affiliates (or litigation
related to any pending or proposed or future
transaction in such shares or control) which shall have
been undertaken without the prior, express approval of
the Fund's Board of Directors; or, (ii) is within the
control of the Manager or any of its affiliates or any
of their officers, directors, employees or
shareholders. The Manager shall not be obligated
pursuant to the provisions of this Subsection 6(B), to
reimburse the Fund for any expenditures related to the
institution of an administrative proceeding or civil
litigation by the Fund or a Fund shareholder seeking to
recover all or a portion of the proceeds derived by any
shareholder of the Manager or any of its affiliates
from the sale of his shares of the Manager, or similar
matters. So long as this Agreement is in effect the
Manager shall pay to the Fund the amount due for
expenses subject to this Subsection 6(B) Agreement
within 30 days after a xxxx or statement has been
received by the Fund therefore. This provision shall
not be deemed to be a waiver of any claim the Fund may
have or may assert against the Manager or others for
costs, expenses or damages heretofore incurred by the
Fund or for costs, expenses or damages the Fund may
hereafter incur which are not reimbursable to it
hereunder.
C. No provision of this Agreement shall be construed to
protect any director or officer of the Fund, or the
Manager, from liability in violation of Sections 17(h)
and (i) of the Investment Company Act of 1940.
7. Renewal and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect for two
years. The Agreement is renewable annually thereafter
for successive periods not to exceed one year (i) by a
vote of a majority of the outstanding voting securities
of the Fund or by a vote of the Board of Directors of
the Fund, and (ii) by a vote of a majority of the
directors of the Fund who are not parties to the
Agreement, or interested persons of any parties to the
Agreement (other than as Directors of the Fund) cast in
person at a meeting called for the purpose of voting on
the Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of
Directors of the Fund or by vote of a majority of
the outstanding voting securities of the Fund, on
60 days' written notice to the Manager;
(ii) shall immediately terminate 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 Section 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 Investment Company
Act of 1940, as amended.
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed effective the 1st day of May, 1986.
FRANKLIN OPTION FUND
/s/ Xxxxxxx X. Xxxxxxx
By: Xxxxxxx X. Xxxxxxx
XXXXXXXX ADVISERS, INC.
/s/ Xxxxxx X. Xxxxxxx
By: Xxxxxx X. Xxxxxxx
