INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT dated as of __________, 1996, between Franklin
Valuemark Funds, a Massachusetts business trust (the "Trust"), on behalf of
the Xxxxxxxxx International Smaller Companies Fund (the "Fund"), a separate
series of the Trust, and Xxxxxxxxx Investment Counsel, Inc. ("Investment
Manager").
In consideration of the mutual agreements herein made, the Trust
and the Investment Manager understand and agree as follows:
(1) The Investment Manager shall manage the investment and
reinvestment of the Fund's assets consistent with the provisions of the Trust
Instrument of the Trust and the Fund's investment policies adopted and
declared by the Trust's Board of Trustees. In pursuance of the foregoing,
the Investment 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 those
determinations. 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, subject to guidelines adopted by the Board of Trustees.
(2) The Investment Manager is not required to furnish any
personnel, overhead items or facilities for the Fund, including trading desk
facilities or daily pricing of the Fund's portfolio.
(3) The Investment Manager shall be responsible for selecting
members of securities exchanges, brokers and dealers (such members, brokers
and dealers being hereinafter referred to as "brokers") for the execution of
the Fund's portfolio transactions consistent with the Fund's brokerage
policies and, when applicable, the negotiation of commissions in connection
therewith.
All decisions and placements shall be made in accordance with the
following principles:
A. Purchase and sale orders will usually be placed with
brokers which are selected by the Investment Manager as able to achieve "best
execution" of such orders. "Best execution" shall mean prompt and reliable
execution at the most favorable security price, taking into account the other
provisions hereinafter set forth. The determination of what may constitute
best execution and price in the execution of a securities transaction by a
broker involves a number of considerations, including, without limitation,
the overall direct net economic result to the Fund (involving both price paid
or received and any commissions and other costs paid), the efficiency with
which the transaction is effected, the ability to effect the transaction at
all where a large block is involved, availability of the broker to stand
ready to execute possibly difficult transactions in the future, and the
financial strength and stability of the broker. Such considerations are
judgmental and are weighed by the Investment Manager in determining the
overall reasonableness of brokerage commissions.
B. In selecting brokers for portfolio transactions, the
Investment Manager shall take into account its past experience as to brokers
qualified to achieve "best execution," including brokers who specialize in
any foreign securities held by the Fund.
C. The Investment Manager is authorized to allocate
brokerage business to brokers who have provided brokerage and research
services, as such services are defined in Section 28(e) of the Securities
Exchange Act of 1934 (the "1934 Act"), for the Fund and/or other accounts, if
any, for which the Investment Manager exercises investment discretion (as
defined in Section 3(a)(35) of the 0000 Xxx) and, as to transactions for
which fixed minimum commission rates are not applicable, to cause the Fund to
pay a commission for effecting a securities transaction in excess of the
amount another broker would have charged for effecting that transaction, if
the Investment Manager determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker, viewed in terms of either that
particular transaction or the Investment Manager's overall responsibilities
with respect to the Fund and the other accounts, if any, as to which it
exercises investment discretion. In reaching such determination, the
Investment Manager will not be required to place or attempt to place a
specific dollar value on the research or execution services of a broker or on
the portion of any commission reflecting either of said services. In
demonstrating that such determinations were made in good faith, the
Investment Manager shall be prepared to show that all commissions were
allocated and paid for purposes contemplated by the Fund's brokerage policy;
that the research services provide lawful and appropriate assistance to the
Investment Manager in the performance of its investment decision-making
responsibilities; and that the commissions paid were within a reasonable
range. Whether commissions were within a reasonable range shall be based on
any available information as to the level of commission known to be charged
by other brokers on comparable transactions, but there shall be taken into
account the Fund's policies that (i) obtaining a low commission is deemed
secondary to obtaining a favorable securities price, since it is recognized
that usually it is more beneficial to the Fund to obtain a favorable price
than to pay the lowest commission; and (ii) the quality, comprehensiveness
and frequency of research studies that are provided for the Investment
Manager are useful to the Investment Manager in performing its advisory
services under this Agreement. Research services provided by brokers to the
Investment Manager are considered to be in addition to, and not in lieu of,
services required to be performed by the Investment Manager under this
Agreement. Research furnished by brokers through which the Fund effects
securities transactions may be used by the Investment Manager for any of its
accounts, and not all research may be used by the Investment Manager for the
Fund. When execution of portfolio transactions is allocated to brokers
trading on exchanges with fixed brokerage commission rates, account may be
taken of various services provided by the broker.
D. Purchases and sales of portfolio securities within
the United States other than on a securities exchange shall be executed with
primary market makers acting as principal, except where, in the judgment of
the Investment Manager, better prices and execution may be obtained on a
commission basis or from other sources.
E. Sales of Franklin Valuemark contracts, or of shares
of other registered investment companies which have either the same adviser
or an investment adviser affiliated with the Investment Manager, by a broker
are one factor among others to be taken into account in deciding to allocate
portfolio transactions (including agency transactions, principal
transactions, purchases in underwritings or tenders in response to tender
offers) for the account of the Fund to that broker; provided that the broker
shall furnish "best execution," as defined in subparagraph A above, and that
such allocation shall be within the scope of the Fund's policies as stated
above; provided further, that in every allocation made to a broker in which
the broker's sale of Franklin Valuemark contracts or of mutual fund shares is
taken into account, there shall be no increase in the amount of the
commissions or other compensation paid to such broker beyond a reasonable
commission or other compensation determined, as set forth in subparagraph C
above, on the basis of best execution alone or best execution plus research
services, without taking account of or placing any value upon such sale of
Franklin Valuemark contracts or mutual fund shares.
(4) The Trust agrees to pay to the Investment Manager a monthly
fee in dollars based on a percentage of the Fund's average daily net assets,
payable at the end of each calendar month. This fee shall be calculated daily
at the following annual rates:
0.85 % of the value of the Fund's net assets up to and including
$200 million;
0.765 % of the value of the Fund's net assets over $200 million
up to and including $1.3 billion;
0.68 % of the value of the Fund's net assets over $1.3 billion.
Notwithstanding the foregoing, if the total expenses of the Fund
(including the fee to the Investment Manager) in any fiscal year of the Fund
exceed any expense limitation imposed by applicable State law, the Investment
Manager shall reimburse the Fund for such excess in the manner and to the
extent required by applicable State law. The term "total expenses," as used
in this paragraph, does not include interest, taxes, litigation expenses,
distribution expenses, brokerage commissions or other costs of acquiring or
disposing of any of the Fund's portfolio securities or any costs or expenses
incurred or arising other than in the ordinary and necessary course of the
Fund's business. When the accrued amount of such expenses exceeds this
limit, the monthly payment of the Investment Manager's fee will be reduced by
the amount of such excess, subject to adjustment month by month during the
balance of the Fund's fiscal year if accrued expenses thereafter fall below
the limit.
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.
(5) The provisions set forth in this paragraph 5 (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 and its shareholders or
policyholders having an interest in 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.
A. 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
their 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 their 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' 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 costs 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.
B. 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 A of this paragraph 5, 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 the 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 in the event of any act that constitutes an
assignment of this Management Agreement.
(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 non-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 5.
(6) This Agreement shall become effective on April 19, 1995 and
shall continue in effect until April 30, 1996. If not sooner terminated,
this Agreement shall continue in effect for successive periods of 12 months
each thereafter, provided that each such continuance shall be specifically
approved annually by the vote of a majority of the Trust's Board of Trustees
who are not parties to this Agreement or "interested persons" (as defined in
Investment Company Act of 1940 (the "1940 Act")) of any such party, cast in
person at a meeting called for the purpose of voting on such approval and
either the vote of (a) a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act, or (b) a majority of the Trust's Board of
Trustees as a whole.
(7) Notwithstanding the foregoing, this Agreement may be
terminated by either party at any time, without the payment of any penalty,
on sixty (60) days' written notice to the other party, provided that
termination by the Trust is approved by vote of a majority of the Trust's
Board of Trustees in office at the time or by vote of a majority of the
outstanding voting securities of the Fund (as defined by the 1940 Act).
(8) This Agreement will terminate automatically and immediately
in the event of its assignment (as defined in the 1940 Act).
(9) In the event this Agreement is terminated and the
Investment Manager no longer acts as Investment Manager to the Fund, the
Investment Manager reserves the right to withdraw from the Fund the use of
the name "Templeton" or any name misleadingly implying a continuing
relationship between the Fund and the Investment Manager or any of its
affiliates.
(10) Except as may otherwise be provided by the 1940 Act,
neither the Investment Manager nor its officers, directors, employees or
agents shall be subject to any liability for any error of judgment, mistake
of law, or any loss arising out of any investment or other act or omission in
the performance by the Investment Manager of its duties under the Agreement
or for any loss or damage resulting from the imposition by any government of
exchange control restrictions which might affect the liquidity of the Fund's
assets, or from acts or omissions of custodians, or securities depositories,
or from any war or political act of any foreign government to which such
assets might be exposed, or for failure, on the part of the custodian or
otherwise, timely to collect payments, except for any liability, loss or
damage resulting from willful misfeasance, bad faith or gross negligence on
the Investment Manager's part or by reason of reckless disregard of the
Investment Manager's duties under this Agreement. It is hereby understood
and acknowledged by the Trust that the value of the investments made for the
Fund may increase as well as decrease and are not guaranteed by the
Investment Manager. It is further understood and acknowledged by the Trust
that investment decisions made on behalf of the Fund by the Investment
Manager are subject to a variety of factors which may affect the values and
income generated by the Fund's portfolio securities, including general
economic conditions, market factors and currency exchange rates, and that
investment decisions made by the Investment Manager will not always be
profitable or prove to have been correct.
(11) It is understood that the services of the Investment
Manager are not deemed to be exclusive, and nothing in this Agreement shall
prevent the Investment Manager, or any affiliate thereof, from providing
similar services to other investment companies and other clients, including
clients which may invest in the same types of securities as the Fund, or, in
providing such services, from using information furnished by others. When
the Investment Manager determines to buy or sell the same security for the
Fund that the Investment Manager or one or more of its affiliates has
selected for clients of the Investment Manager or its affiliates, the orders
for all such security transactions shall be placed for execution by methods
determined by the Investment Manager, with approval by the Trust's Board of
Trustees, to be impartial and fair.
(12) This Agreement shall be construed in accordance with the
laws of the State of California of the United States of America, provided
that nothing herein shall be construed as being inconsistent with applicable
Federal and state securities laws and any rules, regulations and orders
thereunder.
(13) 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 and, to this extent, the
provisions of this Agreement shall be deemed to be severable.
(14) Nothing herein shall be construed as constituting the
Investment Manager an agent of the Trust or of the Fund.
(15) It is understood and expressly stipulated that neither the
holders of shares of the Fund nor any Trustee, officer, agent or employee of
the Trust shall be personally liable hereunder, nor shall any resort be had
to other private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their duly authorized officers and their respective
corporate seals to be hereunto duly affixed and attested.
FRANKLIN VALUEMARK FUNDS
By:_______________________________
XXXXXXXXX INVESTMENT COUNSEL, INC.
By:_______________________________
