ANALYTICAL RESEARCH AGREEMENT
AGREEMENT, made as of the second day of January 1996 between Xxxxxxxxx/Xxxxxxxx
Investment Services, Inc. ("TFIS") and Security Management Company ("SMC").
WHEREAS, Xxxxxxxxx/Franklin Investment Services, Inc. is an indirectly
wholly-owned subsidiary of Xxxxxxxxx Worldwide, Inc., which in turn is a
wholly-owned subsidiary of Franklin Resources, Inc.;
WHEREAS, TFIS is an investment advisory firm which specializes in U.S. and
international equity markets;
WHEREAS, SMC is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, and engages in the business of acting as an investment
adviser;
WHEREAS, SMC desires to retain the services of TFIS to provide certain
analytical research services to SMC with respect to its responsibilities to
certain of its clients;
NOW THEREFORE, in consideration of the mutual agreements herein contained, TFIS
and SMC agree as follows:
1. TFIS agrees to provide SMC with such research and data on domestic and
international equity securities as specified in paragraph 6, and which SMC
determines is relevant in providing investment advisory services to its
clients. SMC, or its designee, will identify for TFIS (i) the sectors of
the domestic equity market for which it seeks research and (ii) the
countries in the international equity market for which it seeks research.
With respect to each particular sector or country identified by SMC or its
designee, TFIS will provide a daily list of securities which meet its
research analytics selection criteria as specified in paragraph 6. SMC,
pursuant to its investment management discretion on behalf of its clients,
will independently evaluate the investment characteristics of such
securities and consider other factors it deems relevant before ultimately
deciding on which securities to purchase or sell on behalf of its clients.
2. As compensation for the analytical research services to be provided to SMC
pursuant to this Agreement, SMC agrees to pay TFIS an analytical research
fee of .30% on an annual basis of the first $50 million of the average
daily net equity securities assets, and .25% on an annual basis of the
average daily net equity securities assets in excess of $50 million of
those clients for which the research provided hereunder is used. Such fee
shall be calculated daily and payable monthly.
3. It is understood that the services provided by TFIS are not to be deemed
exclusive and nothing in this Agreement shall preclude TFIS from providing
similar services to other clients, including clients which may invest in
the same type of securities as set forth in the data transmitted hereunder,
so long as its services under this Agreement are not impaired
thereby. Nothing in this Agreement shall be deemed to impose upon TFIS any
obligations in the course of providing analytic research services hereunder
to identify securities which TFIS or affiliated entities may purchase for
itself for its own accounts or the accounts or any client.
4. During the term of this Agreement, TFIS will pay all expenses incurred by
it, its staff and their activities, in connection with the services to be
provided by it under this Agreement.
5. Nothing herein shall be construed as constituting TFIS or SMC as agent of
the other.
6. It is understood that TFIS will contract with TQA Research, Inc. ("TQA")
and the analytical research provided hereunder will be derived from
information supplied TFIS by TQA. Research data will not be originated by
TFIS. In addition to relaying information supplied by TQA, TFIS will
monitor such information and provide the following additional services in
connection therewith: (i) review any fundamental analysis and support the
security selection process for any REIT positions among TQA's recommended
securities; (ii) review long-term growth rate assumptions used in TQA's
stock valuation model; (iii) review country asset allocation decisions and
relative weightings; (iv) review domestic industry/sector weightings on a
fundamental basis; (v) review First Call/Zachs earnings estimate revisions
to capture sentiment not yet captured or reflected in TQA's Estimate
Revision Model (ERM) and Forecast Risk Factor (FRF) Model; (vi) review
non-US securities generated from TQA stock selection models for liquidity
constraints; and (vii) review cost analysis of using foreign index futures
(roll premiums, commissions, etc.) for individual country exposure versus
cost of constructing baskets of stocks (opportunity cost, market impact,
etc.).
7. During the term of this Agreement, SMC (or any of its subsidiaries or
affiliates) shall be entitled to refer to TFIS as a provider of research
services to any client on whose behalf SMC is using the data provided
hereunder. SMC agrees not to characterize the nature of services provided
hereunder as investment advisory services as described under the Investment
Company Act of 1940 (the "1940 Act"). SMC also agrees to submit to TFIS
copies of any material prepared for distribution to SMC clients or other
members of the public which refer to TFIS by name and/or the research
services provided pursuant to this Agreement within 10 days of first use.
8. TFIS represents and warrants to SMC that (i) it is a validly existing
corporation under the laws of the State of Delaware; (ii) no provisions of
any contract, agreement or understanding to which TFIS, or any of its
subsidiaries or affiliates, is a party prevents it from providing the
services contemplated by this Agreement; and (iii) it will meet (and will
continue to meet for the duration of this Agreement) all applicable federal
or state requirements, or the applicable requirements of any self
regulatory organization, necessary to be met in order to perform the
services contemplated by this Agreement. SMC represents and warrants to
TFIS that (i) it is a validly existing corporation under the laws of the
State of Kansas; (ii) no provisions of any contract, agreement or
understanding to which SMC or any of its subsidiaries or affiliates, is a
party prevents it from providing the
services contemplated by this Agreement; and (iii) it will meet (and
continue to meet for the duration of this Agreement) all applicable federal
and state requirements, or the applicable requirements of any self
regulatory organization, necessary to be met in order to perform the
services contemplated by this Agreement.
9. TFIS agrees to maintain records of its activities and of the information
forwarded by it to SMC pursuant to Section 6 of this Agreement for a period
of time on which the parties may reasonably agree. TFIS further agrees to
release copies of such records upon reasonable advance notice.
10. This Agreement shall become effective as of January 2, 1996 and shall
continue in effect for one year from that date. If not sooner terminated,
this Agreement shall continue in effect for successive periods of 12 months
each thereafter.
11. 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. TFIS and SMC also agree that this
Agreement shall automatically terminate in the event that the investment
advisory contract between SMC and the Fund is terminated, or TFIS's related
analytical research agreement with TQA is terminated for any reason.
12. This Agreement will terminate automatically in the event of its assignment.
13. This Agreement shall be construed in accordance with the laws of the State
of New York without regard to principles of conflicts of laws.
14. SMC agrees not to hold TFIS accountable or liable with respect to the
nature of TFIS's services unless TFIS acts with reckless disregard of its
duties hereunder or violates applicable federal or state law in the
performance of its duties. In addition, SMC agrees to indemnify TFIS, each
of TFIS's affiliated companies, and all of the divisions, subsidiaries,
directors, officers, agents, employees and assigns of each of the foregoing
(collectively, "Indemnified Parties"), against and from any and all
demands, damages, liabilities, and losses, or any pending or completed
actions, claims, suits, complaints, proceedings, or investigations
(including all expenses of litigation or arbitration, judgments, fines or
amounts paid in any settlement consented to by TFIS) ("Actions") to which
TFIS may be or become subject as a result or arising our of (a) any
negligent act or omission by SMC or its agents relating to the performance
of its obligations under this Agreement; (b) any breach of SMC's
representations or warranties contained in this Agreement; or (c) SMC's
failure to comply with any of the terms of this Agreement. This
indemnification is understood to apply in the case of, among other things,
any Actions brought by shareholders or beneficial holders of interests in
investment companies or other investment vehicles advised by SMC or any SMC
affiliates, and to administrative or other legal actions brought by federal
or state regulatory organizations with respect in any way whatsoever to any
of the services to be provided by TFIS hereunder or the way in which such
services are represented or described to any client of SMC or prospective
client of SMC. SMC agrees further to hold TFIS harmless from any Actions
resulting from any
allegation by any party that TQA, or the information TQA provides to TFIS
and thereby to SMC, infringes in any way upon the patents, copyright or
trademark belonging to any third party.
15. Notice required to be given under this Agreement by either party shall be
in writing by personal delivery or certified mail, return receipt requested
or by confirmed telecopy. Notice shall be to the addresses set forth on the
signature page hereto.
16. This Agreement sets forth the entire Agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements
between the parties concerning such subject matter. This Agreement may not
be amended except by a writing signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized corporate officers as of the day and year
first above written.
XXXXXXXXX/XXXXXXXX INVESTMENT SERVICES INC.
By Xxxxxxx X. Xxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxx
Senior Vice President
Address: 000 Xxxxxxxx Xxxxxx Xxxx.
Xxx Xxxxx, XX 00000
SECURITY MANAGEMENT COMPANY
By Xxxxx X. Xxxxxxx
-----------------------------------
Xxxxx X. Xxxxxxx
Senior Vice President
Address: 000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxx 00000
