FRANKLIN VALUEMARK FUNDS
on behalf of its series
MUTUAL DISCOVERY SECURITIES FUND and
MUTUAL SHARES SECURITIES FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN VALUEMARK FUNDS, a
Massachusetts business trust (the "Trust"), on behalf of MUTUAL DISCOVERY
SECURITIES FUND and MUTUAL SHARES SECURITIES FUND (each, a "Fund"), series of
the Trust, and FRANKLIN MUTUAL ADVISERS, INC., a Delaware corporation, (the
"Manager").
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 each 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 each 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 each Fund's assets, 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 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 Manager. The Manager
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
A. Investment Management Services.
(a) The Manager shall manage each 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 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. 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 each 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 each 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 each 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 each 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 Funds 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 Funds 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 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 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 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
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 a 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 each 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 each Fund.
B. 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 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.
C. 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 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 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.
However, nothing in this Agreement shall obligate the Trust or any Fund to
pay any compensation to the officers of the Trust.
4. Compensation of the Manager. Each 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
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
Trust's current prospectus and statement of additional information. The
rate of the management fee payable by each Fund shall be calculated at the
following annual rates:
(a) For the Mutual Discovery Securities Fund, 0.80% of the value of the
Fund's net assets; and
(b) For the Mutual Shares Securities Fund, 0.60% of the value of the Fund's
net assets.
B. The management fee payable by each 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. With respect to any Fund, the
Manager may waive all or a portion of its fees provided for herein, and
such waiver shall be treated as a reduction in purchase price of its
services. The Manager shall be contractually bound hereunder by the terms
of any publicly announced waiver of its fees, 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 management fee shall be paid to the date of termination.
5. Activities of the Manager. The services of the Manager to the Funds
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 any 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 0000 Xxx.
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
any Fund or to any shareholder of a 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 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:
(a) may at any time be terminated as to any Fund 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;
(b) shall immediately terminate with respect to any Fund in the event of
its assignment as to that Fund; and
(c) may be terminated as to any Fund 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 each 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
each Fund and its shareholders or policyholders investing in the Fund.
B. No additional payments are to be made by any 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, Fund Administrator 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 a Fund, to or by
the Manager or its affiliates, 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 with respect to each Fund, 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 any 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 any Fund in the event of any act that
constitutes an assignment of this Management Agreement as to that Fund.
(d) The Plan may not be amended to increase materially the amount deemed to
be spent for distribution without approval by a majority of each affected
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 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 18th day of October, 1996.
FRANKLIN VALUEMARK FUNDS
By:/s/Xxxxxxx X. Xxxxxx
Vice President & Secretary
FRANKLIN MUTUAL ADVISERS, INC.
By:/s/Xxxxxx X. Xxxxxxx
Secretary
