NAME OF REGISTRANT:
Franklin Strategic Mortgage Portfolio
File No. 811-7288
EXHIBIT ITEM No. 77Q1(e): Copies of any new or amended
investment advisory contract of the registrant.
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN
STRATEGIC MORTGAGE PORTFOLIO, a Delaware business trust,
hereinafter called the "Trust", and FRANKLIN ADVISERS, INC.,
a California corporation, hereinafter called 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 the Trust and for funds hereafter
organized as separate series of the Trust (the "Funds");
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 the Funds.
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 the
Funds' assets and to administer its 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 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 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. Administrative Services. The Manager shall
furnish to the Funds 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
affairs and conducting the business of the Funds, including
conducting correspondence and other communications with the
shareholders of the Funds, maintaining all internal
bookkeeping, accounting and auditing services and records in
connection with the Funds' investment and business
activities. 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 Trust who are
officers or employees of the Manager or its affiliates.
B. Investment Management Services.
(a) The Manager shall manage the Funds' assets
subject to and in accordance with the respective investment
objectives and policies of the Funds 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 the
Funds' assets and the purchase and sale of their 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 the Funds' 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 the
Funds' assets and the purchase and sale of their 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 the
Funds, orders for the execution of the Funds' securities
transactions. When placing such orders, the Manager shall
seek to obtain the best net price and execution for the
Funds, 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 the Funds'
transactions from among:
(i) Those brokers and dealers who provide quotations
and other services to the Funds, specifically including the
quotations necessary to determine the Funds' 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 Funds, or which place the Manager in a better position
to make decisions in connection with the management of the
Funds' 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 Funds may
also be considered as a factor in the selection of broker
dealers to execute the Funds' portfolio transactions.
(c) When the Manager has determined that any of the Funds
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 applicable 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 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 the Funds.
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 Funds in the
preparation of registration statements, reports
and other documents required by federal and
state securities laws and with such information
as the Funds 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 Funds'
shares.
D. 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 the Funds and
their investment activities.
3. Expenses of the Funds. It is
understood that the
Funds
will pay all of their own expenses other than
those expressly assumed by the Manager herein,
which expenses payable by the Funds shall
include:
X. Xxxx 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 their shares;
D. Expenses of obtaining quotations
for
calculating
the value of the Funds' net assets;
X. Xxxxxxxx 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 Funds;
X. Xxxxxxxxx fees and commissions in
connection
with
the purchase and sale of securities for the
Funds;.
X. Xxxxx, including the interest
expense, of
borrowing
money;
I. Costs incident to meetings of
Board of
Trustees and
shareholders of the Funds, reports to the Funds'
shareholders, the filing of reports with
regulatory bodies and the maintenance of the
Funds' and the Trust's legal
existence;
J. Legal fees, including the legal
fees related
to the
registration and continued qualification of the
Funds' 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 Funds and their shares
under federal and any applicable state laws;
including the printing and mailing of
prospectuses to their shareholders;
M. Trade association dues; and
N. The Funds' pro rata portion of
fidelity bond,
errors and omissions, and trustees and officer
liability insurance premiums.
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 respective
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 a Fund shall be the average
daily net assets during the month for which the
payment is made, 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 management fee payable by each
of the Funds shall be calculated daily at an
annual rate of:
40/100 of 1% of the value of its
net assets up to and including $250,000,000;
38/100 of 1% of the value of its
net assets in excess of $250,000,000
up to and including $500,000,000;
36/100 of 1% of the value of its
net assets in excess of $500,000,000.
B. The Management 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 as set forth in paragraph 2.B.(c) of
this Agreement. 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 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 full set forth herein.
C. To the extent that the gross
operating costs and
expenses of the Funds (excluding any interest,
taxes, brokerage, commissions, amortization of
organization expense, and with the prior written
approval of any state securities commission
requiring same, any extraordinary expenses, such
as litigation), exceed the most stringent
expense limitation requirements of the states in
which shares of the Funds are qualified for
sale, the Manager shall reduce its fees by the
amount of such excess.
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 the Funds as shareholders
or otherwise; and that the effect of any such
interests shall be governed by said Agreement
and Declaration of Trust, ByLaws and the 1940
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 Trust or to the
Funds or to any shareholder of the Funds 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 of the
Funds.
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 bill 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 as to each Fund
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:
(i) may at any time be
terminated with respect to any of the Funds
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
seeking to terminate the Agreement, on 30 days'
written notice to the Manager;
(ii) shall immediately terminate
with respect to the Funds in the event of its
assignment; and
(iii) may be terminated by
the Manager with respect to the Funds on 60
days' written notice to the applicable 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 26th day of February, 1998.
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
By: /s/ XX Xxxxxx
Xxxxxxx X. Xxxxxx
Vice President & Secretary
XXXXXXXX ADVISERS, INC.
By: /s/ HE Xxxxx
Xxxxxx X. Xxxxx
Executive Vice President
5/11/98
