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:
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 their shares;
D. Expenses of obtaining quotations for calculating the value
of the Funds' 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 Funds;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Funds;.
H. Costs, 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, By-Laws 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 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 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/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx
Vice President & Secretary
FRANKLIN ADVISERS, INC.
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx
Executive Vice President
