FRANKLIN GOVERNMENT SECURITIES TRUST
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN GOVERNMENT SECURITIES
TRUST, a Massachusetts 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
"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 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 any separate series of the Trust of the Trust hereafter organized;
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, counselling and supervisory services to
investment companies and other investment counselling clients, and desires to
provide these services to the Trust.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
1. Employment of the Manager. The Trust hereby employs the Manager to
manage the investment and reinvestment of the Trust's 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
Trust in any way or otherwise be deemed an agent of 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 Trust
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, and (ii) office
furnishings, facilities and equipment as may be reasonably required for managing
the affairs and conducting the business of the Trust, including conducting
correspondence and other communications with the shareholders of or Contract
Holders investing in the Trust, maintaining all internal bookkeeping, accounting
and auditing services and records in connection with the Trust's 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 Trust's assets subject to and
in accordance with the investment objectives and policies of the Trust 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 Trust's 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 Trust's investment securities shall be
exercised. The Manager shall render 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 which it has
made with respect to the investment of the Trust's 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, orders for the execution of the Trust's securities transactions.
When placing such orders the Manager shall seek to obtain the best net price and
execution for the Trust, 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 Trust and the Manager in accord 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 Trust 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 Trust's transactions from among:
(i) Those brokers and dealers who provide quotations
and other services to the Trust, specifically
including the quotations necessary to determine
the Trust'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 Trust, or
which place the Manager in a better position to
make decisions in connection with the management
of the Trust'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.
(c) When the Manager has determined that the Trust should
tender securities pursuant to a "tender offer solicitation," the Manager shall
designate Franklin Distributors, Inc. ("Distributors") as the "tendering dealer"
so long as it is legally permissible for the Manager to do so, and 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.
Distributors shall not 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 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 Trust.
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 Trust in the preparation of registration
statements, reports and other documents required by Federal and state securities
laws and with such information as the Trust may reasonably request for use in
the preparation of such documents or of other materials necessary or helpful for
the offering of the Trust's 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
Trust and their investment activities.
3. Expenses of the Trust. It is understood that the Trust will pay all of
its own expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Trust 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 Trust'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 Trust;
G. Brokerage fees and commissions in connection with the purchase
and sale of securities for the Trust;.
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of Board of Trustees and
shareholders of the Trust, reports to the Trust's shareholders or Contract
Holders investing in the Trust, the filing of reports with regulatory bodies
and the maintenance of the Trust's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Trust'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 Trust and their shares under Federal and any applicable
state laws; including the printing and mailing of prospectuses to its
shareholders or Contract Holders investing in the Trust;
M. Trade association dues; and
N. The Trust's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
4. Compensation of the Manager. The Trust shall pay a management fee in
cash to the Manager based upon a percentage of the value of the Trust's net
assets, calculated as set forth below, as compensation for the services rendered
and obligations assumed by the Manager, payable monthly at the request of the
Manager.
A. For purposes of calculating such fee, the value of the net assets
of the Trust shall be determined in the same manner as that the Trust 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 the Trust shall be calculated daily at the following
annual rates:
.625 of 1% of the value of net assets up to and including
$100,000,000;
.50 of 1% of the value of net assets over $100,000,000 up to
and including $250,000,000; and
.45 of 1% of the value of net assets over
$250,000,000 up to and including $10,000,000,000; and
.44 of 1% of the value of net assets over $10,000,000,000 up
to and including $12,500,000,000; and
.42 of 1% of the value of net assets over $12,500,000,000 up
to and including $15,000,000,000; and
.40 of 1% of the value of net assets over $15,000,000,000.
B. The Management fee payable by the Trust 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, from time to time, voluntarily reduce or waive any management fee
due to it hereunder.
5. Activities of the Manager. The services of the Manager to the Trust
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 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 Trust 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 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
any shareholder of the Trust 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 the Trust.
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 or
policyholder investing in the Trust 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 Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written below
and shall continue in effect for one (1) year. The Agreement is renewable
annually thereafter for successive periods not to exceed one (1) year (i) by a
vote of a majority of the outstanding voting securities of the Trust 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 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 Trust seeking to terminate the
Agreement, on 60 days' written notice to the Manager;
(ii) shall immediately terminate with respect to the Trust in the
event of its assignment; and
(iii) may be terminated by the Manager on 60 days' written notice to
the Trust.
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 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 the Trust 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 Trust 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 Trust and its shareholders or Contract Holders having an
interest in the Trust. 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 Trust and its shareholders or Contract Holders investing in the Trust.
B. No additional payments are to be made by the Trust as a result of
the Plan other than the payments the Trust are otherwise obligated to make (i)
to the Manager pursuant to paragraph 4 of this Agreement, (ii) to its Transfer
and Dividend Paying Agents or Custodian, pursuant to its respective Agreements
as in effect at any time, and (iii) in payment of any expenses by the Trust in
the ordinary course of its respective business that may be deemed primarily
intended to result in the sale of shares issued by the Trust. However, to the
extent any of such other payments by the Trust, to or by the Manager, or to the
Trust'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 Trust
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 Contract Holders
investing in the Trust;
(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 Trust
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 Trust'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
Trust's shares held in accounts for Contract Holders 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 Trust; (ii) assisting clients in changing account
designations and addresses; (iii) performing sub-accounting; (iv)
establishing and maintaining shareholder or Contract Holder
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 Trust 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 at any time by vote of a
majority of non-interested Trustees or by vote of a majority of the Trust'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
Trust'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.
11. Limitation of Liability. The Manager acknowledges that it has
received notice of and accepts the limitations of the Trust's liability as set
forth in Article VIII of its Agreement and Declaration of Trust. The Manager
agrees that the Trust's obligations hereunder shall be limited to the assets of
the Trust, and that the Manager shall not seek satisfaction of any such
obligation from any shareholders of the Trust nor from any trustee, officer,
employee or agent of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and effective on the 15th day of February, 1989.
FRANKLIN GOVERNMENT SECURITIES TRUST
By: /s/ Xxxxxxx X. Xxxxxx, Secretary
FRANKLIN ADVISERS, INC.
By: /s/ Xxxxxx X. Xxxxx
