FORM OF
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT dated as of February 26, 1998 between XXXXXXXXX
VARIABLE PRODUCTS SERIES FUND, a Massachusetts business trust (hereinafter
referred to as the "Trust"), on behalf of its series FRANKLIN SMALL CAP
INVESTMENTS FUND ("Fund")and FRANKLIN ADVISERS, INC., ("Investment 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, on behalf of the Fund, desires to avail itself of the services of
the Investment Manager; and,
WHEREAS, the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, is engaged in the business of
rendering investment management services and desires to provide these
services to the Fund.
THEREFORE, in consideration of the mutual agreements herein made,
the Trust and the Investment Manager understand and agree as follows:
(1) The Investment Manager shall manage the investment and
reinvestment of the Fund's assets consistent with the provisions of the
Trust's Agreement and Declaration of Trust and the Fund's investment policies
as adopted and declared by the Trust's Board of Trustees. In pursuance of
the foregoing, the Investment Manager shall make all determinations with
respect to the investment of the Fund's assets and the purchase and sale of
its investment securities, and shall take such steps as may be necessary to
implement those determinations. 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 Fund's investment
securities shall be exercised, subject to guidelines adopted by the Board of
Trustees.
(2) The Investment Manager is not required to furnish any
personnel, overhead items or facilities for the Trust, including trading desk
facilities or daily pricing of the Fund's portfolio.
(3) The Investment Manager shall be responsible for selecting
members of securities exchanges, brokers and dealers (such members, brokers
and dealers being hereinafter referred to as "brokers") for the execution of
the Fund's portfolio transactions consistent with the Fund's brokerage
policies and, when applicable, the negotiation of commissions in connection
therewith.
All decisions and placements shall be made in accordance with the
following principles:
A. Purchase and sale orders will usually be placed with
brokers which are selected by the Investment Manager as
able to achieve "best execution" of such orders. "Best
execution" shall mean prompt and reliable execution at the
most favorable security price, taking into account the
other provisions hereinafter set forth. The determination
of what may constitute best execution and price in the
execution of a securities transaction by a broker involves
a number of considerations, including, without limitation,
the overall direct net economic result to the Fund
(involving both price paid or received and any commissions
and other costs paid), the efficiency with which the
transaction is effected, the ability to effect the
transaction at all where a large block is involved,
availability of the broker to stand ready to execute
possibly difficult transactions in the future, and the
financial strength and stability of the broker. Such
considerations are judgmental and are weighed by the
Investment Manager in determining the overall
reasonableness of brokerage commissions.
B. In selecting brokers for portfolio transactions, the
Investment Manager shall take into account its past
experience as to brokers qualified to achieve "best
execution," including brokers who specialize in any foreign
securities held by the Fund.
C. The Investment Manager is authorized to allocate brokerage
business to brokers who have provided brokerage and
research services, as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934 (the
"1934 Act"), for the Fund and/or other accounts, if any,
for which the Investment Manager exercises investment
discretion (as defined in Section 3(a)(35) of the 0000 Xxx)
and, as to transactions for which fixed minimum commission
rates are not applicable, to cause the Fund to pay a
commission for effecting a securities transaction in excess
of the amount another broker would have charged for
effecting that transaction, if the Investment Manager
determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and
research services provided by such broker, viewed in terms
of either that particular transaction or the Investment
Manager's overall responsibilities with respect to the Fund
and the other accounts, if any, as to which it exercises
investment discretion. In reaching such determination, the
Investment Manager will not be required to place or attempt
to place a specific dollar value on the research or
execution services of a broker or on the portion of any
commission reflecting either of said services. In
demonstrating that such determinations were made in good
faith, the Investment Manager shall be prepared to show
that all commissions were allocated and paid for purposes
contemplated by the Fund's brokerage policy; that the
research services provide lawful and appropriate assistance
to the Investment Manager in the performance of its
investment decision-making responsibilities; and that the
commissions paid were within a reasonable range. Whether
commissions were within a reasonable range shall be based
on any available information as to the level of commission
known to be charged by other brokers on comparable
transactions, but there shall be taken into account the
Fund's policies that (i) obtaining a low commission is
deemed secondary to obtaining a favorable securities price,
since it is recognized that usually it is more beneficial
to the Fund to obtain a favorable price than to pay the
lowest commission; and (ii) the quality, comprehensiveness
and frequency of research studies that are provided for the
Investment Manager are useful to the Investment Manager in
performing its advisory services under this Agreement.
Research services provided by brokers to the Investment
Manager are considered to be in addition to, and not in
lieu of, services required to be performed by the
Investment Manager under this Agreement. Research
furnished by brokers through which the Fund effects
securities transactions may be used by the Investment
Manager for any of its accounts, and not all research may
be used by the Investment Manager for the Fund. When
execution of portfolio transactions is allocated to brokers
trading on exchanges with fixed brokerage commission rates,
account may be taken of various services provided by the
broker.
D. Purchases and sales of portfolio securities within the
United States other than on a securities exchange shall be
executed with primary market makers acting as principal,
except where, in the judgment of the Investment Manager,
better prices and execution may be obtained on a commission
basis or from other sources.
E. Sales of the Fund's shares (which shall be deemed to
include also shares of other registered investment
companies which have either the same adviser or an
investment adviser affiliated with the Investment Manager)
by a broker are one factor among others to be taken into
account in deciding to allocate portfolio transactions
(including agency transactions, principal transactions,
purchases in underwritings or tenders in response to tender
offers) for the account of the Fund to that broker;
provided that the broker shall furnish "best execution," as
defined in subparagraph A above, and that such allocation
shall be within the scope of the Fund's policies as stated
above; provided further, that in every allocation made to a
broker in which the sale of Fund shares is taken into
account, there shall be no increase in the amount of the
commissions or other compensation paid to such broker
beyond a reasonable commission or other compensation
determined, as set forth in subparagraph C above, on the
basis of best execution alone or best execution plus
research services, without taking account of or placing any
value upon such sale of the Fund's shares.
[ SUBJECT TO BOARD APPROVAL:(4) The Trust agrees to pay to
the Investment Manager a monthly fee in dollars at an annual rate of 0.75% of
the first $200 million of the Fund's average daily net assets, reduced for
such assets over $200 million to 0.65%, and further reduced for such assets
in excess of $1.3 billion to 0.55%, payable at the end of each calendar
month.]
Notwithstanding the foregoing, if the total expenses of the Fund
(including the fee to the Investment Manager) in any fiscal year of the Fund
exceed any expense limitation imposed by applicable State law, the Investment
Manager shall reimburse the Fund for such excess in the manner and to the
extent required by applicable State law. The term "total expenses," as used
in this paragraph, does not include interest, taxes, litigation expenses,
distribution expenses, brokerage commissions or other costs of acquiring or
disposing of any of the Fund's portfolio securities or any costs or expenses
incurred or arising other than in the ordinary and necessary course of the
Fund's business. When the accrued amount of such expenses exceeds this
limit, the monthly payment of the Investment Manager's fee will be reduced by
the amount of such excess, subject to adjustment month by month during the
balance of the Fund's fiscal year if accrued expenses thereafter fall below
the limit.
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 the
Fund's expenses, as if such waiver or limitation were fully set forth herein.
(5) This Agreement shall become effective on February 26, 1998
and shall continue in effect until April 30, 1999. If not sooner terminated,
this Agreement shall continue in effect for successive periods of 12 months
each thereafter, provided that each such continuance shall be specifically
approved annually by the vote of a majority of the Trust's Board of Trustees
who are not parties to this Agreement or "interested persons" (as defined in
the Investment Company Act of 1940 (the "1940 Act")) of any such party, cast
in person at a meeting called for the purpose of voting on such approval and
either the vote of (a) a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act, or (b) a majority of the Trust's Board of
Trustees as a whole.
(6) Notwithstanding the foregoing, this Agreement may be
terminated by either party at any time, without the payment of any penalty,
on sixty (60) days' written notice to the other party, provided that
termination by the Trust is approved by vote of a majority of the Trust's
Board of Trustees in office at the time or by vote of a majority of the
outstanding voting securities of the Fund (as defined by the 1940 Act).
(7) This Agreement will terminate automatically and immediately
in the event of its assignment (as defined in the 1940 Act).
(8) In the event this Agreement is terminated and the
Investment Manager no longer acts as Investment Manager to the Fund, the
Investment Manager reserves the right to withdraw from the Trust and the Fund
the use of the names "Franklin," "Xxxxxxxxx" or any name misleadingly
implying a continuing relationship between the Trust or the Fund and the
Investment Manager or any of its affiliates.
(9) Except as may otherwise be provided by the 1940 Act,
neither the Investment Manager nor its officers, directors, employees or
agents shall be subject to any liability for any error of judgment, mistake
of law, or any loss arising out of any investment or other act or omission in
the performance by the Investment Manager of its duties under the Agreement
or for any loss or damage resulting from the imposition by any government of
exchange control restrictions which might affect the liquidity of the Fund's
assets, or from acts or omissions of custodians, or securities depositories,
or from any war or political act of any foreign government to which such
assets might be exposed, or for failure, on the part of the custodian or
otherwise, timely to collect payments, except for any liability, loss or
damage resulting from willful misfeasance, bad faith or gross negligence on
the Investment Manager's part or by reason of reckless disregard of the
Investment Manager's duties under this Agreement. It is hereby understood
and acknowledged by the Trust that the value of the investments made for the
Fund may increase as well as decrease and are not guaranteed by the
Investment Manager. It is further understood and acknowledged by the Trust
that investment decisions made on behalf of the Fund by the Investment
Manager are subject to a variety of factors which may affect the values and
income generated by the Fund's portfolio securities, including general
economic conditions, market factors and currency exchange rates, and that
investment decisions made by the Investment Manager will not always be
profitable or prove to have been correct.
(10) It is understood that the services of the Investment
Manager are not deemed to be exclusive, and nothing in this Agreement shall
prevent the Investment Manager, or any affiliate thereof, from providing
similar services to other investment companies and other clients, including
clients which may invest in the same types of securities as the Fund, or, in
providing such services, from using information furnished by others. When
the Investment Manager determines to buy or sell the same security for the
Fund that the Investment Manager or one or more of its affiliates has
selected for clients of the Investment Manager or its affiliates, the orders
for all such security transactions shall be placed for execution by methods
determined by the Investment Manager, with approval by the Trust's Board of
Trustees, to be impartial and fair.
(11) This Agreement shall be construed in accordance with the
laws of the State of Florida, provided that nothing herein shall be construed
as being inconsistent with applicable Federal and state securities laws and
any rules, regulations and orders thereunder.
(12) 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 and, to this extent, the
provisions of this Agreement shall be deemed to be severable.
(13) Nothing herein shall be construed as constituting the
Investment Manager an agent of the Trust.
(14) It is understood and expressly stipulated that neither the
holders of shares of the Trust nor any Trustee, officer, agent or employee of
the Trust shall be personally liable hereunder, nor shall any resort be had
to other private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their duly authorized officers and their respective
corporate seals to be hereunto duly affixed and attested.
XXXXXXXXX VARIABLE PRODUCTS SERIES FUND
By:___________________
FRANLIN ADVISERS, INC.
By:___________________
