FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN
INSTITUTIONAL U.S. GOVERNMENT ARM FUND, a Delaware Business
Trust, hereinafter called the "Fund" and FRANKLIN ADVISERS, INC.,
a California Corporation, hereinafter called the "Manager."
WHEREAS, the Fund has been organized and intends to operate
as an investment company registered under the Investment Company
Act of 1940 for the purpose of investing and reinvesting its
assets in securities, as set forth in its Agreement and
Declaration of the Fund, its By-Laws and its Registration
Statements under the Investment Company Act of 1940 and the
Securities Act of 1933, all as heretofore amended and
supplemented;
WHEREAS, the Fund 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; 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 clients, and desires to provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Fund hereby employs the
Manager to manage the investment and reinvestment of the Fund's
assets and to administer its affairs, subject to the direction of
the Board of Trustees and the officers of the Fund, 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 Fund
in any way or otherwise be deemed an agent of the Fund.
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. Office Space, Furnishings, Facilities, Equipment,
and Personnel.
The Manager shall furnish to the Fund 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 Fund, including complying with the securities
reporting requirements of the United States and the
various states in which the Fund does business,
conducting correspondence and other communications with
the shareholders of the Fund, maintaining all internal
bookkeeping, accounting, auditing services and records
in connection with the Fund's investment and business
activities, and computing its net asset value. 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 Fund who
are officers or employees of the Manager.
B. Investment Management Services.
(a) The Manager shall manage the assets of the
Fund subject to and in accordance with its investment
objective and policies and any directions which the
Fund'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 assets of the Fund and the purchase and sale of its
portfolio securities, and shall take such steps as may
be necessary to implement the same. Such determinations
and services shall also include determining the manner
in which voting rights, rights to consent to corporate
action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. The Manager
shall render regular reports to the Fund, at regular
meetings of the Board of Trustees and at such other
times as may be reasonably requested by the Fund's
Board of Trustees, of (i) the decisions which it has
made with respect to the investment of the assets of
the Fund and the purchase and sale of its portfolio
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 Fund's Board of Trustees may
issue from time to time, shall place, in the name of
the Fund, orders for the execution of the Fund's
portfolio transactions. When placing such orders, the
Manager shall seek to obtain the best net price and
execution for the 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
or dealers are equally able to provide such best price
and execution and that, in selecting among such brokers
and dealers with respect to particular trades, it is
desirable to choose those brokers or dealers who
furnish research, statistical quotations and other
information to the Fund 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 determines that the Fund 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 Fund and the Manager agree that the
Manager shall select brokers and dealers for the execution of the
Fund's portfolio 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 Funds net assets, in such amount of
total brokerage as may reasonably be retired in
light of such services;
(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 portfolio 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 portfolios,
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
retired.
Provided that the Fund'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 the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin 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 it 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
Distributors' 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 Fund shall enter into an agreement with the
Manager and/or Distributors to reimburse them for all
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 Fund, not more frequently than quarterly, of how
much total brokerage business has been placed by the
Manager, on behalf of the Fund, with brokers falling
into each of the foregoing categories 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 Fund.
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
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 offering of the Fund's shares.
D. Other Obligations and Services. The Manager shall
make available its officers and employees to the Board
of Trustees and officers of the Fund for consultation
and discussions regarding the administration and
management of the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the
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 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;
D. Expenses of obtaining quotations for calculating
the value of the Fund's net assets;
E. Salaries and other compensation of any of its
executive officers who are not officers, trustees,
stockholders or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with
the purchase and sale of portfolio securities for
the Fund;
H. Costs, including the interest expense, of
borrowing money;
I. Costs incident is meetings of the Board of
Trustees, reports to the Fund's shareholders the
filing of reports with regulatory bodies and the
maintenance of the Fund'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. Costs of printing share certificates representing
shares of the Fund;
L. Trustees' fees and expenses to trustees who are
not directors, officers, employees or stockholders
of the Manager or any of its affiliates;
M. Trade association dues; and
N. Its pro rata portion of the fidelity bond
insurance premium and trustees and officers errors
and omissions insurance premium.
4. Compensation of the Manager. The Fund shall pay a
monthly 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, on the first business day of each month in each
year as compensation for the services rendered and obligations
assumed by the Manager during the preceding month. The initial
management fee under this Agreement shall be payable on the first
business day of the first month following the effective date of
this Agreement, and shall be reduced by the amount of any advance
payments made by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value
of the net assets of the Fund shall be the average
daily net assets during the month for which the payment
is being made, determined in the same manner as the
Fund uses to compute the value of its net assets in
connection with the determination of the daily net
asset value of its shares, all as set forth more fully
in the Fund's current prospectus. The annual rate of
the management fee payable by the Fund shall be as
follows:
40/100 of 1% of the value of its net assets
up to and including $5,000,000,000;
35/100 of 1% of the value of its net assets
in excess of $5,000,000,000 up to and
including $10,000,000,000
33/100 of 1% of the value of its net assets
in excess of $10,000,000,000 up to and
including $15,000,000,000 and
30/100 of 1% of the value of its net assets
in excess of $15,000,000,000.
B. The Management fee payable by the 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.
C. If this Agreement is terminated prior to the end
of any month, the monthly management fee for the Fund
shall be prorated for the portion of any month in which
this Agreement is in effect which is not a complete
month according to the proportion which the number of
calendar days in the fiscal quarter during which the
Agreement is in effect bears to the number of calendar
days in the month, and shall be payable within 10 days
after the date of termination.
5. Activities of the Manager. The services of the
Manager to the Fund 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 Fund and to
Section 10(a) of the Investment Company Act of 1940, it is
understood that Trustees, officers, agents and shareholders of
the Fund are or may be interested in the Manager or its
affiliates as trustees, directors officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in the Fund as Trustees, officers, agents,
shareholders or otherwise, and that the Manager or its affiliates
may be interested in the Fund as shareholders or otherwise; and
that the effect of any such interests shall be governed by said
Agreement and Declaration of Trust, the By-Laws and the
Investment Company Act of 1940.
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 Fund
or to any shareholder of the 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 the Fund.
B. Notwithstanding the foregoing, the Manager
agrees to reimburse the Fund for any and all costs,
expenses, and counsel and trustees' fees reasonably
incurred by the Fund 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 Fund incurs as the result of
action or inaction of the Manager or any of its
affiliates or any of their officers, directors,
employees or shareholders where the action or inaction
necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed
transaction in the shares or control of the Manager or
its affiliates (or litigation related to any pending or
proposed or future transaction in such shares or
control); or (ii) is within the control of the Manager
or any of its affiliates or any of their officers,
trustees, employees or shareholders. The Manager shall
not be obligated pursuant to the provisions of this
Subsection 6(B), to reimburse the Fund for any
expenditures related to the institution of an
administrative proceeding or civil litigation by the
Fund or a shareholder seeking to recover all or a
portion of the proceeds derived by any shareholder 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 Fund the amount due for expenses subject to
Subsection 6(B) of this Agreement within 30 days after
a ▇▇▇▇ or statement has been received by the Manager
therefor. This provision shall not be deemed to be a
waiver of any claim the Fund may have or may assert
against the Manager or others for costs, expenses or
damages heretofore incurred by the Fund or for costs,
expenses or damages the Fund 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 Fund, or
director or officer of the Manager, from liability in
violation of Sections 17(h) and (i) of the Investment
Company Act of 1940.
7. Renewal and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect for two (2)
years. The Agreement is renewable annually thereafter
for successive periods not to exceed one (1) year (i)
by a vote of a majority or the outstanding voting
securities of the Fund or by a vote of the Board of
Trustees of the Fund, and (ii) by a vote of a majority
of the Trustees of the Fund who are not parties to the
Agreement or interested persons of any parties to the
Agreement (other than as Trustees of the Fund), 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 Fund or by vote of a majority of the outstanding
voting securities of the Fund on 60 days' written
notice to the Manager;
(ii) shall immediately terminate with respect to the
Fund in the event of its assignment; and
(iii) may at any time be terminated by the Manager on
60 days' written notice to the Fund.
C. As used in this Section 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 Investment Company
Act of 1940, as amended.
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.
10. Limitation of Liability. The Manager acknowledges
that it has received notice of and accepts the limitations of the
Fund'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 Fund,
and that the Manager shall not seek satisfaction of any such
obligation from any shareholder, trustee, officer, employee or
agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and effective on the 3rd day of June,
1991.
FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
FRANKLIN ADVISERS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
President