FRANKLIN XXXXXXXXX INTERNATIONAL TRUST
on behalf of
TEMPLETON GLOBAL LONG-SHORT FUND
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT made between FRANKLIN XXXXXXXXX
INTERNATIONAL TRUST, a Delaware business trust (the "Trust"), on behalf of
TEMPLETON GLOBAL LONG-SHORT FUND (the "Fund"), a series of the Trust, and
FRANKLIN ADVISERS, INC., a California corporation (the "Adviser").
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 Statement 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 adviser and to have an investment adviser perform
various management, statistical, research, investment advisory and other
services for the Fund; and,
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
investment advisory, counseling and supervisory services to investment
companies and other investment counseling clients, and desires to provide these
services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
1. Employment of the Adviser. The Trust hereby employs the Adviser 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 Trust, for the period and on the terms hereinafter set forth. The Adviser
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 Adviser 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 or the Trust in any way or otherwise be deemed an agent of the Fund or the
Trust.
2. Obligations of and Services to be Provided by the Adviser. The
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Adviser undertakes to provide the services hereinafter set forth and to
assume the following obligations:
A. Investment Advisory Services.
(a) The Adviser shall manage the Fund's assets subject
to and in accordance with the investment objectives and policies of the Fund and
any directions which the Trust's Board of Trustees may issue from time to time.
In pursuance of the foregoing, the Adviser 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 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 Fund's investment securities shall be
exercised. The Adviser 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 Fund's assets and the
purchase and sale of its investment securities, (ii) the reasons for such
decisions, and (iii) the extent to which those decisions have been implemented.
(b) The Adviser, 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 Fund, orders for the execution of the Fund's
securities transactions. When placing such orders, the Adviser shall seek to
obtain the best net price and execution for the Fund, but this requirement shall
not be deemed to obligate the Adviser 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 Fund and the Adviser 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 Fund will benefit, directly or indirectly, by doing so, the Adviser 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 Adviser agree that the
Adviser shall select brokers for the execution of the Fund's 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 Fund'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 Adviser or its affiliates
which the Adviser or its affiliates may lawfully and
appropriately use in their investment advisory capacities,
which relate directly to securities, actual or potential,
of the Fund, or which place the Adviser in a better
position to make decisions in connection with the
management of the Fund's assets and securities, whether or
not such data may also be useful to the Adviser 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 Fund may also be considered as a factor in the
selection of broker-dealers to execute the Fund's portfolio
transactions.
(c) When the Adviser has determined that the Fund 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 Adviser 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
Adviser 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 on behalf of the Fund shall enter
into an agreement with the Adviser 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 Adviser shall render regular reports to the Trust,
not more frequently than quarterly, of how much total brokerage business
has been placed by the Adviser, on behalf of the Fund, with brokers falling into
each of the categories referred to above and the manner in which the allocation
has been accomplished.
(e) The Adviser 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 Adviser's paramount duty to obtain the
best net price and execution for the Fund.
(f) Decisions on proxy voting shall be made by the
Adviser unless the Board of Trustees determines otherwise. Pursuant to its
authority, Adviser shall have the power to vote, either in person or by proxy,
all securities in which the Fund may be invested from time to time, and shall
not be required to seek or take instructions from the Fund with respect thereto.
Adviser shall not be expected or required to take any action other than the
rendering of investment-related advice with respect to lawsuits involving
securities presently or formerly held in the Fund, or the issuers thereof,
including actions involving bankruptcy. Should Adviser undertake litigation
against an issuer on behalf of the Fund, the Fund agrees to pay its portion of
any applicable legal fees associated with the action or to forfeit any claim to
any assets Adviser may recover and, in such case, agrees to hold Adviser
harmless for excluding the Fund from such action. In the case of class action
suits involving issuers held in the Fund, Adviser may include information about
the Fund for purposes of participating in any settlements.
B. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other Materials.
The Adviser, 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 underwriting and distribution of the
Fund's shares.
C. Other Obligations and Services.
---------------------------------- The Adviser 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 Fund and its investment activities.
D. Delegation of Services. The Adviser may, at its expense,
select and contract with one or more investment advisers registered under the
Investment Advisers Act of 1940 ("Sub-Advisers") to perform some or all of the
services for the Fund for which it is responsible under this Agreement. The
Adviser will compensate any Sub-Adviser for its services to the Fund. The
Adviser may terminate the services of any Sub-Adviser at any time in its sole
discretion, and shall at such time assume the responsibilities of such
Sub-Adviser unless and until a successor Sub-Adviser is selected and the
requisite approval of the Fund's shareholders is obtained. The Adviser will
continue to have responsibility for all advisory services furnished by any
Sub-Adviser.
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 Adviser herein,
which expenses payable by the Fund shall include:
A. Fees and expenses paid to the Adviser 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 its shares;
D. Expenses of obtaining quotations for calculating the value
of the Fund's net assets;
E. Salaries and other compensations of executive officers of
the Trust who are not officers, directors, stockholders or employees of the
Adviser or its affiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the filing of
reports with regulatory bodies and the maintenance of the Fund's and the
Trust'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. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Adviser or any of its
affiliates;
L. Costs and expense of registering and maintaining the
registration of the Fund and its shares under federal and any applicable
state laws; including the printing and mailing of prospectuses to its
shareholders;
M. Trade association dues;
N. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums; and
O. The Fund's portion of the cost of any proxy voting
service used on its behalf.
4. Compensation of the Adviser.
--------------------------- The Fund shall pay an advisory fee in cash
to the Adviser based upon a percentage of the value of the Fund's net assets,
calculated as set forth below, as compensation for the services rendered and
obligations assumed by the Adviser, 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 the Fund shall be 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 Fund's current
prospectus and statement of additional information. The rate of the management
fee payable by the Fund shall be calculated daily at the annual rate of 1.50% of
the Fund's daily average net assets (the "Base Fee"). This Base Fee will be
adjusted, on a monthly basis (i) upward at the rate of 0.20%, on a pro rata
basis, for each percentage point in the investment performance of the
Fund exceeds the sum of 2.00% and the investment record of the Xxxxxx Xxxxxxx
Capital International World Index (the "Index"), or (ii) downward at the rate of
0.20%, on a pro rata basis, for each percentage point the investment record of
the Index less 2.00% exceeds the investment performance of the Fund (such
adjustment herein referred to as the "Fee Adjustment"). The maximum or minimum
Fee Adjustment, if any, will be 1.00%. Therefore, the maximum annual fee payable
to the Adviser will be 2.50% of average daily net assets and the minimum annual
fee will be 0.50% of average daily net assets. During any period when the
determination of the Fund's net asset value is suspended by the Trustees of the
Trust, the net asset value of a share of the Fund as of the last business day
prior to such suspension shall, for the purpose of this Paragraph 4, be deemed
to be the net asset value at the close of each succeeding business day until it
is again determined.
In determining the Fee Adjustment, if any, applicable during any month, the
Fund's administrator will compare the investment performance of the Class A
Shares of the Fund for the twelve-month period ending on the last day of the
prior month (the "Performance Period") to the investment record of the Index
during the Performance Period. The investment performance of the Fund will be
determined by adding together (i) the change in the net asset value of the Class
A Shares during the Performance Period, (ii) the value of cash distributions
made by the Fund to holders of Class A Shares to the end of the Performance
Period, and (iii) the value of capital gains per share, if any, paid or payable
on undistributed realized long-term capital gains accumulated to the end of the
Performance Period, and will be expressed as a percentage of its net asset value
per share at the beginning of the Performance Period. The investment record of
the Index will be determined by adding together (i) the change in the level of
the Index during the Performance Period and (ii) the value, computed
consistently with the Index, of cash distributions made by companies whose
securities comprise the Index accumulated to the end of the Performance Period,
and will be expressed as a percentage of the Index at the beginning of such
Performance Period.
After it determines any Fee Adjustment, the Fund's administrator will determine
the dollar amount of additional fees or fee reductions to be accrued for each
day of a month by multiplying the Fee Adjustment by the average daily net assets
of the Class A Shares of the Fund during the Performance Period and dividing
that number by the number of days in the Performance Period. The management fee,
as adjusted, is accrued daily and paid monthly.
If the Trustees determine at some future date that another securities index is a
better representative of the composition of the Fund than is the Xxxxxx Xxxxxxx
Capital International World Index, the Trustees may change the securities index
used to compute the Fee Adjustment. If the Trustees do so, the new securities
index (the "New Index") will be applied prospectively to determine the amount of
the Fee Adjustment. The Index will continue to be used to determine the amount
of the Fee Adjustment for that part of the Performance Period prior to the
effective date of the New Index. A change in the Index will be submitted to
shareholders for their approval unless a determination is made that shareholder
approval is not required under the 1940 Act or the Fund obtains relief from the
requirement of obtaining shareholder approval by interpretation or order issued
by the Securities and Exchange Commission.
However, no such fee shall be paid to the Adviser with respect to any assets of
the Fund that are invested in any other investment company for which the Adviser
or any of its affiliates serves as investment adviser. The fee provided for
hereunder shall be prorated in any month in which this Agreement is not in
effect for the entire month.
B. The advisory 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. The Adviser 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 Adviser 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 full set forth herein.
C. If this Agreement is terminated prior to the end of any
month, the accrued advisory fee shall be paid to the date of termination.
5. Activities of the Adviser. The services of the Adviser to the Fund
hereunder are not to be deemed exclusive, and the Adviser 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 Adviser or
its affiliates as directors, officers, agents or stockholders; that directors,
officers, agents or stockholders of the Adviser or its affiliates are or may be
interested in the Trust as trustees, officers, agents, shareholders or
otherwise; that the Adviser 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, By-Laws and the 0000 Xxx.
6. Liabilities of the Adviser.
---------------------------
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Trust or
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 Adviser 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
Adviser 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 Adviser 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
Adviser or any of its affiliates or any of their officers, directors, employees
or stockholders. The Adviser 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 Adviser or any of its affiliates from the sale
of his shares of the Adviser, or similar matters. So long as this Agreement is
in effect, the Adviser shall pay to the Trust the amount due for expenses
subject to this Subparagraph 6.B. within thirty (30) days after a xxxx or
statement has been received by the Adviser therefor. This provision shall not be
deemed to be a waiver of any claim the Trust may have or may assert against the
Adviser 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
Adviser, 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 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 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 on sixty (60)
days' written notice to the Adviser;
(ii) shall immediately terminate with respect to the
Fund in the event of its assignment; and
(iii) may be terminated by the Adviser on sixty (60)
days' written notice to the 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 1st day of July, 2001.
FRANKLIN XXXXXXXXX INTERNATIONAL TRUST
on behalf of TEMPLETON GLOBAL LONG-SHORT FUND
By: /s/Xxxxxx X. Xxxxxxx
Title: Vice President
FRANKLIN ADVISERS, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Title: President
