INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 10th day of May, between TEMPLETON INSTITUTIONAL
FUNDS, INC. (hereinafter referred to as the "Trust"), on behalf of Foreign
Smaller Companies Series (the "Fund"), and Xxxxxxxxx Investment Counsel, LLC
(hereinafter referred to as the "Investment Manager").
In consideration of the mutual agreements herein made, the Trust on behalf
of the Fund and the Investment Manager understand and agree as follows:
(1) The Investment Manager agrees, during the life of this Agreement, to
manage the investment and reinvestment of the Fund's assets consistent with the
provisions of the Trust Instrument of the Trust and the investment policies
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 Fund, 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 Trust'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 Trust'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 Trust'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 Trust'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 Trust's
shares.
(4) The Fund agrees to pay to the Investment Manager a monthly fee in
dollars at an annual rate of 0.75% of the daily net assets of the Fund during
the month preceding each payment. The Investment 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 Investment 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.
Notwithstanding the foregoing, if the total expenses of the Fund (including
the fee to the Investment Manager) in any fiscal year of the Trust 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 Trust's fiscal year if
accrued expenses thereafter fall below the limit.
(5) The Investment Manager 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 Investment Manager will
compensate any Sub-Adviser for its services to the Fund. The Investment Manager
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 Investment
Manager will continue to have responsibility for all advisory services furnished
by any Sub-Adviser.
(6) This Agreement is made this 10th day of May, 2002 and shall continue in
effect until April 30, 2004. 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 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.
(7) 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).
(8) This Agreement will terminate automatically and immediately in the
event of its assignment (as defined in the 1940 Act).
(9) 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 Fund the use of the name "Templeton" or any name
misleadingly implying a continuing relationship between the Fund and the
Investment Manager or any of its affiliates.
(10) 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.
(11) 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.
(12) This Agreement shall be construed in accordance with the laws of the
State of Delaware, provided that nothing herein shall be construed as being
inconsistent with applicable Federal and state securities laws and any rules,
regulations and orders thereunder.
(13) 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.
(14) Nothing herein shall be construed as constituting the Investment
Manager an agent of the Trust. (15) It is understood and expressly stipulated
that neither the holders of shares of the Fund 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.
TEMPLETON INSTITUTIONAL FUNDS, INC
By:/s/XXXXX X. XXXX
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XXXXXXXXX INVESTMENT COUNSEL, LLC
By:/s/XXXX X. XXXXX
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