FRANKLIN INVESTORS SECURITIES TRUST
on behalf of
FRANKLIN REAL RETURN FUND
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT made between FRANKLIN INVESTORS
SECURITIES TRUST, a Massachusetts business trust (the "Trust"), on behalf of
FRANKLIN REAL RETURN 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, as
amended (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 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 following annual rates:
0.425% of the value of its net assets up to and including
$500,000,000; and
0.325% of the value of its net assets over $500,000,000 up to
and including $1,000,000,000; and
0.280% of the value of its net assets over $1,000,000,000 up
to and including $1,500,000,000; and
0.235% of the value of its net assets over $1,500,000,000 up
to and including $6,500,000,000; and
0.215% of the value of its net assets over $6,500,000,000 up
to and including $11,500,000,000; and
0.200% of the value of its net assets over $11,500,000,000 up
to and including $16,500,000,000; and
0.190% of the value of its net assets over $16,500,000,000 up
to and including $19,000,000,000; and
0.180% of the value of its net assets over $19,000,000,000 up
to and including $21,500,000,000; and
0.170% of the value of its net assets over $21,500,000,000.
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 1940 Act.
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 therefore. 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 November, 2004.
FRANKLIN INVESTORS SECURITIES TRUST
on behalf of Franklin Real Return Fund
By: /S/ XXXXXX X. XXXXXXX
----------------------
Xxxxxx X. Xxxxxxx
Title: Vice President & Secretary
FRANKLIN ADVISERS, INC.
By: /S/ XXXXXX X. XXXXXXXX
-----------------------
Xxxxxx X. Xxxxxxxx
Title: President
