XXXXXXXXX CHINA WORLD FUND
000 Xxxx Xxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxx Xxxxxxxxxx, Xxxxxxx 00000-0000
Franklin/Xxxxxxxxx Distributors, Inc.
000 Xxxxxxxx Xxxxxxx
Xx. Xxxxxxxxxx, Xxxxxxx 00000-0000
Re: Distribution Agreement
Gentlemen:
We are a Delaware statutory trust operating as an open-end management investment
company. As such, our company, Xxxxxxxxx China World Fund (referred to herein as
the "Company"), comprised of one series (Xxxxxxxxx China World Fund) and any
additional series that may be created in the future, is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), and its shares are
registered under the Securities Act of 1933, as amended (the "1933 Act"). We
desire to begin issuing our authorized but unissued shares of beneficial
interest (the "Shares") to authorized persons in accordance with applicable
Federal and State securities laws. Shares will be made available for the Funds
(referred to herein as a "Fund" or collectively as the "Funds") formed as a
series of the Company.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934, as amended, and that your
company is a member of the National Association of Securities Dealers, Inc. You
have indicated your desire to act as the exclusive selling agent and distributor
for the Shares. We have been authorized to execute and deliver this Agreement to
you by a resolution of our Board of Trustees passed at a meeting at which a
majority of our Trustees, including a majority who are not otherwise interested
persons of the Company and who are not interested persons of our investment
adviser, its related organizations or with you or your related organizations,
were present and voted in favor of the said resolution approving this Agreement.
1. APPOINTMENT OF UNDERWRITER. Upon the execution of this Agreement and in
consideration of the agreements on your part herein expressed and upon the terms
and conditions set forth herein, we hereby appoint you as the exclusive sales
agent for our Shares (except for sales made directly by the Funds without sales
charge) and agree that we will deliver such Shares as you may sell. You agree to
use your best efforts to promote the sale of Shares, but are not obligated to
sell any specific number of Shares.
2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to accept orders for the purchase or repurchase of
Shares as our agent. You may appoint sub-agents or distribute through dealers or
otherwise as you may determine from time to time, but this Agreement shall not
be construed as authorizing any dealer or other person to accept orders for sale
or repurchase on our behalf or otherwise act as our agent for any purpose. You
may allow such sub-agents or dealers such commissions or discounts not exceeding
the total sales commission as you shall deem advisable so long as any such
commissions or discounts are set forth in our current prospectus to the extent
required by the applicable Federal and State securities laws.
3. OFFERING PRICE. The Shares of the Funds shall be offered for sale at a
price equivalent to their respective net asset value (as specified in the Fund's
prospectus). On each business day on which the New York Stock Exchange is open
for business, we will furnish you with the net asset value of the Shares which
shall be determined in accordance with our then effective prospectus. All Shares
will be sold in the manner set forth in our then effective prospectus.
4. COMPENSATION.
A. SALES COMMISSION. You shall be entitled to charge a
sales commission on the sale or redemption, as appropriate, of each series and
class of each Fund's Shares in the amount of any initial, deferred or contingent
deferred sales charge as set forth in our then effective prospectus. You may
allow any sub-agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable, so long as any
such commissions or discounts are set forth in our current prospectus to the
extent required by the applicable Federal and State securities laws. You may
also make payments to sub-agents or dealers from your own resources, subject to
the following conditions: (a) any such payments shall not create any obligation
for or recourse against the Fund or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our prospectus
or statement of additional information to the extent such laws may require.
B. DISTRIBUTION PLANS. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted as
to any series and class of any Fund's Shares pursuant to Rule 12b-1 under the
1940 Act.
The compensation provided in the Class B Distribution
Plan applicable to Class B Shares (the "Class B Plan") is divided into a
distribution fee and a service fee, each of which fees is in compensation for
different services to be rendered to the Fund. Subject to the termination
provisions in the Class B Plan, the distribution fee with respect to the sale of
a Class B Share shall be earned when such Class B Share is sold and shall be
payable from time to time as provided in the Class B Plan. The distribution fee
payable to you as provided in the Class B Plan shall be payable without offset,
defense or counterclaim (it being understood by the parties hereto that nothing
in this sentence shall be deemed a waiver by the Fund of any claim the Fund may
have against you). You may direct the Fund to cause our custodian to pay such
distribution fee to Lightning Finance Company Limited ("LFL") or other persons
providing funds to you to cover expenses referred to in Section 2(a) of the
Class B Plan and to cause our custodian to pay the service fee to you to cover
expenses referred to in Section 2(b) of the Class B Plan.
We understand that you intend to assign your right to
receive certain distribution fees with respect to Class B Shares to LFL in
exchange for funds that you will use to cover expenses referred to in Section
2(a) of the Class B Plan. In recognition that we will benefit from your
arrangement with LFL, we agree that, in addition to the provisions of Section 7
(iii) of the Class B Plan, we will not pay to any person or entity, other than
LFL, any such assigned distribution fees related to Class B Shares sold by you
prior to the termination of either the Agreement or the Class B Plan. We agree
that the preceding sentence shall survive termination of the Agreement.
C. With respect to the sales commission on the redemption
of Shares of each series and class of Fund as provided in Subsection 4.A. above,
we will cause our shareholder services agent (the "Transfer Agent") to withhold
from redemption proceeds payable to holders of the Shares all contingent
deferred sales charges properly payable by such holders in accordance with the
terms of our then current prospectuses and statements of additional information
(each such sales charge, a "CDSC"). Upon receipt of an order for redemption, the
Transfer Agent shall direct our custodian to transfer such redemption proceeds
to a general trust account. We shall then cause the Transfer Agent to pay over
to you or your assigns from the general trust account such CDSCs properly
payable by such holders as promptly as possible after the settlement date for
each such redemption of Shares. CDSCs shall be payable without offset, defense
or counterclaim (it being understood that nothing in this sentence shall be
deemed a waiver by us of any claim we may have against you.) You may direct that
the CDSCs payable to you be paid to any other person.
5. TERMS AND CONDITIONS OF SALES. Shares of the Funds shall be offered for
sale only in those jurisdictions where they have been properly registered or are
exempt from registration, and only to those groups of people that the Board of
Trustees may from time to time determine to be eligible to purchase such Shares.
6. PAYMENT OF SHARES. At or prior to the time of delivery of any of our
Shares you will pay or cause to be paid to our Custodian or its successor, for
our account, an amount in cash equal to the net asset value of such Shares. In
the event that you pay for Shares sold by you prior to your receipt of payment
from purchasers you are authorized to reimburse yourself for the net asset value
of such Shares when received by you.
7. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase our Shares for
your own account for purposes of resale to the public, but you may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.
8. ALLOCATION OF EXPENSES. We will pay the expenses:
(a) Of the preparation of the audited and certified financial
statements of our Company to be included in any Post-Effective
Amendments ("Amendments") to our Registration Statement under the
1933 Act or 1940 Act, including the prospectus and statement of
additional information included therein;
(b) Of the preparation, including legal fees, and of printing all
Amendments or supplements filed with the U.S. Securities and
Exchange Commission, including the copies of the prospectuses
included in the Amendments and the first 10 copies of the
definitive prospectuses or supplements thereto, other than those
necessitated by your (including your "Parent's") activities or
Rules and Regulations related to your activities where such
Amendments or supplements result in expenses that we would not
otherwise have incurred;
(c) Of the preparation, printing and distribution of any reports or
communications that we send to our existing shareholders; and
(d) Of filing and other fees to Federal and State securities
regulatory authorities necessary to continue offering our Shares
of any of the Funds as you may require in connection with your
duties as underwriter.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any supplements
thereto and statement of additional information, which are
necessary to continue to offer our Shares;
(b) Of the preparation, excluding legal fees, and printing of all
Amendments and supplements to our prospectuses and statement of
additional information if the Amendment or supplement arises from
your (including your "Parent's") activities or Rules and
Regulations related to your activities and those expenses would
not otherwise have been incurred by us;
(c) Of printing additional copies, for use by you as sales
literature, of reports or other communications that we have
prepared for distribution to our existing shareholders; and
(d) Incurred by you in advertising, promoting and selling our Shares.
9. FURNISHING OF INFORMATION. We will furnish to you such information with
respect to the Funds and their Shares, in such form and signed by such of our
officers as you may reasonably request, and we warrant that the statements
therein contained when so signed will be true and correct. We will also furnish
you with such information and will take such action as you may reasonably
request in order to qualify our Shares for sale to the public under the Blue Sky
Laws of jurisdictions in which you may wish to offer them. We will furnish you
with annual audited financial statements of our books and accounts certified by
independent public accountants, with semiannual financial statements prepared by
us, and, from time to time, with such additional information regarding our
financial condition as you may reasonably request.
10. CONDUCT OF BUSINESS. Other than our currently effective prospectus, you
will not issue any sales material or statements except literature or advertising
which conforms to the requirements of Federal and State securities laws and
regulations and which have been filed, where necessary, with the appropriate
regulatory authorities. You will furnish us with copies of all such materials
prior to their use and no such material shall be published if we shall
reasonably and promptly object.
You shall comply with the applicable Federal and State laws and regulations
where our Shares are offered for sale and conduct your affairs with us and with
dealers, brokers or investors in accordance with the Conduct Rules of the
National Association of Securities Dealers, Inc. and in strict accordance with
the applicable provisions of the Agreement and Declaration of Trust and By-Laws
of the Company.
In the absence of willful misfeasance, bad faith or gross negligence on
your part, or of reckless disregard of your obligations hereunder, you shall not
be subject to liability for any act or omission in the course of, or connected
with, rendering services hereunder.
11. OTHER ACTIVITIES. Your services pursuant to this Agreement shall not be
deemed to be exclusive, and you may render similar services and act as an
underwriter, distributor or dealer for other investment companies in the
offering of their shares.
12. TERM OF AGREEMENT. This Agreement shall become effective on the date of
its execution, and shall remain in effect for a period of two (2) years. The
Agreement is renewable annually thereafter with respect to the Company on behalf
of the Funds for successive periods not to exceed one year (i) by a vote of a
majority of the outstanding voting securities of the Company or by a vote of the
Board of Trustees of the Company, and (ii) by a vote of a majority of the
Trustees of the Company who are not parties to the Agreement or interested
persons of any parties to the Agreement (other than as Trustees of the Company),
cast in person at a meeting called for the purpose of voting on the Agreement.
This Agreement may at any time be terminated by the Company on behalf of a
Fund or the Funds without the payment of any penalty, (i) either by vote of the
Board of Trustees of the Company or by vote of a majority of the outstanding
voting securities of the Company on behalf of the Fund or Funds, on 60 days'
written notice to you; or (ii) by you on 60 days' written notice to the Company;
and shall immediately terminate with respect to the Company in the event of its
assignment.
13. SUSPENSION OF SALES. We reserve the right at all times to suspend or
limit the public offering of the Shares of the Funds upon two days' written
notice to you.
14. MISCELLANEOUS. This Agreement shall be subject to the laws of the State
of California and shall be interpreted and construed to further promote the
operation of the Company as an open-end investment company. As used herein the
terms "Net Asset Value", "Offering Price", "Investment Company", "Open-End
Investment Company", "Assignment", "Principal Underwriter", "Interested Person",
"Parents", "Affiliated Person", and "Majority of the Outstanding Voting
Securities" shall have the meanings set forth in the 1933 Act or the 1940 Act
and the Rules and Regulations thereunder.
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
XXXXXXXXX CHINA WORLD FUND
By /s/XXXXXXX X. XXXXX
---------------------------
Name: Xxxxxxx X. Xxxxx
Title: Vice President and Secretary
Accepted:
FRANKLIN/XXXXXXXXX DISTRIBUTORS, INC.
By /s/XXXXX X. XXXXX
-----------------------------------
Name: Xxxxx X. Xxxxx
Title: President
Dated as of December 3, 2002
