FRANKLIN STRATEGIC SERIES
on behalf of
FRANKLIN U.S. LONG-SHORT FUND
AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT
THIS AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT (the "Agreement")
made between FRANKLIN STRATEGIC SERIES, a Delaware business trust (the "Trust"),
on behalf of FRANKLIN U.S. 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
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 DURING THE TRANSITION PERIOD. During the
twelve months after the later of shareholder approval or execution of this
Agreement (the "transition period") detailed in Section 5 hereof, 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 rate:
1.50% of the average daily net assets of the Fund
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
during the transition period, the accrued advisory fee shall be paid to the
date of termination.
5. COMPENSATION OF THE ADVISER. Effective on the first day of the month
that occurs after twelve months have elapsed after the later of shareholder
approval or execution of this Agreement, which is the "transition period" for
purposes of Sections 4 and 5 of this Agreement, 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 (in increments of 0.01% of adjustment in the fee for each 0.05% difference
between the Fund's performance and the Index), for each percentage point in the
investment performance of the Fund exceeds the sum of 2.00% and the investment
record of the Standard & Poor's 500(R) Composite Stock Price Index (the
"Index"), or (ii) downward at the rate of 0.20%, on a pro rata basis (in
increments of 0.01% of adjustment in the fee for each 0.05% difference between
the Fund's performance and the Index), for each percentage point the investment
record of the Index less 2.00% exceeds the investment performance of the Fund
(such upward or downward adjustment in the fee herein referred to as the "Fee
Adjustment"). The maximum increase or decrease in the percentage of the 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 5, 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 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 in accordance with applicable law 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 U.S. 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 by the Adviser, as if such waiver or limitation were fully 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.
6. 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.
7. 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 7.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 7.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.
8. 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.
9. 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.
10. 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 this 1st day of May, 2002.
FRANKLIN STRATEGIC SERIES
on behalf of FRANKLIN U.S. LONG-SHORT FUND
By: /s/Xxxxxx X. Xxxxxxx
---------------------------
Xxxxxx X. Xxxxxxx
Title: Vice President & Secretary
FRANKLIN ADVISERS, INC.
By: /s/Xxxxxxx X. Xxxxxxx
---------------------
Xxxxxxx X. Xxxxxxx
Title: President
