SUBADVISORY AGREEMENT
FRANKLIN STRATEGIC SERIES on behalf of FRANKLIN U.S. LONG-SHORT FUND
This SUBADVISORY AGREEMENT made as of May 1, 2003, (this "Agreement") by
and between FRANKLIN ADVISERS, INC., a corporation organized and existing under
the laws of the State of California (hereinafter called "FAV") and FRANKLIN
XXXXXXXXX ALTERNATIVE STRATEGIES, INC., a Delaware corporation (hereinafter
called "FTAS").
W I T N E S S E T H
WHEREAS, FAV is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended, (the "Advisers Act"), and is engaged in the
business of supplying investment advice, and investment management services, as
an independent contractor; and
WHEREAS, FAV has been retained to render investment management services to
FRANKLIN U.S. LONG-SHORT FUND, (the "Fund"), a series of FRANKLIN STRATEGIC
SERIES (the "Trust"), an investment management company registered with the
United States Securities and Exchange Commission (the "SEC") pursuant to the
Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, FAV desires to retain FTAS to render investment advisory,
research and related services to the Fund pursuant to the terms and provisions
of this Agreement, and FTAS is interested in furnishing said services.
WHEREAS, the parties intend that this Agreement shall not affect the
ongoing rendering of investment management services by FAV with respect to the
investments for the Fund, pursuant to the investment advisory agreement between
FAV and the Trust on behalf of the Fund.
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:
1. FAV hereby retains FTAS and FTAS hereby accepts such engagement, to
furnish certain investment advisory services with respect to the assets of the
Fund, as more fully set forth herein.
(a) Subject to the overall policies, control, direction and review of
the Trust's Board of Trustees (the "Board") and to the instructions and
supervision of FAV, FTAS will provide a continuous investment program for the
Fund and investment research and advice with respect to securities and
investments and cash equivalents in the Fund. So long as the Board and FAV
determine, on no less frequently than an annual basis, to grant the necessary
delegated authority to FTAS, and subject to paragraph (b) below, FTAS will
determine what securities and other investments will be purchased, retained or
sold by the Fund, and will place all purchase and sale orders on behalf of the
Fund.
(b) In performing these services, FTAS shall adhere to the Fund's
investment objectives, policies and restrictions as contained in its Prospectus
and Statement of Additional Information, and in the Trust's Declaration of
Trust, and to the investment guidelines most recently established by FAV and
shall comply with the provisions of the 1940 Act and the rules and regulations
of the SEC thereunder in all material respects and with the provisions of the
United States Internal Revenue Code of 1986, as amended, which are applicable to
regulated investment companies.
(c) Unless otherwise instructed by FAV or the Board, and subject to
the provisions of this Agreement and to any guidelines or limitations specified
from time to time by FAV or by the Board, FTAS shall report daily all
transactions effected by FTAS on behalf of the Fund to FAV and to other entities
as reasonably directed by FAV or the Board.
(d) FTAS shall provide the Board at least quarterly, in advance of
the regular meetings of the Board, a report of its activities hereunder on
behalf of the Fund and its proposed strategy for the next quarter, all in such
form and detail as requested by the Board. FTAS shall also make an investment
officer available to attend such meetings of the Board as the Board may
reasonably request.
(e) In carrying out its duties hereunder, FTAS shall comply with all
reasonable instructions of the Fund or FAV in connection therewith. Such
instructions may be given by letter, telex, telefax, or other electronic
communication form, or telephone confirmed by telex, by the Board or by any
other person authorized by a resolution of the Board, provided a certified copy
of such resolution has been supplied to FTAS.
2. In performing the services described above, FTAS shall use its best
efforts to obtain for the Fund the most favorable price and execution available.
Subject to prior authorization of appropriate policies and procedures by the
Board, FTAS may, to the extent authorized by law and in accordance with the
terms of the Fund's Prospectus and Statement of Additional Information, cause
the Fund to pay a broker who provides brokerage and research services an amount
of commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker would have charged for effecting that
transaction, in recognition of the brokerage and research services provided by
the broker. To the extent authorized by applicable law, FTAS shall not be deemed
to have acted unlawfully or to have breached any duty created by this Agreement
or otherwise solely by reason of such action.
3. (a) FTAS shall, unless otherwise expressly provided and authorized,
have no authority to act for or represent FAV or the Fund in any way, or in any
way be deemed an agent for FAV or the Fund.
(b) It is understood that the services provided by FTAS are not to be
deemed exclusive. FAV acknowledges that FTAS may have investment
responsibilities, or render investment advice to, or perform other investment
advisory services, for individuals or entities, including other investment
companies registered pursuant to the 1940 Act, ("Clients") which may invest in
the same type of securities as the Fund. FAV agrees that FTAS may give advice or
exercise investment responsibility and take such other action with respect to
such Clients which may differ from advice given or the timing or nature of
action taken with respect to the Fund.
4. FTAS agrees to use its best efforts in performing the services to be
provided by it pursuant to this Agreement.
5. FAV has furnished or will furnish to FTAS as soon as available copies
properly certified or authenticated of each of the following documents:
(a) the Trust's Certificate of Trust, as filed with the Secretary of
State of the State of Delaware on January 25, 1991, and any other organizational
documents and all amendments thereto or restatements thereof;
(b) resolutions of the Trust's Board of Trustees authorizing the
appointment of FTAS and approving this Agreement;
(c) the Trust's original Notification of Registration on Form N-8A
under the 1940 Act as filed with the SEC and all amendments thereto;
(d) the Trust's current Registration Statement on Form N-1A under the
Securities Act of 1933, as amended and under the 1940 Act as filed with the SEC,
and all amendments thereto, as it relates to the Fund;
(e) the Fund's most recent Prospectus and Statement of Additional
Information; and
(f) the Investment Advisory Agreement between the Fund and FAV.
FAV will furnish FTAS with copies of all amendments of, or supplements to, the
foregoing documents.
6. FTAS will treat confidentially and as proprietary information of the
Fund all records and other information relative to the Fund and prior, present
or potential shareholders, and will not use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Fund, which
approval shall not be unreasonably withheld and may not be withheld where FTAS
may be exposed to civil or criminal contempt proceedings for failure to comply
when requested to divulge such information by duly constituted authorities, or
when so requested by the Fund.
7. FAV shall pay a fee in cash to FTAS 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 FTAS, payable monthly. The
advisory fee under this Agreement shall be payable on the first business day of
the first month following the effective date of this Agreement, and shall be
reduced by the amount of any advance payments made by FAV relating to the
previous month.
(a) For purposes of calculating such fee, the value of the net assets
of the Fund shall be determined in the same manner as the 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 Trust's current
Prospectus. The management fee payable by the Fund shall be calculated daily at
the following annual rate:
0.50% of the average daily net assets of the Fund.
(b) FAV and FTAS shall share equally in any voluntary reduction or
waiver by FAV of the management fee due FAV under the Investment Advisory
Agreement between FAV and the Fund.
(c) If this Agreement is terminated prior to the end of any month,
the accrued management fee shall be paid to the date of termination.
8. Nothing herein contained shall be deemed to relieve or deprive the
Board of its responsibility for and control of the conduct of the affairs of the
Fund.
9. (a) In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of its obligations or duties hereunder on the part of
FTAS, neither FTAS nor any of its members, officers, employees or affiliates
shall be subject to liability to FAV or the Fund or to any shareholder of the
Fund for any error of judgment or mistake of law or any other 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 paragraph 9(a), to the extent that FAV is found
by a court of competent jurisdiction, or the SEC or any other regulatory agency
to be liable to the Fund or any shareholder (a "liability"), for any acts
undertaken by FTAS pursuant to authority delegated as described in Paragraph
1(a), FTAS shall indemnify and save FAV and each of its affiliates, officers,
directors and employees (each a "Franklin Indemnified Party") harmless from,
against, for and in respect of all losses, damages, costs and expenses incurred
by a Franklin Indemnified Party with respect to such liability, together with
all legal and other expenses reasonably incurred by any such Franklin
Indemnified Party, in connection with such liability.
(c) No provision of this Agreement shall be construed to protect any
director, member or officer of FAV or FTAS, from liability in violation of
Sections 17(h) or (i), respectively, of the 0000 Xxx.
10. During the term of this Agreement, FTAS will pay all expenses incurred
by it in connection with its activities under this Agreement other than the cost
of securities (including brokerage commissions, if any) purchased for the Fund.
The Fund and FAV will be responsible for all of their respective expenses and
liabilities.
11. This Agreement shall be effective as of the date in the preamble, and
shall continue in effect for two years. It is renewable annually thereafter for
successive periods not to exceed one year each (i) by a vote of the Board or by
the vote of a majority of the outstanding voting securities of the Fund, and
(ii) by the vote of a majority of the Trustees of the Trust who are not parties
to this Agreement or interested persons thereof, cast in person at a meeting
called for the purpose of voting on such approval.
12. This Agreement may be terminated at any time, without payment of any
penalty, by the Board or by vote of a majority of the outstanding voting
securities of the Fund, upon sixty (60) days' written notice to FAV and FTAS,
and by FAV or FTAS upon sixty (60) days' written notice to the other party.
13. This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the 1940 Act, and in the event of
any act or event that terminates the Investment Advisory Agreement between FAV
and the Fund.
14. In compliance with the requirements of Rule 31a-3 under the 1940 Act,
FTAS hereby agrees that all records which it maintains for the Fund are the
property of the Fund and further agrees to surrender promptly to the Fund, or to
any third party at the Fund's direction, any of such records upon the Fund's
request. FTAS further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under the 1940 Act.
15. This Agreement may not be materially amended, transferred, assigned,
sold or in any manner hypothecated or pledged without the affirmative vote or
written consent of the holders of a majority of the outstanding voting
securities of the Fund and may not be amended without the written consent of FAV
and FTAS.
16. 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.
17. The terms "majority of the outstanding voting securities" of the Fund
and "interested persons" shall have the meanings as set forth in the 1940 Act.
18. This Agreement shall be interpreted in accordance with and governed by
the laws of the State of Delaware of the United States of America.
19. FTAS acknowledges that it has received notice of, and accepts the
limitations of, the Trust's liability as set forth in Article III of its
Agreement and Declaration of Trust. FTAS agrees that the Trust's obligations
hereunder shall be limited to the assets of the Fund, and that FTAS shall not
seek satisfaction of any such obligation from any shareholders of the Fund nor
from any trustee, officer, employee or agent of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers.
FRANKLIN ADVISERS, INC.
By: /S/ XXXXXX X. XXXXXXXX
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Xxxxxx X. Xxxxxxxx
President
FRANKLIN XXXXXXXXX ALTERNATIVE STRATEGIES, INC.
By: /S/ XXXXX XXXXXX
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Xxxxx Xxxxxx
President
Franklin Strategic Series, on behalf of Franklin U.S. Long-Short Fund hereby
acknowledges and agrees to the provisions of paragraphs 9(a) and 10 of this
Agreement.
FRANKLIN STRATEGIC SERIES on behalf of the
FRANKLIN U.S. LONG-SHORT FUND
By: /S/ XXXXXX X. XXXXXXX
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Xxxxxx X. Xxxxxxx
Vice President & Secretary
