SUBADVISORY AGREEMENT
FRANKLIN STRATEGIC SERIES
(on behalf of the Franklin Strategic Income Fund)
THIS SUBADVISORY AGREEMENT made as of the 1st day of January 2001, by and
between FRANKLIN ADVISERS, INC., a corporation organized and existing under the
laws of the State of California (hereinafter called "FAV"), and XXXXXXXXX
INVESTMENT COUNSEL, LLC, a Delaware limited liability company (hereinafter
called "TIC,LLC").
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 (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 Strategic Income Fund (the "Fund"), a series of Franklin Strategic
Series (the "Trust"), an investment management company registered with the U.S.
Securities and Exchange Commission (the "SEC") pursuant to the Investment
Company Act of 1940 (the "1940 Act"); and
WHEREAS, FAV desires to retain TIC,LLC to render investment advisory,
research and related services to the Fund pursuant to the terms and provisions
of this Agreement, and TIC,LLC is interested in furnishing said services.
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 TIC,LLC and TIC,LLC 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, TIC,LLC will provide a continuous investment program for the
Fund, including allocation of the Fund's assets among the various securities
markets of the world 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 TIC,LLC, and subject to paragraph (b)
below, TIC,LLC 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 except that orders regarding U.S. domiciled
securities and money market instruments may also be placed on behalf of the Fund
by FAV.
(b) In performing these services, TIC,LLC 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, TIC,LLC shall report daily all
transactions effected by TIC,LLC on behalf of the Fund to FAV and to other
entities as reasonably directed by FAV or the Board.
(d) TIC,LLC 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. TIC,LLC 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, TIC,LLC shall comply with
all reasonable instructions of the Fund or FAV in connection therewith. Such
instructions may be given by letter, telex, telefax 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
TIC,LLC.
2. In performing the services described above, TIC,LLC 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, TIC,LLC 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, TIC,LLC 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) TIC,LLC 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 TIC,LLC are not to
be deemed exclusive. FAV acknowledges that TIC,LLC 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 TIC,LLC 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. TIC,LLC 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 TIC,LLC as soon as available
copies properly certified or authenticated of each of the following documents:
(a) the Trust's Declaration of Trust, as filed with the Secretary of
State of the State of Delaware on March 22, 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 TIC,LLC 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 Management Agreement between the Fund and FAV.
FAV will furnish TIC,LLC with copies of all amendments of or supplements to the
foregoing documents.
6. TIC,LLC 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
TIC,LLC 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 monthly fee in cash to TIC,LLC based upon a percentage
of the value of the Fund's net assets, calculated as set forth below, on the
first business day of each month in each year as compensation for the services
rendered and obligations assumed by TIC,LLC during the preceding month. 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 the average daily net assets of the Fund during each month,
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 Fund's current Prospectus. The rate
of the monthly fee payable to TIC,LLC shall be based upon the following annual
rates:
.3125 of 1% of the value of net assets up to and including
$100,000,000; and
.25 of 1% of the value of net assets over $100,000,00 and not
over $250,000,000; and
.225 of 1% of the value of net assets in excess of
$250,000,000.
(b) FAV and TIC,LLC shall share equally in any voluntary reduction or
waiver by FAV of the management fee due FAV under the Management Agreement
between FAV and the Fund.
(c) If this Agreement is terminated prior to the end of any month,
the monthly fee shall be prorated for the portion of any month in which this
Agreement is in effect which is not a complete month according to the proportion
which the number of calendar days in the month during which the Agreement is in
effect bears to the total number of calendar days in the month, and shall be
payable within 10 days after 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
TIC,LLC, neither TIC,LLC nor any of its directors, 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 TIC,LLC pursuant to authority delegated as described in Paragraph
1(a), TIC,LLC 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 or officer of FAV or TIC,LLC, from liability in violation of Sections
17(h) or (i), respectively, of the 0000 Xxx.
10. During the term of this Agreement, TIC,LLC 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 January 1, 2001 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 TIC,LLC,
and by FAV or TIC,LLC 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 Management Agreement between FAV and the
Fund.
14. In compliance with the requirements of Rule 31a-3 under the 1940 Act,
TIC,LLC 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. TIC,LLC 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 TIC,LLC.
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 California of the United States of America.
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/Xxxxxxx X. Xxxxxxx
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Xxxxxxx X. Xxxxxxx
President
XXXXXXXXX INVESTMENT COUNSEL, LLC
By: /s/Xxxxxx X. Xxxxxxxx
---------------------
Xxxxxx X. Xxxxxxxx
Executive Vice President
Franklin Strategic Income Fund hereby acknowledges and agrees to the provisions
of paragraphs 9(a) and 10 of this Agreement.
FRANKLIN STRATEGIC SERIES on behalf of
FRANKLIN STRATEGIC INCOME FUND
By: /s/Xxxxxx X. Xxxxxxx
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Xxxxxx X. Xxxxxxx
Secretary
