SUB-ADVISORY AGREEMENT
XXXXXXXXX GLOBAL SMALLER COMPANIES FUND
THIS SUB-ADVISORY AGREEMENT made as of June 1, 2004 by and
between XXXXXXXXX INVESTMENT COUNSEL, LLC ("TICL"), a Delaware limited liability
corporation and FRANKLIN XXXXXXXXX INVESTMENTS (ASIA) LIMITED ("FTIL"), a
corporation existing under the laws of Hong Kong.
WITNESSETH
WHEREAS, TICL and FTIL are each registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and engaged in the business of supplying investment management services,
as an independent contractor;
WHEREAS, TICL, pursuant to an investment advisory agreement
("Investment Advisory Agreement"), has been retained to render investment
advisory services to Xxxxxxxxx Global Smaller Companies Fund (the "Fund"), an
investment management company registered with the U.S. Securities and Exchange
Commission (the "SEC") pursuant to the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, from time to time, members of the Fund's portfolio
management team will be residing in Hong Kong during which time they will be
employed by FTIL, and TICL wishes to enter into this Agreement with FTIL to
enable such persons to continue to perform their responsibilities as members of
the Fund's portfolio management team during their employment with FTIL.
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. TICL hereby retains FTIL and FTIL 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 Fund's Board of Trustees (the "Board") and
to the instructions and supervision of TICL, FTIL agrees to provide
certain investment advisory services with respect to securities and
investments and cash equivalents in the Fund. TICL will continue to
provide all research services in respect of the Fund and have full
responsibility for all investment advisory services provided to the
Fund. TICL acknowledges that the only services that FTIL will provide
under this Agreement are the portfolio management services of any team
members residing in Hong Kong while such persons remain employed by
FTIL.
(b) Both FTIL and TICL may place all purchase and
sale orders on behalf of the Fund. The placement of these orders will
take place exclusively in Fort Lauderdale or Hong Kong.
(c) Unless otherwise instructed by TICL or the Board,
and subject to the provisions of this Agreement and to any guidelines
or limitations specified from time to time by TICL or by the Board,
FTIL shall report daily all transactions effected by FTIL on behalf of
the Fund to TICL and to other entities as reasonably directed by TICL
or the Board.
(d) For the term of this Agreement, TICL 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. Any team members residing in
Hong Kong shall also be available to attend such meetings of the Board
as the Board may reasonably request.
(e) In performing its services under this Agreement,
FTIL shall adhere to the Fund's investment objective, policies and
restrictions as contained in the Fund's Prospectus and Statement of
Additional Information, and in the Fund's Articles of Incorporation,
and to the investment guidelines most recently established by TICL 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.
(f) In carrying out its duties hereunder, FTIL shall
comply with all reasonable instructions of the Fund or TICL 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 resolutions has been supplied to FTIL.
2. In performing the services described above, FTIL 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, FTIL 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, FTIL 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) TICL shall pay to FTIL a fee equal to one-third of the
advisory fee paid to TICL by the Fund, which fee shall be payable in
U.S. dollars on the first business day of each month as compensation
for the services to be rendered and obligations assumed by FTIL 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 day of this Agreement and shall be reduced by the amount of
any advance payments made by TICL relating to the previous month.
(b) TICL and FTIL shall share equally in any
voluntary reduction or waiver by TICL of the management fee due under
the Investment Advisory Agreement between TICL 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.
4. It is understood that the services provided by FTIL are not
to be deemed exclusive. TICL acknowledges that FTIL may have investment
responsibilities, render investment advice to, or perform other investment
advisory services to other investment companies and clients, which may invest in
the same type of securities as the Fund (collectively, "Clients"). TICL agrees
that FTIL 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. In providing
services, FTIL may use information furnished by others to TICL and FTIL in
providing services to other such Clients.
5. TICL agrees to use its best efforts in performing the
services to be provided by it pursuant to this Agreement.
6. During the term of this Agreement, FTIL will pay all
expenses incurred by it in connection with the services to be provided by it
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Fund. The Fund and TICL will be
responsible for all of their respective expenses and liabilities.
7. FTIL shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent TICL or the Fund in any
way, or in any way be deemed an agent for TICL or the Fund.
8. FTIL 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 FTIL 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.
9. This Agreement shall become effective as of the date first
written above and shall continue in effect until May 31, 2006. If not sooner
terminated, this Agreement shall continue in effect for successive periods of 12
months each thereafter, provided that each such continuance shall be
specifically approved annually by the vote of a majority of the Fund's Board of
Trustees who are not parties to this Agreement or "interested persons" (as
defined in the 0000 Xxx) of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and either the vote of (a) a
majority of the outstanding voting securities of the Fund, as defined in the
1940 Act, or (b) a majority of the Fund's Board of Trustees as a whole.
10. (a) Notwithstanding the foregoing, this Agreement may be
terminated at any time, without the payment of any penalty, by the
Board upon not less than sixty (60) days' written notice to TICL and
FTIL, and by TICL or FTIL upon not less than sixty (60) days' written
notice to the other party.
(b) 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 TICL and the Fund.
11. (a) In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of its obligations or duties
hereunder on the part of FTIL, neither FTIL nor any of its directors,
officers, employees or affiliates shall be subject to liability to TICL
or the Fund or to any shareholder of the Fund for any error of
judgement 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 11(a), to the extent
that TICL 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 FTIL pursuant to
authority delegated as described in Paragraph 1(a), FTIL shall
indemnify TICL 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 TICL or FTIL from liability in
violation of Sections 17(h) or (i), respectively, of the 0000 Xxx.
12. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, FTIL 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. FTIL further agrees to preserve for periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
13. Upon termination of FTIL's engagement under this Agreement
or at the Fund's direction, FTIL shall forthwith deliver to the Fund, or to any
third party at the Fund's direction, all records, documents and books of
accounts which are in the possession or control of FTIL and relate directly and
exclusively to the performance by FTIL of its obligations under this Agreement;
provided, however, that FTIL shall be permitted to keep such records or copies
thereof for such periods of time as are necessary to comply with applicable
laws, in which case FTIL shall provide the Fund or a designated third party with
copies of such retained documents unless providing such copies would contravene
such rules, regulations and laws.
Termination of this Agreement or FTIL's engagement
hereunder shall be without prejudice to the rights and liabilities created
hereunder prior to such termination.
14. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, in whole or in part,
the other provisions hereof shall remain in full force and effect. Invalid
provisions shall, in accordance with the intent and purpose of this Agreement,
be replaced by such valid provisions which in their economic effect come as
closely as legally possible to such invalid provisions.
15. TICL will furnish to FTIL properly certified or
authenticated copies of the resolutions of the Board authorizing the appointment
of FTIL and approving this Agreement as soon as such copies are available.
16. Any notice or other communication required to be given
pursuant to this Agreement shall be in writing and given by personal delivery or
by facsimile transmission and shall be effective upon receipt. Notices and
communications shall be given:
(i) to FTIL:
00xx Xxxxx, Xxxxxx Xxxxx
0 Xxxxxxxxx Xxxx Xxxxxxx
Xxxx Xxxx
Facsimile: 011-852-2877-5401
(ii) to TICL: 000 Xxxx Xxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxxx Xxxxxxxxxx, Xxxxxxx 00000
Facsimile: 000-000-0000
17. This Agreement shall be interpreted in accordance with and
governed by the laws of the State of Florida.
18. FTIL acknowledges that it has received notice of and
accepts the limitations of the Fund's liability as set forth in its Agreement
and Declaration of Trust. FTIL agrees that the Fund's obligations hereunder
shall be limited to the assets of the Fund, and that FTIL shall not seek
satisfaction of any such obligation from any shareholders of the Fund nor from
any trustee, officer, employee or agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers and their
respective corporate seals to be hereunto duly affixed and attested.
FRANKLIN XXXXXXXXX INVESTMENTS (ASIA) LIMITED
By:/s/XXXXXXX X. XXXXXXX
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Xxxxxxx X. XxXxxxx
Director
XXXXXXXXX INVESTMENT COUNSEL, LLC
By:/s/XXXXXX X. XXXXXXXX
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Xxxxxx X. Xxxxxxxx
Vice President and Assistant Secretary
