SUB-ADVISORY AGREEMENT
FRANKLIN XXXXXXXXX INTERNATIONAL TRUST on behalf of
XXXXXXXXX FOREIGN SMALLER COMPANIES FUND
This SUB-ADVISORY AGREEMENT made as of October 9,
2001 ("Agreement"), by and between XXXXXXXXX INVESTMENT COUNSEL, LLC, a Delaware
limited liability company ("TICL") and FRANKLIN XXXXXXXXX INVESTMENTS (ASIA)
LIMITED ("FTIL"), a corporation existing under the laws of Hong Kong.
W I T N E S S E T H
WHEREAS, TICL and FTIL are each registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
are engaged in the business of supplying investment management services, each as
an independent contractor;
WHEREAS, TICL, pursuant to a sub-advisory agreement with Franklin
Advisers, Inc. ("Advisers"), has been retained to render investment advisory
services to the Templeton Foreign Smaller Companies Fund (the "Fund"), a series
of the Franklin Xxxxxxxxx International Trust (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, as amended (the
"1940 Act"); and
WHEREAS, Xxxxx Xxxxxxx, a member of the Fund's portfolio
management team, will be residing temporarily in Hong Kong during which time he
will be employed by FTIL, and TICL wishes to enter into this Agreement with FTIL
to enable Xx. Xxxxxxx to continue to perform his responsibilities as a member of
the Fund's portfolio management team during his 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 Trust's Board of Trustees (the "Board") and to the
instructions and supervision of Advisers and TICL, FTIL agrees to provide
certain investment advisory services with respect to securities and
investments and cash equivalents in the Fund. TICL acknowledges that the only
services that FTIL will provide under this Agreement are the portfolio
management services of Xxxxx Xxxxxxx while he remains 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 the State of Florida or in Hong Kong.
(c) Unless otherwise instructed by TICL, Advisers 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. Xxxxx Xxxxxxx 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 Trust's Agreement and Declaration of Trust and to the investment
guidelines most recently established by Advisers and 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, Advisers 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 resolution 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 monthly fee in U.S. dollars
based on a percentage of the Fund's average daily net assets. The advisory fee
under this Agreement shall be payable 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 and shall be reduced by the amount of any advance
payments made by TICL relating to the previous month. This fee shall be
calculated daily at the following annual rates:
0.1667% of the value of the Fund's net assets up to and including
$100 million;
0.1333% of the value of the Fund's net assets over $100 million
up to and including $250 million;
0.10% of the value of the Fund's net assets over $250 million up
to and including $500 million;
0.0833% of the value of the Fund's net assets over $500 million.
(b) If the sub-advisory fee due under the sub-advisory
agreement between TICL and the Advisers ("Sub-Advisory Agreement") is
voluntarily reduced or waived by TICL, the fee due to FTIL pursuant to this
Agreement shall be adjusted so that it is in the same proportion to such fee
reduced or waived by TICL as the fee provided in Paragraph 3(a), above, of this
Agreement is to the fee due to TICL provided for in the Sub-Advisory Agreement.
(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.
5. FTIL 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, Advisers 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 be effective on the date of Xxxxx
Xxxxxxx'x employment by FTIL and shall continue in effect until Xxxxx Xxxxxxx
ceases to be employed by FTIL, for whatever reason or until May 31, 2002. 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 Trust'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 Trust'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 either the Sub-Advisory Agreement
between TICL and the Fund or the management agreement between Advisers and the
Trust.
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 of 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:
Xxxx 0000, Xxxx Xx Xxxxxx
0-0 Xxxxxxx Xxxx
XxxXxxx, Xxxx Xxxx
Facsimile: 011-852-2829-0694
(ii) to TICL:
Xxxxxxx Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxxxxxxx, Xxxxxxx 00000
Facsimile: 0-000-000-0000
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 Trust's liability as set forth in its Agreement and
Declaration of Trust. FTIL agrees that the Trust'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 Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized officers.
FRANKLIN XXXXXXXXX INVESTMENTS (ASIA)
LIMITED
By:
Name: /s/Xxx X. Xxxxxxx
Title: Director
XXXXXXXXX INVESTMENT COUNSEL, LLC
By:
Name: /s/Xxxxxx X. Xxxxxxxx
Title: Executive Vice President
