INVESTMENT MANAGEMENT SERVICES AGREEMENT
This Agreement dated as of January 10, 2002, is by and between AXP
Federal Income Fund, Inc., a Minnesota Corporation, (the "Corporation") on
behalf of its underlying series AXP U.S. Government Mortgage Fund, (the "Fund")
and American Express Financial Corporation, a Delaware corporation ("AEFC").
Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Corporation hereby retains AEFC, and AEFC hereby agrees, for
the period of this Agreement and under the terms and conditions hereinafter set
forth, to furnish the Corporation continuously with suggested investment
planning; to determine, consistent with the Fund's investment objectives and
policies, which securities in AEFC's discretion shall be purchased, held or
sold, and to execute or cause the execution of purchase or sell orders; to
prepare and make available to the Fund all necessary research and statistical
data in connection therewith; to furnish all other services of whatever nature
required in connection with the management of the Fund as provided under this
Agreement; and to pay such expenses as may be provided for in Part Three;
subject always to the direction and control of the Board of Directors (the
"Board"), the Executive Committee and the authorized officers of the
Corporation. AEFC agrees to maintain an adequate organization of competent
persons to provide the services and to perform the functions herein mentioned.
AEFC agrees to meet with any persons at such times as the Board deems
appropriate for the purpose of reviewing AEFC's performance under this
Agreement.
(2) AEFC agrees that the investment planning and investment decisions
will be in accordance with general investment policies of the Fund as disclosed
to AEFC from time to time by the Fund and as set forth in its prospectus and
registration statement filed with the United States Securities and Exchange
Commission (the "SEC").
(3) AEFC agrees that it will maintain all required records, memoranda,
instructions or authorizations relating to the acquisition or disposition of
securities for the Fund.
(4) The Corporation agrees that it will furnish to AEFC any information
that the latter may reasonably request with respect to the services performed or
to be performed by AEFC under this Agreement.
(5) AEFC is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Fund and is
directed to use its best efforts to obtain the best available price and most
favorable execution, except as prescribed herein. Subject to prior authorization
by the Board of appropriate policies and procedures, and subject to termination
at any time by the Board, AEFC may also be authorized to effect individual
securities transactions at commission rates in excess of the minimum commission
rates available, to the extent authorized by law, if AEFC determines in good
faith that such amount of commission was reasonable in relation to
the value of the brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or AEFC's overall
responsibilities with respect to the Fund and other funds for which it acts as
investment adviser.
(6) It is understood and agreed that in furnishing the Fund with the
services as herein provided, neither AEFC, nor any officer, director or agent
thereof shall be held liable to the Fund or its creditors or shareholders for
errors of judgment or for anything except willful misfeasance, bad faith, or
gross negligence in the performance of its duties, or reckless disregard of its
obligations and duties under the terms of this Agreement. It is further
understood and agreed that AEFC may rely upon information furnished to it
reasonably believed to be accurate and reliable.
Part Two: COMPENSATION TO INVESTMENT MANAGER
(1) The Fund agrees to pay to AEFC, and AEFC covenants and agrees to
accept from the Fund in full payment for the services furnished, a fee composed
of an asset charge and a performance incentive adjustment.
(a) The asset charge
(i) The asset charge for each calendar day of each year
shall be equal to the total of 1/365th (1/366th in each leap
year) of the amount computed in accordance with paragraph (ii)
below. The computation shall be made for each day on the basis of
net assets as of the close of business of the full business day
prior to the day for which the computation is being made. In the
case of the suspension of the computation of net asset value, the
asset charge for each day during such suspension shall be
computed as of the close of business on the last full business
day on which the net assets were computed. Net assets as of the
close of a full business day shall include all transactions in
shares of the Fund recorded on the books of the Fund for that
day.
(ii) The asset charge shall be based on the net assets of
the Fund as set forth in the following table.
Asset Charge
Assets Annual Rate At
(Billions) Each Asset Level
First $1.0 0.520%
Next 1.0 0.495
Next 1.0 0.470
Next 3.0 0.445
Next 3.0 0.420
Over 9.0 0.395
(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the fee accrued shall be prorated on the basis of
the number of days that this Agreement is in effect during the month with
respect to which such payment is made.
(3) The fee provided for hereunder shall be paid in cash by the Fund to
AEFC within five business days after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Corporation agrees to pay:
(a) Fees payable to AEFC for its services under the terms of
this Agreement.
(b) Taxes.
(c) Brokerage commissions and charges in connection with the
purchase and sale of assets.
(d) Custodian fees and charges.
(e) Fees and charges of its independent certified public
accountants for services the Funds request.
(f) Premium on the bond required by Rule 17g-1 under the
Investment Company Act of 1940.
(g) Fees and expenses of attorneys (i) it employs in matters not
involving the assertion of a claim by a third party against
the Corporation, its directors and officers, (ii) it employs
in conjunction with a claim asserted by the Board against
AEFC, except that AEFC shall reimburse the Corporation for
such fees and expenses if it is ultimately determined by a
court of competent jurisdiction, or AEFC agrees, that it is
liable in whole or in part to the Corporation, and (iii) it
employs to assert a claim against a third party.
(h) Fees paid for the qualification and registration for public
sale of the securities of the Fund under the laws of the
United States and of the several states in which such
securities shall be offered for sale.
(i) Fees of consultants employed by the Fund.
(j) Directors, officers and employees expenses which shall
include fees, salaries, memberships, dues, travel, seminars,
pension, profit sharing, and all other benefits paid to or
provided for directors, officers and employees, directors
and officers liability insurance, errors and omissions
liability insurance, worker's compensation insurance and
other expenses applicable to the directors, officers and
employees, except the Corporation will not pay any fees or
expenses of any person who is an officer or employee of AEFC
or its affiliates.
(k) Filing fees and charges incurred by the Corporation in
connection with filing any amendment to its articles of
incorporation, or incurred in filing any other document with
the State of Minnesota or its political subdivisions.
(l) Organizational expenses of the Corporation.
(m) Expenses incurred in connection with lending portfolio
securities of the Fund.
(n) Expenses properly payable by the Fund, approved by the
Board.
(2) AEFC agrees to pay all expenses associated with the services it
provides under the terms of this Agreement. Further, AEFC agrees that if, at the
end of any month, the expenses of the Fund under this Agreement and any other
agreement between the Fund and AEFC, but excluding those expenses set forth in
(1)(b) and (1)(c) of this Part Three, exceed the most restrictive applicable
state expenses limitation, the Fund shall not pay those expenses set forth in
(1)(a) and (d) through (n) of this Part Three to the extent necessary to keep
the Fund's expenses from exceeding the limitation, it being understood that AEFC
will assume all unpaid expenses and xxxx the Fund for them in subsequent months
but in no event can the accumulation of unpaid expenses or billing be carried
past the end of the Fund's fiscal year.
Part Four: MISCELLANEOUS
(1) AEFC shall be deemed to be an independent contractor and, except as
expressly provided or authorized in this Agreement, shall have no authority to
act for or represent the Fund.
(2) A "full business day" shall be as defined in the By-laws of the
Corporation.
(3) The Fund recognizes that AEFC now renders and may continue to
render investment advice and other services to other investment companies and
persons which may or may not have investment policies and investments similar to
those of the Fund and that AEFC manages its own investments and/or those of its
subsidiaries. AEFC shall be free to render such investment advice and other
services and the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto
shall be invalidated or in any way affected by the fact that
directors, officers, agents and/or shareholders of the Fund are or
may be interested in AEFC or any successor or assignee thereof, as
directors, officers, stockholders or otherwise; that directors,
officers, stockholders or agents of AEFC are or may be interested
in the Fund as directors, officers, shareholders, or otherwise; or
that AEFC or any successor or assignee, is or may be interested in
the Fund as shareholder or otherwise, provided, however, that
neither AEFC, nor any officer, director or employee thereof or of
the Fund, shall sell to or buy from the Fund any property or
security other than shares issued by the Fund, except in
accordance with applicable regulations or orders of the SEC.
(5) Any notice under this Agreement shall be given in writing,
addressed, and delivered, or mailed postpaid, to the party to this Agreement
entitled to receive such, at
such party's principal place of business in Minneapolis, Minnesota, or to such
other address as either party may designate in writing mailed to the other.
(6) AEFC agrees that no officer, director or employee of AEFC will deal
for or on behalf of the Funds with himself as principal or agent, or with any
corporation or partnership in which he may have a financial interest, except
that this shall not prohibit:
(a) Officers, directors or employees of AEFC from having a
financial interest in the Fund or in AEFC.
(b) The purchase of securities for the Fund, or the sale of
securities owned by the Fund, through a security broker or
dealer, one or more of whose partners, officers, directors
or employees is an officer, director or employee of AEFC,
provided such transactions are handled in the capacity of
broker only and provided commissions charged do not exceed
customary brokerage charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of
AEFC as may be allowed by rule or order of the SEC and if
made pursuant to procedures adopted by the Board.
(7) AEFC agrees that, except as herein otherwise expressly provided
or as may be permitted consistent with the use of a broker-dealer
affiliate of AEFC under applicable provisions of the federal
securities laws, neither it nor any of its officers, directors or
employees shall at any time during the period of this Agreement,
make, accept or receive, directly or indirectly, any fees,
profits or emoluments of any character in connection with the
purchase or sale of securities (except shares issued by the Fund)
or other assets by or for the Fund.
(8) The Agreement shall be governed by the laws of the State of
Minnesota.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect until January 9, 2004, or
until a new agreement is approved by a vote of the majority of the outstanding
shares of the Fund and by vote of the Fund's Board, including the vote required
by (b) of this paragraph, and if no new agreement is so approved, this Agreement
shall continue from year to year thereafter unless and until terminated by
either party as hereinafter provided, except that such continuance shall be
specifically approved at least annually (a) by the Board or by a vote of the
majority of the outstanding shares of the Fund and (b) by the vote of a majority
of the directors who are not parties to this Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. As used in this paragraph, the term "interested person" shall
have the same
meaning as set forth in the Investment Company Act of 1940, as amended (the
"1940 Act").
(2) This Agreement may be terminated by either the Fund or AEFC at any
time by giving the other party 60 days' written notice of such intention to
terminate, provided that any termination shall be made without the payment of
any penalty, and provided further that termination may be effected either by the
Board or by a vote of the majority of the outstanding voting shares of the Fund.
The vote of the majority of the outstanding voting shares of the Fund for the
purpose of this Part Five shall be the vote at a shareholders' regular meeting,
or a special meeting duly called for the purpose, of 67% or more of the Fund's
shares present at such meeting if the holders of more than 50% of the
outstanding voting shares are present or represented by proxy, or more than 50%
of the outstanding voting shares of the Fund, whichever is less.
(3) This Agreement shall terminate in the event of its assignment, the
term "assignment" for this purpose having the same meaning as set forth in the
1940 Act.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.
AXP FEDERAL INCOME FUND, INC.
AXP U.S. Government Mortgage Fund
By /s/ Xxxxxx X. Xxx
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Xxxxxx X. Xxx
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
Vice President- Mutual Funds
