INVESTMENT MANAGEMENT AGREEMENT
FRANKLIN XXXXXXXXX LIMITED DURATION INCOME TRUST
THIS INVESTMENT MANAGEMENT AGREEMENT made between FRANKLIN XXXXXXXXX
LIMITED DURATION INCOME TRUST, a Delaware statutory trust (the "Trust"), and
FRANKLIN ADVISERS, INC., a California corporation (the "Manager").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its
By-Laws and its Registration Statement under the 1940 Act and the Securities
Act of 1933, all as heretofore and hereafter amended and supplemented; and
the Trust desires to avail itself of the services, information, advice,
assistance and facilities of an investment adviser and to have an investment
adviser perform various management, statistical, research, investment
advisory and other services for the Trust; and,
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
investment advisory, counseling and supervisory services to investment
companies and other investment counseling clients, and desires to provide
these services to the Trust.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
1. EMPLOYMENT OF THE MANAGER. The Trust hereby employs the Manager to
manage the investment and reinvestment of the Trust's assets and to
administer its affairs, subject to the direction of the Board of Trustees and
the officers of the Trust, for the period and on the terms hereinafter set
forth. The Manager hereby accepts such employment and agrees during such
period to render the services and to assume the obligations herein set forth
for the compensation herein provided. The Manager shall for all purposes
herein be deemed to be an independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust in any way or otherwise be deemed
an agent of the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE MANAGER. The
Manager undertakes to provide the services hereinafter set forth and to
assume the following obligations:
A. INVESTMENT ADVISORY SERVICES.
(a) The Manager shall manage the Trust's assets subject to
and in accordance with the investment objectives and policies of the Trust
and any directions which the Trust's Board of Trustees may issue from time to
time. In pursuance of the foregoing, the Manager shall make all
determinations with respect to the investment of the Trust's assets and the
purchase and sale of its investment securities, and shall take such steps as
may be necessary to implement the same. Such determinations and services
shall include determining the manner in which any voting rights, rights to
consent to corporate action and any other rights pertaining to the Trust's
investment securities shall be exercised. The Manager shall render or cause
to be rendered regular reports to the Trust, at regular meetings of its Board
of Trustees and at such other times as may be reasonably requested by the
Trust's Board of Trustees, of (i) the decisions made with respect to the
investment of the Trust's assets and the purchase and sale of its investment
securities, (ii) the reasons for such decisions, and (iii) the extent to
which those decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from time to time,
shall place, in the name of the Trust, orders for the execution of the
Trust's securities transactions. When placing such orders, the Manager shall
seek to obtain the best net price and execution for the Trust, but this
requirement shall not be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission rate if the other
standards set forth in this section have been satisfied. The parties
recognize that there are likely to be many cases in which different brokers
are equally able to provide such best price and execution and that, in
selecting among such brokers with respect to particular trades, it is
desirable to choose those brokers who furnish research, statistical,
quotations and other information to the Trust and the Manager in accordance
with the standards set forth below. Moreover, to the extent that it
continues to be lawful to do so and so long as the Board of Trustees
determines that the Trust will benefit, directly or indirectly, by doing so,
the Manager may place orders with a broker who charges a commission for that
transaction which is in excess of the amount of commission that another
broker would have charged for effecting that transaction, provided that the
excess commission is reasonable in relation to the value of "brokerage and
research services" (as defined in Section 28(e)(3) of the Securities Exchange
Act of 1934) provided by that broker.
Accordingly, the Trust and the Manager agree that the Manager
shall select brokers for the execution of the Trust's transactions from among:
(i) Those brokers and dealers who provide quotations and
other services to the Trust, specifically including the
quotations necessary to determine the Trust's net assets, in
such amount of total brokerage as may reasonably be required
in light of such services; and
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its affiliates
which the Manager or its affiliates may lawfully and
appropriately use in their investment advisory capacities,
which relate directly to securities, actual or potential, of
the Trust, or which place the Manager in a better position to
make decisions in connection with the management of the
Trust's assets and securities, whether or not such data may
also be useful to the Manager and its affiliates in managing
other portfolios or advising other clients, in such amount of
total brokerage as may reasonably be required. Provided that
the Trust's officers are satisfied that the best execution is
obtained, the sale of shares of the Trust may also be
considered as a factor in the selection of broker-dealers to
execute the Trust's portfolio transactions.
(c) When the Manager has determined that the Trust should
tender securities pursuant to a "tender offer solicitation,"
Franklin/Xxxxxxxxx Distributors, Inc. ("Distributors") shall be designated as
the "tendering dealer" so long as it is legally permitted to act in such
capacity under the federal securities laws and rules thereunder and the rules
of any securities exchange or association of which Distributors may be a
member. Neither the Manager nor Distributors shall be obligated to make any
additional commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to maintain
its corporate existence and membership in the National Association of
Securities Dealers, Inc.) as of the date of this Agreement. This Agreement
shall not obligate the Manager or Distributors (i) to act pursuant to the
foregoing requirement under any circumstances in which they might reasonably
believe that liability might be imposed upon them as a result of so acting,
or (ii) to institute legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of such a tender, unless
the Trust shall enter into an agreement with the Manager and/or Distributors
to reimburse them for all such expenses connected with attempting to collect
such fees, including legal fees and expenses and that portion of the
compensation due to their employees which is attributable to the time
involved in attempting to collect such fees.
(d) The Manager shall render regular reports to the Trust,
not more frequently than quarterly, of how much total brokerage business has
been placed by the Manager, on behalf of the Trust, with brokers falling into
each of the categories referred to above and the manner in which the
allocation has been accomplished.
(e) The Manager agrees that no investment decision will be
made or influenced by a desire to provide brokerage for allocation in
accordance with the foregoing, and that the right to make such allocation of
brokerage shall not interfere with the Manager's paramount duty to obtain the
best net price and execution for the Trust.
(f) Decisions on proxy voting shall be made by the Manager
unless the Board of Trustees determines otherwise. Pursuant to its
authority, Manager shall have the power to vote, either in person or by
proxy, all securities in which the Trust may be invested from time to time,
and shall not be required to seek or take instructions from the Trust with
respect thereto. Manager shall not be expected or required to take any
action other than the rendering of investment-related advice with respect to
lawsuits involving securities presently or formerly held in the Trust, or the
issuers thereof, including actions involving bankruptcy. Should Manager
undertake litigation against an issuer on behalf of the Trust, the Trust
agrees to pay its portion of any applicable legal fees associated with the
action or to forfeit any claim to any assets Manager may recover and, in such
case, agrees to hold Manager harmless for excluding the Trust from such
action. In the case of class action suits involving issuers held in the
Trust, Manager may include information about the Trust for purposes of
participating in any settlements.
B. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES
REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Manager,
its officers and employees will make available and provide accounting
and statistical information required by the Trust in the preparation
of registration statements, reports and other documents required by
federal and state securities laws and with such information as the
Trust may reasonably request for use in the preparation of such
documents or of other materials necessary or helpful for the
underwriting and distribution of the Trust's shares.
C. OTHER OBLIGATIONS AND SERVICES. The Manager shall make its officers
and employees available to the Board of Trustees and officers of the
Trust for consultation and discussions regarding the administration
and management of the Trust and its investment activities.
D. DELEGATION OF SERVICES. The Manager may, at its expense, select and
contract with one or more investment advisers registered under the
Investment Advisers Act of 1940 ("Sub-Advisers") to perform some or
all of the services for the Trust for which it is responsible under
this Agreement. The Manager will compensate any Sub-Adviser for its
services to the Trust. The Manager may terminate the services of any
Sub-Adviser at any time in its sole discretion, and shall at such time
assume the responsibilities of such Sub-Adviser unless and until a
successor Sub-Adviser is selected and the requisite approval of the
Trust's shareholders is obtained. The Manager will continue to have
responsibility for all advisory services furnished by any Sub-Adviser.
3. EXPENSES OF THE TRUST. It is understood that the Trust will pay all of
its own expenses other than those expressly assumed by the Manager herein,
which expenses payable by the Trust shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services, including the expenses
of issue, repurchase or redemption of its shares;
D. Expenses of obtaining quotations for calculating the value
of the Trust's net assets;
E. Salaries and other compensations of executive officers of
the Trust who are not officers, directors, stockholders or employees of the
Manager or its affiliates;
F. Taxes levied against the Trust;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Trust;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Trust, reports to the Trust's shareholders, the filing of
reports with regulatory bodies and the maintenance of the Trust's and the
Trust's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
K. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Manager or any of its
affiliates;
L. Costs and expense of registering and maintaining the
registration of the Trust and its shares under federal and any applicable
state laws; including the printing and mailing of prospectuses to its
shareholders;
M. Trade association dues;
N. The Trust's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums; and
O. The Trust's portion of the cost of any proxy voting service
used on its behalf.
4. COMPENSATION OF THE MANAGER. The Trust shall pay an advisory fee in
cash to the Manager based upon a percentage of the value of the Trust's net
assets, calculated as set forth below, as compensation for the services
rendered and obligations assumed by the Manager, during the preceding month,
on the first business day of the month in each year.
A. For purposes of calculating such fee, the value of the net
assets of the Trust shall be determined in the same manner as that Trust 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 and statement of additional information. The
Trust's net assets will be deemed to be the value of the Trust's total assets
minus the average daily sum of the Trust's liabilities (which liabilities
exclude the aggregate liquidation preference of any outstanding preferred
stock or the outstanding amount of any borrowing or short-term debt
securities). The rate of the management fee payable by the Trust shall be
calculated daily at the annual rate of [0.70%].
B. The advisory fee payable by the Trust shall be reduced or
eliminated to the extent that Distributors has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith and to the extent necessary to comply with
the limitations on expenses which may be borne by the Trust as set forth in
the laws, regulations and administrative interpretations of those states in
which the Trust's shares are registered. The Manager may waive all or a
portion of its fees provided for hereunder and such waiver shall be treated
as a reduction in purchase price of its services. The Manager shall be
contractually bound hereunder by the terms of any publicly announced waiver
of its fee, or any limitation of the Trust's expenses, as if such waiver or
limitation were full set forth herein.
C. If this Agreement is terminated prior to the end of any
month, the accrued advisory fee shall be paid to the date of termination.
5. ACTIVITIES OF THE MANAGER. The services of the Manager to the
Trust hereunder are not to be deemed exclusive, and the Manager and any of
its affiliates shall be free to render similar services to others. Subject
to and in accordance with the Agreement and Declaration of Trust and By-Laws
of the Trust and Section 10(a) of the 1940 Act, it is understood that
trustees, officers, agents and shareholders of the Trust are or may be
interested in the Manager or its affiliates as directors, officers, agents or
stockholders; that directors, officers, agents or stockholders of the Manager
or its affiliates are or may be interested in the Trust as trustees,
officers, agents, shareholders or otherwise; that the Manager or its
affiliates may be interested in the Trust as shareholders or otherwise; and
that the effect of any such interests shall be governed by said Agreement and
Declaration of Trust, By-Laws and the 1940 Act.
6. LIABILITIES OF THE MANAGER.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the
part of the Manager, the Manager shall not be subject to liability to the
Trust or to any shareholder of the Trust for any 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
Trust.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Trust for any and all costs, expenses, and counsel and
trustees' fees reasonably incurred by the Trust in the preparation, printing
and distribution of proxy statements, amendments to its Registration
Statement, holdings of meetings of its shareholders or trustees, the conduct
of factual investigations, any legal or administrative proceedings (including
any applications for exemptions or determinations by the Securities and
Exchange Commission) which the Trust incurs as the result of action or
inaction of the Manager or any of its affiliates or any of their officers,
directors, employees or stockholders where the action or inaction
necessitating such expenditures (i) is directly or indirectly related to any
transactions or proposed transaction in the stock or control of the Manager
or its affiliates (or litigation related to any pending or proposed or future
transaction in such shares or control) which shall have been undertaken
without the prior, express approval of the Trust's Board of Trustees; or,
(ii) is within the control of the Manager or any of its affiliates or any of
their officers, directors, employees or stockholders. The Manager shall not
be obligated pursuant to the provisions of this Subparagraph 6.B., to
reimburse the Trust for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust or a shareholder
seeking to recover all or a portion of the proceeds derived by any
stockholder of the Manager or any of its affiliates from the sale of his
shares of the Manager, or similar matters. So long as this Agreement is in
effect, the Manager shall pay to the Trust the amount due for expenses
subject to this Subparagraph 6.B. within thirty (30) days after a xxxx or
statement has been received by the Manager therefor. This provision shall
not be deemed to be a waiver of any claim the Trust may have or may assert
against the Manager or others for costs, expenses or damages heretofore
incurred by the Trust or for costs, expenses or damages the Trust may
hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect
any trustee or officer of the Trust, or director or officer of the Manager,
from liability in violation of Sections 17(h) and (i) of the 1940 Act.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years thereafter, unless
sooner terminated as hereinafter provided and shall continue in effect
thereafter for periods not exceeding one (1) year so long as such
continuation is approved at least annually (i) by a vote of a majority of the
outstanding voting securities of the Trust or by a vote of the Board of
Trustees of the Trust, and (ii) by a vote of a majority of the Trustees of
the Trust who are not parties to the Agreement (other than as Trustees of the
Trust), cast in person at a meeting called for the purpose of voting on the
Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment of
any penalty either by vote of the Board of Trustees of the Trust or by vote
of a majority of the outstanding voting securities of the Trust on sixty (60)
days' written notice to the Manager;
(ii) shall immediately terminate with respect to the Trust
in the event of its assignment; and
(iii) may be terminated by the Manager on sixty (60) days'
written notice to the Trust.
C. As used in this Paragraph the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall
have the meanings set forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed post-paid, to the other party at any
office of such party.
8. SEVERABILITY. 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.
9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and effective on the ------ day of -------, 2003.
FRANKLIN XXXXXXXXX LIMITED DURATION INCOME TRUST
By: ----------------------
Xxxxxx X. Xxxxxxx
Vice President & Secretary
FRANKLIN ADVISERS, INC.
By: -----------------------
Xxxxxx X. Xxxxxxxx
President
