INVESTMENT MANAGEMENT AGREEMENT
FRANKLIN MUTUAL RECOVERY FUND
THIS INVESTMENT MANAGEMENT AGREEMENT made between FRANKLIN MUTUAL RECOVERY
FUND, a Delaware statutory trust (the "Trust"), and FRANKLIN MUTUAL ADVISERS,
LLC, a Delaware limited liability company (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 the manner the 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 rate of the
management fee payable by the Trust shall be calculated daily at the annual rate
of 1.50% of the Trust's daily average net assets (the "Base Fee") during the
preceding month. After the first twelve months of operations of the Trust, this
Base Fee will be adjusted, on a monthly basis (i) upward at an annual rate of
0.20%, on a pro rata basis, for each percentage point by which the investment
performance of the Trust exceeds the sum of 1.00% and the investment record of
the Bloomberg US Government 3-5 Year Total Return Index (the "Benchmark"), or
(ii) downward at an annual rate of 0.20%, on a pro rata basis, for each
percentage point by which the investment record of the Benchmark less 1.00%
exceeds the investment performance of the Trust (such adjustment herein referred
to as the "Fee Adjustment"). The rate of upward or downward Fee Adjustment shall
be determined on a continuous basis of 0.01% change in the Fee Adjustment for
each 0.05% change in the differential between the investment performance of the
Trust and the investment record of the Benchmark, as determined in the following
two paragraphs. The maximum or minimum Fee Adjustment, if any, will be at an
annual rate of 1.00% of the average daily net assets of the Trust for the
Performance Period, as defined below. Therefore, the maximum annual fee payable
to the Manager will be an annual rate of 1.50% of average daily net assets of
the Trust calculated daily for the preceding month plus an annual rate of 1.00%
of the average daily net assets of the Trust calculated daily for the preceding
month, and the minimum annual fee will be an annual rate of 1.50% of the average
daily net assets of the Trust calculated daily for the preceding month minus an
annual rate of 1.00% of the average daily net assets of the Trust calculated
daily for the preceding months. During any period when the determination of the
Trust's net asset value is suspended by the Trustees of the Trust, the net asset
value of a share of the Trust as of the last business day prior to such
suspension shall, for the purpose of this Paragraph 4, be deemed to be the net
asset value of the Trust at the close of each succeeding business day until the
net asset value of the Trust is again determined.
In determining the Fee Adjustment, if any, applicable during any month, the
Trust's administrator will compare the investment performance of the shares of
the Trust for the twelve-month period ending on the last day of the prior month
(the "Performance Period") to the investment record of the Benchmark during the
Performance Period. The investment performance of the Trust will be determined
by adding together (i) the change in the net asset value per share during the
Performance Period, (ii) the value of cash distributions per share made by the
Trust to holders of shares to the end of the Performance Period, and (iii) the
value of capital gains taxes per share, if any, paid or payable on undistributed
realized long-term capital gains accumulated to the end of the Performance
Period, and will be expressed as a percentage of the net asset value per share
at the beginning of the Performance Period. The investment record of the
Benchmark will be determined by adding together (i) the change in the level of
the Benchmark during the Performance Period and (ii) the value, computed
consistently with the Benchmark, of cash distributions made by companies whose
securities comprise the Benchmark accumulated to the end of the Performance
Period, and will be expressed as a percentage of the Benchmark at the beginning
of such Performance Period.
Notwithstanding any other provisions in this Section 4, the computation of the
Fee Adjustment, the investment performance of the Trust and the investment
record of the Benchmark will be made in accordance with the Investment Advisers
Act of 1940, as amended, and any applicable rule thereunder as, from time to
time, such law or any applicable rule thereunder may be amended, supplemented of
adopted.
After it determines any Fee Adjustment, the Trust's administrator will determine
the dollar amount of additional fees or fee reductions to be accrued for each
day of a month by multiplying the Fee Adjustment by the average daily net assets
of the shares of the Trust during the Performance Period and dividing that
number by the number of days in the Performance Period. The management fee, as
adjusted, is accrued daily and paid monthly.
If the Trustees determine at some future date that another securities benchmark
is a better representative of the composition of the Trust than is the
Benchmark, the Trustees may change the securities benchmark used to compute the
Fee Adjustment. If the Trustees do so, the new securities benchmark (the "New
Benchmark") will be applied prospectively to determine the amount of the Fee
Adjustment. The Benchmark will continue to be used to determine the amount of
the Fee Adjustment for that part of the Performance Period prior to the
effective date of the New Benchmark. A change in the Benchmark will be submitted
to shareholders for their approval unless a determination is made that
shareholder approval is not required under the 1940 Act or the Trust obtains
relief from the requirement of obtaining shareholder approval by interpretation
or order issued by the Securities and Exchange Commission.
Notwithstanding the foregoing, no such fee shall be paid to the Manager with
respect to any assets of the Trust that are invested in any other investment
company for which the Manager or any of its affiliates serves as investment
adviser. The fee provided for hereunder shall be prorated in any month in which
this Agreement is not in effect for the entire month.
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 Fund 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 Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and effective on the 1st day of June, 2003.
FRANKLIN MUTUAL RECOVERY FUND
By: /S/ XXXXXX X. XXXXXXX
_____________________________
Xxxxxx X. Xxxxxxx
Title: Vice President & Secretary
FRANKLIN MUTUAL ADVISERS, LLC
By: /S/ XXXXXX X. XXXXXXXX
____________________________
Xxxxxx X. Xxxxxxxx
Title: Senior Vice President
