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 Adviser 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: _____________________________
Xxxxxx X. Xxxxxxx
Title: Vice President & Secretary
FRANKLIN MUTUAL ADVISERS, LLC
By: ____________________________
Xxxxxx X. Xxxxxxxx
Title: Senior Vice President
