FRANKLIN FEDERAL TAX-FREE INCOME FUND
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made between FRANKLIN
FEDERAL TAX-FREE INCOME FUND, a Delaware statutory trust,
hereinafter called the "Trust" and FRANKLIN ADVISERS, INC., a
California Corporation (the "Adviser").
WHEREAS, the Trust has been organized and operates as an investment
company registered under the Investment Company Act of 1940, as amended (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 Statements under the 1940 Act and the Securities Act of
1933, as amended, 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 manager and to have an investment
manager perform for its various management, statistical, research, investment
advisory and other services; and,
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisor's Act of 1940, as amended, is engaged in the business of
rendering management, 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 ADVISER. The Trust hereby employs the Adviser 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 Adviser
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 Adviser 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 ADVISER. The Adviser
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
A. INVESTMENT MANAGEMENT SERVICES
(a) The Adviser shall manage the Trust's assets and portfolio
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 Adviser shall make all
determinations with respect to the investment of the Trust's assets and the
purchase and sale of 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 voting rights, rights to consent to corporate
action and any other rights pertaining to the Trust's investment securities
shall be exercised. The Adviser shall render or cause to be rendered regular
reports to the Trust, at regular meetings of the 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 Adviser, 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 Adviser shall seek to
obtain the best net price and execution for the Trust, but this requirement
shall not be deemed to obligate the Adviser 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
Adviser 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 Adviser 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 Adviser agree that the Adviser
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 Adviser or its affiliates which the
Adviser or its affiliates may lawfully and appropriately use in
their investment management capacities, which relate directly to
securities, actual or potential, of the Trust, or which place
the Adviser 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 Adviser and
its affiliates in managing other portfolios or advising other
clients, in such amount of total brokerage as may reasonably be
required.
(c) When the Adviser 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 Adviser nor Distributors shall not 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 Adviser 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 Adviser and/or
Distributors to reimburse them for all 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 Adviser shall render regular reports to the Trust, not
more frequently than quarterly, of how much total brokerage
business has been placed by the Adviser, 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 Adviser 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 Adviser's
paramount duty to obtain the best net price and execution for
the Trust.
(f) Decisions on proxy voting shall be made by the Adviser
unless the Board of Trustees determines otherwise. Pursuant to its authority,
the Adviser 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.
The Adviser 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 the Adviser 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 the Adviser may recover and, in such case, agrees to hold the Adviser
harmless for excluding the Trust from such action. In the case of class action
suits involving issuers held in the Trust, the Adviser 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 Adviser, 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 Adviser shall make its
officers and employees available to the Board of Trustees and officers of the
Trust for consultation and discussions regarding the administrative management
of the Trust and its investment activities.
D. DELEGATION OF SERVICES. The Adviser may, at its expense, select
and contract with one or more investment advisers registered under the 1940 Act
("Sub-Advisers") to perform some or all of the services for the Trust for which
it is responsible under this Agreement. The Adviser will compensate any
Sub-Adviser for its services to the Trust. The Adviser 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 Adviser 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 its
expenses other than those expressly assumed by the Adviser herein, which
expenses payable by the Trust shall include:
A. Fees and expenses paid to the Adviser 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 compensation of executive officers of the Trust
who are not officers, directors, stockholders or employees of the
Adviser or its affiliates;
F. Taxes levied against the Trust;
G. Brokerage fees and commissions in connection with the purchase and
sale securities for the Trust;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to corporate 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 directors who are not directors,
officers, employees or stockholders of the Adviser 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 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 directors 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 ADVISER. The Trust shall pay a management fee in
cash to the Adviser 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 Adviser 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 rate of the
monthly management fee shall be as follows:
5/96 of 1% (0.625% annually) of the value of net assets
up to and including $100 million; and
1/24 of 1% (0.500% annually) of the value of net assets
over $100 million up to and including $250 million; and
9/240 of 1% (0.450% annually) of the value of net
assets over $250 million up to and including $10
billion; and
11/300 of 1% (0.440% annually) of the value of net
assets over $10 billion up to and including $12.5
billion; and
7/200 of 1% (0.420% annually) of the value of net
assets over $12.5 billion up to and including $15
billion; and
1/30 of 1% (0.400% annually) of the value of net assets
over $15 billion up to and including $17.5 billion; and
19/600 of 1% (0.380% annually) of the value of net
assets over $17.5 billion up to and including $20
billion; and
3/100 of 1% (0.360% annually) of the value of net
assets over $20 billion.
B. The management 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 Adviser 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 Adviser 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 fully
set forth herein.
C. If this Agreement is terminated prior to the end of any month, the
accrued management fee shall be paid to the date of termination.
5. ACTIVITIES OF THE ADVISER. The services of the Adviser to the Trust
hereunder are not to be deemed exclusive, and the Adviser 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 to Section 10(a) of the 1940 Act, it is understood that directors, officers,
agents and stockholders of the Trust are or may be interested in the Adviser or
its affiliates as directors, officers, agents or stockholders; that directors,
officers, agents or stockholders of the Adviser or its affiliates are or may be
interested in the Trust as directors, officers, agents stockholders or
otherwise; that the Adviser or its affiliates may be interested in the Trust as
stockholders 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 ADVISER.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Trust or to
any shareholder of the Trust for any act of 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 Adviser agrees to reimburse the
Trust for any and all costs, expenses, and counsel and directors' 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 directors, 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
Adviser or any of its affiliates or any of their officers, directors, employees
or stockholders where the actions or inaction necessitating such expenditures
(i) is directly or indirectly related to any transactions or proposed
transaction in the shares or control of the Adviser 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
Adviser or any of its affiliates or any of their officers, directors, employees
or shareholders. The Adviser 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 Adviser or any of its affiliates from the sale
of his shares of the Adviser, or similar matters. So long as this Agreement is
in effect, the Adviser shall pay to the Trust the amount due for expenses
subject to this Subparagraph 6.B. Agreement within thirty (30) days after a xxxx
or statement has been received by the Adviser therefore. This provision shall
not be deemed to be a waiver of any claim the Trust may have or may assert
against the Adviser 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 the Adviser, 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 to 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) or "interested persons" of
any such party, 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 Adviser;
(ii) shall immediately terminate with respect to the Trust in
the event of its assignment; and
(iii)may be terminated by the Adviser on sixty (60) days'
written notice to the Trust.
C. As used in this Paragraph the terms "assignment," "interested
persons" and "vote of a majority of the outstanding voting securities" shall
have the meanings set forth for 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
effective as of the 1st day of September 2007.
FRANKLIN FEDERAL TAX-FREE INCOME FUND
By: _____________________________
Xxxxx X. Xxxxxxxx
Title: Vice President & Secretary
FRANKLIN ADVISERS, INC.
By: ______________________________
Xxxxxx X. Xxxxxxxx
Title: President & Chief Investment Officer
