INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of April, 1999, between MUTUAL
SHARES FUND, a series (composed of one or more classes) of FRANKLIN MUTUAL
SERIES FUND INC., a corporation organized under the laws of the State of
Maryland (hereinafter referred to as the "Fund"), and Franklin Mutual
Advisers, LLC (hereinafter referred to as the "Investment Adviser").
In consideration of the mutual agreements herein made, the Fund
and the Investment Adviser understand and agree as follows:
(1) The Investment Adviser agrees, during the life of this
Agreement, to manage the investment and reinvestment of the Fund's assets
consistent with the provisions of the Fund's Charter, By-laws and the
investment policies adopted and approved by the Fund's Board of Directors and
shareholders pursuant to the Investment Company Act of 1940 (the "1940
Act"). In pursuance of the foregoing, the Investment Adviser shall have sole
and exclusive discretion in all determinations with respect to the purchasing
and selling of securities and other assets for the Fund and in voting and
exercising all other rights appertaining to such securities and other assets
on behalf of the Fund, and shall take all such steps as may be necessary to
implement those determinations.
(2) The Investment Adviser is not required to furnish any
personnel, overhead items or facilities for the Fund, including trading desk
facilities or daily pricing of the Fund's portfolio, but personnel employed
by the Investment Adviser may act as officers and/or directors.
(3) The Investment Adviser shall be responsible for selecting
members of securities exchanges, brokers and dealers (such members, brokers
and dealers being hereinafter referred to as "brokers") for the execution of
the Fund's portfolio transactions consistent with the Fund's brokerage policy
and, when applicable, the negotiation of commissions in connection
therewith. All decisions and placements shall be made in accordance with the
following principles:
(A) Purchase and sale orders will usually be placed with
brokers which are selected by the Investment Adviser as able to
achieve "best execution" of such orders. "Best execution" shall
mean prompt and reliable execution at the most favorable
securities price, taking into account the other provisions
hereinafter set forth. The determination of what may constitute
best execution and price in the execution of a securities
transaction by a broker involves a number of considerations,
including, without limitation, the overall direct net economic
result to the Fund (involving both price paid or received and any
commissions and other costs paid), the efficiency with which the
transaction is executed, the ability to effect the transaction at
all where a large block is involved, availability of the broker
to stand ready to execute possibly difficult transactions in the
future, and the financial strength and stability of the broker.
Such considerations are judgmental and are weighed by the
Investment Adviser in determining the overall reasonableness of
brokerage commissions.
(B) In selecting brokers for portfolio transactions, the
Investment Adviser shall take into account its past experience as
to brokers qualified to achieve "best execution", including
brokers who specialize in any foreign securities held by the Fund.
(C) The Investment Adviser is authorized to allocate
brokerage business to brokers who have provided brokerage and
research services, as such services are defined in Section 28(e)
of the Securities Exchange Act of 1934 (the "1934 Act") for the
Fund and/or other accounts, if any, for which the Investment
Adviser exercises investment discretion (as defined in Section
3(a)(35) of the 0000 Xxx) and, as to transactions for which fixed
minimum commission rates are not applicable, to cause the Fund to
pay a commission for effecting a securities transaction in excess
of the amount another broker would have charged for effecting
that transaction, if the Investment Adviser determines in good
faith that such amount of commission is reasonable in relation to
the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or
the Investment Adviser's overall responsibilities with respect to
the Fund and the other accounts, if any, as to which it exercises
investment discretion. In reaching such determination, the
Investment Adviser will not be required to place or attempt to
place a specific dollar value on the research or execution
services of a broker or on the portion of any commission
reflecting either of said services. In demonstrating that such
determinations were made in good faith, the Investment Adviser
shall be prepared to show that all commissions were allocated and
paid for purposes contemplated by the Fund's brokerage policy;
that the research services provide lawful and appropriate
assistance to the Investment Adviser in the performance of its
investment decision-making responsibilities, and that the
commissions were within a reasonable range. Whether commissions
were within a reasonable range shall be based on any available
information as to the level of commissions known to be charged by
other brokers on comparable transactions, but there shall be
taken into account the Fund's policies that (i) obtaining a low
commission is deemed secondary to obtaining a favorable
securities price, since it is recognized that usually it is more
beneficial to the Fund to obtain a favorable price than to pay
the lowest commission; and (ii) the quality, comprehensiveness,
and frequency of research studies which are provided for the
Investment Adviser are useful to the Investment Adviser in
performing its advisory services under its Agreement. Research
services provided by brokers to the Investment Adviser are
considered to be in addition to, and not in lieu of, services
required to be performed by the Investment Adviser under this
Agreement. Research furnished by brokers through which the Fund
effects securities transactions may be used by the Investment
Adviser for any of its accounts, and not all such research may be
used by the Investment Adviser for the Fund. When execution of
portfolio transactions is allocated to brokers trading on
exchanges with fixed brokerage commission rates, account may be
taken of various services provided by the broker.
(D) Purchases and sales of portfolio securities within
the United States other than on a securities exchange shall be
executed with primary market makers acting as principal, except
where, in the judgment of the Investment Adviser, better prices
and execution may be obtained on a commission basis or from other
sources.
(E) Sales of Fund Shares (which shall be deemed to
include also Shares of other registered investment companies
which have either the same adviser or an investment adviser
affiliated with the Fund's Investment Adviser) by a broker are
one factor among others to be taken into account in deciding to
allocate portfolio transactions (including agency transactions,
principal transactions, purchases in underwritings or tenders in
response to tender offers) for the account of the Fund to that
broker; provided that the broker shall furnish "best execution,"
as defined in subparagraph A above, and that such allocation
shall be within the scope of the Fund's policies as stated above;
provided further, that in every allocation made to a broker in
which the sale of Fund Shares is taken into account, there shall
be no increase in the amount of the commissions or other
compensation paid to such broker beyond a reasonable commission
or other compensation determined, as set forth in subparagraph C
above, on the basis of best execution alone or best execution
plus research services, without taking account of or placing any
value upon such sale of Fund's Shares.
(4) The Fund agrees to pay to the Investment Adviser as
compensation for such services a fee for its services based upon a percentage
of the Fund's average daily net assets, payable at the end of each calendar
month. This fee shall be calculated daily at the following annual rate:
.60% for Mutual Shares Fund.
Notwithstanding the foregoing, if the total expenses of the Fund
(including the fee to the Investment Adviser) in any fiscal year of the Fund
exceed any expense limitation imposed by applicable State law, the Investment
Adviser shall reimburse the Fund for such excess in the manner and to the
extent required by applicable State law. The term "total expenses," as used
in this paragraph, does not include interest, taxes, litigation expenses,
distribution expenses, brokerage commissions or other costs of acquiring or
disposing of any of the Fund's portfolio securities or any costs or expenses
incurred or arising other than in the ordinary and necessary course of the
Fund's business. When the accrued amount of such expenses exceeds this
limit, the monthly payment of the Investment Adviser's fee will be reduced by
the amount of such excess, subject to adjustment month by month during the
balance of the Fund's fiscal year if accrued expenses thereafter fall below
the limit.
The Investment Adviser may waive all or a portion of its fees
provided for hereunder and such waiver shall be treated as a reduction in the
purchase price of its services. The Investment Adviser shall be
contractually bound hereunder by the terms of any publicly announced waiver
of its fee or any limitation of the Fund's expenses, as if such waiver or
limitation were fully set forth herein.
(5) This Agreement shall become effective on April 1, 1999 and
shall continue in effect through June 30, 2001. If not sooner terminated,
this Agreement shall continue in effect for successive periods of 12 months
each thereafter, provided that each such continuance shall be specifically
approved annually by the vote of a majority of the Fund's Board of Directors
who are not parties to this Agreement or "interested persons" (as defined in
the 0000 Xxx) of any such party, cast in person at a meeting called for the
purpose of voting on such approval and either the vote of (a) a majority of
the outstanding voting securities of the Fund, as defined in the 1940 Act, or
(b) a majority of the Fund's Board of Directors as a whole.
(6) Notwithstanding the foregoing, this Agreement may be
terminated by either party at any time, without the payment of any penalty,
on sixty (60) days' written notice to the other party, provided that
termination by the Fund is approved by vote of a majority of the Fund's Board
of Directors in office at the time or by vote of a majority of the
outstanding voting securities of the Fund (as defined by the 1940 Act).
(7) This Agreement will terminate automatically and immediately
in the event of its assignment (as defined in the 1940 Act).
(8) In the event this Agreement is terminated and the
Investment Adviser no longer acts as Investment Adviser to the Fund, the
Investment Adviser reserves the right to withdraw from the Fund the use of
the name "Franklin", "Xxxxxxxxx" or any name misleadingly implying a
continuing relationship between the Fund and the Investment Adviser or any of
its affiliates.
(9) Except as may otherwise be provided by the 1940 Act,
neither the Investment Adviser nor its officers, directors, employees or
agents shall be subject to any liability for any error of judgment, mistake
of law, or any loss arising out of any investment or other act or omission in
the performance by the Investment Adviser of its duties under the Agreement
or for any loss or damage resulting from the imposition by any government of
exchange control restrictions which might affect the liquidity of the Fund's
assets, or from acts or omissions of custodians, or securities depositories,
or from any war or political act of any foreign government to which such
assets might be exposed, or for failure, on the part of the custodian or
otherwise, timely to collect payments, except for any liability, loss or
damage resulting from willful misfeasance, bad faith or gross negligence on
the Investment Adviser's part or by reason of reckless disregard of the
Investment Adviser's duties under this Agreement. It is hereby understood
and acknowledged by the Fund that the value of the investments made for the
Fund may increase as well as decrease and are not guaranteed by the
Investment Adviser. It is further understood and acknowledged by the Fund
that investment decisions made on behalf of the Fund by the Investment
Adviser are subject to a variety of factors which may affect the values and
income generated by the Fund's portfolio securities, including general
economic conditions, market factors and currency exchange rates, and that
investment decisions made by the Investment Adviser will not always be
profitable or prove to have been correct.
(10) a. The Fund hereby agrees to indemnify the Investment
Adviser and each of the Investment Adviser's directors,
officers, employees, and agents (including any individual
who serves at the Investment Adviser's request as director,
officer, partner, trustee or the like of another
corporation) (each such person being an "Indemnitee")
against any liabilities and expenses, including amounts
paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees (all as provided in
accordance with applicable corporate law) reasonably
incurred by such Indemnitee in connection with the defense
or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or
administrative or investigative body in which he may be or
may have been involved as a party or otherwise or with
which he may be or may have been threatened, while acting
in any capacity set forth above in this Section 10 or
thereafter by reason of his having acted in any such
capacity, except with respect to any matter as to which he
shall have been adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best
interest of the Fund and furthermore, in the case of any
criminal proceeding, so long as he had no reasonable cause
to believe that the conduct was unlawful, provided,
however, that (1) no Indemnitee shall be indemnified
hereunder against any expense of such Indemnitee arising by
reason of (i) willful misfeasance, (ii) bad faith, (iii)
gross negligence or (iv) reckless disregard of the duties
involved in the conduct of his position (the conduct
referred to in such clauses (i) through (iv) being
sometimes referred to herein as "disabling conduct"), (2)
as to any matter disposed of by settlement or a compromise
payment by such Indemnitee, pursuant to a consent decree or
otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless there has
been a determination that such settlement or compromise is
in the best interests of the Fund and that such Indemnitee
appears to have acted in good faith in the reasonable
belief that his action was in the best interests of the
Fund and did not involve disabling conduct by such
Indemnitee and (3) with respect to any action, suit or
other proceeding voluntarily prosecuted by any Indemnitee
as plaintiff, indemnification shall be mandatory only if
the prosecution of such action, suit or other proceeding by
such Indemnitee was authorized by a majority of the full
Board of the Fund.
b. The Fund shall make advance payments in connection
with the expenses of defending any action with respect to
which indemnification might be sought hereunder in the Fund
receives a written affirmation of the Indemnitee's good
faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to
reimburse the Fund unless it is subsequently determined
that he is entitled to such indemnification and if the
directors of the Fund determine that the facts then known
to them would not preclude indemnification. In addition, at
least one of the following conditions must be met: (A) the
Indemnitee shall provide a security for his undertaking,
(B) the Fund shall be insured against losses arising by
reason of any lawful advance, or (C) a majority of a quorum
consisting of directors of the Fund who are neither
"interested persons" of the Fund (as defined in Section
2(a)(19) of the Act) nor parties to the proceeding
("Disinterested Non-party Directors") or an independent
legal counsel in a written opinion, shall determine, based
on a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe
that the Indemnitee ultimately will be found entitled to
indemnification.
c. All determinations with respect to indemnification
hereunder shall be made (1) by a final decision on the
merits by a court or other body before whom the proceeding
was brought that such Indemnitees is not liable by reason
of disabling conduct or, (2) in the absence of such a
decision, by (i) a majority vote of a quorum of the
Disinterested Directors of the Fund, or (ii) if such a
quorum is not obtainable or even, if obtainable, if a
majority vote of such quorum so directs, independent legal
counsel in a written opinion. All determinations that
advance payments in connection with the expense of
defending any proceeding shall be authorized shall be made
in accordance with the immediately preceding clause (2)
above.
The rights accruing to any Indemnitee under these provisions
shall not exclude any other right to which he may be lawfully entitled.
(11) It is understood that the services of the Investment
Adviser are not deemed to be exclusive, and nothing in this Agreement shall
prevent the Investment Adviser, or any affiliate thereof, from providing
similar services to other investment companies and other clients, including
clients which may invest in the same types of securities as the Fund, or, in
providing such services, from using information furnished by others. The
Fund acknowledges that the Investment Adviser renders services to others,
that officers and employees of the investment adviser invest for their own
accounts, and the Fund is not entitled to, and does not expect, to obtain the
benefits of any investment opportunities developed by the Investment Adviser
such officers or employees in which the Investment Adviser acting in good
faith, does not cause the Fund to invest.
(12) This Agreement shall be construed in accordance with the
laws of the State of Delaware, provided that nothing herein shall be
construed as being inconsistent with applicable Federal and state securities
laws and any rules, regulations and orders thereunder.
(13) 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 and, to this extent, the
provisions of this Agreement shall be deemed to be severable.
(14) Nothing herein shall be construed as constituting the
Investment Adviser an agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized officers and their respective
corporate seals to be hereunto duly affixed and attested.
MUTUAL SHARES FUND, a series of
FRANKLIN MUTUAL SERIES FUND INC.
By:/s/Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx
Vice President &
Secretary
FRANKLIN MUTUAL ADVISERS, LLC
By:/s/Xxxxxx X Xxxxxxx
Xxxxxx X Xxxxxxx
Secretary
