INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of August, 1997, between MUTUAL
FINANCIAL SERVICES 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,
Inc. (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: .80% for Mutual
Financial Services 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 August 1, 1997 and
shall continue in effect through June 30, 1999. 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 Maryland, 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 FINANCIAL SERVICES FUND, a series of
FRANKLIN MUTUAL SERIES FUND INC.
By:
Xxxxxxxxx Xxxxxxxxx
/s/Xxxxxxxxx Xxxxxxxxx
Title: General Counsel
& Secretary
FRANKLIN MUTUAL ADVISERS, INC.
By:
Xxxxxxx X. Xxxxx
/s/Xxxxxxx X. Xxxxx
Title: Chief Executive Officer
& President
